US President Joe Biden’s bipartisan infrastructure bill is inching closer to reality, with investors increasingly hopeful that the spending might unlock opportunities for private capital – including, perhaps, elusive privatisations in sectors such as transport.
Australia has pursued asset recycling for a long time now, with its fund managers keen to see the model exported Stateside. But the country’s competition watchdog last week reiterated a call for caution over how these deals are done.
Speaking to the 2021 ACCC/AER Regulatory Conference, Australian Competition and Consumer Commission chair Rod Sims said the country needed to avoid creating monopolies when selling off infrastructure assets – or if monopolies are created, he argued, they should be much more tightly regulated than they are now.
“Privatisation can generate important benefits to the economy, such as improved incentives for cost control, investment and innovation to meet the needs of consumers,” Sims said. “There have been many examples of privatisations that have been done well and that have benefited Australia… The problem is that, in more recent years, many of Australia’s key economic assets have been privatised without regulation, and often with rules designed to prevent them ever facing competition. This makes us all poorer”.
He added: “We should either privatise to improve the efficiency of our economy, which clearly can be done, or not privatise at all.”
Sims suggested that the federal and all state governments in Australia could agree not to privatise assets unless there has been a public regulatory and competition assessment conducted beforehand. Alternatively, a market power test could be introduced to decide whether assets with “significant levels of market power” should be regulated once privatised.
This is not the first time the ACCC has banged this drum, particularly when it comes to airports. In its 2020 Airport Monitoring Report, it said its monitoring role was “ineffective at constraining the ability of the monopoly airports to use their market power”, despite the Productivity Commission and the federal government backing the existing regime of light-touch regulation.
Last week, Sims argued that airports and ports were effectively unregulated infrastructure assets, a characterisation disputed by two fund managers who spoke to Infrastructure Investor.
One fund manager told us that Sims’ speech was illustrative of a recent push to try and turn the ACCC into a de facto regulator in multiple industries, thereby broadening its remit, as it has become bolder in intervening in M&A deals in recent years.
Back in 2020, when this argument was last aired publicly in a significant way, investors banded together to defend their record. They argued their investment had done more to stimulate competition, and thus lower air fares for passengers, than any potential reduction in charges to airlines that a regulator might try to enforce.
On the separate issue of ports, the ACCC recently lost a court case brought against NSW Ports over its privatisation agreement with the New South Wales government, arguing it was anti-competitive.
As with every single airport privatisation, though, the investors in NSW Ports signed the deal that the government of the time was willing to agree. Reneging on that deal years later does not set a good precedent either.
And as to the criticism of monopolies: in a country like Australia, where every state capital is served by one major international airport, how can you increase competition without building another airport in each one?
It isn’t clear at all that increasing regulation would result in lower airfares. It might only restrict investors’ willingness to put their capital to work in the sector instead.
Starting Monday, 9 August we will be sending our daily and weekly digests earlier, so you can start your day right with our industry-leading insight. With that in mind, here is a quick regional breakdown of when we will be sending our newsletter emails:
Asia-Pacific: 9am Hong Kong Standard Time;
Europe: 9am British Summer Time/10am Central European Summer Time;
North America: 9am Eastern Daylight Time.