28/01/2014 - 13:21

Early days for privatisation

28/01/2014 - 13:21

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There is some excitement about the potential sale of state-owned assets.

Early days for privatisation
DUD DEAL: The state gave away a 99-year lease over Subiaco Oval to the WA Football Commission in the 1980s. Photo: Bohdan Warchomij.

Mixed signals are emanating from the investment banking community about the potential sale of state government assets.

Department of Premier and Cabinet director-general Peter Conran and under-treasurer Tim Marney head up a task force which is to report on the options available to the government in the lead up to the state budget in May.

Ernst & Young has been appointed an independent adviser to the task force.

I gather brokers and advisers are now being consulted about the prospects for the sale of assets via routes such as a stock market float or trade sale.

This has got some in the sector excited as a mechanism to boost the market and, importantly, earn some fees.

Others, though, are more guarded, suggesting that Premier Colin Barnett is lukewarm on the idea and, with the state’s finances looking better with every drop in the Aussie dollar, there won’t be as much action on the privatisation front as the market hopes.

Mooted assets for sale are hard infrastructure such as Utah Point within Port Hedland’s jurisdiction, the Kwinana Bulk terminal, wastewater treatment plants, and even Kaleeya Maternity Hospital in Fremantle. Also talked about are enterprises such as the TAB betting agency.

While local investment bankers would like to see the state government stimulate a bit of activity in their sector, they acknowledge that the timing might be awkward. For instance, Western Australian port sales would be competing for buyers with similar assets on the east coast, where conservative state governments have much more alarming budget positions to deal with.

I welcome any asset sales that free up the state, both in terms of providing government capital to invest in new infrastructure and getting the bureaucracy out of operational matters.

While the track record of privatisations is patchy, I reckon that the government is definitely better out of the picture, except as a regulator to ensure all users are treated fairly.

The biggest successful privatisation has to be the sale of the Dampier-to-Bunbury Natural Gas Pipeline. While it has had a few owners since its sale by the state, some of which have struggled, few on the consumer end could complain too much.

Alinta and Bankwest were both successful for a time. Despite the promise they would remain WA-owned, however, outside operators eventually moved in to buy them or their key assets. I have no problem with that, but it is in contrast with the promise of having big local companies based here. Of course, I don’t believe anyone bar a tiny minority would ever think that turning the clock back to state ownership would be sensible.

Super fund GESB, of course, never quite made it into private hands – its mutualisation was halted at the 11th hour.

Arguably Perth Airport is another successful privatisation, albeit it was a federal decision. The only problem with that, in my view, was the delayed delivery of much-needed infrastructure expansion during the mining boom.

It is hard to argue, though, that any owner, state or private, could have responded more quickly to the market’s rapid change or the unique set of circumstances that were part of such an unusual asset.

New privatisations will come with two core issues. The government will want to maximise the price, and the union-dominated opposition will cry wolf over shifting such things to the private sector where they are much harder to use as political footballs.

The first is often problematic, from my point of view. Maximising the sale price is the prerogative of any owner, but the government has the unique advantage of setting the rules, such as maintaining monopolies. Privatisation of monopolies might give the treasurer a big cheque to spend, but it also costs consumers and business more in the longer run.

Breaking up monopolies might reduce their sale price, but there is always a consumer and business benefit from competition – and that generates more taxes too.

Talk of privatisation ought not just be about existing assets either.

The new sports stadium being built at Burswood is a case in point.

Once it is built there is no reason for the government to own it. There is, of course, precedent for this. The state literally gave away a 99-year lease over Subiaco Oval to the financially troubled WA Football Commission in the 1980s. What a windfall that was for football.

Clearly a better deal should have been won for the state. At the very least the state should have had a clause requiring the land to be returned in the event of taxpayers building a new stadium.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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