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.

The Productivity Commission has released a study 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 $55 billion in 2001-02 and they controlled assets valued at more than $162 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.

The results indicate a downward trend in the financial performance of many government businesses. Thirty businesses reported lower returns than those of the previous year, particularly in the ports and urban transport sectors. The profitability of half the businesses that have been monitored since 1997-98 has deteriorated in the past five years.

Commissioner Mike Woods, said: 'Despite the objective of governments to operate these businesses in a commercial manner, over half of the monitored businesses earned less than the long term bond rate in 2001-02. An even greater number failed to achieve a commercial rate of return.'

This study forms part of a continuing program of research into the performance of economic infrastructure industries and the impact of microeconomic reforms. This years study starts an examination of the governance of GTEs.

Preliminaries
Cover, Copyright, Foreword, Contents, Abbreviations, Key Points

1; Introduction
1.1; Background
1.2; Scope
1.3; External governance
1.4; 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
3A; Definitions of financial performance indicators

PART A; EXTERNAL GOVERNANCE RESEARCH

4; Corporatisation framework
4.1; GTE reforms
4.2; Corporatisation
4.3; Corporatisation frameworks

5; Responsibility for objectives and board authority
5.1; Responsibility for meeting objectives
5.2; Board authority
5.3; Ministerial interventions
5.4; Other limits on board authority

6; GTE objectives
6.1; Establishing and approving objectives
6.2; Expression of objectives in statements of corporate intent

PART B; GTE SECTOR PERFORMANCE REPORTS

7; Electricity
7.1; Monitored GTEs
7.2; Market environment
7.3; Profitability
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
8.3; Profitability
8.4; Financial management
8.5; Financial transactions
8.6; GTE performance reports

9; Urban transport
9.1; Monitored GTEs
9.2; Profitability
9.3; Financial management
9.4; Financial transactions
9.5; GTE performance reports

10; Railways
10.1; Monitored GTEs
10.2; Market environment
10.3; Profitability
10.4; Financial management
10.5; Financial transactions
10.6; GTE performance reports

11; Ports
11.1; Monitored GTEs
11.2; Market environment
11.3; Profitability
11.4; Financial management
11.5; Financial transactions
11.6; GTE performance reports

12; Forestry
12.1; Monitored GTEs
12.2; Market environment
12.3; Profitability
12.4; Financial management
12.5; Financial transactions
12.6; GTE performance reports

13; Commonwealth GTEs

A; Monitored GTEs, 2001-02

B; Corporatisation framework in Australian jurisdictions

C; Statements of corporate intent

References

Erratum