With reference to a report in the Age of 7 October 2000, which indicated that the Commonwealth stood to enjoy a $900 million windfall from the corporatisation of the Snowy Mountains Hydro-electric Authority (SMHEA) and the creation of Snowy Hydro Limited:

(1) Can details be provided of the processes, accounting and budgetary mechanics of corporatising the SMHEA.

(2) Will there be a cash windfall to the Commonwealth of $900 million.

(3) What is the expected impact on the Commonwealth balance sheet and operating statement?

(1) The corporatisation of SMHEA and the creation of Snowy Hydro Limited is a reform of the Snowy Mountains Hydro-electric scheme agreed by the Commonwealth, New South Wales and Victoria in 1994.

SMHEA assets and liabilities will be transferred to Snowy Hydro Limited in accordance with the Snowy Hydro Corporatisation Act 1997. Snowy Hydro Limited will be owned by the three governments with equity holdings in proportion to the existing entitlements each jurisdiction has to the electricity produced by the scheme.

The existing SMHEA long term debt comprising loans made or guaranteed by the Commonwealth will be replaced by a new interim loan from the Commonwealth to SMHEA, included in the industry, Science and Resources portfolio estimates at $895m. At corporatisation repayment of this loan will become the responsibility of Snowy Hydro Limited. It is anticipated the loan will be re-financed and repaid by the company during 2001-02.

(2) The transactions associated with corporatisation will effectively replace an existing financial asset (loans receivable) with another asset (cash). The existing long term loan from the Commonwealth to SMHEA would have been repaid by 2049 unless alternative arrangements had been agreed. The new interim loan will be repaid in 2001-02, thereby bringing forward the receipt of cash.

(3) There is no impact on fiscal balance or underlying cash balance, however:

The adjustment of the loan from face value to present value to take account of the early repayment. The 2000-01 budget estimates in the Industry, Science and Resources portfolio include a reduction of $15m for this conversion. The actual amount will be calculated using the Commonwealth Government bond yield curve applying at the date of corporatisation.

A reduction in the Administered Investments of the Industry, Science and Resources portfolio that will follow the transfer of SMHEA assets to a company in which the Commonwealth will have a 13% shareholding. The three governments agreed in 1994 that their equity in the corporatised scheme would be in accordance with their existing rights to share in the economic value of the scheme, as represented by electricity entitlements. The Industry, Science and Resources estimates for 2000-01 include a reduction of $2.34 billion in Administered Investments attributed to this adjustment. The actual amount will be determined following corporatisation when the company is valued.