The AFR’s Ben Potter reported that it was the privatisation of key port assets – the Port of Newcastle and the Port of Melbourne – that caused ACCC head, Rod Sims, to turn against further asset sales:
Price gouging by inadequately regulated monopolies before or after privatisation – all aimed at buffing the sale price for cash-strapped governments – is the common thread…
The Baird government in NSW sold a 99-year lease on the Port of Newcastle – the world’s largest coal port – to Hastings Funds Management and China Merchants group for $1.75 billion in 2014.
Last year the new owners hiked the fees the port charges coal exporters like Glencore and BHP Billiton by 40-60 per cent, and promptly wrote up its value to $2.4 billion.
The customers – already battling tumbling global coal prices – saw red…
The Port of Melbourne hiked rents to stevedore DP World by about 750 per cent last year… The port is being readied for sale with a price tag of about $6 billion, and rents are not included in the proposed regulatory regime.
There is a reason why governments like to ignore the interests of users and consumers when it comes to selling-off public assets/services: monopolies attract much higher sale prices than than competitive firms.
In turn, our politicians can deliver both lower taxes and reduced public debt simply by transferring the ownership of monopolies from public to private ownership.
But there’s a catch: the new private owners will almost always use their market power to force-up user costs and boost their profits. We have seen this time and time again with ports, airport parking, toll roads, and utilities (e.g. electricity, water and gas). In every case, the cost-of-living burden for users is the same as raising their taxes, albeit it in a less transparent manner since monopoly profits are easier to hide from public view.
As argued by professor Stephen King:
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.
Thus, the first rule of any asset privatisation should be that it boosts competition within the relevant market, or at a minimum does not lessen competition.
In the case of natural monopolies, a proper regulatory environment must first be put in place (which inevitable lowers the sale price), otherwise its sale will merely shift a public monopoly to a private monopoly, raising costs for end-users.
Unfortunately, the privatisation of Australia’s ports (among other assets) have broken this golden rule, placing achieving a heavy sale price above the interests of users, in turn stifling competition and productivity.
Enough’s enough.
