Even England, the home of the 1980s Thatcherite ideas on public policy has come to realise the folly of many of those policies. There is of course a fundamental inconsistency in the financial arguments for the sale of these assets. On the one hand, it is claimed that the government has to sell the assets because of the alleged financial crisis facing Queensland. On the other hand, it is asserted that the sales will not occur for several years – when the crisis is expected to be over.
Prof Bob Walker & Dr Betty Con Walker
16 November 2009
— Walker Report – 19112009
Let us try to understand debt and who owes it. In our quest please let us not go searching desperately for dubious ill-defined argument that masquerades as data (i.e. Hacket-Jones’ attempt to explain debt in ‘Queensland Government Borrowings’ by analysing government borrowings for infrastructure in terms of individual (or household) debt (see Revenue Review.)
I would like to address the issue of ‘privatisation’— a word that historian, Humphrey McQueen, refutes because it employs a capitalist term — he prefers ‘sell off’ or ‘sell out’. Fair enough. Nonetheless I will stick with ‘privatisation’ here because that is what the Qld Labor government says it needs to do in order to retire the debt that Hacket-Jones says he is so worried about. All they both want is to increase the wealth of the rich.
Sale of public assets
The Queensland government proposes to sell QR national (or ‘QR National’ as the company is called) to raise money to pay off debt. On 1 July 2010, Queensland Rail (QR) separated into two companies: Queensland Rail (QR) and QR National. Queensland Rail (QR) is a government owned business (GOC) which operates ‘the passenger service business and assets, including ownership of the metropolitan rail networks. Government will retain regional freight networks and associated operations’ (see QR Chair and CEO Welcome Sale Decision.) It is QR National that is to be sold.
We have heard all the usual privatisation rhetoric in the build-up to the sale of QR National touted as the biggest sell off of public assets since Telstra in 1997. Phrases have been bandied about by the Premier, Treasurer and their advisors. We’ve heard the political justifications like ‘reducing budget deficit’, ‘reducing debt’, ‘improve our credit rating’, ‘proceeds spent on other things’ (hospitals, schools, roads?), ‘reducing risk’, ‘increasing efficiency’, ‘reducing costs’, ‘selling like the rest,’ ‘selling before the price falls’. See some of this rhetoric in ‘Xstrata’s own trains could derail QR growth’ - THE AUSTRALIAN 22 September 2010.
Never has the economic reality behind the rhetoric been publicly debated nor has the economic justifications for the sale been critically discussed in parliament. The government did not tell the people of its intentions to sell QR prior to the last state election. Government advisors, stock brokers, consultants, contract lawyers, ministers all stood to make hundreds of millions out of the deal touted to be worth $7 billion. Shares need to be sold, contracts drawn up, briefings to be prepared, and roadshows to be run.
The truth is the Labor government is trying to improve its re-election prospects — $7 billion can buy a lot of votes (‘Loan completes preparation for QR National float’ – THE WEEKEND AUSTRALIAN, 9-10 October 2010).
Whether the ALP government will be successful is another matter.
Method of sale
To pay for these public assets it was intended that QR be sold to a mining consortium interested in railways (i.e. a trade sale). For a variety of reasons this method of privatisation (sale) fell through.
This left the Qld Treasury with the option of a float (sale) of shares in QR National. Since this was unlikely to raise the amount sought (the Qld government thought it needed more to win an election?) Treasury chose to take out a loan as well as selling shares in the QR National. So last week it borrowed $3 billion from a syndicate of banks (the main ones being Goldman, Credit Suisse, Bank of America plus Commonwealth). So the QR National float is therefore debt financed as well as equity financed (‘Investors link state rail and mining profits’ – THE AUSTRALIAN 21 September 2010).
The debt finance is raised via a $3 billion bank facility – in fact two facilities, one of three years and the other of five years. In exchange for the loan the banks get interest over the period of each facility and repayment of the principal at the end of the period(s). $2.5 billion of this money is to be spent on expansion of the rail network and the other $500 million goes to government.
