Home' Future Building: The Australian Infrastructure Review : Volume 8 Number 1 Contents futurebuilding
Restoring Australia’s productivity
growth – panel discussion
suggesting that something could go ahead if it was off budget –
because your debt profile would look better – is an extraordinarily
poor way of deciding on a project. Everybody who’s here that
works in the Treasury or has worked with the Treasury knows
this. But again, it’s one of those populist things that rises up every
couple of years in infrastructure. And everybody leapt upon that,
such as by saying: ‘Glenn Stevens authorises a much larger
amount of either debt or innovative financing for any infrastructure
project you can possibly imagine’.
BL: He would be horrified if that’s what they thought he’d said.
PH: Subsequently, he did say that he was horrified by that
accusation – that didn’t get much publicity. The Reserve Bank of
Australia (RBA) has been careful since then. This reinforces why
it is prudent to plan first through a proper allocative system, then
look at what your financing options are. Sometimes, greenfield
projects will be attractive to private investment. But you can only
get an assessment of the financing options towards the end –
once you know what your public interest objective is, you can look
to see how you can marry that with a private interest objective. At
that point, the private sector may be more efficient at building the
infrastructure, or you may be prepared to put some risk capital
into a project, as it is a medium- to long-term reliable investment.
That’s quite hard to do with greenfield projects because they
are rather high risk. Some greenfield projects have come at a
spectacular cost to the equity holders – that’s a natural part of
being in the market. But the idea that you start out by considering
the financing is a very poor one. You don’t start out by saying,
‘I’ve found a new way of innovative financing now. Where are
some projects that I can throw this brand new financing model?’
And yet, you read that continuously. It’s a horrible mistake.
BL: Thank you. The New South Wales Treasurer has said,
‘The road to hell is paved with government intervention’. Next year,
the Productivity Commission will be undertaking the five-yearly
review of airport price regulation. In the lead up to that, how do
you think the airports have performed post-privatisation? And what
do you think the airlines, airports and other stakeholders will be
arguing for? Will this be the next price re-regulation?
PH: We haven’t formally been asked to look at it, but I’ve
heard that we’re getting it. There is a sort of tradition of us having
another look at this on a reasonably regular basis. I have a conflict
of interest in that I worked on the privatisation of all airports except
Sydney Airport. I did the design of the pricing model.
I regularly say to people that the privatisation of Australian
airports is the privatisation where:
► no-one went broke
► the Government got 10 times more than it expected for
► we have not spent a dollar on anything other than
extending the runway at Canberra Airport for George W.
So, it’s been a very successful privatisation. Airline prices
have continued to fall, new systems have been put in place,
and new terminals have been built, with the exception of Perth.
Other than Perth, investments that have occurred on airports
have improved the consumer experience, and, on balance, it
looks pretty damn good to me, but I’m biased.
We do regularly get asked which airport operators are
monopolies, being able to exploit consumers via their pricing
strategies, and the Australian Competition and Consumer
Commission (ACCC) is particularly interested in this question.
In my mind, there two classes of consumer at airports. The first
are airlines ranging from Qantas down to little regional airlines.
Larger airlines have a particular kind of niche in the negotiation
market envisaged for them in the original privatisation model,
and, generally speaking, they probably wouldn’t want it. Some
smaller airlines are quite exposed to the pricing issues that are
pre-determined by the larger airlines. This can make it more
difficult for smaller airlines to accept, especially in regional
areas of Australia, if you are the only airline serving a Council-
run airport. In essence, even though the model of negotiating
looks like it’s a relatively successful one, there are wrinkles
worth examining for that class of consumer.
The second class of consumer people worry about is the
general public. The question often asked is, ‘Are we paying
more than we should to go to the airport or to use the airport?’
No-one makes you buy the stuff you walk past when you go to
the airport. If the prices are high, you don’t have to buy anything.
There’s an alternative for you: if you want to buy cheaper, buy
things before or after you have left the airport.
That brings you back to parking. I think that this is where
the Productivity Commission could provide a value-add. I’d like
to go back and look at what it costs to park anywhere else.
It’s not whether the airport pricing’s high, but rather what the
price relative to parking elsewhere with an equivalent level of
convenience is. It’s not a question of simply saying, ‘The airport
makes a profit out of parking, isn’t it outrageous?’ Because,
when people are incentivised to develop a service and make
a profit out of it, they provide a better service over time. That’s
what we get with a market economy. Simply because an airport
makes a profit out of the parking is not a bad thing per se. The
question should be, is the pricing structure indicative of the fact
that you have alternatives? The best way to look into that is to
look for a counterfactual. A counterfactual will find an equivalent
form of parking and see what they’re charging for that. If it looks
acceptable, maybe that’s where the benchmark is. If it doesn’t
look acceptable, maybe there’s a problem. To tackle this issue,
you need to proceed logically and analytically, and that’s what
we would probably do.
BL: Thank you very much. What would you all like to see
political agreement on in infrastructure?
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