It’s been another interesting week Down Under when it comes to regulators having their say on privately owned infrastructure.
First came the decision last week from the Australian Competition and Consumer Commission to take NSW Ports to court over what it called an “anti-competitive agreement” the ports operator signed with the New South Wales state government during the privatisation of the Botany and Kembla ports in 2013.
The ACCC claimed the agreement has lessened competition because it makes the development of a new container terminal at the Port of Newcastle less financially viable. But if you follow this logic, you could argue the government did the right thing in this transaction, as the agreement meant the Botany and Kembla ports were worth more.
The next day, the auditor-general of NSW, Margaret Crawford, published a report that found the NSW government “did not assure value for money was optimised” during the privatisation of 50 percent of electricity distributor Ausgrid in 2016.
She also questioned whether the unsolicited bid should have been considered at all. Specifically, Crawford argued it should not have been classified as “unique” as is required under the government’s own Unsolicited Proposals Guide – although the government says it was following the advice it had at the time, including about whether the sale represented fair value.
So, we have a situation where the government is accused of artificially inflating the price of one asset by lessening competition while failing to maximise the price of another because of poor negotiation and not following procedure. What lessons can be learnt here?
To avoid situations like this, governance must be improved, and guidelines tightened. The process is clearly not quite right in either of these cases if perceived mistakes are highlighted so long after the fact.
In particular, competition law needs to be re-examined, as the ACCC case highlights.
Whether you believe the ACCC is right about NSW Ports or not, the way this has come about is far from ideal. How can it be right that private investors are taken to court five years after the fact, but the government itself is not party to those proceedings because the law does not apply to it?
How can it be that the ACCC felt it was unable to intervene earlier in this process, such as the point at which the deal was being signed?
If the law doesn’t allow it, then it is not fit for purpose.
This issue reared its head earlier this year when the ACCC cleared Transurban’s bid for WestConnex despite its contradictory ruling implying the road operator had an unfair advantage during the process. The ACCC’s review only applied to WestConnex in the context of how it would affect future toll road concessions, not that transaction in isolation.
There is clearly huge demand for infrastructure among investors, highlighted by our fundraising figures which show 2018 will be a record year, so it’s unlikely they will be scared away by any confusion or uncertainty that these recent headlines might cause.
But the real damage is done in a different way. For privatisations to be truly effective, the benefits need to be properly communicated to all stakeholders, especially those consumers who make use of the assets.
Inconsistent action from regulators lessens trust in private owners of infrastructure, fairly or not, and criticism of a government that can’t be punished inevitably leads to the private sector being tarred with the same brush.
It is incumbent on all parties to work together to ensure this does not keep happening in Australia.
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