PERFORMANCE OF NSW GOVERNMENT BUSINESSES 2001-02 Office of Financial Management Research & Information Paper TRP 03-01 May 2003 CORRIGENDA Chapter 5 • Dividends There are a number of discrepancies between the dividend amounts cited in agency commentaries and the figures presented in the accompanying financial indicator tables. These differences arise from the fact that the dividend figures in the indicator tables are prepared on a cash accounting basis (i.e. dividends paid in the 2001-02 financial year) whereas in some instances agency reports make reference to accrual accounting dividend figures (dividends declared in relation to the 2001-02 financial year). While both the cash and accrual figures are correct, the discrepancy may be confusing. An accrual accounting concept of dividends is employed in the agency commentary in the following instances: - Delta Electricity (p55 $85.5 million); - Macquarie Generation (p71, $125 million); and - Port Kembla Port Corporation (p113, $8.2 million). An accrual accounting concept of dividends will be used consistently throughout Chapter 5 in future editions of this publication. • Unlisted Indicators In some instances, agency commentaries refer to performance indicators that are not listed in the corresponding indicator tables. While the quoted figures are correct, this may be confusing where an unlisted indicator is substantially similar (yet subtly different) to an indicator listed in the table. Instances of unlisted indicators include: - Eraring Energy Consolidated Net Profit of $48.6 million (p63); - Macquarie Generation Sales Revenue of $812 million (p71); - Hunter Water Corporation Operating Result Before Capital Contributions of $19.5 million (p85); - Port Kembla Port Corporation Net Profit Before Tax and Significant Items of $10.5 million (113); and - Department of Public Works and Services Operating Loss before Tax and After Significant Items of $66.7 million (p135). • Country Energy: p51 - the text refers to more than 750,000 customers, while the table refers to 727,847 customers; the difference in these two figures is the chosen definition of “customer”. • Macquarie Generation: p71 - the 20% increase in EBIT was measured on a nominal basis. • Department of Housing: p123 - the 2000-01 figure for the Operating Result is reported in nominal terms in the text. Performance of NSW Government Businesses 2001-02 (TRP 03-01) 1 New South Wales Treasury PREFACE PREFACE This is the thirteenth edition of the Performance of NSW Government Businesses. It reports on microeconomic reform and the performance of the NSW Government businesses. The NSW Government remains the only Australian Government to provide a comprehensive annual report of this type. John Pierce Secretary NSW Treasury May 2003 Treasury Ref: TRP03-01 ISBN: 0 7313 32164 General inquiries concerning this document should be initially directed to: Frank Jordan (Tel: 9228 4284, or E-mail: [email protected]) of NSW Treasury. This publication can be accessed from the Treasury’s Office of Financial Management Internet site [http://www.treasury.nsw.gov.au/]. For printed copies contact the Publications Officer on Tel: 9228 4426. This work may be reproduced in whole or in part, provided that suitable acknowledgement is included. While every effort has been made to ensure that content is factually correct, this Book is published on the understanding that Treasury and Book contributors are not responsible for any persons actions or inactions taken in reliance on the Book’s content. Treasury disclaims any and all liability for any person’s acts or omissions performed in reliance upon the content of the Book. Written by Brendan Leary and Jerrold Abbertson. CONTENTS Preface 1 Executive Summary 6 1. Overview of Competition Reform 8 1.1 The Rationale for Competition Reform 8 1.2 The Results of Competition Reform 9 1.2.1 Resource Efficiencies 9 1.2.2 Productivity Gains 10 1.2.3 Outcomes for Consumers 10 2. National Competition Policy 11 2.1 Overview 11 2.2 Misconceptions of National Competition Policy 12 2.3 The Public Interest Test 13 2.4 Conduct Code Agreement 13 2.5 Competition Principles Agreement 14 2.5.1 Independent Prices Oversight 14 2.5.2 Competitive Neutrality 15 2.5.3 Structural Reform of Public Monopolies 17 2.5.4 Legislation Review and Reform 18 2.5.5 Third Party Rights to Negotiate Access 20 2.6 Agreement to Implement the National Competition Policy and 22 Related Reforms 2.6.1 Electricity 23 2.6.2 Gas 24 2.6.3 Water 25 Performance of NSW Government Businesses 2001-02 (TRP 03-01) 3 New South Wales Treasury 3. Other Microeconomic Reforms 28 3.1 Infrastructure – Public Private Partnerships 28 3.2 Successor to the Joint Coal Board 29 3.3 Corporate Restructure of AGL 29 3.4 Proposed Sale of Pacific Power International