Interview: Fortress NSW
Unions: Fashions Afield
Industrial: Pay Dirt
Politics: Infrastructure Blues
History: Big Day Out
International: Making History
Economics: The Fear Factor
Review: The Robots Revolt
Poetry: The Corporation's Power
The Locker Room
Rights and Wrongs
Corporatisation, privatisation and competition were supposed to cater to our infrastructure needs as well as all our other material needs. It is a simple story, that even simpletons can grasp. A handy coalition of vested interests, ideologues and functionaries pushed the changes as inevitable and god-given. We saw the functionaries, we heard the ideologues, but the vested interests were behind the curtain.
The 1993 National Competition Policy Report under Committee Chairman Fred Hilmer was the central document of the simple story. The Report, albeit employing generalised language, was aimed at government business enterprises, operations that have typically dominated their markets and often with vertically integrated structures. The solution was to eradicate those monopolistic suppliers by de-integration both horizontally and vertically. Competition would deliver us greater efficiency and better innovation and thus cheaper prices and better service in both short term and long term. Infrastructure that remained monopolistic would be subject to a rigorous regulatory regime facilitating access by other parties.
Infrastructure provision of essential services has run into a few complications since then, and nobody has bothered to inquire whether the Hilmer analysis and prescriptions might not have been incomplete.
The dominant failure of Hilmer and the State privatisations under Premiers Greiner and Kennett was to miss the imperative of 'private enterprise' towards monopolisation (or cartelisation if monopolisation is difficult). If the product/service is essential and in permanent demand, typical of public infrastructure, that's an added bonus. Access to the public domain of service provision thus promised rich and sustained booty.
Complication one. Private sector interests have got hold of monopoly assets.
Macquarie Bank owns Sydney airport (through its subsidiary SACL), paid a premium for it, and wants all the privileges associated with ownership of a monopoly asset. Macquarie Bank, through one of its subsidiaries, co-owns a key tollway in Ontario (ETR 407). The owners raised the tolls in February 2004 by 8% without government approval. Macquarie's attitude is 'it's our tollway; suck eggs'. Macquarie is also condemnatory of the Provincial government's failure to refuse renewal of vehicle permits to tollway users with outstanding payments.
Macquarie Bank loves monopoly assets. Monopoly control of key infrastructure delivers the power of governments but without the social responsibility. The push, by AGL to re-aggregate electricity assets represents the same tendency. AGL should never have been allowed to buy Loy Yang power station. In key infrastructure assets, the 'natural' monopoly elements and the for-profit motive, in pursuit of market control, heads naturally towards monopoly. Which is why most capitalist countries historically reserved key infrastructure for public ownership.
The coup de grace is Macquarie's latest announcement that it plans to turn Mascot into a huge office and shopping complex. Air travelers will be a side issue. We always knew it would happen, but one is staggered by the brazenness, the effrontery of how it was done. Macquarie's SACL deals only with the federal government, and can bypass all State and local planning requirements. All the adjacent Councils are furious, except Botany Council because it gets remunerated directly from the federal government for airport land in lieu or rates.
Complication two is the problem of access to unique and monopoly-controlled infrastructure.
The Hilmer Committee duly noted the problem and the Trade Practices Act was amended to regulate access. In practice, access is proving to be a nightmare and catering to competitive principles a joke.
Monopoly infrastructure that continues in government ownership has been under attack to grant access to for-profit companies. Thus, a company called Services Sydney wants to access Sydney Water's waste water for recycling, an attempt supported by the National Competition Council. Media coverage supports the access because of the 'recycling' badging. But there has been no coverage of the parasitical potential of this company's access that will prevent the coherent use of all Sydney Water's facilities. NSW Premier Bob Carr is resisting the NCC's pressure, and the case has gone before the Australian Competition Tribunal, which will almost certainly rule in favour of Services Sydney.
Similarly, NT Power, a private electricity generator sought access to the grid of the Northern Territory Government's integrated utility, Power and Water Authority (PAWA). PAWA worried that NT Power would cherry pick its electricity customers, inhibiting PAWA's ability to cross-subsidise and service all NT customers. In other words, more parasitism.
Post Hilmer, the High Court (Justice Kirby as usual dissenting) decided in favour of NT Power in October 2004. The High Court said that PAWA was abusing its market power under Section 46 of the Trade Practices Act. This is an ironic judgement, given that Section 46 has been essentially useless against private corporations abusing their market power, and the High Court has been the ultimate vehicle to neuter the power of Section 46 against private corporations.
