JOHN MENADUE. The litany of failed privatisations. (Repost from 20 March 2017)

Ideologues ,the self interested bankers and accountants and lawyers still persist with their fixation with privatisation despite the fact that it is failing in one area after another and the electorate shows very clearly that it does not want it.   

The latest political example was in the WA election where the part-privatisation of Western Power was an important factor in the defeat of the Barnett government. Opinion polls showed that 70% of West Australians did not agree with the selling of Western Power.

Anna Bligh, the former Labor Premier in Queensland paid a very heavy price in 2010 for her proposed sale of transport assets.

In NSW, Mike Baird, the former premier, might claim that his 2014 proposal to lease 49% of the state’s electricity transmission and distribution network for 99 years was successful. But was it? In his 2015 election, he had the benefit of being a new fresh-faced premier with the ALP tainted with corruption and incompetence. He lost 17 seats. Through it all polling showed strong opposition to the sale of electricity assets and electricity prices have continued to rise.

The rejection of the Barnett government on Western Power is part of a consistent trend.

There is a litany of privatisation failures.

  • The Hawke and Keating governments sold off the Commonwealth Bank. Are we better off? Far from it, with the privatised CBA leading the race to the bottom in record profits, greedy executive salaries and unethical behavior. We need to consider again a new ‘peoples bank’
  • The Howard government sold off all of Telstra. If it had at least retained the wholesale business in public hands, we would have now have a world class fibre-based NBN.
  • Medicare has operating costs one third of those of private health insurance. But the government is using $11 billion of taxpayers’ money each year to prop up the inefficient and confusing mess called PHI. Our health system is being privatized by stealth through an enormous corporate subsidy to PHI. Medicare was established by the Whitlam Government because of the shambles that private health insurance had become in 1974. It is the same again today.
  • Governments facilitated unscrupulous private providers to compete with TAFE with disastrous results. Rod Sims the Chair of the Australian Competition and Consumer Commission recently said that the mess of the VET-fee scheme with vocational training carried out by the private sector would take two years and counting to clean up.
  • He has also warned us that privatising the NDIS services could be a repeat of the VET-fee mess.
  • We sold off natural monopolies like our airports. We should not be surprised that these new private monopolies are badly run and exploit consumers with excessive charges.
  • Seven hospitals in NSW and SA were privatized, but then reverted to public ownership because of poor services and high costs.
  • The NSW government sold Port Botany and Port Kembla to the same buyer, making competition between the two ports impossible. The result was increased rental charges of up to 400%.
  • The efficient Newcastle container port has been hobbled in privatisation, with a cap placed on its container business in order to protect Port Botany.

The biggest failure of all in privatisation has of course been in electricity generation and distribution. Wholesale prices are now double what they were under Labor’s carbon tax. If that tax had remained we would now be well down the track to a sensible market based energy policy and the federal budget would be $10 b better per annum. But more of that later.

As Tim Colebatch has reported in Inside Story, electricity prices have soared 187% since 2000. He commented ‘the privatisation and deregulation of gas and electricity has failed consumers’

Professor John Quiggin put it this way in this blog ‘The case for renationalising Australia’s electricity grid’
“Most state governments have sold their electricity enterprises wholly or partly. Victoria and South Australia fully privatised their systems by the early 2000s. NSW partially privatised its network business after 2015. Queensland privatised the retail sector but maintained public ownership of the network and some electricity generation. Contrary to the hopes of the market designers, breaking up these integrated systems has delivered no benefits, while incurring huge costs rises. These costs have been on display, in dramatic form, in recent system failures in South AustraliaVictoria and Tasmania. Everyone has blamed everyone else, and no real change has emerged.

The tragedy is that all this could have been avoided if we had seized the opportunity in the 1990s to build a unified national grid, with a single authority running transmission networks and the interconnectors between them. This would still allow competition in generation, but would abandon the idea of market incentives in the provision of network services. Electricity networks are considered to be natural monopolies. Unlike other industries, where it makes sense for lots of businesses to compete and drive costs lower, the cost and importance of supplying electricity means it make sense for one business to control the market. Given this status, this authority should not be a privatised firm or even a corporatized government enterprise. Instead, it should be a statutory authority with a primary mission of delivering energy security at low cost.’

