Privatisation: A not-so-private issue

21 Oct 2014

Though the State election will not be until 2015, an election promise aimed to boost Queensland’s budget has gained significant media attention.

The State government have planned to lease power assets for 50 to 99 years in order to reduce the state’s $80 billion debt.

This decision will be decided in a referendum next year.

The lease will ensure $37 billion in upfront payments to the government.

Flavio Menezes, Head of the School of Economics at The University of Queensland recently published an article to The Conversation about the profitability of the lease.

Professor Menezes believes that there are advantages of privatisation.

“Electricity assets may be worth more in the hands of the private sector because private ownership is often associated with incentives for managers to pursue profit maximisation and to innovate.

“It is difficult, if not impossible, to replicate such incentives under public ownership,” Professor Menezes wrote in The Conversation.

Yet, the lease plans have attracted negative feedback from the public, the opposition, the Electrical Trades Union (ETU), and a newly formed band of independent politicians.

Professor Menezes believes that consumers are worried that electricity prices will rise.

“Quite rightly the public worries that privatisation in industries like electricity and water can lead to higher prices.

“There seems also to be a perception that privatisation benefits disproportionally investment banks and advisory companies,” he said.

Treasurer Tim Nicholls has promised the process will be methodological and the government will “carefully manage the process to ensure we get the maximum value for Queenslanders,” The Treasurer says.

Professor Menezes believes that this value may only be delivered on several conditions.

Firstly, “the assets need to be more valuable in the hands of the private sector than in the hands of the government,” Professor Menezes wrote.

Further he thinks that “there is a large appetite for these sorts of assets. Here in Queensland, the sale of Queensland Motorways saw 27/28 times more earnings.”

The second condition Professor Menezes outlines is that the sale process must be efficient to retain the extra value for Queenslanders.

“A well designed Initial Public Offering (IPO) or a direct sale via a cleverly designed auction are likely to lead to the best value for taxpayers,” he wrote.

The government have not disclosed a plan on how they intend on executing the lease. Professor Menezes believes that the government must ensure transparency to get the public on their side.

“Greater transparency and debate around the cost of the sale process and its beneficiaries may go a long way to reassure the public that privatisation may be beneficial to Queenslanders,” said Professor Menezes.

The government plans on spending $5.2 million on pitching their assets sale through the “Strong Choices” campaign to Queenslanders. It is expected that the lease of assets will be discussed thoroughly up until the election.