COMMENT: With this year’s federal election being called so quickly it’s unfortunate some of the usual budget fallout and commentary vanished on the winds of potential change, Mark Carter writes.
Despite a steady flow of strategic leaks to the financial media over the last few years that it was looking to privatise the Australian Rail Track Corporation, the federal government was quick to temper a possible sale in the recent budget, insisting all options for the future of the company were on the table.
After one false start in calling for expressions of interest to carry out the study, late last year the government chose business and legal advisers to look into options for the future management, operations and ownership of ARTC, to report back in time for the 2016 budget.
Despite it being rumoured for some time, the privatisation option gained credence in 2014 when the National Commission of Audit (NCoA) handed down its report which included a recommendation that ARTC be considered as a medium term privatisation objective.
The NCoA suggested the Commonwealth could privatise either all of ARTC, or just the Hunter Valley networks, saying that the monopoly characteristics of the network could adequately be managed and regulated in the public interest.
It went on to say a scoping study could examine an appropriate access regime, implications for ARTC’s leases and wider considerations stemming from the intergovernmental agreement that established the ARTC.
The hiccup in the timeline last year seems to have been caused by one of the Canberra ‘Hollowmen’ suddenly realising, and pointing out, that any such sale would have serious implications for the government’s Inland Rail plans.
I wonder if the poor guy still has a job?
So fast forward to this year’s budget and all of a sudden the sale of ARTC is off the agenda with the Canberra saying, “The government will retain the ARTC in Australian government ownership to enable the project to access funds at the lowest cost to the taxpayer, testing the market to optimise private-sector involvement in the delivery and financing of Inland Rail.”
And that’s all she wrote!
Reportedly $10 million spent on the scoping study and all the taxpayer gets is one 60 word sentence – which at a rough calculation equates to approximately $166,500 a word. I’m sure many people wish they could get work like that.
Given the relative hype of the last few years over a potential sale, it seems a little strange that since the announcement that it won’t proceed has been made, precious little has been said since.
The government implies the study has highlighted the need to retain ARTC as a vehicle for the Inland Rail project, but this was obvious to many in the rail industry from the outset.
It shouldn’t have required a $10 million study to come to that conclusion.
There may have been several other factors considered by authors of the study, Macquarie Capital and Herbert Smith Freehills. It would have been beneficial to hear their take on the broader issues against a sale.
One complication would be the leases ARTC holds over tracks in Victoria, NSW and Queensland, although given the length of those leases and freed of the maintenance burden, I’d wonder if those states have virtually forgotten what they still own?
Another factor is that while ARTC’s Hunter Valley operations are profitable, on interstate routes access charges do not provide enough return to fund long term capital replacement and this would have been a bit of distraction for potential buyers.
And while there are mechanisms in place to ensure that Hunter Valley coal access charges don’t cross subsidise the interstate network, there can be no doubting that the economies of scale the Hunter operations bring to the rest of the company and the impact that might have were ARTC to be split up.
Surely some wider background to what was the outcome of the scoping study would have been in order – or does the current government think we can’t handle the truth?
Returning briefly to the Inland Route the government’s budget statement says that $594 million in equity funding will be provided to ARTC for land acquisition along the proposed corridor.
The government seems to be still hedging its bets at this stage, providing equity for an asset it can always sell should the project fail to go ahead.
While it’s good to see some ongoing commitment it doesn’t really answer the recent call by Inland Rail Advisory Group Chair John Anderson to ‘fund it or dump it’.
The equity funding does not kick in for at least another year and the budget statement was ambiguous as to over what period this equity will be forthcoming. For the 2016/17 financial year $80.7 million from the previously allocated $300 million will be spent on continuing pre-construction works and due diligence.
As noted earlier the government says that it will continue to test the market “to optimise private sector involvement in financing the project”.
Maybe this is all a bit of a smokescreen to take it off the table during the election campaign.
The illusion remains that the project is going ahead and that there is funding on the table even though not a dollar of capital funding has yet been committed.