In ‘South Australia’s Electricity Problems: Jay Weatherill Should Follow the Coalition’s Example‘ in this blog, Ian McAuley also described the failure of private electricity generation and distribution in SA which led to Tom Playford nationalising the system in 1946.

In light of the clear failures of privatisation and the terms of those privatisations, Rod Sims, has warned that ‘privatisation is costing consumers and damaging economic reform’. He added ‘Poorly regulated privatisations are driving up prices and have little to do with economic reform. … This situation is getting worse and as the main concern of governments with privatisation, is maximising proceeds from the sale … a sharp uppercut is needed. … Privatisation is increasing prices. … Very bad reform implementation of privatisation has been a big part of the current backlash against any economic reform.’

Whilst conservative and neoliberal ideologues refuse to face the facts, the public clearly understands that privatisation of public utilities that are natural monopolies is unacceptable. Essential Report in February 2015 reported in its public polling as follows:

Question: Do you agree with the following statements about privatisation of government-owned assets like electricity, water, rail, ports, etc.?

Total Agree Total Disagree
Selling off public utilities to private companies will help the economy 25% 53%
Privatization mainly benefits the corporate sector 70% 13%
Utilities like water and power suppliers are too important to be sold off 72% 13%
Private companies can run public utilities more efficiently than governments 36% 39%
Privatization means more competition which benefits consumers 33% 49%
Private companies deliver better quality services than government-run organizations 33% 46%
Prices always increase more when services are privatized 70% 13%

Clearly privatisation is running into serious headwinds. Ideology is winning out over public interest. And voters are showing very clearly that they are not attracted at all to the privatisation of many public utilities.

The business, political and media elites are just not listening.


John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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7 Responses to JOHN MENADUE. The litany of failed privatisations. (Repost from 20 March 2017)

  1. Am I the only one who sees this kind of privatization as an indirect tax? We pay extra for services a government is meant to provide. Though no economist I thought that a government had an obligation to provide essential services at a price which was reasonably able to be afforded by all citizens-no we are not customers, we are not an economy we are a cluster of communities. What it looks like is that governments do not have the guts to tax with any sense of commutative justice so they are short of funds (especially for tax cuts and submarines). What makes it all worse is that they sell our assets, paid off by our parents, to their mates to make a killing selling essential services. The only thing which works here is the trickle up process filling the coffers of greedy companies who will re-elect them, with the assistance of their well paid lobbyists. Agencies, often church bodies, take on welfare service provision which gags their speaking the truth which they should be doing on behalf of their vulnerable people. If they criticize the government their funding will be cut. Shark organizations can do the dirty work of running detention centers and the government can look as if it is at arms length. These companies are only too happy to be bad cop for a few bob while the government says “Don’t blame us it is the suppliers, the contractors”.
    Were this all a bad dream or satire scripted by Johnathan Swift after he finished “Gulliver’s Travels” it would still make no sense.

  2. Avatar Julian says:

    Splendid article John. Thank you once again.

    As to your conclusion: “The business, political and media elites are just not listening.”; it is simply not in their individual or collective interest to do so, and so the rot goes deeper. If only the ALP/Greens/Unions (?) could be trusted to properly address the matters that you raise, then there may be some hope for the rest of us.

    What I would really like to see is that following the election in which the free-marketeers and agrarian socialists are thoroughly defeated, the incoming Government institutes a compulsory re-education programme – perhaps something along the lines of the Chinese model – far away from the bright lights and, if possible, all to be done on iron rations. Yes, I do write tongue-in-cheek, but how else does one get these destructive buggers to see the monumental error of their ways ?

