Kirner's privatisation on the sly


By Peter Boyle

MELBOURNE — Victoria's Kirner Labor government could soon surpass the Greiner Liberal-National government of NSW in privatisations.

The State Bank of Victoria was sold to the partially privatised Commonwealth Bank in December 1990. A buyer (the US-based Mission Energy) has been found for 40% of the state's newest power station, Loy Yang B.

The State Insurance Office (SIO) is likely to be sold for up to $350 million; the government's share in the Portland alumina smelter is on sale at a bargain price; and the government is now considering partially privatising the Gas and Fuel Corporation.

The Kirner government does not admit to having a privatisation program. Each of the above examples is considered a "special case". But a confidential "privatisation list" circulated to the government's finance and budget committee in January lists more than $5 billion worth of partial privatisations "under consideration".

Most of these will not be through outright sale but by carrying out infrastructure developments "in partnership" with the private sector. New government offices, police stations, hospitals, public housing and even public schools could be privately owned and then leased back to the state.

The government admits only to a "corporatisation" program, supposedly aimed at reforming government business enterprises.

However, a paper recently prepared by the Victorian branch of the Electrical Trades Union notes that everywhere else in the world, corporatisation has been a preliminary to privatisation. International consultancy companies which advised former British Prime Minister Margaret Thatcher in her privatisations are now advising the Kirner government. These include Peat Marwick, Price Waterhouse and Ernst & Young.

Activists in the People's Committee for Melbourne (a group opposing privatisation and working for greater public input into planning and development) say that the government's secret agenda is being organised by an inner circle of ministers which includes Kirner, Jim Kennan and minister for manufacturing and industry development David White.

They work closely with the Committee of Melbourne, basically a big business cabal. A "Major Projects Unit", under Kennan, fast-tracks privatisation projects.


The Kirner government shares the Greiner government's "pragmatism" on privatisation. The objective is always greater efficiency or reduction of the state debt.

Central to the Kirner's "Priority Victoria" strategy to nnounced on March 25, was a grand plan to increase private sector investment in areas traditionally a responsibility of the state. It sounds great: the state saves on interest on its debts, and the "big boys" share some of the responsibility for providing social and economic infrastructure.

But according to critics, these schemes could provide hidden subsidies and profits to the private sector while leaving the state with an even more unserviceable debt and the public with poorer, more costly services and fewer jobs.

The ETU identifies three stages: corporatisation, commercialisation and then privatisation. Some government enterprises, like the SIO, always operated as commercial entities and so can be privatised without going through the preliminary stages.

Corporatisation of departments and utilities basically means introducing self-management. Typically in this stage, many workers lose their jobs, while senior management gets hefty pay increases. To prove its "worth", the management seeks to deliver cost cuts to big business and pressures the government for more autonomy, especially to be free to borrow money or issue equity to the private sector.

Commercialisation invariably involves more job shedding. According to the ETU, since the State Electricity Commission of Victoria was "commercialised" in 1989, some 5000 jobs have been eliminated. The cost of electricity to business has been reduced by 21% (some consumers gain more than others). But while the SECV employed 30% fewer workers, its wages bill doubled in 1990-91; a fair share of this comes from executive pay hikes and more positions for management.

Part of commercialisation of the SECV involved the contracting out of jobs. Excavation of the soil overburden at the Morwell open-cut mine in the Latrobe Valley (now the subject of industrial action) involved a private company being offered $3.22 per cubic metre for a job that could be done at 60 cents a cubic metre cheaper by SECV workers.


Actual privatisation involves even more job losses. The sale of the State Bank of Victoria is expected to destroy more than 2100 jobs. But some of the biggest hidden transfers come in the form of incentives offered to the private sector to buy government assets.

As negotiations for Loy Yang B proceed, the government is being pressured for many incentives. Both SECV management and Mission Energy want $70 million of stamp duty waived; if it is not, the SECV will probably pick up the tab. Although Mission Energy will technically be the minority shareholder with 40%, it will have sole management rights.

It appears that the government is prepared to agree to a 30-year contract allowing Mission Energy to charge 6.8 cents a kilowatt hour initially for electricity from Victoria's most efficient power station. The price is supposed to fall gradually over 30 years to average 5.4 cents a kwh. But even this is substantially higher than S>SECV is now charging for electricity from much older and less efficient power stations.

To encourage private investment in infrastructure, the Kirner government is developing legal tax free infrastructure bonds and other concessions.

"After taking into account revenue forgone from tax concessions to private investors, it is by no means certain that private financing will be any cheaper than the present system of financing infrastructure", Kenneth Davidson argued in the March 26 Age.

And that isn't all. Developers interested in the Melbourne docklands area, the Western Bypass and the Rapid Transit Link have demanded free or discounted land, government buildings, government guarantees for private loans and even a share of state taxes on petrol!