Bills Digest No. 70   1997-98 Snowy Hydro Corporatisation Bill 1997


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Snowy Hydro Corporatisation Bill 1997

Date Introduced: 26 June 1997
House: House of Representatives
Portfolio: Primary Industries and Energy
Commencement: Upon Royal Assent or on a day to be fixed by Proclamation. In relation to section 59, the Proclamation may not be made unless the Governments of New South Wales and Victoria have agreed to that section commencing on the date in the Proclamation.

Purpose

To corporatise the Snowy Mountains Hydro-electric Scheme, remove the dual management scheme and allow the Snowy Mountains Hydro-electric Scheme to operate commercially in the national electricity market.

Background

In the aftermath of World War II, the Snowy Mountains Hydro-Electric Scheme was 'born'.Launching the scheme on 17 October 1949, Governor-General William McKell stated that it was 'the greatest development project that has ever been conceived in this continent...the great conservation scheme for Australia'.Undoubtedly it is an impressive engineering feat. Situated within Kosciusko National Park and consisting of some 16 major dams, seven power stations, 145 kilometres of interconnecting tunnels and 80 kilometres of aqueducts(1), it is by any measure a remarkable system.So remarkable in fact that in August this year it received official recognition from the American Society of Civil Engineers as one of the Seven World Engineering Wonders.

In his second reading speech, the Minister representing the Minister for Resources and Energy , the Hon. Bruce Scott MP, noted that the Snowy Mountains Hydro-Electric Scheme ("the Snowy Scheme") is now Australia's largest mainland supplier of renewable energy.

However, apart from supplying electricity, the Snowy Scheme also diverts water to the Murray and Murrumbidgee rivers systems for irrigation.Therefore it impacts on a large portion of Australia, for agricultural purposes, recreational purposes, power generation purposes and aesthetic purposes.

The Constitutional Issues

Historical aspects

There is an argument that the Snowy scheme may well have been implemented by the Commonwealth without there being the necessary constitutional power to do so.The Constitution does not give to the Commonwealth any express legislative head of power under which the Snowy Mountains scheme could have been validly authorised.Therefore, the Commonwealth was forced to rely on the defence power [section 51(vi)] as the constitutional basis for the Snowy Scheme.At the time, Sir Robert Menzies attacked the Chifley government, according to Collis(2), for 'brushing aside the states and for assuming a power which ...it did not possess: and for enacting legislation therefore tainted with serious constitutional illegalities'(3).

The use of the defence power is somewhat controversial as the power has different applications depending upon whether Australia is in a state of war or peace.The defence power expands in war time to cover a large range of matters not ordinarily within the Commonwealth's power, it recedes slightly during the time immediately after a war (although remains more expansive than in peace-time) and eventually reverts to its 'narrow' peace time state. The High Court put this rather more eloquently in The King v Foster [1949] 79 CLR 43 at pp 81-82:

When actual hostilities have ceased the scope of application of the defence power necessarily diminishes, but the cessation of hostilities leaves behind various matters which can legitimately be made the subject of Commonwealth legislation as being incidental to the execution of the defence power in the past. This Court has already held that after hostilities have ceased laws may be sustained under the defence power as valid because they deal with conditions which have been brought about by the exercise of the defence power itself (Dawson v. The Commonwealth (1946) 73 CLR 157)....Thus Federal regulation of matters which are brought within Federal power only by reason of the defence power need not necessarily cease with the actual fighting.

The argument that would have been put by the Commonwealth (had the States ever challenged the Snowy Mountains Scheme on the basis of the Constitution) was that 1949 was a time, immediately following the cessation of hostilities, when the Commonwealth required the legislative power to provide power (in the form of electricity) to a large proportion of the population.Part of the argument being that the Commonwealth had to provide electricity from a source that was shielded and relatively secure from any future enemy attack.It is certainly debatable whether the Commonwealth had the constitutional power to commence the Snowy Mountains scheme.The Snowy Mountains Scheme does seem to have rather a tenuous link to the defence power.However, given that it was never challenged (and in fact, Collis reports that the States subsequently 'agreed to validate the scheme in their State Parliaments'(4)) the constitutional issue of relevance today is to what extent section 100 of the Constitution has application.

Does Section 100 Guarantee A Right of Access to the Water?

Section 100 of the Constitution states:

The Commonwealth shall not, by any law or regulation of trade and commerce, abridge the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigation.

