Asset sales’ benefits not sold

Opinion

Richard Harris, WA IPA Chairperson

In the shake-out after the Queensland State election, one issue has WA political hardheads pondering how to best position their parties — the privatisation of public assets.

Queensland Labor built its spectacularly successful campaign on a pledge to turn back the Liberal National Party’s ambitious privatisation program.

In a step that frustrates many espousers of free enterprise, the public voted with its feet and I doubt any Queensland government will be brave enough to mention the P word for many, many years to come.

The big question now is whether privatisation is off the agenda for all State governments?

In WA, the Government embarked last year on the first baby steps towards selling some of its infrastructure and land assets.

Although the scope of assets is much more modest than what was proposed in Queensland, there are still some key lessons to be learnt.

Historically, asset sales by governments have generally not been well accepted by the public.

They are often viewed cynically as simply trying to cash in, and the resulting service to consumers is perceived as being of higher cost and poorer quality than before privatisation.

These perceptions proved too much in Queensland and a party with a record number of seats lost power after one term largely because it failed to convince the public of the benefits of selling assets.

But are those negative views always justified?

Governments and the buyers of assets have not generally put much effort into selling the benefits of privatisation and highlighting good examples of successful outcomes.

When selling assets, governments and buyers need to bring the public with them to support the process and the new privately run services.

There is a good argument to be made for moving assets that no longer need to be run by the government into private hands.

Traditionally, governments have owned assets or operated services that don’t fit within a market setting but provide an essential service to the public.

However, the market economy is constantly evolving and many services that were once provided only by governments are now provided by private companies.

Think airlines, banks, telecommunications, gas and even hospitals and prisons.

In WA, roads and water are still considered essential services to be provided by the government. Gas is fully privatised and every gas consumer in the South West has the choice of gas supplier.

Electricity is in a halfway house — part private and part public.

Gas is a good example of a successful privatisation, which would have benefited from more effective early communication of the advantages it would bring.

I was involved in the privatisation of AlintaGas and my job was to make sure that the sale of the business didn’t lead to a private monopoly.

I had to ensure there was a regulatory framework to encourage other private gas companies to come in and compete with the privatised Alinta.

That has happened and customers have a choice of two major companies competing to provide gas to WA householders.

Although putting in the regulatory framework showed foresight and has resulted in a competitive market, at the time the sale was controversial and more could have been done by the Government to inform the public and win its support.

It is important governments consider the end-users of the service and not simply look at the price they might get for an asset.

If privatisation has genuine benefits for consumers by increasing competition and providing more choice, the process can be explained to the community as bringing a net benefit.

So which public assets pass that test in WA?

Given my background, I feel most qualified to look at the power sector, which provides two clear options for privatisation.

Power is a service that no longer needs to be produced by the government.

The Government’s role should be to make sure a rigorous policy framework is in place to ensure competition and make sure the lights stay on.

The best way to achieve greater competition and keep electricity prices down would be to split Synergy, which dominates the market, into two or three competing “gentailers”.

One or all of these independent companies could be sold to the private sector to create a more competitive market.

A less ambitious option would be for the Government to just sell Synergy’s power stations.

The value of WA’s State-owned power stations will fall over time and the Government will need to find big sums of money to replace or repair them — think of the $308 million cost overrun to refurbish Muja AB.

Private companies can provide this service more efficiently and with less risk to the taxpayer.

This piece was published in The West Australian newspaper February 4, 2015.