Cost of privatisation

A South Australian Liberal government under treasurer Rob Lucas privatised the electricity sector in years past, which contributed to more expensive electricity to consumers.

The same Treasurer was responsible for privatising our bus network in the year 2000. This has resulted in reduced services and underfunding the replacement of antiquated buses.

Now, the Liberal government under the same privatising Treasurer Rob Lucas has announced that it intends privatising our train and tram system.

We can expect to look forward to more expensive fares and fewer services, as has happened to privatised rail systems in the United Kingdom.

It’s worth noting that in the government’s own survey of transport services, that the public were more discontented with the current bus services that with the train and tram services.

Evidence in itself that privatisation of public transport does not bring better services to consumers. – Dr Darryl Burrowes

Presumably this proposal is about improving the performance and economy of the rail and tram services for the community.

What is the independently verified evidence that performance is not at an acceptable level and that patronage is deteriorating?

I understand that the Transport Minister visited several countries to look at their privatised rail systems. Did he examine the privatisation experience of our nearest neighbour?

I was working for the New Zealand Auditor-General when the Key Government (National Party) was forced to buy back the entire New Zealand rail system.

Why was that? First, the system had deteriorated under private “ownership”.

There was extensive degradation of the rail infrastructure – particularly bridges, rolling stock and signals – so much so that several lines had to be suspended due to the instability of that infrastructure.

This cost the NZ Government many hundreds of millions of dollars to both buy it back (despite demanding considerable compensation form the private operator) and then to undertake repairs and upgrades to the degraded system.

Research into privatisation and out-sourcing around the world has shown that it is not the ownership (public or private) that dictates the performance and economy of a public service.

It is the ‘incentives and sanctions’ that are applied to management that does dictate performance and economy.

Since the electricity system was privatised, prices have risen out of all proportion to the levels of services provided.

Where Governments have outsourced or privatised public utility services, the evidence is that the private operators keep prices within reasonable bounds for a short while.

Then, the companies hold consumers to ransom with big price rises and service cuts.

In some South American countries, the water supply has been cut off until impoverished consumers pay up. This is not a good look for privatisation of public service provision.

Based on the world-wide research into the pros and cons of privatisation and the research into how public services can best be operated, it is imperative that the existing public service operators be given an opportunity to demonstrate they can operate the system at a level that is as good as any possible private operator.

That is, the incentives and sanctions applying to them are the same as will be applied to any possible private operator.

It is axiomatic that any outsourced or privatised services have contracts that specifically set out the limits that a private operator has to observe when setting prices and continuing concessions that applied under public ownership.

There must be no opportunity for any private operator to change conditions for providing the services that disadvantage the current consumers of the rail/tram services.

The contracts must also clearly set out grounds for the privatisation to be terminated, and the reparations that would be applied to ensure that future Governments were able to buy-back the services at minimum cost to the taxpayers.

These grounds must include independent assessment of the condition of the rail/tram infrastructure and how it must be maintained and/or improved.

Any tenders to “privatise” the rail/tram network must allow a bid from the existing public providers of the service. This should be a standard requirement of any and all privatisation and/or outsourcing contracts.

There must be a full and independent audit of the state of the infrastructure and rolling stock, so that a benchmark is established against which to measure any subsequent contract performance.

Any proposed private operator must have an independent audit of their performance in operating similar rail/tram systems. That way, there will not be any bids from inexperienced operators or those where it can be demonstrated that they have allowed the rail/tram system to deteriorate under private ownership.

The evidence that privatisation is not the answer the Government should be examining is overwhelming- it is the sanctions and incentives that are applied to the operator that are the over-riding requirement.

Should any contracting out of rail/tram services be considered, then it is imperative that the contracts be very explicit as to what performance is required and what will constitute failure to comply. – Michael Rosser

While there is a lot to tease out regarding the privatisation of Adelaide’s rail networks, it’s noteworthy in the early stages that the argument of track safety has gone AWOL.

In assuming that outsourcing the operations means the maintenance and operation of the track, then there is a lot of ground to be covered.

It’s fairly uncomplicated to run a bus network, in that you look after the buses and get the drivers to drive, while someone else looks after the road you drive on.

A rail network is somewhat different and will require significant expertise beyond just employing train drivers.

Mr. Knoll was quick to point to a number of UK cities where he argues the outsourced model has worked.

What he has not discussed is the safety record of the outsourced model of some of his examples being far from exemplary.

Adelaide’s network does not have the critical mass that many other systems do around the world.

For it to be ultimately attractive to a company through a competitive process, it will need to identify areas where savings can be achieved.

In a bid to lower costs, there is a significant risk that safety will be the number one target. – John Fulbrook

People, not assets

As a former Deputy Commissioner for Public Employment in SA, a former Public Service Commissioner in Victoria,  a former Associate Director with a major executive outplacement firm, as well as a former consultant with a world-wide US based outplacement firm, I have some concern over the way employment separations at executive level are handled at times. 

Every employee, no matter their level, deserves respect and handling in a way that enables them to maintain their dignity when their employment is terminated.

Frog-marching or escorting people out of the office may be justified when there are security risks, but in most cases that is not the case.

It seems that the SA public service can do more to help those affected by employment termination, whatever the reason.

The latest cuts in the trade agency of the state are simply one case in point.

It is worth bearing in mind that we are dealing with thinking and feeling people – not just now-unwanted assets.

Those attending to terminations would do well to picture themselves in the same situation and ask themselves how they would want to be treated. – Michael Schilling

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