Financial Performance of Government Trading Enterprises 2004-05 to 2006-07
Commission research paper
Financial Performance of Government Trading Enterprises 2004-05 to 2006-07 was released on 31 July 2008. It forms part of the Commission's research into the performance of Australian industries and the progress of microeconomic reform. An erratum (PDF - 26 Kb) was released on 19 January 2009.
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- Financial Performance of Government Trading Enterprises 2004-05 to 2006-07 (PDF - 1285 Kb)
- Financial Performance of Government Trading Enterprises 2004-05 to 2006-07 (Word/Zip - 1675 Kb)
- Key points
- Media release
- The financial performance of 86 government trading enterprises (GTEs) providing services in key sectors of the economy - including electricity, water, urban transport, rail, ports and forestry - is presented in this report. In 2006-07, these GTEs controlled about 2.8 per cent of Australia's non-household assets (valued at $192 billion) and accounted for around 1.7 per cent of GDP.
- Overall, the profitability of GTEs increased by 36 per cent in 2006-07, with mixed results across sectors. Profitability increased in the electricity, urban transport and ports sectors, but declined in the rail, water and forestry sectors.
- For sectors recording a profit improvement, much of this derived from the performance of a single GTE in that sector (between 41 per cent and 63 per cent of increased profits).
- Profitability also varied among GTEs:
- profits declined for two-fifths of GTEs
- fourteen GTEs (of which five were in the water sector) reported losses.
- Just over half of monitored GTEs failed to achieve a return on assets above the risk-free rate of return in 2006-07. This implies that an even greater proportion did not earn a commercial rate of return (which would include a margin for non-diversifiable risk).
- Twelve GTEs (14 per cent) failed to achieve a positive return on their assets.
- The poor financial performance of many GTEs underscores a long-term failure to operate these businesses on a fully commercial basis, in accordance with Competition Policy Agreements.
- In total, GTEs made dividend payments to owner governments of almost $4.4 billion in 2006-07. In addition, income tax and tax equivalent payments totalled $1.8 billion.
- Contrary to stated policies, not all governments have identified all existing Community Service Obligations (CSOs). Also, governments are generally not reporting funding for CSOs in a transparent manner. Almost no information is reported on the costs of meeting CSOs.
- Inadequate funding for provision of CSOs affects a GTE's financial performance and can result in inadequate or misallocated investment, price increases for non CSO services, and/or lower quality service provision.
- Poor profitability can lead to inadequate investment and asset maintenance, which can in turn reduce the future profitability of GTEs. Without a return to commercially sustainable operations, this cycle can persist.
The Productivity Commission has released its latest scorecard on the financial performance of 86 government trading enterprises (GTEs). The report also examines the impact on capital management of inadequate compensation for community service obligations and of the persistent poor performance of some GTEs.
The 86 GTEs monitored provide services in key sectors of the economy - including electricity, water, urban transport, railways, ports and forestry - and account for around 1.7 per cent of Australia's GDP.
Aggregate profitability increased in the electricity, urban transport and ports sectors, but declined in the rail, water and forestry sectors.
Despite some improvement, about half of the monitored GTEs did not achieve commercial rates of return in 2006-07, underscoring a long-term inability to operate these businesses on a fully commercial basis in accordance with competition policy undertakings.
The Commission observed that the efficient operation of GTEs was important both to the wellbeing of the community and to the competitiveness of Australian industry and that the continuing poor performance of many GTEs was therefore of concern.
Financial performance monitoring of GTEs forms part of the Commission's research into the performance of Australian industries and the progress of microeconomic reform.
Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443
- Cover, Copyright, Foreword, Contents and Abbreviations
- Chapter 1 Introduction
1.3 Performance indicators
1.4 Capital management research
1.5 Report structure
Attachment 1.1 Data item definitions
- Chapter 2 Financial performance overview
2.1 Monitored GTEs
2.2 Market environment
2.4 Financial management
2.5 Transactions with government
Attachment 2.1 GTE return on assets, 2004 05 to 2006 07
- Chapter 3 Community service obligations - funding and capital management
3.1 Defining community service obligations
3.2 How are CSOs costed, funded and reported in practice?
3.3 Investment and incentive issues
- Chapter 4 Profitability and capital management
4.2 Capital management
4.3 Implications of poor capital management
- Chapter 5 Electricity
5.1 Monitored GTEs
5.2 Market environment
5.4 Financial management
5.5 Transactions with government
5.6 GTE performance reports
- Chapter 6 Water<br />
6.1 Monitored GTEs
6.2 Market environment
6.4 Financial management
6.5 Transactions with government
6.6 GTE performance reports
- Chapter 7 Urban transport
7.1 Monitored GTEs
7.2 Market environment
7.4 Financial management
7.5 Transactions with government
7.6 GTE performance reports
- Chapter 8 Rail
8.1 Monitored GTEs
8.2 Market environment
8.4 Financial management
8.5 Transactions with government
8.6 GTE performance reports
- Chapter 9 Ports
9.1 Monitored GTEs
9.2 Market environment
9.4 Financial management
9.5 Transactions with government
9.6 GTE performance reports
- Chapter 10 Forestry
10.1 Monitored GTEs
10.2 Market environment
10.4 Financial management
10.5 Transactions with government
10.6 GTE performance reports
- Chapter 11 Other government trading enterprises
- Appendix A - Monitored GTEs
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