Tomorrow the Treasurer will issue a prospectus for the sale of shares in QR National. He will not announce the number of QR National shares retained by government until his advisers have completed their roadshows to stockbrokers in Brisbane, Sydney, Melbourne, Hong Kong, Singapore, London, Edinburgh, Frankfurt, New York, Toronto, Boston and Los Angeles. Presumably, if insitutional investors shy at this opportunity to buy shares, the treasurer will retain a bigger stake. Some rail competitiors have announced their desire to use the QR tracks to transport their own coal.
Queensland Rail was built up by workers over a period of 150 years. Most (but not all – indigenous people had their wages stolen) workers received wages for the work done at QR. But were these wages just reward for what was achieved? No.
Generations of railway workers put their lives into this publicly owned railway. As commerce in Qld increased and changed workers adapted to those changes. QR served primary and secondary industries. It transported people over the most decentralised state in the Commonwealth of Australia. Where Qld Railways once carted huge quantities of agricultural produce, cattle, sheep, and sugar to port and market, QR National now freights to port the largest amount of metallurgical coal in the world.
Two-thirds of the metallurgical or coking coal (for use in smelters mainly in Japan, India and China) transported on the oceans of the world comes from Queensland. By contrast the Hunter River Valley in NSW exports mainly thermal coal (for power generation). Workers at QR from fettlers to clerks, from fitters & turners to railway conductors made all this possible. QR’s expansion has been funded by taxes from those workers during the last 150 years.
Now a select few advisers will benefit from the sale. They will make tens, perhaps hundreds of millions of dollars. Government argues that it desperately needs to retire debt. Yet it is prepared to sacrifice revenue that comes with ownership in its bid to cash in on 150 years of labour and therefore surplus value contributed by workers. Already jobs have been lost and services curtailed to fit in with the growth machine greedy for profits. Government debt has already been increased in preparation for this sale. The government is improving rail infrastructure in order to make the sell off more palatable to investors, both local and overseas.
Will the gamble pay off? Pundits hope that it will. They quote examples like Canada that privatised its freight rail in 1995 to promote.
“The heroic benchmark in this respect is Canadian National, the freight rail operator privatised by the Canadian government at the end of 1995. It had been cutting jobs and unprofitable routes before the float, and continued to do so after. The shares were sold for $C3.32 in 1995. Today they are changing hands for more than $C66 (A$65.90).” — QR National sales push stops all stations in The Age Oct 09, 2010
But what is the underlying economic justification for this sale? Is it based purely on rhetoric?
It is a gamble because it presumes continued growth in coal when carbon is causing damage to the planet. Scientists argue that carbon is underpriced. If the price of carbon goes up, demand will decrease say the economists.
But the owners of the great coal monopolies like Rio Tinto, BHP Billiton and Xstrata who wish to extract even greater profits from their mines will tighten their contracts with QR National for greater supply at less cost. Will they run QR into the ground in the interests of their shareholders? These companies and their executives seek to exploit the indigenous land owners by signing up ILUAs (Indigenous Land Use Agreements). For example a Clermont Aboriginal Community Development Fund has been set up by
Rio Tinto Coal Australia and the Wangan & Jagalingou people who signed an Indigenous Land Use Agreement (ILUA) in May 2008 (see Rio Tinto Coal Australia – Clermont Aboriginal Community Development Fund.
Rio Tinto will do anything to extract coal and convey it to port. They are a greedy mob, those miners. All in the name of development and growth. But who benefits? Perhaps a few people who can afford to own shares, certainly the advisers who will cash in at the float. A few aborigines may get a cadetship here or there. A few may get even jobs. The politicians? Well, the labor politicians are taking the big gamble hoping that the $7 billion from the QR National float will buy them government. But then the Labor Party did nothing to justify their position in government, so what do they really lose?
Meanwhile the workers and their unions have gone quiet. Perhaps they think it is all over because the shares are being floated. Do they think the fight is lost?
Nothing is over till it’s over and there is still much to know… to be continued when the ASX releases the QR National prospectus on 10 October 2010.
Privatisation – sell off or sell out? The Australian experience by Bob Walker and Betty Con Walker.
The Language of Money by Edna Carew
The Town that was Murdered by Ellen Wilkinson
Das Kapital by Karl Marx edited by Friedrich Engels
QR National/QR Annual Report 2008-2009