'No benefits' to consumers from privatisation
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.
Frequently Asked Questions about this Article…
The Australia Institute study found privatising government-owned electricity assets did not produce cheaper power. Since privatisation began, power prices rose about 170% while the consumer price index increased about 60%, and Victoria’s prices moved in line with other states, showing no clear consumer benefit from privatisation.
No. The study notes that although Victoria was the first state to sell off its power sector, power prices in Victoria have risen in line with prices in other states, so privatisation has produced no apparent benefit to Victorian consumers in terms of lower bills.
Productivity has fallen significantly: since June 1995 productivity in electricity, gas and water declined by 24.9%, while all other Australian industries saw an average increase of 33.6%, according to the study quoted in the article.
The study reports a large increase in management and sales staff since privatisation: the number of managers rose by 217% since 1997, frontline technicians and trades workers rose by just 28%, the manager-to-worker ratio moved from one manager per 13 workers (1997) to one per nine (2012), and sales staff increased by about 1,000 to a total of 6,000.
The study explains that competition forces firms to spend resources on selling a product — increasing management and sales costs — even when products like electricity are largely undifferentiated. That shift in resources can reduce efficiency and push up prices for consumers.
Victoria and South Australia have privatised their entire electricity industries. New South Wales and Queensland sold their retailers; NSW also sold its generators. Neither Queensland nor NSW had sold distribution assets at the time of the article, though NSW was expected to seek a mandate from voters to do so.
The article suggests selling power assets is unlikely to ease cost-of-living pressures. The Australia Institute cautioned that privatisation might not solve budget problems and could instead leave consumers with higher bills and worse service.
Everyday investors should be sceptical of promises that privatisation will automatically deliver lower prices or greater efficiency. The study shows past sell-offs came with higher management and sales costs, falling productivity, and no clear consumer price benefit — all factors investors should consider when assessing privatisation proposals.
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