Academics: Infrastructure privatisation ripping-off Aussies

In September last year, ACCC chairman Rod Sims explicitly warned state governments against accepting unsolicited bids for infrastructure projects because they generally lead to “higher costs for taxpayers, drivers, or both”:

“The ACCC considers that state governments should only award new toll road concessions through a competitive bid process, and not following an unsolicited proposal unless there is a truly compelling reason,” Mr Sims said.

“Accepted unsolicited proposals for new toll road concessions generally leads to higher costs for taxpayers, drivers, or both.”

Mr Sims’ comments on unsolicited proposals will put pressure on state governments who often like them as a quick, effective and often cheaper way for dealing with an infrastructure bottleneck or upgrade.

Now, a group of academic researchers have joined the chorus, warning that unsolicited bids for infrastructure projects are handing monopoly rights to private companies like Transurban, in the process ripping-off Aussie households:

The privatisation of services in Australian cities has weakened public control of key infrastructure. This is likely to accelerate as governments look to market-led proposals to provide infrastructure…

The increasing resort to market-led infrastructure proposals means even the minimal safeguard of “competition” is disappearing. These unsolicited proposals by private firms have not been subject to competitive assessment.

Market-led proposals present a risk for how our cities function. If infrastructure is built in the interests of private actors, the outcomes will favour them, not citizens. Privatising key public assets that are natural monopolies, such as railways, opens the door to rent-seeking.

While allowing governments to conveniently avoid the capital costs appearing on public balance sheets, market-led proposals seem engineered to deliver monopoly rents from users to private interests…

Often market-led proposals emerge where governments have vacated policy and planning by simply not having a plan…

We see this in Melbourne, where market-led proposals to build an airport rail link and the West Gate Tunnel have appeared in the absence of a metropolitan transport plan.

Although the Victorian government has been considering preferred options for an airport rail line, a private consortium has produced an unsolicited proposal along an alternative route.

Comprising Melbourne Airport, Southern Cross Station, Metro Trains Australia and IFM Investors, AirRail Melbourne’s A$5 billion bid is being assessed under the Victoria government’s market-led proposal guidelines.

If approved, the AirRail model would hand control of a key link in Melbourne’s metropolitan rail network to a private company, allowing monopoly pricing and servicing that puts profit before public interest…

Lack of transparency is a problem… For instance, just last week the state auditor-general was highly critical of the A$6.7 billion West Gate Tunnel project, which was approved in 2017. This project has been criticised before for lacking transparency about the financial benefits – more than A$37 billion in additional toll revenue – reaped by its proponent, Transurban.

This lack of transparency raises questions about the impacts market-led proposals have on the integrity and effectiveness of infrastructure planning…

Concerns have also been raised at the national level.

In 2016, the chair of the Australian Competition and Consumer Commission, Rod Simms, warned against a model of privatisation that gives monopolies and oligopolies control over pricing the maintenance of what are really public assets…

We haven’t yet lost all public control of our cities. But if we are not paying attention, the path we are on is a worrying one.

A sure way to avoid further erosion of the public good in infrastructure planning is to abandon the approach of market-led projects. These shadowy, inequitable processes are surely undermining public confidence in the governance of cities, and in government in general.

We urge governments not to further privatise more public, especially monopoly, assets, as proposed in the airport rail bid. Governments must ensure infrastructure is built in the public interest, not shaped by the needs of private capital.

Ultimately, this debacle is another symptom of the federal government’s mass immigration ‘Big Australia’ policy, which is growing our major cities at an unsustainable rate and forcing our cash starved state governments to build infrastructure at any cost:

Expect a lot more dodgy dealings in the future as our major cities’ populations balloon out of control.

About
Latest Posts

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.