Financial Performance of Government Trading Enterprises 2000-01 to 2004-05
Commission research paper
This commission research paper was released on 20 July 2006.
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- Financial Performance of Government Trading Enterprises 2000-01 to 2004-05 (PDF 1.3 MB)
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- Key points
- Media release
Government trading enterprises (GTEs) provide services in key sectors of the economy — including electricity, water, urban transport, railways, ports and forestry. In 2004 05, the 85 GTEs monitored in this report controlled assets valued at more than $186 billion and generated $63 billion in revenue.
Aggregate profitability increased in the electricity, water and urban transport sectors in 2004-05 compared with the previous year. Profitability declined in the railways, forestry and ports sectors.
Over a five year period, the profitability of the 54 GTEs (excluding Telstra) monitored continuously since 2000 01 improved, with the aggregate return on assets increasing from 6.8 per cent in 2000 01 to 8 per cent in 2005 04.
Nearly half of the currently monitored GTEs earned less than the long-term bond rate in 2004 05. An even greater proportion failed to earn a commercial rate of return (which includes a margin for risk), suggesting impediments to improved performance remain for most GTEs.
In total, the 85 currently monitored GTEs made dividend payments to owner governments of almost $4.8 billion in 2004 05 ($2.7 billion excluding Telstra). Tax and tax-equivalent payments to governments totalled $3.4 billion ($1.6 billion excluding Telstra).
The average degree of financial leverage or 'gearing' of GTEs has declined over the last ten years and is generally lower than that of private sector utilities.
- However, there is a paucity of information that would allow the community to assess the appropriateness of GTE capital structures.
Government ownership and government borrowing arrangements attenuate the incentives to maximise shareholder return and operational efficiency that flow from appropriate capital structures and market engagement.
Recent equity withdrawals by governments — one means of restructuring business capital — do not appear to have significantly affected financial performance.
- Notwithstanding this, transparency (and therefore accountability) associated with the transactions remains below private sector reporting requirements.
The Productivity Commission has released an update on the financial performance of 85 Australian, State and Territory Government trading enterprises (GTEs). The report — Financial Performance of Government Trading Enterprises 2000-01 to 2004-05 also examines the capital structures of GTEs and capital withdrawal by State and Territory governments.
The 85 GTEs monitored in this report controlled assets valued at more than $186 billion and generated $63 billion in revenue, accounting for 86 per cent of all revenue generated by government owned businesses.
In 2004 05, aggregate profitability increased in the electricity, water and urban transport sectors compared with the previous year. Profitability declined in the railways, forestry and ports sectors.
Despite some improvement, a majority of the monitored GTEs failed to obtain commercial rates of return in 2004 05. The proportion of GTEs falling below this threshold has not changed significantly for over a decade.
Commissioner Mike Woods said that 'COAG's decision to reinvigorate reform through a new National Reform Agenda is timely because of the lack of long-term improvement in overall performance'. He added that 'the Commission's continued monitoring of GTEs will assist in evaluating the progress and gains from further infrastructure reforms'.
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 monitored GTEs provide services in key sectors of the economy — including electricity, water, urban transport, railways, ports and forestry.
Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443
Cover, Copyright, Foreword, Contents, Abbreviations and explanations
1.2 Capital management
1.3 Report structure
2 Financial performance overview
2.2 Financial management
2.3 Government transactions
3 Performance measures
3.2 Performance indicators
3.3 Implications of future reporting standards
4 GTE capital structures
4.1 Recent trends
4.2 Current GTE capital structure policies
4.3 Optimal capital structures of GTEs
4.4 Further restructuring
5 Equity withdrawals
5.1 Equity withdrawal transactions
5.2 Profitability trends <5br /> 5.3 Financial management trends
5.4 Comparisons with the private sector
6.1 Monitored GTEs
6.2 Market environment
6.4 Financial management
6.5 Financial transactions
6.6 GTE performance reports
7 Water, sewerage, drainage and irrigation
7.1 Monitored GTEs
7.2 Market environment
7.4 Financial management
7.5 Transactions with government
7.6 GTE performance reports
8 Urban transport
8.1 Monitored GTEs
8.2 Market environment
8.4 Financial management
8.5 Transactions with government
8.6 GTE performance reports
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 Australian Government GTEs
A Monitored GTEs
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