and Dissolution of 30 Pacific Power 3.5 Sale of Powercoal 31 3.6 Sale of FreightCorp and National Rail Corporation 31 3.7 Insurance 32 4. Aggregate Performance of NSW Government Businesses 36 4.1 Productivity and Dividend/Tax Equivalent Payments 36 4.2 Government Charges Index 39 5. Performance of NSW Government Businesses 2001-02 41 5.1 Electricity 43 5.2 Water 81 5.3 Transport 91 5.4 Ports 105 5.5 Miscellaneous 119 6. Glossary 145 7. References 152 Performance of NSW Government Businesses 2001-02 (TRP 03-01) 4 New South Wales Treasury ABBREVIATIONS ABL Australian Business Limited ACCC Australian Competition and Consumer Commission AIEW Australian Inland Energy and Water AGL Australian Gas Light Company ATC Advanced Technology Centre AWT Australian Water Technologies CCI Current competitiveness index COAG Council of Australian Governments CN Competitive Neutrality CPI Consumer Price Index CPA Competition Principles Agreement CSHA Commonwealth-State Housing Agreement CSO Community Service Obligation DITM Department of Information Technology & Management DLWC Department of Land & Water Conservation DPWS Department of Public Works and Services EBIT Earnings before interest and tax ETEF Electricity Tariff Equalisation Fund FRC Full retail contestability FreightCorp Freight Rail Corporation GBE Government business enterprise GCI Government Charges Index GRCI Growth competitiveness index GRMCo Gas Retail Market Company GST Goods and Services Tax GWh Gigawatt-hour HBWI Home Builder’s Warranty Insurance HWC Hunter Water Corporation IPART Independent Pricing and Regulatory Tribunal LPI Land and Property Information LTIFR Long Term Injury Frequency Rate MPB Multi Purpose Berth MWh Megawatt-hour NCC National Competition Council NCP National Competition Policy NECA National Electricity Code Administrator NEM National Electricity Market NEMMCO National Electricity Market Management Company NRC National Rail Consortium Pty Ltd Performance of NSW Government Businesses 2001-02 (TRP 03-01) 5 New South Wales Treasury Abbreviations (Continued) OECD Organisation for Economic Co-operation and Development OPAT Operating Profit After Tax PFE Public Financial Enterprise PFP Privately financed projects PPP Public Private Partnerships PJ Petajoule PSC Public Sector Comparator PTE Public Trading Enterprise RAC Rail Access Corporation RBA Reserve Bank of Australia RIC Rail Infrastructure Corporation RSA Rail Services Australia RTBU Rail, Tram and Bus Union SCI Statement of Corporate Intent SFP Statement of Financial Performance SISP State Infrastructure Strategic Plan SOC State Owned Corporation SVA Shareholder Value Added SWMOP State Water Management Outcomes Plan TAM Total Asset Management TBL Triple Bottom Line TCorp Treasury Corporation TEU Twenty foot equivalent unit TPA Trade Practices Act 1974 WACC Weighted Average Cost of Capital Performance of NSW Government Businesses 2001-02 (TRP 03-01) 6 New South Wales Treasury EXECUTIVE SUMMARY The Performance of NSW Government Businesses has been published annually since 1989-90. It documents the NSW Government’s progress in implementing microeconomic reform. Microeconomic reform aims to improve the efficient management of the use of the economy’s scarce resources to produce goods and services. Successful reform has two major benefits: • it increases productive efficiency, so that more goods and services are produced for a given level of resources; and/or • it improves allocative efficiency, so that resources are directed to those sectors that generate the greatest benefit. This year’s publication provides updates for the financial year 2001-02 on: • NSW Government achievements on National Competition Policy (NCP) obligations; • productivity gains by NSW Government businesses in electricity, transport, water and other sectors; • aggregate movements in the prices charged by major NSW Government businesses; • performance indicators on finance, efficiency and service for 23 NSW Government businesses; and • other microeconomic reform initiatives. The NSW Government has continued to achieve reform progress, especially in the electricity, gas and water sectors. In the electricity sector, full retail contestability commenced 1 January 2002. The operation of the Electricity Tariff Equalisation Fund (ETEF) and its future role as a risk management mechanism is under review. In the natural gas sector, full retail contestability was introduced on 1 January 2002. Small consumers were given the default option of electing to remain in the tariff regime regulated by the Independent Pricing and Regulatory Tribunal (IPART). In the water sector, the 2002 National Competition Council assessment found that NSW had made sufficient progress to enable it to receive its 2002-03 National Competition Policy