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Issue #1595      May 29, 2013

The race to privatise public infrastructure

In an ongoing battle of words with the federal government, NSW Transport Minister Gladys Berejiklian has declared that it is time to take politics out of the planning process, to create more incentives for the participation of investors in infrastructure development and to “demystify privatisation”.

(Photo: Anna Pha)

That’s Liberal speak for flogging off assets to the private sector as far and as fast and as cheaply as possible. Berejiklian says she was astounded by the degree of interest in the government’s recent sale of Port Botany and Port Kembla. But why not? These two key facilities for the marine transport of goods to and from Australia’s largest city were sold for the paltry sum of $5 billion.

The private sector can’t wait to get its hands on publicly-owned assets. Mark Birrell, chairman of the industry group Infrastructure Partnerships Australia and a board member of Infrastructure Australia, expressed exasperation that private corporations have had to wait so long.

“The challenge for all governments is what assets they’ll make available for these genuinely patient investors,” he declared sternly. The private sector, which is demanding a reduction in taxation for business, is arguing that governments have little choice but to sell off existing public assets in order to fund new public assets, which would then be sold off in turn when they had proved their profitability. That would establish a never-ending cycle of transactions whose major beneficiary would be the private sector.

And they’re critical of governments who either don’t dance to their tune, or not fast enough. The Queensland government recently hired former federal treasurer Peter Costello to audit the state’s public assets. Costello dutifully recommended that the state’s energy assets Energex, Ergon Energy and Powerlink should all be sold off.

When the government hesitated, Scott Charlton, chief executive of the toll road corporation Transurban, said:

“Just to take these assets off the table and not have the opportunity to capital-recycle is a bit disappointing at this point in time, given the position of the Queensland budget.”

The O’Farrell government commissioned former state premier Nick Greiner to prepare recommendations for public transport and for improving Sydney’s main traffic routes.

Ignoring the skyrocketing rise in electricity rates where the electricity facilities have been privatised such as in Victoria, or are state-owned but operate under profit maximisation rules such as in NSW, he added: “It’s impossible to believe that assets particularly like electricity, won’t be sold into a private market. The economic and financial [cases are] overwhelming and most importantly you get a very good return for the consumer”.

Changing tactics

Government infrastructure offers the private sector riches beyond the dreams of avarice. However, there are often political reasons why pro-privatisation governments can’t immediately jump into “lock, stock and barrel” sales of their most valuable assets.

The former Iemma Labor government in NSW expressed interest in converting Sydney’s entire rail network into an underground metro system with single deck trains, offering private transport corporations a chance to take over the railways, probably under a public/private arrangement. It would also have released vast areas of land currently used for the railways and rail facilities, for real estate development.

But objections from the public, and the refusal of the federal government to consider the plan put paid to this proposal. Likewise, arch-privateer Greiner’s proposal for a complete rebuilding of the inner city network, which would have meant that access to the city by public transport would have been restricted to buses for several years, has been blocked by public objections and screams of outrage from businesses operating in the city centre.

Those megalomaniac schemes have now been shelved, but that doesn’t mean they won’t be dusted off and revived in the future. The ongoing strategy is to sell off whatever you can get away with, and the current tactic of conservative governments is to sell off their major assets bit-by-bit, albeit in very large chunks if possible.

The O’Farrell government is now planning to construct Sydney’s long-awaited north-west rail line as a single deck metro system, under private operation, and with tunnels too low and narrow to permit the big double-deck trains to ever operate on them.

Installation of a totally different rail system makes no sense in terms of either economics or engineering, when considered in the light of the public interest. However, it certainly makes sense for private transport corporations, who want the public to become accustomed to the idea of having a mix of public and private transport systems operating in tandem. Such an arrangement would in turn leave the way open for the longer term piecemeal privatisation of the entire network, and it would reduce the economic argument for converting the line back to public operation.

Sydney’s short, privately operated airport line has ticket fees up to five times the cost of travel on a similar number of publicly-operated suburban stations. Successive governments have got away with it so far, because people will pay the extra cost for convenience and reliability when they’re trying to catch a flight.

That wouldn’t work in the case of the north-west line, which is expected to carry hundreds of thousands of passengers to their places of employment, and who would raise the roof over having to pay more than a workmate travelling on a publicly operated line. The most likely outcome in that case would be that the government would guarantee to subsidise the corporations if they failed to reach a given profit margin.

That’s certainly not in the public interest. Nor is the public well served by the interests of various private interest groups, for example, the oil and vehicle industries, or the construction and other firms involved in road transport.

The Atlanta Olympic Games demonstrated with devastating clarity the inefficiency of private transport. Yet in Australia the construction of new road systems still occupies the key position in government transport planning and funding for major population centres.

A recent study of Melbourne’s traffic congestion reached the very predictable conclusion that new traffic arteries begin to clog up almost as soon as they are completed, and that the solution lies in more reliable public transport.

Graham Currie, professor of public transport at Monash University, commented: “Whenever we increase road space we increase traffic. We are not fundamentally solving the problem of congestion”.

Private interests are also benefiting from the astronomical cost of road and freeway construction, with construction firms offering private-public partnerships that suit them very nicely, and transport firms collecting the tolls.

Infrastructure involves all the physical assets that governments need to provide public services, including hospitals, railways, schools, libraries, police, defence, energy, everything. All of that is on the privateers’ list, and it’s up to us to keep it out of their hands.   

Next article – A People’s Budget

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