Financial Performance of Government Trading Enterprises 1998-99 to 2002-03
Commission research paper
This paper was released on 20 July 2004. This report is the second in a three-year program of research designed to provide comparable information on the financial performance of government trading enterprises (GTEs).
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- Key points
- Media release
Government trading enterprises (GTEs) occupy key sectors of the economy — including electricity, water, urban transport, railways, ports and forests. In 2002-03, the 84 GTEs monitored in this report controlled assets valued at more than $170 billion and generated $58 billion in revenue.
The aggregate return on assets of the monitored GTEs (excluding Telstra) was largely unchanged between 2001-02 and 2002-03, following a fall in the previous year.
Profitability in the electricity, ports and forestry sectors improved in 2002-03, whereas in the railways sector it has declined. The position of the water and urban transport sectors was largely unchanged.
Over a longer period, the profitability of 52 GTEs (excluding Telstra) monitored continuously from 1998-99 until 2002-03 improved, with the aggregate return on assets rising from 5.6 per cent to 6.1 per cent.
Despite this longer term improvement, 50 per cent of the 84 currently monitored GTEs earned less than the long-term bond rate in 2002-03. An even greater number of GTEs failed to earn a commercial rate of return, which includes a margin for risk.
The overall level of debt increased among the 52 GTEs (excluding Telstra) monitored since 1998-99, with their aggregate debt to assets ratio rising from 26 per cent to 30 per cent.
The 84 currently monitored GTEs made tax equivalent and dividend payments to their owner-governments totalling almost $7.5 billion in 2002-03.
GTE reporting, performance monitoring and external auditing all have important roles to play in promoting accountability and enhancing GTE performance:
- Reporting by GTEs provides transparency, as well as accountability to shareholding ministers against agreed corporate objectives. Although some GTEs have received awards for their reporting, a number appear to fall short of best practice.
- Performance monitoring is useful for measuring how well a GTE meets its objectives and how its performance compares over time and across GTEs. Although there is extensive performance monitoring, the results can be difficult to interpret. The relevance of non-financial measures to sometimes conflicting objectives is often unclear. Further, there is limited consistency in these measures, which constrains comparisons across GTEs.
- External performance audits by auditors general can enhance corporate governance by periodically evaluating the efficiency and effectiveness of GTE operations. The independence of auditors general and their ability to report to parliament, differentiates them from private sector auditors.
The Productivity Commission has released an update on the financial performance of 84 Commonwealth, State and Territory government businesses. These businesses provide essential services such as electricity, water and urban transport, as well as managing extensive rail, port and forestry assets. Combined, their revenues were $58 billion in 2002-03 and they controlled assets valued at more than $170 billion.
The study provides data on their financial performance over time and comparisons of performance among businesses in the same industry. It also includes information on aspects of corporate governance that can potentially affect long-term financial performance.
Over the 1998-99 and 2002-03 monitoring period, the profitability of businesses generally improved. Aggregate return on assets rose from 5.6 to 6.1 per cent for the GTEs as a group (excluding Telstra). In 2002-03, profitability in the electricity, ports and forestry sectors improved, whereas in the railways sector it declined. The financial performance of the water and urban transport sectors was largely unchanged.
The Commissioner overseeing the study, Mike Woods, said 'the financial performance of GTEs has improved overall.' Even so, 'despite governments' objective to operate them in a commercial manner, the majority are still failing to achieve a commercial rate of return.'
The study also revealed that there is scope to improve the reporting and performance monitoring accountability mechanisms of GTEs.
This study forms part of a continuing program of research into the performance of economic infrastructure industries and the impact of microeconomic reforms.
Cover, Copyright, Foreword, Contents, Abbreviations, Key Points
1.3 External governance
1.4 Report structure
2 Financial performance overview
2.2 Financial management
2.3 Government transactions
3 Interpretation of performance measures
3.2 Performance indicators
3A Definitions of financial performance indicators
PART A EXTERNAL GOVERNANCE RESEARCH
4.1 Legislative basis
4.2 Office of the auditor-general
4.3 Financial auditing
4.4 Performance auditing
4.5 Implications for external governance
5.1 Legislative and policy provisions
5.2 Reporting and accountability
5.3 Accountability documents
5.4 Role of reporting in external governance
6 Performance monitoring
6.1 Rationale for performance monitoring
6.2 Performance measures
6.3 Agencies undertaking external performance monitoring
6.4 Implications for external governance
PART B GTE SECTOR PERFORMANCE REPORTS
7.1 Monitored GTEs
7.2 Market environment
7.4 Financial management
7.5 Financial transactions
7.6 GTE performance reports
8 Water, sewerage, drainage and irrigation
8.1 Monitored GTEs
8.2 Market environment
8.4 Financial management
8.5 Transactions with government
8.6 GTE performance reports
9 Urban transport
9.1 Monitored GTEs
9.2 Market environment
9.4 Financial management
9.5 Transactions with government
9.6 GTE performance reports
10.1 Monitored GTEs
10.2 Market environment
10.4 Financial management
10.5 Transactions with government
10.6 GTE performance reports
11.1 Monitored GTEs
11.2 Market environment
11.4 Financial management
11.5 Transactions with government
11.6 GTE performance reports
12.1 Monitored GTEs
12.2 Market environment
12.4 Financial management
12.5 Transactions with government
12.6 GTE performance reports
13 Commonwealth GTEs
Appendix A Monitored GTEs, 2002-03
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