Bloomberg Craponomy series slams privatisation, energy, innovation

The venerable Bloomberg Craponomy series designed to destroy Australia as it celebrates its recessionless milestone today turns to privatisations, energy and innovation:

Think Facebook Inc., or Amazon.com Inc. or Alibaba Group Holding Ltd. are growth businesses? They’ve got nothing on the Port of Melbourne.

The government of Australia’s Victoria state sold a 50-year lease to the port’s commercial operations last year for A$9.7 billion ($7.6 billion). That’s an enterprise value of about 32 times its forecast Ebitda, based on a 2014 KPMG analysis of the privatization. Even at the more manageable 25 times multiple quoted in media reports at the time, the world’s 50th-busiest container port has a higher valuation than most of Silicon Valley’s tech darlings.

One might ask: What’s not to like about all that?

The sales have generated cash for state and federal governments to invest in building new schools, hospitals, and roads.

Private owners are often able to wring efficiencies out of businesses that weren’t apparent when they were in public hands, but such plain-vanilla improvements can’t account for the way the states are shooting the lights out with these deals. A better explanation is that, in their eagerness to raise short-term cash, governments are letting private owners take larger and larger clips of the ticket for access to monopoly assets.

…The bigger worry, though, is for Australia itself. From Roman roads to the internet, the dynamism of modern economies is built in part on the way that the costs of doing business tend to decline over time. The inflation-linked or inflation-plus charges that most infrastructure owners require to cover their costs of capital, especially at these heady valuations, all but guarantee that won’t happen for years into the future.

And energy:

A bungled transition from coal to clean energy has left resource-rich Australia with an unwanted crown: the highest power prices in the world.

New Yorkers pay half as much as Sydneysiders to keep the lights on, despite Australia boasting among the world’s largest coal and natural gas reserves, as well as ideal conditions for clean power generation. A decade of political dithering and climate policy missteps have set its patchwork power system adrift, ratcheting up manufacturing costs and hurting consumers with a doubling in electricity prices since last year and rising risks of blackouts.

…Natural gas was meant to bridge the electricity supply gap left by the shutdown of decaying coal-fired stations and the gradual shift to solar and wind energy. But rising exports of the fuel to higher-paying overseas buyers created a local shortage.

Squabbling over climate policy has been a key contributor to political turmoil in Australia, which has changed prime ministers five times in the past decade.

And finally, MB’s favourite CEO, Matt Barrie, returns to slay innovation (sorry, vid won’t load).

Suddenly the phrase “houses and holes” is everywhere!

Well done Bloomie.