Financial Performance of Government Trading Enterprises 1997-98 to 2001-02

Government trading enterprises (GTEs) have an important place in the Australian economy. In 2001-02, the 84 GTEs monitored in this report controlled assets valued at more than $162 billion and generated $55 billion in revenue, in key areas of infrastructure — including electricity, water, urban transport, railways, ports and forests.

Despite the intent of governments to operate GTEs on a commercial basis, over 60 per cent of monitored GTEs earned less than the long-term bond rate in 2001-02. An even greater number of GTEs failed to earn a commercial rate of return, which includes a margin for risk.

While profitability in the electricity, rail and water sectors remained relatively unchanged in 2001-02, that of the ports and urban transport sectors was significantly lower than in the previous year.

The profitability of half of the GTEs that have been monitored since 1997-98, deteriorated in this time, particularly GTEs in the ports, urban transport and railways sectors.

The overall level of debt among the GTEs monitored since 1997-98, has increased in real terms by around 35 per cent. Of these GTEs, Telstra and GTEs in the electricity sector reporting the most significant increases in debt.

Institutional and governance arrangements, which are outside the control of management, can affect the financial performance of GTEs. Performance can be affected by: the price determinations of regulators; the level of payments by governments for the provision of non-commercial services; and the importance governments place on achieving commercial returns, relative to the achievement of non-commercial objectives.

The corporatisation frameworks adopted by Australian governments differ in the degree in which they emulate the private sector and in the autonomy they give to boards. The accountability of GTE boards is diminished when objectives are not well defined and performance targets are not readily quantified.