The process reflects the 'privatise the profits, socialise the losses' phenomenon but in a new guise.
However when it comes to privately owned monopoly infrastructure, other private companies attempting to gain access find an impenetrable wall. The most notable instance of this dilemma is the partly privatised Telstra which persistently defies the regulators regarding access to its monopoly network.
The first significant chink in the wall of the utopian notion of a well-regulated access regime was Robe River's attempt to gain access to Hammersley Iron's rail line in the Pilbara in 1999. Hammersley warded off Robe River , via a Federal Court judgement, with the argument that the rail line was not just a separate facility (a rail line) but an integral component of its mining and manufacturing facilities.
Five years later a 'small' miner Fortescue Metals Group is trying to develop a Pilbara iron ore deposit but is facing antagonistic pressure from both giants BHP Billiton and Rio Tinto. Rio Tinto CEO Leigh Clifford (Australian Financial Review, 1 October 2004) 'dismissed iron ore hopefuls that regarded infrastructure in the Pilbara as a "public good" and said the glib misuse of terms like "duopoly, bottleneck and un-Australian" did not constitute an analysis of the issues'. On the contrary, FMG was spot on. Meanwhile BHP Billiton claims that it will not grant FMG access to its Newman railway line (citing the Hammersley case) because the 'lines are part of a fully integrated process by which it produces and markets iron ore products'.
Since then, we have seen the rise of Pacific National, co-owned by Patricks and Toll Holdings, under Chris Corrigan and Paul Little respectively, two of the most aggressive CEOs in Australian business. PN took over Freight Australia in 2004 (from a failing American company) which included a 45 year lease of Victorian rail lines. Other freight forwarders are complaining that they can't get access to the lines or to the Dynon terminal. PN is a vertically integrated transport company. If it were a government instrumentality, the Hilmer regime would have it broken up into components. But no, it's a private company, and it can rationalise horizontally and vertically while the National Competition Council and the Australian Competition and Consumer Commission sleep on the job.
The cream of monopoly control by PN is its long term lease on Acacia Ridge. In 1993, Queensland Rail gave the then multi-government owned National Rail Corporation control of the site. Since then the NRC was privatised and PN bought it up. What is so special about Acacia Ridge? Acacia Ridge is the only terminal that connects the narrow railway gauge in Queensland with the standard gauge rail lines in NSW. Monopoly control for the indefinite future. There are strictly no alternatives. This is just the kind of infrastructure that private companies would die for. It is just the kind of infrastructure that should never have been removed from public control.
Complication three. In the areas where access is assured, the price may be an area of hot contention.
After the airlines have struggled over access to the privatised airports, they struggle over price. The ACCC's first report in 2004 on airport charges claimed that prices had leapt between 40 and 150%. The second report, released in March, showed only marginal increases. Yet the airlines' lobby says that the airport owners pricing benchmarks are flawed. Qantas said that its costs from Sydney airport had skyrocketed. And so the conflict has gone to the Australian Competition Tribunal for resolution. The ACCC has no power over airport pricing; its reports merely monitor the charges.
Morgan Mellish had a timely piece in the Australian Financial Review on 22 April.
Mellish notes that, in June 2003, the National Competition Council recommended that pricing at Sydney airport be subject to regulatory oversight. The NCC is an unaccountable body created out of the Hilmer Report that blackmails State governments with its purist notion that competition should dictate all aspects of public and community provision of services. But in this case, the NCC had it right. But in November, the NCC changed its mind. This reversal could only have been a result of interference from the federal government at Macquarie's behest.
The airlines complain that Sydney airport CEO Max More-Wilton (Max the Axe from public service days) 'refuses to compromise with his customers'. Qantas complained that its new budget airline Jetstar was denied access to a terminal just 48 hours before its startup unless (AFR, 4 March 2005) 'it signed the same conditions of use as Qantas, which included indemnifying [Sydney Airport Corp Ltd] against negligent acts of SACL or its employees'.
The current most significance controversy over access pricing concerns the Dalrymple Bay coal loader, south of Mackay in northern Queensland. The coal loader is owned by Prime Infrastructure, a company created by various finance houses to buy the edifice. Prime bought the lease from the Queensland Government in 2001, for 50 years, with an option for another 40 years.
At current capacity, the Dalrymple Bay loader processes over a million tones a week, but it has not been sufficient to cater to rising demand buoyed by the ravenous demand from China. Fifty bulk carriers (weighing, it is claimed, seven times the size of the Australian Navy) sit on the horizon, waiting for entry.
