QESI: corporatisation and privatisation strategies

Eoh, Nancy (1990) QESI: corporatisation and privatisation strategies The University of Queensland:

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Author Eoh, Nancy
Title of report QESI: corporatisation and privatisation strategies
Publication date 1990
Place of publication The University of Queensland
Total pages 125
Language eng
Subjects 1503 Business and Management
Formatted abstract
There is world-wide interest in corporatizing and privatising public enterprises to improve their efficiency and performance.

A 1989 study by the Industries Assistance Commission on the Electricity Supply Industry (ESI) in Australia estimated that if reforms were carried out to improve its efficiency, they may result in benefits of about $1 billion annually with an additional 2800 jobs being created. Suggestions for improvements were:
• commercialisation of electricity authorities,
• increased private sector participation ,
• increased competition, and
• private sector ownership.

The Queensland Electricity Supply Industry (QESI) faced the same problems of overcapacity in manpower and resources as the rest of the utilities in mainland Australia in the early 1980s, due to an expected mineral boom not materialising. Its 1984 commercialisation strategy with the help of a good management team has helped it overcome many of the identified problems within the industry. The present results are impressive for an industry which is neither privatised nor open to competition. It has achieved its 1984 corporate target of having mainland Australia’s cheapest electricity prices a year earlier than planned, with a price freeze in 1989 and 1990, and a forecast of three years price increases held to half the consumer price index(CPI).

These achievements are considerable as Queensland has natural disadvantages compared to New South Wales (NSW) and Victoria. It has smaller scale power stations and services the needs of a large sparsely populated state. The cost of electricity supply in Queensland would normally be expected to be 15 per cent to 20 per cent higher than NSW or Victoria because of these factors alone.

Although efficiency gains could be further made by corporatisation and privatisation strategies these recommended improvements would mark a radical step as it would have far reaching consequences for electricity consumers as well as for the Electricity Supply Industry subsidiary industries, and for the present QESI industry structure and corporate strategy.

This MBA research project will present the case for corporatisation and privatisation of QESI by presenting the general issues involved based on the overseas and New South Wales experience. QESI present commercialisation strategy and the role of the major stakeholder, the government, will also be evaluated.

The report concludes that irrespective of which government is in power, there is a need to address corporatisation as a means of improving microeconomic efficiency. There are still substantial efficiency gains to be made from corporatising the Queensland Electricity Supply Industry. But such a strategy cannot succeed without the full commitment of the state Government, the unions and the public acceptance of the process. Crucial to its success is the requirement for Federal tax reform to allow the revenues of corporatised State enterprise to remain in the hands of the State Government.

The gains from privatisation of the electricity supply industry based on overseas experience are at present far from obvious. Although the proposed New Zealand privatisation program appears to offer substantial benefits, it is still too early to judge whether these benefits are sustainable on a long term basis because the program still has problems of how to structure the generation part of the industry for privatisation. The United Kingdom privatisation strategy is not an ideal one to emulate mainly because the transference of the national grid system from the generator control to the regional area boards control will result in the area boards being in a powerful monopoly position. This is basically a transference of a public monopoly to a private monopoly with the same inherent problems in the system except for the transference of control to a different sector of the industry. That is, the benefits of removing or reducing one set of regulations may be offset or lost by having to impose another set of regulations especially for a monopoly. However this may change as the generation companies have recently lobbied the Thatcher Government to increase their power vis-a-vis the area boards which may result in them having the upper hand. Consequently privatisation of the industry requires a detailed and careful analysis of its benefits and challenges.

Thus, until a state government in Australia is successful in its privatisation strategy for its electricity supply industry or the overseas experience indicates obvious benefits~ then only should QESI be encouraged to follow this path.

Privatisation of the QESI must remain an option for QESI for further efficiency gains. A number of studies indicate that corporatisation' should be considered a transitional, step to privatisation. This would provide long term benefits to the industry and remove government interference in the industry for political gains.

Document type: Research Report
Collection: MBA reports
Citation counts: Google Scholar Search Google Scholar
Created: Mon, 13 Dec 2010, 14:50:28 EST by Ning Jing on behalf of The University of Queensland Library