Volume One 2011
Recent Electricity Sale Transactions
The Auditor-General, Mr Peter Achterstraat, today released his Volume One Report to Parliament for 2011.
In this report the Auditor-General focuses on understanding the recent electricity sale transactions and the possible impact on the 2010-11 financial statements. The report also details some of the rights, obligations, risks and uncertainties. He does not come to a view about the appropriateness of the sale price nor retention values as he has not yet finalised his review of the quantification of the obligations remaining with the Government after the sale.
Electricity sale transactions (pgs 53 & 55)
The sale transactions for the NSW electricity retailers’ customers and brand names, and the output from the Eraring and Delta West power station ‘bundles’ were entered into on 14 December 2010. The contracts are due for completion on 27 February and 1 March 2011. The remaining generators’ output was due to be sold in a second ‘bundle’. However, the Premier announced on 1 February 2011 that the Government would not proceed with any further privatisation of the State’s electricity supply.
Gross proceeds for Eraring Energy and Delta West will be $1.489 billion. The three electricity retailers’ proceeds will be $3.78 billion and three development sites $16 million.
“Treasury has advised that approximately $1.25 billion of the proceeds of the transactions will be used to retire Eraring’s existing debt and a portion of Delta Electricity’s existing debt”, said Mr Achterstraat.
Significant, rights, obligations, risks and uncertainties (pgs 54 to 61)
After the sale the Government faces a number of rights and obligations, detailed overleaf.
Mr Achterstraat advised that: “The risks and obligations include:
owning, operating and maintaining the power stations
retaining all power station employees
paying liquidated damages if power station availability targets are not met
shortfall payments if the Miner is unable to deliver agreed amounts of coal.”
Accounting implications uncertain (pg 58)
The accounting treatment for the sales transactions cannot be finalised until the transactions are complete. The consequences could be significant. For example at 30 June 2010 the value of the four power stations included in the GenTrader contracts was $3.0 billion. This value may need to be substantially reduced due to lower future levels of net income.
“It is not known at this stage what effect the sales transactions will have on the profitability of the State Owned Corporations that will run the power stations and whether they will be able to maintain solvency without financial support from the Government. I understand they have been given written financial support guarantees from Government to ensure solvency”, he added.
Key audit issues from 2010, E-Procurement and Members' Entitlements
The Auditor-General, Mr Peter Achterstraat, today released his Volume One Report to Parliament for 2011. The report includes a summary of recommendations and key issues from 2010 financial audits of NSW Government agencies' financial reports, and common themes from the Auditor-General’s recent performance audits and reviews of information systems.
This volume also includes reviews of Parliamentary Members’ Additional Entitlements and government electronic procurement and tendering.
Widespread non-compliance with e-procurement and e-tendering - (pg 6)
There is widespread non-compliance with requirements for e-procurement and e-tendering.
“Electronic procurement offers significant savings to Government, but remains underutilised”, said Mr Achterstraat. “I found the level of non-compliance concerning, particularly considering the NSW Procurement Reforms were effective since 2006, with intended changes announced as early as 2001”, he added.
Themes from 2010 (pgs 28 to 52)
“I made 202 recommendations in my 30 June 2010 financial audit volumes to improve the reporting and performance of New South Wales Government agencies, 46 of which were repeat recommendations”, said Mr Achterstraat.
“The repeat recommendations largely related to accounts payable and creditor management, budget monitoring, plant and equipment, trust funds and general internal control deficiencies’, he added.
A significant number of recommendations related to ageing workforces in key agencies, overtime, flexitime and excessive annual leave.
“I identified 957 misstatements in financial statements that were submitted to me for audit. Five hundred and ten needed to be corrected by the agencies before I could issue my audit opinions”, Mr Achterstraat added.
Over half the Performance Audits recently conducted identified limitations in accountability, performance measurement and information quality.
Parliamentary Members substantially complying with Additional Entitlements rules (page 18)
Members substantially complied with the requirements of the Parliamentary Remuneration Tribunal’s (PRT) Determination for the year ended 30 June 2010.
“Four Members did not return unused monies within the required time frame and the reconciliations for these Members were still outstanding at the time of my audit”, said Mr Achterstraat.
Information Systems (pg 46)
Weaknesses in information security management and practices accounted for over 60 per cent of the issues raised from my information system audits of the largest 60 agencies.
Barry Underwood, Executive Officer, on 9275 7220 or 0403 073 664.