The owners and the users (Rio Tinto again) cannot agree on price, and are publicly attacking each other. Says Rio Tinto (AFR, 16 December 2004), Dalrymple Bay is a low-risk investment. Therefore it deserves a lowish rate of return, which is what the Queensland Competition Authority has offered Prime. Moreover, Prime has take-or-pay contracts, by which Prime gets paid whether the coal gets delivered or not.
Prime says that the coal producers want a massive expansion in loading capacity at the drop of a hat. Not even the miners themselves expected the surge in demand. In any case, says Prime, the bottlenecks are sourced from the miners and the railways neither of which can guarantee reliable delivery. Prime claims that it is has a major expansion planned, but it needs long lead times, and it wants the QCA to give it a reasonable rate of return. The miners get massive price hikes from the Chinese and Japanese and want Prime to offer its services for sixpence. And on it goes.
On the 20 April the Queensland Competition Authority gave a second ruling on the price that Prime Infrastructure could charge for coal processing - $1.72 a tonne, up from its $1.53 a tonne ruling last October. This ruling is apparently lower than the present rate. If you want to understand the reasoning behind the $1.72, you have to wade through 200 pages. The QCA was under pressure from all parties (except the coal miners). Still, the QCA has capitulated only a little; the rate of return, while comfortable (9% up from 8%), is not in the higher regions sought by owners of monopoly assets. Prime duly sounds gracious and says it's working furiously on expanding its capcity.
Complication four. A new edifice of propaganda has been erected.
The private companies now have their hired guns, and there are now private infrastructure industry groupings, also with their own hired guns. These functionaries naturally spend full-time pushing a cause, knocking on Ministerial doors and filling the column inches of the business pages.
There's the group at the Institute of Public Affairs (Alan Moran, etc.). They were the first cab off the rank in lobbying for and defending the new regime. There's Henry Ergas, sometime OECD staffer and early privatisation advocated. He now runs a high-profile Canberra consultancy; and is a strong defender of an unregulated rampaging Telstra. There is Michael Hutchinson, now a consultant, who was the hatchet man of the Department of Finance's Office of Asset Sales. There is Brad Page of the Energy Supply Association of Australia. There is Greg Martin, CEO of AGL, also a big shot in the ESAA. There is Dennis O'Neill of the Australian Council for Infrastructure Development. And on it goes.
The general line is that now infrastructure is provided by a private competitive regime, regulation is passé. Regulation is holding back investment and distorting the market, etc. There's a nice play of logic here. Competition is a label that engenders support because of its emotional baggage. Competition is defined as what we do. Ergo, what we do is publicly beneficial. Regulation is both unnecessary and regressive.
A representative propagandist is Mark Christensen, economic consultant, previously a staffer at the Queensland Treasury and the Productivity Commission. An impoverished training in economics and employment in organisations with a narrow and/or ideological focus provides a natural breeding ground for those who would seek employment in defending an unregulated private infrastructure network. Christensen claims that a third party 'cannot adequately appreciate the intimate dimensions of the relationship between a buyer and a seller' (AFR, 13 April 2005). Yet the now growing conflicts between 'buyer' and 'seller' are ending up in the courts and consuming scarce community resources.
In short, monopoly control of infrastructure has generally been dismantled and has been re-assembled. Once it was public, now it's private. Conflicts over access have escalated. Conflicts over pricing have escalated. And a new cabal of carpet-baggers have arisen to cloud the waters.
The Government has appointed a taskforce to look at infrastructure, and the members are Max More-Wilton, Henry Ergas, and Brian Fisher. The old saw is that you never appoint a task force unless you know the answer, and this is the taskforce that gives you the answer you want. The answer will be that private owners of monopoly infrastructure should be given carte blanche, all in the name of unleashing the profit motive to expand infrastructure provision.
The airlines rightly say that More-Wilton's place on this committee is a clear conflict of interest. Ergas is the private monopolist's deregulatory consultant par excellence. Fisher is a 'coloured pens in the top pocket' agricultural economist who had run the Australian Bureau of Agricultural and Resource Economics for over a decade and who has never escaped from his impoverished education.
The state of play at Sydney airport is a disgrace. So also the membership of the infrastructure task force. All the major political parties are culpable; nothing but complicity can be expected from Canberra. And we've only seen the beginning of the price gauging and the inefficiencies.
Hilmer et. al. promised us a new era in the efficient provision of infrastructure. We now have a very complex and messy system and there is no indication that the major tensions in the new system will be readily resolved.
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