  3. Avatar michael lacey says:

    Its a neoliberal world and the Chicago philosophy has permeated government thinking for 4 decades!
    Infrastructure a wonder commodity to own. That’s why banks, corporations and wealthy investors want to privatise it, because privatising it is like conquering a new country and being able to take its income.

    You can take into your own hands, for your own profit, the largest capital investment there is – what used to be in the public domain. The roads, railroads, airline companies, water and sewer systems and everything that people need, including now the schools can be privatised and instead of providing them to the economy, to make the economy operate at a lower cost, you can make people pay two or three times as much as they were doing. Operating this infrastructure for profit (with high-interest credit) will vastly increase the cost of the economy, without increasing wages or the ability to pay for these privatised services. This will squeeze the living standards while sucking up more and more money to the top of the economic pyramid.

  4. Avatar Greg Cameron says:

    Rod Sims can address the NSW ports fiasco in a jiffy…by answering 10 questions.

    In 2009, the NSW government permitted Newcastle Port Corporation (NPC), a statutory state-owned corporation, to lease land designated as the “Mayfield Site” at the Port of Newcastle. The government required NPC to comply with NSW government guidelines for “Public Private Partnerships”.

    In 2010, NPC commenced a “request for proposals process” for a “Master Developer” and issued an “Invitation To Submit Detailed Proposal, Mayfield Site” (ITSDP), which listed the following objectives –

    (a) have cargo handling terminal activity for containers and other cargo which may include bulk, break bulk, roll on roll off, etc., consistent with the characteristics, assets and capabilities of the Site;
    (b) include a best practice container operation capable of handling in excess of 1 million TEU per annum;
    (c) select a Proponent that is committed and has the capacity, resources and expertise to successfully deliver and grow their development proposal;
    (d) increase the proportion of northern NSW trade for NSW ports;
    (e) generate employment opportunities in the Hunter region;
    (f) provide environmental, safety and community amenity benefits through reduced road traffic congestion in Sydney, thereby reducing greenhouse gas, vehicle emissions and noise;
    (g) optimise public value for money by maximising land use intensity and engaging the private sector in the development of the State’s port and transport infrastructure for handling container and general cargo trades;
    (h) ensure investment and development is delivered in a timely manner;
    (i) recognise relationships between parties who may use the existing facilities and access points to and from the Site; and
    (j) secure an appropriate commercial return to Newcastle Port Corporation.

    Question 1: Does the ACCC claim that NPC was not carrying on a business for the purpose of the “Commonwealth Competition and Consumer Act 2010” (CCA) by conducting the ITSDP process?

    The ITSDP set out the terms and conditions by which the Mayfield Site was being offered for lease. One respondent to the ITSDP was selected to become the “Master Developer” – Newcastle Stevedores Consortium (NSC).

    Question 2: Does the ACCC accept that the ITSDP was a contract between NPC and NSC?

    When negotiations between NPC and NSC were completed in December 2010, NPC was ready to conclude a contract with NSC and requested approval from the NSW government, in accordance with the guidelines for “Public Private Partnerships”. Approval was not given before the March 2011 NSW state election. After the election, the NSW government continued to conduct negotiations with NSC pursuant to the ITSDP process. On July 27 2012, or thereabouts, the NSW government issued a media statement in relation to Port Botany and Port Kembla. On August 30 2012, the NSW government, acting in accordance with ITSDP procedure, formally amended the ITSDP by removing the requirement for “a best practice container operation capable of handling in excess of 1 million TEU per annum”.

    Question 3: Does the ACCC claim that the NSW government was not carrying on a business for the purpose of the CCA by amending the ITSDP on August 30 2012?

    In April 2013, the NSW government made a contractual commitment to NSW Ports to make certain payment to NSW Ports in respect of future container capacity development at the Port of Newcastle. The term “container” meant “any moveable device, designed for continuous use in loading and unloading cargoes on and from Ships, including boxes, crates, cylinders, tanks, TEUs, other stackable units and any similar cargo-carrying device which is designated as a container by international stevedoring standards from time to time and Containerised has a corresponding meaning.
    Container includes:
    (a) overseas import containers;
    (b) overseas export containers; and,
    (c) local containers (coastal inwards or outwards); and
    (d) empty containers and transhipped containers.”

