Last year was surely an annus horribilis for infrastructure. Late trains, blackouts, suicide, toll-road dramas and, of course, further consternation over telecommunications. Does the New Year offer any hope?
It’s not too encouraging. We appear to be at a policy crossroads and no one is clear on which way to head. Going back is not an option. Still, you get the sense national regulation, public private partnerships and a general commitment to “get it right” won’t quite be sufficient. It’s all insufferably tentative – often confusing and always frustrating.
The dilemma can be identified, but remains uncracked. How does one neutralise the innate market power that defines infrastructure ownership? No known cure exists, yet it can’t be left unattended when corporations are now, understandably, assumed guilty until proven innocent.
Telstra’s Ziggy Switkowski has wrestled this no-win. Described in an editorial in The Australian Financial Review as a “refugee from a New Age spiritual retreat” (December 10), his internal efforts to curb Telstra’s network clout have certainly been muddled but no more or less than the broader policy scene.
Maybe Zen is the way to go: “there are no solutions; only the futile search for answers”.
Infrastructure awoke from its monopolistic slumber in the 1990s. We had inspired reforms involving structural reform, privatisation and greater competitive pressures.
Light-handed regulators posed the questions that other firms face every day. Can costs come down? What is a reasonable rate of return? Are my customers satisfied? This approach was successful, especially in terms of cultural change for public sector infrastructure managers.
Regulation, however, is not an end in itself. With substantial inefficiencies now behind us, Switkowski’s dilemma has begun to bite. The resulting conflict is placing at risk all that has been achieved.
The 1993 Hilmer Committee on competition policy hinted at the predicament. It wanted ministerial access principles for infrastructure, exercised only as a last resort via binding arbitration. Appeals would be limited to matters of law.
It did not favour the creation of independent regulators setting access terms based on their assessment of conflicting details, as is the practice of bodies such as the Australian Competition and Consumer Commission.
“The central conundrum in addressing the problem of misuse of market power is that the problem is not well defined nor apparently amenable to clear definition,” the Hilmer report says.
“Even if particular types of conduct can be named it does not seem possible to define them, or in circumstances in which they should be treated as objectionable, with any great precision.
“The challenge is to provide a system which can distinguish between desirable and undesirable activity while providing an acceptable level of business certainty”.
In typical economic fashion, this real life problem was ignored.
“In addressing this challenge, the Committee starts from the position that there is already in place a regime which provides a basis for making the appropriate distinctions,” the report says.
This unchallenged assumption has now come home to roost. The regulatory edifice is being revealed for what it really is – a bluff.
This is particularly apparent in the recent draft decision by the Queensland Competition Authority on access to port infrastructure managed by listed company Prime Infrastructure.
Details aside, this intractable process is not about ridding the economy of technical inefficiencies.
Prime is exposed to the disciplines of a competitive capital market. With no fat to carve out, the QCA has decided to second-guess the “right” price for an “efficient” coal terminal. Having led a few idle electricity and rail infrastructure horses to water, the QCA has convinced itself it can also make Prime drink.
This is folly. There is no sound policy basis for what the QCA has done. What is efficiency? What is market power? Has the QCA found the answer Hilmer couldn’t?
Such home truths have been shrouded by the success of the initial phase of infrastructure reform. The laissez faire ideal upon which our policy framework has been built was compromised (subconsciously, it seems) in order to allow regulators to kick the heads of formerly protected monopolies. Fair enough.
But let’s not kid ourselves. The ACCC and QCA cannot do the impossible and mandate efficiency. Governments and economists are doing the community a grave disservice by perpetuating the myth that regulation is some kind of saviour for our infrastructure anguish.
The first and foremost principle of regulation is that it cannot be the answer, regardless of what is has accomplished along the way. Regulators may be able to win a few battles, but they can’t fight the “war” – that is reserved for corporations and their customers. Believing otherwise will be to our long-term detriment.
So, are Telstra and Prime intent on fleecing their network users? A fair question, to be sure.
Whatever the case, there is a much more vital concern: is the fear accompanying such an inquisition blinding us to the dreaded cost of institutionalising bad faith? For unsavoury corporate behaviour is definitely not a good thing, but what of the dead weight of paternalism?
Last year may have been tough for a reason. Maybe 2005 will be a watershed. Not in terms of a solution – just a formal acknowledgement that giving owners the opportunity to show their commercial maturity is the only way to break the vicious cycle of mistrust and political manoeuvring that is limiting infrastructure development in Australia.
Perhaps a new-year’s resolution from Switkowski will be needed to get things moving: “Network regulation may be part of the journey, but it’s not the destination.”
ENDS
© Mark Christensen 2004
This article appeared in The Australian Financial Review on 4 January 2005, under the title “Infrastructure on a Journey of Enlightenment”.
