Sims gets some support over privatisations disquiet

By: Rob McKay

Glencore backs position while ALC points to existing position

Sims gets some support over privatisations disquiet
Glencore won’t let the Port of Newcastle fee hike go


Australian Competition and Consumer Commission (ACCC) chairman Rod Sims has gained support for his critique of how privatisation has morphed from an efficiency tool to a cash source.

The strongest statement has come from international commodities trader Glencore, which is in conflict with the privatised Port of Newcastle over a hike in shipping channel fees.

"Glencore believes there are lessons to be learnt from privatisations which resulted in a significant increase in the cost of access and enabled the monopoly owner to extract excessive rents from users," a Glencore statement says. 

"We believe the privatisation of key infrastructure assets used by the mining sector should be regulated in a manner that does not penalise industry unfairly or undermine the economic viability of future growth and investment in the sector."

Glencore’s coal operation recently won an Australian Competition Tribunal (ACT) appeal against the fees rise but the port company this week lodged an appealed with the Federal Court against that decision.

Asked about the points Sims made, long-term transport infrastructure privatisation and asset-recycling supporter the Australian Logistics Council (ALC) points to its existing position on how they should be handled, to maximise the economic and social benefits.

In a position that looks broadly supportive of Sims, this states that governments should properly explain to the community the potential benefits of asset recycling proposals.

"This should include publishing a business case or cost benefit analysis to help explain to the community the financial reasons for the asset disposal and to identify the public benefits that will accrue as a result of the disposal," the position statement reads.

"It goes without saying, any proposal to sell, or offer a long-term lease for any piece of infrastructure must possess a net positive benefit."

Funds raised from the lease or sale of infrastructure is in turn invested in the productivity enhancing infrastructure, such as infrastructure links to the port

Assets must be sold "for the right price and not at any price and the sale or long-term lease of an asset should not be pursued to the detriment of competition and freight efficiency".

Analysis conducted to support the sale or long-term lease of an infrastructure asset should consider:

  • whether the proposed sale will promote competition and efficiency
  • the need as to whether the subsequent operation of the asset should be the subject of economic regulation, so as to permit the efficient use of the asset to the benefit of the Australian community as a whole.

Of particular concern are:

  • vertical integration - vertical integration will provide the any recycled monopoly asset or entity with the ability to leverage its power in monopoly markets into vertically related competitive markets, thus distorting efficient market outcomes; and
  • monopoly pricing – any recycled monopoly asset or entity should have its pricing subject to government oversight, typically by the ACCC or state based economic regulators, as appropriate.

The ALC insists these two issues must be addressed in any asset recycling program.

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