In December 2018 Ross Gittins, Economics Editor for the Sydney Morning Herald wrote this article about the failure of privatising government-owned businesses. Despite some changes in the political landscape, including a state election and a federal election his words are even more relevant today.
If you’ve always doubted the sense of privatising government-owned businesses, vindication is now flowing thick and faster.
In many – but not all – cases it’s turned out to be bad idea. One that’s costing consumers a pretty penny. Unscrambling the egg, however, is proving a frustrating and painful process.
Many people feared that if private businesses were allowed to buy government businesses, the first thing they’d do would be to jack up their prices. Politicians and supposed experts told them not to worry. Sorry, experts wrong, doubting punters right.
For scheming behaviour by premiers and treasurers, there’s no case more appalling than the way the NSW government privatised its ports.
In some cases, the businesses privatised were natural monopolies – electricity transmission and distribution networks, and geographic monopolies, such as federally owned airports and state-owned ports.
It the case of the electricity networks, the experts told us not to worry. The prices the private owners are allowed to charge would be tightly regulated. Wrong. In no time the monopolists found ways to rort the system.
One of Scott Morrison’s biggest problems at the coming federal election is voter anger over the huge increase in electricity prices and his government’s limited progress in getting them back down.
Morrison was so rattled he made the most un-Liberal-like threat to use a “big stick” and force the three big companies that have come to dominate the national electricity market to be broken up if they didn’t cut their prices before the election.
He’s since had to replace his big stick with a small one – suggesting he won’t get far in lowering power prices.
Feds carrying the can but states to blame
The blowout in power prices is the direct result of a decision to take five state-owned electricity generation, transmission and retailing monopolies and turn them into a national electricity market of competing privatised businesses.
But although the feds are now carrying the can for this giant national stuff-up, it was all the doing of the state governments who did the privatising.
How did they get is so badly wrong? They sabotaged it. While you and I were being told not to worry – that vigorous competition would prevent the businesses from raising their prices unduly – the state governments were busy selling their businesses to the highest bidders.
The highest bidders turned out to be companies putting together a vertically integrated business of power stations at the bottom and power retailers at the top. In some cases, governments tightened reliability standards in a way they knew would make it easier for potential purchasers to game the price regulation rules.
If you wonder why parking is so expensive at airports – and catching a taxi home comes with an extra fee – it’s because the Keating government privatised these geographic monopolies without price controls.
With the state governments’ privatisation of their ports, some private lessees have been allowed to fatten their profits in ways too diffuse for us to see how we’re being got at.
An appalling case in point
For scheming behaviour by premiers and treasurers, there’s no case more appalling than the way the NSW government privatised its ports of Botany, Port Kembla and Newcastle.
Botany is the state’s one big container port, with Port Kembla specialising in bulk commodities and Newcastle the biggest coal port in the world.
In 2013, Botany and Kembla were leased to a single operator and the sale price was enhanced by a “confidential” agreement that the state government would compensate the operator for each additional container handled by the Newcastle port beyond a minimal level.
The Newcastle port was leased to a separate operator with a confidential agreement requiring it to compensate the government – to the tune of about $100 a box, it’s said – for any money it has to pay the other operator if Newcastle increases its handling of containers.
Trouble is, five years on, this deal the public wasn’t supposed to know about is a classic “seemed like a good idea at the time”. Newcastle’s future as a coal port is all decline (the more so if the Adani mine in Queensland goes ahead), but it’s well placed to diversify by building a big new, state-of-the art container terminal. It has the land, it could build a single ship-rail-road interchange and its port is deep enough to take the next generation of much bigger container ships that will otherwise be accommodated by only one other Australian port, Brisbane. But the confidential deal makes a container port in Newcastle uneconomic.
Meanwhile, routing all the state’s inward and outward container movements through Botany is a crazy idea. It’s a long way from the Moorebank intermodal terminal, meaning a huge amount of heavy trucks lumbering through Sydney.
New modelling by AlphaBeta economic consultants for the Port of Newcastle claims a new container terminal would allow businesses in the northern part of the state to divert about 16 per cent of the state’s two-way container traffic through Newcastle, cutting their freight distance by 40 per cent, putting competitive pressure on Botany’s container handling prices, taking many trucks off Sydney roads, boosting the NSW economy and cutting the freight costs hidden in the prices consumers pay.
On Monday the Australian Competition and Consumer Commission announced it was taking the Botany operator to court, alleging its agreement with the NSW government is anti-competitive and illegal.
Just another skirmish in what will be a long-running battle to undo the not-so-unintended consequences of privatisation.