The Franklin Dam case, whilst not deciding the point, raised the issue as to whether section 100 meant that the States (and their residents) had a positive right to the reasonable use of the water or whether the section merely prevented the Commonwealth from legislating to restrict the reasonable use of the water:

The prohibitions in ss. 99 and 100 of the Constitution are plainly directed to the Commonwealth, not to the States. It is unnecessary to decide whether s. 100 guarantees to riparian States and their residents access to the use of the waters for the purposes mentioned or whether it merely imposes a restriction on the power of the Commonwealth when legislating under ss. 51(i) and 98. It is, however, appropriate to point out that in the form in which it is expressed s. 100 does impose a restriction on the exercise of Commonwealth legislative power, one which prevents the Commonwealth by a law or regulation of the kind described from abridging the rights of a State and its residents.

The words 'of trade or commerce' relate back to 'law' as well as 'regulation'. This view is supported by similar expressions in the neighbouring sections, ss. 98, 99, 101 and 102 which make it plain that the group of sections is dealing with laws with respect to trade and commerce. ...Section 98 is of special significance because ... it ... suggests that the primary purpose of s. 100 was to safeguard the rights of a State and its residents to the use of waters in rivers used for interstate trade and commerce including navigation and shipping, viz., the Murray River.

At first glance it may seem somewhat artificial to confine the restriction on legislative power to laws made, or capable of being made, in exercise of one power when a somewhat similar effect in relation to the use of waters of rivers by a State and its residents for conservation or irrigation might be achieved by the Commonwealth in the exercise of other legislative powers. Why, one might ask, would the framers of the Constitution confine the pursuit of the objective - the protection of the State and its residents in relation to the use of the waters - to some Commonwealth laws but not others?

The answer to this question probably lies in the importance of the Murray River to New South Wales, Victoria and South Australia and the residents of those States and the apprehensions entertained by them as to the impact of the Commonwealth's legislative powers under ss. 51(i) and 98. Time does not permit an examination of this aspect of our history. And in any event the legal answer to the question is that we must give preponderant weight to the significance of the expression "law or regulation of trade and commerce" used in ss. 99 and 100 which, as we have seen, confines the prohibition to laws made, or capable of being made, under ss. 51(i) and 98.(5)

In the absence of any recent judgments commenting on section 100, it is difficult to speculate on what the current High Court might rule. It seems clear from the Franklin Dam case that the supply of electricity for profit would be seen as a trading activity (as in that case the building of a dam was held to be a preparatory act of trade) and therefore, presumably, the law enabling the Snowy Mountains scheme to proceed was a law with respect to 'trade or commerce'. Expert constitutional lawyers Lumb and Moens regard the 'better view' as being 'that s 100 does not confer riparian rights on those States but merely obliges the Commonwealth to recognise such rights when legislating under its heads of power'(6).It is a possibility that the High Court, if asked, might interpret section 100 as giving the States a right of access to water for 'conservation and irrigation' but perhaps more likely that they would find that the section merely impeded the legislative power of the Commonwealth.

The Environmental Issues

There are a number of concerns about the Bill and related matters, that have been expressed by environmental groups.These are essentially:

  • the timing of the legislation (ie prior to the environmental study);
  • the handing over of control to a corporate entity for 75 years (with a 50 year renewal option);
  • the flow rate of the Snowy River;
  • the likelihood that if any changes are made to increase the water flow rate, compensation must be paid to the corporate entity/private company; and
  • the effect on the native fish population.

After corporatisation, the Snowy Hydro will be subject to the New South Wales laws generally with respect to environmental law, planning law and laws regarding water regulation.

Concern has also been expressed, in relation to the flow rate of the Snowy, that a corporate entity will have to put profit above the environment:

We are concerned that control of a large slab of south eastern Australia's water will be placed in the hands of a company, whether Australian or foreign, that will fight vigorously to maximise the profits, resource availability, use at the expense of the environment and community values.The people along the Snowy River are fearful that corporatisation legislation will set up a priority for profit on power generation ahead of other more valued uses.These fears are exacerbated by the proposal in the New South Wales legislation to grant an unprecedented 75 year water licence to the corporatised body, with a 50 year option to renew.(7)

The fact that the Commonwealth legislation is being enacted so as to take effect when the NSW and Victorian bills become law is also seen as a concern from an environmental view point.This is because it is argued that the Commonwealth will be merely "rubber-stamping" the environmental assessment done by NSW.Mr Paul Leete, Chairman of the Snowy River Alliance gave evidence to the Senate Finance and Legislation Committee that:

we believe that these issues of water, electricity and irrigation need to be up-front.We believe that the scheme is a national asset.It is going to be one of the biggest natural resource management decisions for the last 50 years and, under the current terms of licence, it will go into the 22nd century.We believe that the key to all of this is the natural resource management.Even so, I know that the federal bill only relates to electricity.(8)

Mr Leete also saw the potential for the arrangement to be costly to the taxpayer in the future:

