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Financial Performance of Government Trading Enterprises 1999-00 to 2003-04

Commission research paper

This report was released on 7 July 2005.

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  • Key points
  • Media release
  • Contents

Government Trading Enterprises (GTEs) provide services in key sectors of the economy — including electricity, water, urban transport, railways, ports and forestry. In 2003-04 the 83 GTEs monitored in this report controlled assets valued at more than $174 billion and generated $55 billion in revenue.

Aggregate profitability increased in all sectors, other than rail and forestry, in 2003-04 compared with the previous year.

Over a longer period, the profitability of 50 GTEs (excluding Telstra) monitored continuously since 1999-00 did not improve, with the aggregate return on assets falling slightly from 6.8 per cent to 6.7 per cent.

The aggregate debt to assets ratio rose from 26 per cent in 1999-00 to 29 per cent in 2003-04.

Nearly half of the 83 currently monitored GTEs earned less than the long-term bond rate in 2003-04. An even greater number failed to earn a commercial rate of return (which includes a margin for risk).

In total, currently monitored GTEs made tax-equivalent and dividend payments to their owner governments of almost $7.9 billion in 2003-04.

There are some deficiencies in the governance arrangements for GTEs. Given the economic significance of the GTE sector, improvements in governance could yield significant benefits to the community and reduce the need for GTEs specific regulation. These improvements should include:

  • clarification and public scrutiny of the rationale for ongoing government ownership of GTEs
  • greater clarification and transparency of objectives (both commercial and other public interest), together with the prioritisation or weighting
  • making a clearer distinction between external and internal governance, with improved transparency of the external governance role of ministers.

The Productivity Commission has released an update on the financial performance of 83 Australian, State and Territory Government trading enterprises (GTEs). The study provides data on their financial performance over time and includes comparisons of performance among GTEs in the same industry.

In 2003-04, profitability increased in all sectors, other than rail and forestry, compared with the previous year. Despite this improvement, over half of the currently monitored GTEs are still not fully achieving their commercial objectives.

The findings of a three year research program into GTE governance are also included in this study. These findings elaborate on issues raised in the Commission's recent National Competition Policy Inquiry Report.

Commissioner Tony Hinton said that 'without a commitment to better governance, the National Competition Policy reform objective of operating GTEs commercially will not be fully achieved'. He added, 'failure to meet this objective has potentially serious consequences, given that these GTEs have combined assets of more than $174 billion and generate $55 billion in revenue annually'.

The Commission highlighted the following as important areas for improvement in the governance of GTEs:

  • clarification and public scrutiny of the rationale for ongoing government ownership of GTEs;
  • greater clarification and transparency of GTE objectives (both commercial and public interest); and
  • making a clearer distinction between external and internal governance, with improved transparency of the external governance role of government ministers.

Financial performance monitoring of GTEs forms part of the Commission's research into the performance of Australian industries and the progress of microeconomic reform. The GTEs monitored provide services in key sectors of the economy — including electricity, water, urban transport, railways, ports and forestry.

Background Information

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

Preliminaries
Cover, Copyright, Foreword, Contents, Abbreviations

PART A

Key Points

1 Introduction
1.1 Scope
1.2 External governance
1.3 Report structure

2 Financial performance overview
2.1 Profitability
2.2 Financial management
2.3 Government transactions

3 Interpretation of performance measures
3.1 Data
3.2 Performance indicators

4 External Governance of GTEs
4.1 Background
4.2 Characteristics of corporatised entities
4.3 Government ownership — and the public interest
4.4 How can external governance be improved?
4.5 Towards best practice

PART B

5 Electricity
5.1 Monitored GTEs
5.2 Market environment
5.3 Profitability
5.4 Financial management
5.5 Financial transactions
5.6 GTE performance reports

6 Water, sewerage, drainage and irrigation
6.1 Monitored GTEs
6.2 Market environment
6.3 Profitability
6.4 Financial management
6.5 Transactions with government
6.6 GTE performance reports

7 Urban transport
7.1 Monitored GTEs
7.2 Market environment
7.3 Profitability
7.4 Financial management
7.5 Transactions with government
7.6 GTE performance reports

8 Railways
8.1 Monitored GTEs
8.2 Market environment
8.3 Profitability
8.4 Financial management
8.5 Transactions with government
8.6 GTE performance reports

9 Ports
9.1 Monitored GTEs
9.2 Market environment
9.3 Profitability
9.4 Financial management
9.5 Transactions with government
9.6 GTE performance reports

10 Forestry
10.1 Monitored GTEs
10.2 Market environment
10.3 Profitability
10.4 Financial management
10.5 Transactions with government
10.6 GTE performance reports

11 Australian Government GTEs

Appendix A Monitored GTEs

References

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