7.30 Qld interview on asset sales

Last week, Maria Hatzakis interviewed me for the Queensland edition of the 7.30 Report, which aired on Friday night:

Privatisation push as power prices surge again

In understanding why the sale of electricity assets is desirable, the Productivity Commission’s Electricity Network Regulation Inquiry Report from last year is instructive:

While governments have a legitimate role in owning and operating many services in Australia, the rationale for state-ownership of electricity network businesses no longer holds. This reflects the development of sophisticated incentive regulations that function best when the regulated businesses have strong cost-minimising and profit motives… (from page 24)

…There are strong arguments for privatisation of these businesses. There is no evidence that the productivity, reliability, quality or cost performance of private sector electricity network businesses is worse than their public sector equivalents. To the contrary, the evidence in Australia and internationally suggests that such private sector enterprises are more efficient. (from page 25)

Hence, privatisation would most likely result in lower costs and prices for consumers (relative to what they would otherwise be). In my view, there is a strong case for selling Energex and Ergon as well as the generators and Powerlink.

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2 Responses to 7.30 Qld interview on asset sales

  1. Jim says:

    Gene

    Well done on the interview. Unfortunately the way the ABC produced the story, there wasn’t a particularly cohesive picture of the whole situation (your comments about credit ratings, interest costs, and labour) and John’s about the State balance sheet. Effectively, you were both making legitimate and probably correct claims, but about different (albeit interrelated) things.

    The Productivity Commission report is interesting, but I’m not sure the PC’s own analysis necessarily supports their claims about the relative efficiency of the private sector. Their crude metric to underpin their claim is data on opex per km of lines for various State and privately owned companies. The data appears to show three clusters of companies based on the number of customers per km of line (higher density, medium density and low density areas). Only in the low density areas are there both State and private operators. And in that cluster, there is virtually no difference in opex costs per km. So I’m really not sure what the empirical analysis actually tells us at all, apart from the jury is still out.

    We still need some comprehensive and cohesive analysis on the issue of privatisation, before informed decisions can be made.

    • Gene Tunny says:

      Thanks Jim. Good point about the PC’s statistical analysis. They’re claiming a lot based on a line of best fit through a small number of data points, but I think they’re on safe ground given international evidence of higher costs in public enterprises.

      I agree we need comprehensive and cohesive analysis of privatisation. I suspect it would support the case for privatisation, but it’s worth doing nonetheless.

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