If there is going to be compensation involved, we believe that there will be great reluctance by governments to alter those arrangements.Given the length of term of the licence, it would be quite foreseeable to see a situation, in 10 or even 20 years time, where there needs to be significant changes in those arrangements.That could mean we could be paying the Snowy Hydro, which could be a privatised company by then, compensation for over 100 years.(9)

The Reasons Given for the Bills

The second reading speech identifies a number of reasons as to why the Snowy Mountains Hydro-electric Authority should be corporatised.These include:

  • the fact that there has been consistent support 'for corporatisation of the Snowy Scheme by successive Commonwealth and State governments';
  • to 'ensure that the benefits of competition reform in Australia's electricity industry can be accessed by the Snowy Scheme';
  • to allow the Snowy Scheme to operate commercially in the national market;
  • to allow the Snowy to 'change from cost based to profit based operations';
  • to remove the 'outdated and inefficient' dual management scheme;
  • to allow for the accelerated repayment of the debt owed to the Commonwealth (current value around $740 million);

Main Provisions

Clause 3 notes that the Bill is to operate concurrently with the New South Wales and Victorian Snowy Hydro Corporatisation Acts.However, these Acts have yet to be passed.The Victorian Snowy Hydro Corporatisation Bill had its second reading moved 18 September 1997 and debate was 'to be resumed' as of 11 October 1997.This was criticised by Mr Leete, Chairman of the Snowy River Alliance.Mr Leete was of the opinion that: 'if the parliament passes this legislation before a decision is made between the states, then the parliament has rubber stamped any decision that the states might make'

Clause 7 provides that the Commonwealth may hold (or sell) shares in the Snowy Hydro Company.According to the "Corporatisation Principles" it has been agreed that the equity in Snowy Hydro will be as follows:

Commonwealth     13%

Victoria     29%

New South Wales     58%

Clauses 8 and 9 provide that the Snowy Hydro-group company will not be affiliated with the Crown but will be an independent company and therefore the Commonwealth will not be responsible for any debts incurred by the company.

Clause 10 provides that all the assets and liabilities (other than those relating to the transmission undertaking which is described in clause 12 below) of the Snowy Mountains Hydro-electric Authority will be transferred to the new Snowy Hydro Company just before the date of corporatisation (which is the date upon which the Snowy Mountains Hydro-electric Power Act 1949 is repealed).Water is expressly excluded from the list of assets.

Clause 12 provides that the Minister may direct those assets or liabilities connected with the transmission of electricity generated by the Snowy Scheme to be transferred to TransGrid at a price to be 'determined by agreement between the Commonwealth, New South Wales and Victoria'.The 'Corporatisation Principles' state at paragraph 4.3 that this will be at 'an agreed fair market value' but they do not set out how this might be calculated.

Clauses 13, 14 and 15 deal with loans owed by the Snowy Mountains Hydro-electric Authority to the Commonwealth.The Commonwealth Minister for Finance is to set out in a written instrument the full amount owed to the Commonwealth by the Authority and then must lend this same amount to the Authority.The terms and conditions of the loan must also be in the written instrument of the Finance Minister.

Clauses 17 and 18 allow certain other loans currently held by the Authority to be taken over by the Commonwealth and provide that the Treasurer may authorise the payment of money to discharge those loans.The rights and obligations of those loans then become the Commonwealth's.

Clause 19 applies sections 5A, 5B, 5C and parts of 5D of the Loans Securities Act 1919 to the loans taken over by the Commonwealth under clauses 17 and 18.Those provisions of the Loans Securities Act 1919 essentially authorise the Treasurer, or delegate,to do all acts necessary to borrow money from overseas, including submitting to the jurisdiction of foreign courts.

Clause 20gives the Minister for Finance broad power to determine the amount payable to the Commonwealth under the borrowing transactions.The terms and conditions of the loan, however, are to be as agreed between the Commonwealth, New South Wales and Victoria.

Part 4 - Transfer and rights of employees

As the Bill will be timed to coincide with the abolition of the Authority, provision is made in this part of the Bill for the current employees of the Authority.Essentially they will move to the Snowy Hydro Company as at the date of corporatisation, and will retain their employment benefits together with the terms and conditions of their current employment (proposed section 23).Although, Clause 24 provides that those terms and conditions of employment can be varied after corporatisation.Significantly, this could mean that conditions are omitted or substituted.

Long Service Leave

Clauses 26-32 deal with the transfer of long-service leave credits from the Authority to the Snowy Hydro Company.There is a guarantee that credits will be transferred as at the date of corporatisation and for those employees with less than 10 years service in the Authority at that date there are provisions for their service to be 'combined service' between the Authority and the Snowy Hydro Company.

Employees who already have 10 years service prior to the corporatisation date, will be protected under proposed section 32.

