Opposition to the Abbott Government’s asset privatisation agenda, which will see the federal government provide financial incentives to states that sell-off their assets, appears to be growing, with coal mining group, Glencore Xstrata, slamming the recent sale of state-owned ports, arguing that they have driven-up freight costs for users. From The AFR:
The Swiss company complained to the federal government’s review of competition that it had already seen negative impacts from privatisation in parts of Australia…
“Glencore has experienced the consequences of privatisation across the east coast of Australia in terms of infrastructure asset sales and the results are not mixed. They are almost always negative,” its submission said.
“In every instance of monopoly coal infrastructure being sold into private ownership in the last 15 years there has been an associated significant increase in the cost of access to use that infrastructure arising from both the imposition of higher access charges and/or the reallocation of risk back to the users of that infrastructure.”
I am not surprised by Glencore’s claims that privatisation of essential infrastructure has been “almost always negative” for users.
As argued yesterday, it is the degree of market competition that usually determines whether an asset sale is positive for the public. And essential infrastructure, like rail tracks and ports, are by definition natural monopolies, and their transfer to private ownership confers significant pricing power to the new owners, which they generally pass on to end users.
As argued by Monash economics professor, Stephen King:
… privatisation without competition is like a hidden tax. The government gets more today because we will all be paying more tomorrow…
Privatisation without competition risks turning a public monopoly into a private monopoly. The owners may change but the public will get ripped off just the same.
This is why ACCC head, Rod Sims, has recently spoken out against the Abbott Government’s privatisation agenda, warning that the forecast $57 billion of federal and state-owned assets expected to be sold over the next few years could substantially lessen competition and push-up prices, particularly in the areas of electricity distribution, ports, and other essential infrastructure.
It is also why I remains so skeptical of the Abbott Government’s incentive payments to the states, which seems to presume that private ownership is superior in all cases, rather than being based on objective economic criteria, and on a case-by-case basis.
Asset sales can be in taxpayers best interests, but generally only when the government enterprise is subject to significant market competition, thereby reducing the new owner’s ability to price gouge. While this appears to be the case with the proposed sale of Medibank Private, which competes with a large number of private health funds, it is unlikely to be the case where essential infrastructure is involved.
