Sims threat to big state asset sales – Australian Financial Review

PUBLISHED: 23 JUN 2014 00:06:00 | UPDATED: 23 JUN 2014 10:37:40

Australian Competition and Consumer Commission chairman Rod Sims warns that the new wave of state government privatisations, including electricity ­distributors and ports, could hurt competition and push up prices.

In an apparent hint that he may be prepared to block asset sales at the ­centre of Treasurer Joe Hockey’s plan to drive economic growth, Mr Sims says competition has taken a back seat in the recent wave of state-owned asset sales.

Australia has lost “a lot of its pro-competition culture” gained from Fred Hilmer’s landmark review of competition policy 20 years ago, he says.

“Privatising in ways that limit competition in order to maximise the sale proceeds is the wrong way,” Mr Sims will tell a conference on Monday.

More than $57 billion in federal and state-owned assets are expected to be sold over the next few years as the federal and state governments use ­privatisation to pay for infrastructure.

Mr Sims’s views are important to the sales because in some cases the purchases may have to be approved by the ACCC. He expressed concern about the increasing vertical integration of the electricity market, saying it was at the centre of the ACCC’s veto of AGL’s purchase of Macquarie Generation in March on the grounds it would substantially lessen competition in NSW electricity retailing.

Some ports are being sold without appropriate open access or price controls and Mr Sims says he is concerned about the sale of the Newcastle, Botany, Kembla and Brisbane ports.

“They’re the ones that have been sold where there are no price controls, so they have price flexibility on monopoly assets,” he told The Australian Financial Review on Sunday.

“We’ve also run into issues where we’ve had to scramble in relation to issues of vertical integration and try to see whether we can come up with mechanisms to deal with vertical integration problems, because there is no access arrangement.”

He plans to write to the federal government and each of the states and argue that the push to maximise profits from assets sales by selling monopolies or near-monopolies will effectively impose a tax on future generations.

He will criticise the push to create “national champions” as an example of a declining pro-competitive culture.

He will single out Telstra chief executive David Thodey for a 2012 comment that while three phone companies led to “very rational” pricing, four or five created “behaviour that can be aberrant” for shareholders.

He says that while it may be ­“inconvenient for established companies to be challenged by new entrants, consumers lose from higher prices and less innovation”.

He is concerned about comments made by the Victorian Treasurer Michael O’Brien over the Port of ­Melbourne sale, in which Mr O’Brien said one way to add value to the sale price was to allow rights or options to develop the state’s second container terminal at the Port of Hastings, “you are effectively conferring almost a monopoly”.

“Just him saying that indicates the mindset problem that is there,” Mr Sims said on Sunday. He urged a review of competition policy now being led by professor Ian Harper to take a “national rather than sectional perspective”.

NSW wants to sell 49 per cent of its electricity network, Queensland has proposed the sale of its electricity ­generators and Victoria plans to sell the Port of Melbourne.

Mr Sims says that state governments are failing to have multiple players involved in the sale process, especially for electricity networks and ports.

“Some governments are privatising ports without appropriate open access regimes, nor controls on pricing,” he will say. “The ACCC is becoming aware of an increasing level of concern among businesses that are most directly affected by the sale of upstream monopoly assets to downstream competitors. The trade-off here is short-sighted and the costs in terms of productivity and investment are likely to be significant.”

He will also raise concerns over the decision to allow Sydney Airport the first rights to develop the city’s second airport at Badgerys Creek.

“Imagine the benefit to Sydney to having two airports competing for your traffic,” he said. “The focus is on success as maximum proceeds, which of course it is for the private sector, but for the public sector you really should be doing this for the efficiency gains of your country or state, that’s really why you should be privatising. That’s where getting the market structure right is the number one objective, then once you’ve got that right you can try and maximise the proceeds.”

On Sunday, NSW Premier Mike Baird defended the sale of a 49 per cent stake in the state’s electricity distribution network, estimated to net $13 billion, despite him blocking Labor’s attempt to do so six years ago.

Mr Baird told Sky News there were global financial crisis concerns and capital uncertainty at the time.

He said the funds were needed for infrastructure. “What we have put forward I think is a once-in-a-generation opportunity,” Mr Baird said.

Mr Sims will tell the conference that public policy is not talking enough about competition and incentives and that talk of “national champions”, a trade-off between competition and international competitiveness, is worrying. He will say Australian companies should not seek restrictions on competition if they want to make it in a global market.

“If you cannot beat your rivals at home how can you hope to do so overseas?” Mr Sims will say. “Firms involved in cosy duopolies or oligopolies in Australia are unlikely to succeed on the world stage.”

Mr Sims will say the part of the Competition and Consumer Act which ­provides cartel immunity to registered international shipping lines to enable them to co-operate with each other should be revoked.

He will also say there is a significant gap in the coverage of the misuse of market power provisions in section 46 of the act because of its failure to capture unilateral conduct which has a deleterious effect of competition and due to the way the “take advantage” part of the test that is currently applied.

Mr Sims says the proposed $1.5 billion acquisition of Macquarie Generation, by AGL, highlighted too much vertical integration would have reduced competition compared to if the asset as held by the state government or sold to another purchaser. He says such an outcome could lead to higher electricity prices and less choice.

The acquisition was rejected by the ACCC earlier this year and is now before the Australian Competition Tribunal.