Occupational Health and Safety

The Safety, Rehabilitation and Compensation Act 1988 will continue to apply to the Snowy Hydro Company after corporatisation and employees will have the same protection and benefits, as they currently enjoy, after that date.

Maternity Leave

The existing maternity leave conditions of Authority employees will be preserved for the first 12 months of their employment with the Snowy Hydro Company.This means that women who were on maternity leave, about to go on to maternity leave or would have been eligible for maternity leave within the first twelve months after the date of corporatisation will still be covered by the Maternity Leave (Commonwealth Employees) Act 1973.

Division 5 - Other transitional and saving provisions

Clauses 40-46 provide for the continued application of some Acts and the phasing out of others to cover the transition period from the Authority ceasing to exist and the Snowy Hydro Company commencing.

For example persons who were eligible for benefits under the Defence Force Retirement and Death Benefits Act 1973 are deemed to still be in public employment for the purposes of retaining those benefits.

The provisions relating to corruption offences under the Crimes (Superannuation Benefits) Act 1989 remain in place for those employees who were employed by the Authority and have transferred across to the Snowy Hydro Company.Thus people who committed offences under that act may have their superannuation benefits held or confiscated (by way of a restraining order against their property).

Offences may still be prosecuted and civil remedies may still be taken after the corporatisation date in relation to acts, omissions or proceedings in connection with the Authority.Clause 43 preserves the application of the Director of Public Prosecutions Act 1993 for this purpose.

Section 55E of the Judiciary Act 1903 allows the Australian Government Solicitor to act for the Crown and certain specified office holders in relation to legal proceedings.The Authority qualified for such representation and therefore Clause 44 preserves the Authority's entitlements in this regard in relation to cases already commenced or proceedings commenced in respect of things that happened whilst the Authority was still in existence.

Clause 45 provides a formula for calculating a refund payable to the Snowy Hydro Company in respect of payments made by the Authority under the Occupational Health and Safety (Commonwealth Employment) Act 1991. The refund will relate to payments for the period after incorporation.

Staff of the Authority will lose their rights of mobility that they had pursuant to the Public Service Act 1922 as at the day of corporatisation.

Part 5 - Miscellaneous

The Corporatisation Principles make it clear that the aim of the bills is to create a financially viable corporatised entity (Snowy Hydro) to operate on a competitively neutral basis and which is able to effectively participate in the emerging national electricity market.

Clause 49 limits the costs involved in transforming the Authority into the Snowy Hydro by providing that the initial steps involved in corporatisation are not subject to taxation.For example, the issue or transfer of shares (to the Commonwealth, Victoria or New South Wales) in the Snowy Hydro Company will be exempt from tax.

Clause 53 provides that assets will vest in the Snowy Hydro Company or in TransGrid as the case may be and the transfer in ownership should be noted in the usual way (eg in the case of land, on the certificate of title).This provision links in with clause 47 whereby the Commonwealth can enter into an agreement with NSW to share the cost of any land tax payable as a result of either the Snowy Hydro Company or TransGrid acquiring land by virtue of the Bill.

Clause 56 relates to personal information and other assets or records currently held by the Commonwealth in respect of the Authority and its employees.Proposed subsection 56(5) specifically authorises the disclosure by the Snowy Hydro Company of personal information about its employees who were previously employed by the Commonwealth.Without this exemption the Privacy Act 1988 would prevent the release of that personal information.

Clause 59 repeals the Snowy Mountains Hydro-Electric power Act 1949. The date that this act is repealed is defined as the date of corporatisation of the Snowy Hydro Company.Clause 2 provides that a Proclamation may not be made fixing a day for the commencement of proposed section 59 unless the Minister is satisfied that there is agreement between the Commonwealth, Victorian and New South Wales Governments.

Endnotes

  1. Second Reading Speech p2.
  2. Collis, B Snowy: The Making of Modern Australia (1990), Hodder & Stoughton (Aust) Pty Ltd at p38.
  3. Ibid, Collis's words not a direct quote of Menzies.
  4. Ibid p38.
  5. The Commonwealth Of Australia v. Tasmania. The Tasmanian Dam Case (1983) 158 CLR 1 at 498-99.
  6. Lumb, R.D & Moens, G.A. The Constitution of the Commonwealth Of Australia Annotated (5th Ed) 1995, Butterworths, at p490.
  7. Submission of the Snowy River Alliance to the Senate Finance and Public Administration Legislation Committee report on the provisions of the Snowy Hydro Corporatisation Bill 1997 and the Snowy Hydro Corporatisation (Consequential Amendments) Bill 1997 ,October 1997, p20.
  8. Senate Committee Proof Hansard, 26 September 1997, p 33.
  9. Senate Committee Proof Hansard, 26 September 1997, p 35.

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29 October 1997
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ISSN 1328-8091
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