Ernst and Young oversell privatisation

Ernst and Young, leading consultants to the Queensland government have released a report claiming that electricity costs would be lower under privatisation. Although the report was commissioned by private infrastructure lobby group Infrastructure Partners Australia, it’s just a rehash of the same line EY have been pushing for years in similar reports commissioned by pro-privatisation governments. The central claim is that electricity prices have risen more in Queensland and NSW, under corporatisation than in Victoria and SA, under privatisation. What they don’t tell you is that this merely offsets increases imposed in the leadup to privatisation, with the result that retail prices are much the same in all four states, and far higher than when the process of market reform (supposedly to reduce prices through competition) began in the 1990s. Here’s the response I issued:

Media Release

Professor John Quiggin, of the University of Queensland criticised the Ernst and Young report on privatisation of the electricity industry.
The Ernst and Young report ignores the biggest factor leading to higher electricity prices throughout Australia: the failed process of market reform, corporatisation and privatisation of which the LNP government’s asset sales is a part,Professor Quiggin said.
Although the problems have differed from state to state, there is no evidence that states which undertook full scale privatisation in the 1990s have performed any better. South Australia has some of the highest electricity prices in the world, and Victorian prices are comparable to those in NSW and Queensland.

30 thoughts on “Ernst and Young oversell privatisation

  1. @jungney
    Hinch’s comment “bitter old queen”, does it stand the test of fact? Bitter, check; old, check; queen…

    To whatever extent the comment may be seen as a defamatory slur, it would turn on whether the word “queen” is accurate, and whether it is offensive to people it signifies, i.e. has a derogatory connotation beyond being a synonym for male homosexual.

    It is quite bizarre how quickly various LNP members launch into suing for defamation, almost at the drop of a hat, and yet they are the first to man^fn1 the barricades in defence of “free” speech.

    fn1: I’d say “people” the barricades, except most of the litigators are men.

  2. @Donald Oats
    Thanks fro the acute and brief analysis. “Bitter old queen” could have been much more damaging had it been “bitter old cottager” which would have referenced Jonesy’s arrest in London, many years ago, for soliciting in a public toilet. The toilets preferred by men who were game were repro dunnies with thatched roofs and some type of wattle and thatch walls. Seriously. Roy and HG have made much play of this.

    In general, I reckon that frauds like Jones get what they deserve, whatever their sexual preferences might be. God alone knows about the sexuality of the high and mighty. Just look at the mess that ole Prince Andrew has got himself into. Old school ruling classes rooting the plebs? Never! What a slur on patrician rule. Gadzooks, pistols at dawn.

    Watch that space. What a hoot. It’s like watching the French Revolution in real time.

    Who would have thought?

  3. Pr Q said:

    The central claim is that electricity prices have risen more in Queensland and NSW, under corporatisation than in Victoria and SA, under privatisation. What they don’t tell you is that this merely offsets increases imposed in the leadup to privatisation, with the result that retail prices are much the same in all four states, and far higher than when the process of market reform (supposedly to reduce prices through competition) began in the 1990s.

    Utility privatization is a glorified rort masquerading as economic reform. The level of economic analysis by the he said-she said journalists recycling spin-doctored press releases is embarrassing.

    Pr Q is charitable to a fault here. The privatizers have shameless debating ethics where bait-and-switch and apple-to-oranges comparisons are SOP. The state owned NSW and QLD electricity networks have much higher maintenance overheads because their network coverage area is much larger and more spread out than VIC and SA. SHane Green of the Age puts out the E & Y garbage by quoting an Australia Institute critique:

    It has backed up its argument with a Treasury-commissioned report from Ernst and Young which found electricity network prices are lower in Victoria and South Australia as businesses are more efficiently run by their private owners. But the new report, Nothing to gain, plenty to lose, argues the Ernst and Young analysis is flawed because it did not take into account the larger physical span of the NSW network. It says this leads to higher costs due to the need for more staff to service more poles and more vegetation management.

    The report compared overhead costs of NSW companies Ausgrid and Endeavour Energy with the Victorian company AusNet, owned by Singapore Power and State Grid Corporation of China – touted as potential bidders for NSW assets. The comparison found AusNet had higher overhead costs and faster growth in overhead costs.

    The whole privatisation program is obviously a lucrative move by capitalists who have run out of entrepreneurial ideas and decided to move into the governments role because its a safer bet with plenty of up-side. Nice monopoly niche so they can gouge the public with extortionate prices. Bonuses for managers who hit their KPIs, which include shedding maintenance staff. And of course very little oversight from cony capitalist politicians whose wheels have already been greased with a nice little post-political career earner, usually a sinecure on the board of some investment bank.

    Green focused on Kennett’s 1992 privatisation program which was, to be fair, one of the better of a bad bunch because JK got a pretty good sale price:

    The 1992 election changed that. The SEC was lined up by the new government, which claimed that the authority was laden with debt and had to be privatised. This despite the fact that in its last year of operation, it paid $995 million in interest, a $191 million dividend to the state government, and had a profit of $207 million. Basket case, indeed.

    The electricity privatisation exceeded government expectations, delivering more than $20 billion to a cash-strapped state, with promises that in private hands, the delivery of electricity would be better and cheaper than the service provided by the old state-owned behemoth.

    In a report this year, the Australia Institute used official figures to calculate that the cost of electricity increased by 170 per cent from 1995 to 2012 – four times higher than the rise in the consumer price index.

    The Australia Institute report is one of several that have tried to make sense of this policy mess. It attempts to answer the question: why has privatisation and corporatisation of electricity failed to deliver the promises of lower prices, and in fact, delivered higher prices?

    It draws some surprising conclusions. The report identifies a productivity slump compared to the rest of the economy. One explanation may be the rise of the number of workers in the sector not involved in generating electricity. The rise of the manager class is an example – the number of managers in the sector grew from 6000 to 19,000 in the five years to 2012. The report also considers whether the higher prices are the result of private owners trying to recoup costs, having paid over the odds, lured by the prospect of big profits.

    Our ancestors built the nation, including the public utilities, with their taxes and loyal patronage. A trust that was broadly returned by reasonably conscientious public service managers, high-standards engineers and non-corrupt political class. (Although utility unions would occasionally exploit their monopoly power to blackmail the public.) And we’ve let it all slip through our fingers like dissolute heirs.

    Anyone who tells you that this country is better governed in the present generation than, say, from 1955 through to 1975, is a liar. And that would be most of the political class.

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