1994_06_june_actewcom

A takeover bid has been launched for the ACT’s biggest business.

There is a lot at stake as the rival management groups vie for control of about $1.5 billion worth of assets (or about $3 billion using replacement cost accounting), about 1400 employees, a turnover of about $350 million, $31.1 million and at least 100,000 customer accounts.

The two managements have entirely different styles. The present management has introduced reforms and wants to push ahead with enterprise bargaining, new work practices and pricing structures. It is concerned that any change of management will result in this process slowing, customer service getting worse and prices going up.

The business, incidentally, is ACT Electricity and Water, and the takeover is threatened by the ACT Government’s Public Sector Management Bill.

It will make all ACTEW’s employees officers in the ACT Government Service and the organisation will be subject to the centralised controls set up in the Bill.

Employment conditions are fundamental to that control. The laborious public-service system of employment, promotion, appeals and discipline procedures will be imposed upon ACTEW. SES officers subject to veto by the head of Chief Minister’s department. Long-service and maternity leave and work hours are set in statute. Equal opportunity, equity programs and industrial-democracy programs will be dictated.

These might be very laudable things in line government departments delivering policy and community-service programs.

They are hopelessly inefficient in a business enterprise which delivers product for price, which competes with other suppliers and which should answer to a bottom line.

Government departments need a statute-based system for a couple of reasons. In the private sector the profit motive ensures appointment on merit and other efficiencies. Without a profit motive, the public sector needs statutory procedures. In the private sector, the profit motive also ensures efficiency and to a lesser extent that money is properly spent. And if it is not properly spent, well, it is their money and their risk. In the public sector full accounting of public money is needed.

Risk management is frowned upon. You chase and account for everything, even if it costs more than it is worth.

There is simply no need for all these statutory rules in ACTEW. Unlike, say, the Chief Minister’s Department or Attorney-General’s, the performance of ACTEW is precisely measurable.

ACTEW should face no lesser or greater rules and regulations than apply to other private sector employers.

Earlier this year, the ACT Government signed an agreement other states and territories to deliver a positive rate of return on capital and generally endorsed the efficiency reforms set out in the Hilmer report on public utilities.

Most states are aiming for a 2 per cent return on the written down value of assets. ACTEW is just making that when viewed overall.

When viewed as individual components, electricity, water and sewerage, the story is different. It is making virtually nothing for water and a few million in sewerage, but these are where the big assets are. The lion’s share is made with electricity. But this is the area coming in for hottest competition (with natural gas and other energy sources).

In short, ACTEW is under a lot of competitive fire and can do without the shackles of centralised bureaucratic requirements.

The Industry Commission suggests the utilities should aim for 5 per cent return on capital. ACTEW gets nowhere near this.

Of course, it is in the public interest that utilities do this. If they do not, a large asset (whether owned privately, publicly or jointly) is not being used efficiently or in a way that permits orderly upgrading.

The trouble with the proposed model is that every time ACTEW does a mutually beneficial deal with its employees, it will be viewed with alarm by Treasury because of its implications for the rest of the service.

To take an extreme example, ACTEW may abandon the supply of wet-weather gear in return for an extra week’s leave. That deal might make sense in ACTEW (where many people work outside), but applied service wide it would cause a Budget nightmare as sheltered clerks get an extra week’s leave in return for not getting use of the office umbrella.

A business like ACTEW has to operate without Treasury officials with precedent paranoia leaning over their shoulders.

Ironically enough, the Government has provided the best case yet for the full privatisation of ACTEW. It has highlighted how unnecessary the public-service shackles are in a profit-making, product-delivering organisation. A float would net the ACT almost a $1 billion.

But this should not be an argument about privatisation. It should be one about getting ACTEW efficient, whether private or not. I can only do that if it has autonomy.

Under the Public Sector management Bill it is likely to become more inefficient and that can only result in more pain later, for customers, employees and, ironically, the Government itself.

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