Privatisation needs smarter regulation

4 August 2016

Australian Competition and Consumer Commission Chairman Rod Sims says he looks forward to a continuing debate on the regulation of monopolies and privatisation today as part of a panel session at the annual ACCC/AER Regulatory Conference in Brisbane.

The panel session will consider the appropriate regulatory framework for monopoly infrastructure, including when it is privatised.

Mr Sims’ comments on privatisation, made at the Melbourne Economic Forum last week, ignited a debate around the wisdom of privatising public assets for maximum financial gain which sees governments benefit from a one-off cash windfall but consumers paying higher prices than they should into the future.

The ACCC Chairman said he is not against privatisation; however, monopolies in private hands need to be properly regulated, otherwise users and consumers end up paying more.

“Put simply, the private sector will generally operate commercial enterprises more efficiently than government. But when government assets are sold off, unless they face competition, there needs to be effective regulation,” Mr Sims said.

“The lack of effective regulation will see higher prices for users and so can see reduced investment by them, thus causing inefficiencies. In addition, the higher price received for the sale of an unregulated asset can effectively be a tax on users or consumers, now and into the future. And it can be a poorly targeted tax on consumers.”

“The preference for price monitoring of privatised monopolies is a big part of the problem. In the absence of competition, merely monitoring prices makes little to no difference. Price monitoring does not amount to regulation,” Mr Sims said.

“I think the framework and thinking around privatisation into non-competitive markets needs resetting and I’m pleased there is a healthy debate around these issues.”

Mr Sims says that what is needed at minimum is a “negotiate/arbitrate” approach, where users can seek binding independent dispute resolution if they can’t agree with the monopoly asset owner on prices or other terms.

“Users of a monopoly asset cannot generally threaten not to use it, so at least give them the threat of referring a dispute over pricing to independent arbitration,” Mr Sims said.

“Saying that there needs to be effective regulation doesn’t mean that the only choice is for a regulator to step in and set prices. A negotiate/arbitrate model is a well-known approach and can be an effective regulatory constraint,” Mr Sims said.

Notes to editors

The Chairman used limited speaking notes and will not publish a speech.

More than 440 regulatory experts will attend the ACCC/AER Regulatory Conference in Brisbane on Thursday and Friday this week.

With sweeping changes occurring in energy, communications, and other key infrastructure sectors, the conference will examine the future of economic infrastructure regulation and whether the conventional wisdom still applies.

The annual event, now in its eighteenth year, brings together specialists from government, regulatory bodies and the private sector. It includes regulatory perspectives from the United States, United Kingdom, New Zealand and Canada.

Release number: 
MR 143/16
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