Howard sinks Snowy Hydro sale

Prime Minister John Howard scuppered Australia's biggest IPO of the year, the A$1.7 billion ($2 billion) float of generator Snowy Hydro, when he bowed to public anger and pulled out of the sale yesterday.

Howard's surprise decision to withdraw his Government's 13 per cent stake from the sale of Snowy Hydro, widely considered to be Australia's greatest engineering project, prompted the two state Governments holding the rest of the shares to also cancel.

The sale had faced a growing public backlash, with Hollywood actress Cate Blanchett lending her name to an anti-sale campaign, alongside 10 Government members who had warned Howard of serious public concerns over the float.

"I have been surprised by the level of public disquiet, which has been much greater than I expected," Howard said.

He said the Snowy Hydro sell-off was not an important policy goal for the Government, which hopes to sell its remaining A$24 billion stake in telecommunications company Telstra later this year.

Analysts said the Snowy Hydro sale would have been well supported by the market, with pre-registration already under way, but it was unlikely a new proposal could be brought forward.

"There seemed to be such a depth of feeling that any government now would be mad to raise the issue again," said Ken West at fund manger Perennial Growth Management.

Snowy Hydro owns and operates the Snowy Mountains Scheme, which consists of seven power stations and 16 major dams. It provides 74 per cent of the renewable energy in the mainland power market.

The project took 25 years to build, and reversed the flow of the Snowy River, channelling the water through 145km of underground tunnels and 80km of aqueducts. Tens of thousands of immigrants worked on the project.

Community groups, politicians, and a petition signed by 56 prominent Australians, including Blanchett and former Prime Minister Malcolm Fraser, all opposed the sale because of fears private owners would divert more water from the Snowy River.

Howard said he had changed his mind after judging the public mood.

"For whatever combination of reasons, there is overwhelming feeling in the community that the Snowy is an icon. It's part of the great saga of post-World War II development in Australia," he said.

New South Wales state, which owns 58 per cent of Snowy Hydro and had pushed for the sale to release funds for public spending, said a full sale was now impractical.

"It's off, the PM with his statement has pulled the rug on the sale," Premier Morris Iemma told reporters in Sydney.

The Labor Party, Howard's opposition at a national level, is in government in the states of New South Wales and Victoria.

The decision by the Federal Government not to participate would have likely reduced the value of Snowy Hydro in any privatisation, a banker involved in the sale process said.

"The New South Wales Government definitely needs money but there was no point going ahead, if you have got a sale that is compromised by the Fed," said the banker, who declined to be named.

"My read is that they [NSW] viewed that Fed's pulling out was going to compromise the proceeds because it would potentially lower the value that the market would pay for these assets."

Goldman Sachs JBWere, Macquarie Bank and UBS were appointed in March as joint managers for the float.

Goldman Sachs JBWere declined comment on whether the investment banks marketing the float would receive a break fee.

A Macquarie spokesman said the bank was still under a confidentiality agreement in relation to Snowy Hydro.

- REUTERS