This was a year in which the benefits that infrastructure investors gain from ownership of monopoly assets came under renewed scrutiny from politicians, regulators and the general public alike.
The debate was particularly loud in two developed markets for infrastructure investment: the United Kingdom and Australia.
In the UK, amplification came from the Labour Party’s ultimately unsuccessful campaign in the 2019 election, where it promised to renationalise a swathe of different industries in transport, energy and water. In the latter, regulator Ofwat ended the year by signalling what it called a “transformation” for privately owned water companies, which now face an allowed return of 2.96 percent, the lowest since the sector was privatised in the 1980s.
Down Under, meanwhile, monopoly owners of airports and ports came under fire from their own customers.
The chief executives of airlines Qantas and Virgin Australia shared a rare joint platform in September to decry what they argued were “excessive profits” being generated by airport owners, a view which was robustly disputed by the investors themselves. Regulators and government ended up siding with the airports in that argument.
Port owners faced challenges on multiple fronts. NSW Ports, owned by an IFM Investors-led consortium, was subject to a legal challenge from the Australian Competition and Consumer Commission over what it called an “anti-competitive agreement” it signed with the NSW government when the assets were privatised in 2013.
And the Port of Newcastle, jointly owned by The Infrastructure Fund and China Merchants Group, faced a court case from one of its customers, Qube Holdings, over the use of its monopoly power with regards to stevedoring. That came weeks after an apparent resolution to its dispute with another customer, Glencore, over access charges – which is now also being challenged by the ACCC in court.
It’s fair for investors to point out that they are only signing the deals that the governments in question agreed to – it’s not as if they forced anyone to hand over these assets.
But it’s also fair to say that the pressure is growing, and if governments and regulators make the rules at one point in time, they can change them later (or in some cases, the courts can).
As ACCC chairman Rod Sims said about the Port of Newcastle this year: “It is bad for the economy when bottleneck infrastructure, at the end of a crucial value chain, is in the hands of a company with unfettered market power. A monopolist in that situation will always use its power; the question is only by how much and how often.”
Investors must show their customers – whether they are businesses or the general public – that they care about them, and not that they own an asset just to secure a dividend.