11/04/2012 - 10:09

Total separation crucial in privatisation

11/04/2012 - 10:09


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Two court battles involving government agencies competing with private operators expose anomalies.

Two court battles involving government agencies competing with private operators expose anomalies.

I am big believer that there are times when the government has to do things that are essential for our community but, if and when the private sector is willing to take on those tasks, the state should get out of the way.

In my lifetime I have seen the state leave many areas of business via privatisation. The Commonwealth Bank and Bankwest (now virtually one and the same) and Telstra are just some examples. 

Sure, we might bag them but is that any different to them being in government control? Do we really like banks or telcos any less than we did before? There are also infrastructure sell-offs such as the Dampier to Bunbury Natural Gas Pipeline and Perth Airport. 

But there is a lot more than just privatisation, which often just transfers a state monopoly into private hands. 

There are many areas where the government competes with the private sector.

Sometimes the state-owned enterprise has ended up in competition because new private players have emerged to offer similar services.

In other cases, a government corporation has gone into a new business a sideline, often using its monopoly core business to sell new services, either to make up for less state funding or simply as an attempt to remain relevant. 

In the media there are good examples of this in the ABC.

ABC radio was, no doubt, without peer when it was formed as a national broadcaster. It still provides news into highly competitive markets.

But in recent years, in order to earn more income, the ABC has opened retail outlets that sell books and audio-visual material in competition with bookshops and record stores. 

Despite its non-commercial charter, the ABC has advertised the availability of these items on its broadcast channels, giving it a competitive advantage.

I don’t agree with this. I don’t see why other retailers ought to, in effect, subsidise, the ABC’s core service.

It was with this in mind that I noted two markedly different courtroom jousts taking place, which involve government agencies competing with private operators.

The first was a battle over the name Digital Post Australia, a joint venture launched recently by Computershare, Salmat and Zumbox Software. The names of the partners somewhat give away the concept, being a place where people can receive virtual mail and do transactions such as share purchases and manage digital records.

I thought we could do all this already but clearly these guys reckon there is a better way, as does Australia Post. 

Once just the postal service, it recently launched its own Australia Post Digital MailBox, which does much the same thing. It has taken legal action over the name.

Australia Post has a monopoly over the standard letter, until recently an important public and business service, which has long-been subsidised by the government. 

Australia Post branched out into express delivery some time ago, even though there are plenty of private players, like DHL and FedEx, using its incredible infrastructure and network to compete.

Australia Post was meant to be killed off by the advent of email but it has thrived due to the link between online shopping and parcel delivery. 

It now wants to extend its reach into this new digital world. Why?

If it is just about survival, then I think this is wrong. Similarly, if it is just about making profits to help keep the price of a standard letter down, this is also wrong.

Unless you are nostalgic, there is no reason Australia Post should exist after the last letter is posted.  On the flip side, there is a distinct possibility that as demand for letters recede the cost of keeping the infrastructure available would be too much for any government to bear. 

Imagine the cost of that last letter, with thousands of post offices and posties around the country waiting to ensure its final mailbox is reached, wherever that might be.

I am not saying it is an easy decision but the postal service’s real estate alone would reap the nation billions. 

At some point, a few letters ought not be enough reason to have this national giant competing with dozens of others businesses, including retailers, just as the ABC does.

Another interesting example was a complaint handled recently by the Australian Government Competitive Neutrality Complaints Office, a body I have never heard of previously, which is part of the Productivity Commission.

AGCNCO received an allegation from private group Cyclopharm that the federal government’s Australian Nuclear Science and Technology Organisation, ANSTO, was not complying with the competitive neutrality policy.

Cyclopharm lost a bid to ANSTO’s subsidiary, PETNET, and has complained that the competition was not fair. 

It says that, as a government body, it has much lower costs than a private sector player and could, therefore, undercut it because it did not have to earn a commercial rate of return.

Without going into the detail, Cyclopharm’s complaint was about PETNET winning a deal to supply radio-pharmaceutical products, presumably for nuclear medicine, to public hospitals in NSW.

Cyclopharm has invested capital in a cyclotron, a move that does not sound cheap. It is being outbid by a federal government body using the long-established Lucas Heights facility in Sydney.

Worse than a private sector player being outmuscled by a federal government agency, is that fact that the contract win was for a state contract. 

That means the taxpayers of Australia are subsidising the taxpayers of NSW, as well as inhibiting a private business that has invested in that sector.

On the face of it, that just sounds wrong.

If a private sector player is willing to invest in Australia, then the state ought to step out. Certainly, governments at every level need to be watchful that the private sector does not create monopolies or abuse market power but, even there, that is typically what creates competition.

In local terms, I have had my say on the Western Australian government’s opposition to full private port development at James Point in Kwinana. 

It appears to me that in attempting to maximise its investment in Fremantle, the state is prepared to kill off competition. Anyone importing goods or commodities will pay more than they need to for that, a cost that will be passed on to all of us. Why? The answer, to use a shipping term, in my view is unfathomable.

There is no doubt that Fremantle’s port infrastructure ought to be retained to provide a certain degree of competition, so that importers can have peace of mind that one monopoly won’t be replaced by another. 

The current operation could be put in private hands (there are plenty of infrastructure operators) to distance the state from the unsavoury business of competing with private capital.




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