The indemnities - against losses that privatised coal-fired power stations would face under a new national carbon trading scheme - would wipe out the $15 billion revenue boost the Iemma Government expects to gain from the privatisation.
An analysis by the independent think tank the Australia Institute has revealed the carbon trading scheme the Federal Government intends to introduce to combat global warming would dramatically reduce the value of coal-fired generators.
According to the author of the report, economist and institute director Clive Hamilton, the cost of the indemnity could reach $15.4 billion.
"This amount would be the cost borne by NSW citizens if the NSW Government indemnifies private buyers against future carbon liabilities," he concludes.
"The Government has form on this issue," Dr Hamilton said. "And they will come under even greater pressure from potential buyers to offer them indemnities, too. There is nothing to say the Government could not, and would not, do this in secret, using all sorts of commercial-in-confidence provisions, and the public may know nothing about it for 20 years."
"It's a bad time to be selling electricity assets when there is so much uncertainty about the carbon liability of coal-fired power plants," Dr Hamilton said.
The institute's report warns that no prudent investor would commit to major expenditure in such a risky commercial environment, predicting that "carbon liability and the indemnity issue will dominate negotiations in the sale process".
Carbon liabilities devalue NSW power plants
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