    Question 4: Does the ACCC accept that the NSW government made a contractual commitment to NSW Ports to make certain payment to NSW Ports in respect of future container capacity development at the Port of Newcastle?

    The Hon Duncan Gay MLC, in his (former) capacity of Minister for Roads, Maritime and Freight, said on August 10 2016: “As the Government has consistently said, the leasing terms of Botany and Port Kembla do not prohibit the development of a container terminal at the Port of Newcastle.” The Hon Gladys Berejiklian MP, in her (former) capacity of Treasurer, said on September 29 2015: “I am advised the [Port of Newcastle] lessee could develop a container terminal at the Port of Newcastle if it wished to do so.”

    Question 5: Does the ACCC claim that NSW government policy does not support the development of a container terminal at the Port of Newcastle, at any time?

    At some point after April 2013, NPC amended the ITSDP by requiring NSC to make the NSW government whole for any cost incurred by the NSW government for making payment to NSW Ports in respect of future container capacity development at the Port of Newcastle.

    Question 6: Does the ACCC claim that NPC was not carrying on a business for the purpose of the CCA when it amended the ITSDP by requiring NSC to make the NSW government whole for any cost incurred by the NSW government for making payment to NSW Ports in respect of future container capacity development at the Port of Newcastle?

    The ACCC examined the privatisation of Ports Botany, Kembla and Newcastle via long-term leases. The NSW government was not leasing the Mayfield Site to any party other than NSC while NPC was negotiating with NSC pursuant to the ITSDP.

    Question 7: Does the ACCC claim that the Port of Newcastle was being privatised via a long-term lease while NPC was negotiating with NSC for development of the Mayfield Site pursuant to the ITSDP?

    The ACCC had access to “relevant information” in relation to the negotiations between NPC and NSC.

    Question 8: Did the ACCC have access to the ITSDP and all of the amendments to it?

    NPC concluded its negotiations with NSC in November 2013 when it was unable to reach a suitable outcome.

    Question 9: Did the ACCC examine all amendments to the ITSDP for compliance with the CCA?

    NPC was legally required to comply with the CCA in respect of any outcome pursuant to the ITSDP, subject to carrying on a business for the purpose of the CCA.

    Question 10: Does the ACCC claim that all amendments to the ITSDP complied with the CCA?

    Greg Cameron

  5. Avatar Terry Laidler says:

    Excellent piece, John. I look for the return of the day when we recover the national understanding that competitive and collaborative enterprise sit well together from both an economic AND social value perspective. Such an understanding underpinned some of the great Australian physical infrastructure development programs. It was once also a hallmark of our financial systems, when State banks and municipal bonds were moral players in growing markets.
    However, I think the most abject failures of rampant privateering can be found in human service delivery, notably the Jobs Network and VET, and the subsidisation of private medicine. It’s also where the direct involvement of ex-politicians has verged on corruption!
    And it’s what makes me extremely worried about the direction that the NDIS is taking, where already huge amounts of “social capital” is being put at risk.

  6. Avatar David Brown says:

    Libs only listen to the jingle or rustle of money

    Get rid of them asap

    We need proud and strong Labor, Greens and the Unions to rebuild Australia

  7. Avatar Bruce says:

    Buying back these entities would be a good idea, but in an age of misunderstanding of the role of good debt, political suicide. May I suggest a de-privatisation by stealth.
    Most countries, even Australia, have sovereign wealth funds. Expand our current SWF, the Future Fund, to buy back the farm bit by bit as shares. Eventually each of these entities would have our government as the major shareholder. There was nothing wrong with the vision of John Howard to have ordinary Australians as shareholders in these entities, its just that they are such a minority that the dream was never a practical reality unless he kept the Keating guarantees of majority Government ownership, which he didn’t.

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