by Charlie Nelson
September 1998
The
turning point was in 1998. In that
year, the three largest Australasian cities each suffered an extended outage of
an essential service. In Auckland
it was electricity; in Sydney it was drinking water; and in Melbourne it was
gas. The common link in each case
was privatisation, to at least some degree, of the agencies supplying these
services.
Consumers
reacted in several ways. Some sued
for loss of business. Others
diversified their supply. In
Auckland, there was a surge in the use of solar electricity generators. Some Sydney residents never drank tap water again, preferring
bottled water. In Melbourne, sales
of solar hot water services increased dramatically. The increased use of solar power was good for the environment
but not power company profits.
Faced
with increased compensation payments, government fines and slowing demand, the
privatised regional power utilities found that they could not make profits.
Having cut costs in the operative ranks, the only areas left for cost
cutting was in management ranks.
They
realised that economies of scale could be achieved by merging, thus reducing the
number of chief executives, marketing, finance, and other managers.
Victoria initially resisted mergers but difficulties experienced by
CitiPower, the first privatised distributor to put itself on the market, broke
down government resistance.
The
end result was a private monopoly in the place of what was once a public
monopoly.
A
similar process was taking place amongst Britain's private regional railways -
at the same time that the Victorian government was privatising public transport.
In Britain, prescribed standards of service were not being achieved.
This resulted in fines and loss of patronage - followed by financial
losses and then mergers.
And
so the bold privatisation experiment came to an end. Even after all the mergers, the privately owned monopolies
could not achieve satisfactory profits at the standard of service demanded by
the community. So the government
bought the private monopoly for a song and returned essential services to public
ownership - to the great relief of the long-suffering public.
Postscript: February 2001
Since I wrote this scenario, much has happened.
In Britain, Railtrack, the private owner of most of the tracks and stations has denied newspaper reports that it is facing bankruptcy. This follows the fatal Hatfield rail crash that will cost the company 580 million pounds.
In Melbourne, Australia, the privatised transport ticket machines at railway stations (most unstaffed) are operational only 75% of the time, resulting in huge loss of revenue.
In California, the deregulation of electricity supply has led to severe power shortages, supply disruptions, and debt default by a leading utility. The Australian Financial Review, in an editorial on 22 January 2001 said that the problem in California, whose model has been adopted in Australia, was that deregulation only went part of the way. "The best way to keep a lid on power prices is by encouraging competition." And that espouses the economic rationalist view - but electricity consumers want more than cheaper prices. What is the point of cheaper electricity if the supply is more unreliable? For a firm, the cost of a supply outage can be huge in terms of lost production and sales - most would rather have more expensive electricity if it could be relied upon.
In New Zealand, the Australian banks who bought banking businesses from the NZ government are unhappy because the latter is now establishing a "people's bank" that will operate through post offices. The new bank will charge lower fees. Under privatisation, the number of bank branches has fallen from 1510 to 866 while fees have risen.
Postscript: April 2001
California, which led the nation into electric power deregulation, is about to
give it another model to contemplate: public power.
The bankruptcy filing Friday of PG&E Corp's Pacific Gas
& Electric Co. only underlines the role that a new state power authority is
slated to play as an electricity supplier of last resort.
The authority, which is being set up through legislation
would finance power plants, even build them if necessary. It would
probably own and expand the transmission lines that carry power throughout the
state.
latimes.com, April 8, 2001
Sharp increases in rail fares (in UK) have been condemned by passenger groups,
politicians and rail unions alike.
By far the largest increase, of 9.8%, has been set by Virgin
Trains.
It said it faces insolvency without the price rises and
blames Railtrack (the private company which operates the tracks) for failing to
pay adequate compensation for the disruption caused by its overhaul of the
network following the Hatfield tragedy.
BBC News 5 April, 2001
Postscript: October 2001
The New Zealand government has effectively renationalised Air New Zealand with a $NZ885 million rescue deal. Similarly, the Canadian government is considering taking some ownership in Air Canada to help it stave off financial collapse. These, and other airlines were in severe financial difficulty before the September 11 terrorist attack in USA.
Britain's Railtrack looks set to return to government control amid reports the ailing company is on the brink of bankruptcy. Railtrack is seeking a rescue package to take it off the stockmarket, in what many would consider renationalisation, according to the Sunday Times.