Consultants ride the NSW privatisation gravy train

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By Leith van Onselen

Independent investigative journalist, Michael West, has penned another illuminating piece on how consultants have made out like bandits from the NSW Government’s massive privatisation agenda:

There’s no work like government work…

Here are a few of the rippers. The “Disability and Customer Care Services Transfer”, read flogging of the state rights to care for disabled people, and an $830 million property portfolio, demonstrates EY suffers no disability when it comes to fee-charging. It picked up $5.5 million, then a further $4.5 million, while mining investment bankers Ironstone Capital Advisory raked in $3.9 million and $3.2 million. That deal is ongoing.

The biggie was the sale of the NSW electricity transmission and distribution assets, some of which went off to the Cayman Islands. This one is dubbed “Electricity Generation Assets Project”.

Goldman Sachs, which can’t even file a proper set of financial statements in this country, got $4.6 million for financial advice, KPMG $4.4 million for tax and accounting advice and Baker & McKenzie $5.9 million for lawyering.

Then there was another $3.3 million for Goldman in the next year, and another $3.1 million for KPMG, Baker & McKenzie $6 million, $4 million more for Goldman, plus another $2 million for Goldman. EY was in for $7.5 million in 2015 then another eye-watering $17 million for tax advice and accounting while Allens didn’t miss out with its $6 million and a further $14 million for paper shuffling. Oh, and UBS won $14 million.

Privatisation of the ports was a beauty too with the $4.3 billion sale of Port Botany and Port Kembla reaping Morgan Stanley a cool $15 million as financial advisor. PwC picked up $13.4 million and Minters $11.3 million.

The sale of Newcastle Port saw Morgan Stanley get another $7.8 million, PwC $5.3 million and Minters $5.8 million.

Last year, the NSW Labor opposition raised similar concerns:

“When you’ve sold everything bar the kitchen sink and you’re probably looking at selling that as well, you would expect at least some debt to be paid down,” [Opposition Treasury spokesman Ryan Park ] said.

“Their biggest problem is going to be paying for health and education in the forward estimates, and their own intergenerational report indicates that the ability to generate the income needed to pay for those services is going to be difficult”…

Labor analysis of papers tabled to parliament reveal the Government has spent about $150 million a year on consultants for the past two years.

Mr Park said the amount exceeded the total yearly budget of some government agencies, like the Office of Emergency Services, or the Office of Local Government.

“It’s very clear that this Government has gutted public service agencies and now we are reliant on spending very large amounts on private consultants,” Mr Park said…

“$3 million a week is being spent on private consultants, this is at a time when the Treasurer is asking frontline services, frontline agencies and frontline staff to rein in their expenditure – it doesn’t make sense,” he said.

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The issue of consultants feeding off the taxpayers’ teat is nothing new. We have seen it across all levels of government. The bigger issue is that many of these privatisations fail on both economic and social grounds, as recently noted by ACCC head and longtime supporter of privatisation, Rod Sims:

“I’ve been a very strong advocate of privatisation for probably 30 years. I believe it enhances economic efficiency [but] I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales, and I think it’s severely damaging our economy…

“It is increasing prices – let’s call it out… I want them to stop and think about the fact that when they’re privatising these things without effective regulation you are going to have increases in prices, and just think about the effects of that on the economy.

Stop and think. And don’t be surprised that your electorates think that privatisations increase prices. Of course they shouldn’t [increase prices] but the history tells you differently”.

The NSW Government’s sale of its natural monopoly electricity networks to (mostly) foreign-owned companies is a case in point. These foreign-owned companies have sought to gold-plate the network with inefficient investment, thereby holding electricity users to ransom, with power bills potentially set to rise by $100 a year for the average household.

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Simply transferring the ownership of natural monopolies from public to private ownership, as has been done with the NSW electricity network, inevitably ends with bad outcomes for consumers. The householder has little choice but to continue as a consumer of a utility service. And the new private (mostly foreign) owners will almost always use their market power to force-up user costs and boost their profits.

The ultimate result from all of these monopoly privatisations is usually both higher costs for users along with possible increases in taxation as governments seek to replace dividends that were formerly derived from the publicly-owned assets.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.