'No benefits' to consumers from privatisation

Privatising government owned electricity assets has not produced cheaper power. Efficiency has fallen sharply and the cost of electricity has risen to significantly more than the underlying rate of inflation, an Australia Institute study finds.

Victoria was the first state to sell off its power sector assets in the early 1990s, making huge profits for the government. Since then, power companies' management and sales staff numbers have risen, offsetting some of the financial benefit of privatisation.

Since privatisation began, power prices have heavily outpaced the rate of inflation, rising by 170 per cent compared with a 60 per cent rise in the consumer price index, the study finds.

Also notable is the fact that power prices in Victoria have risen in line with those in other states, meaning privatisation has produced no benefit to consumers.

"Competition may well be beneficial in theory but it means the firms themselves have to put resources into selling a product," the study notes.

Australia Institute senior research fellow David Richardson said a productivity slump in the electricity sector has been a significant factor in price increases.

"Since June 1995, productivity in electricity, gas and water declined by 24.9 per cent. All other Australian industries saw an increase of 33.6 per cent," Mr Richardson said.

"The number of managers in the electricity sector has increased by a staggering 217 per cent since 1997 yet, at the same time, there was a much smaller increase in frontline staff, with the number of technicians and trades' workers increasing by just 28 per cent."

In 1997 there was one manager for every 13 workers; by 2012 there was one manager for every nine workers. In the same period, the number of sales staff rose by 1000 to 6000.

"It seems remarkable that a sales force of 6000 people is necessary to sell undifferentiated homogenous products like electricity, gas and water," the study notes, "yet this is a consequence of corporatisation and privatisation, as well as the introduction of new trading schemes".

"During the privatisation of Victoria's network, a lot of promises were made that it would deliver lower prices and a more efficient industry, and former premier Jeff Kennett continues to sing the praises of privatisation," Mr Richardson said.

"While Premier [Barry] O'Farrell and Peter Costello might believe a power sell-off is the answer to NSW's and Queensland's budget problems, it's unlikely to ease cost of living pressures and might even slug consumers with higher bills and worse service."

Victoria and South Australia have privatised their entire electricity industries. NSW and Queensland sold their retailers; NSW also sold its generators. Neither Queensland nor NSW have sold their distribution assets, although NSW is expected to seek a mandate from voters to do so.