The Queensland Government furniture firesale continues as they soften the market for the crashlanding of QR National. In one of the first major share offerings since the GFC, the rail freight business is being pitched as a “growth story” worth 6.6 to 7.8 billion dollars. Premier Bligh acknowledges dividends will be low and investors will not make a quick killing. What she does not acknowledge is this slow long-term growth makes it ideal to remain in government hands.
There is another reason the sale is bad. Privatisation costs money and the cost is deducted from the sale price, meaning the vendor pays for the transition. Australian and Queensland tax payers will lose tens of billions in long term revenues.
The “book value” of QR National is $7.4 billion but it does not measure other aspects including future earnings, goodwill and the power of being the leading producing of freight services in Australia.
QR National is the biggest of five assets being sold as Queensland buckles under financial penalties caused by its AA credit rating. With $52b of debt to service, international credit demanded these tasty morsels be released in downpayment. The unfolding financial disaster left Bligh in a no win situation after her election. The only people that wanted these assets privatised would never vote for her. Her base detested the move and her credibility was shot to pieces after she introduced the sale without a mandate in the 2009 election.
QR National are the largest rail freight haulage business in Australia by tonnes hauled and are strong in coal haulage which has doubled in ten years. QRN operate 2,300 of dedicated railway lines in five states. Their outlook is strong having invested $3.4 billion in three years in rolling stock while expanding its network. Another $3.8b is earmarked in expansion programs in the next two years.
QR National may be the jewel in the crown but the four other assets are also sparkly. Queensland’s largest cargo port, the Port of Brisbane could fetch $2 billion. Queensland Motorways operates the tolling franchise on the Gateway and Logan motorways and is worth $4.5 billion. But as Professor Ross Guest told RACQ a likely sale price of $3 to $4b “would therefore transfer net worth from Queensland taxpayers”.
The fourth is Australia’s most northerly coal port: Abbot Point Coal Terminal. Abbot Point is 25km north of Bowen and is the quickest route to China. The port is valuable because it is one of few ports on Queensland’s eastern seaboard where very deep water is so close in-shore. Whitsunday Regional Council Mayor Mike Brunker said the terminal might go for half its $3 billion asking price because of crucial missing links in the railways providing coal to the port.
The fifth asset is a 99-year licence for Forestry Plantations Queensland and it is already lost to the state. The smallest of the five, it was the ideal candidate to be first cab off the privatisation rank. The licence to manage, harvest and re-grow plantation timber on over 200,000 hectares of plantation lands was sold for $603 million at the end of June to American company Hancock Timber Resource Group.
Professor Gary Bacon, adjunct professor with Griffith University’s Environmental Futures Centre said the state’s forestry assets was a bargain. He said if the land remained in government hands, the right to grow and harvest trees on it would be worth an estimated $1370 million. This figure came from parliamentary research commissioned by Bruce Flegg and while politically motivated, it shows a loss of $767m on unrealised earnings for the state. Hancock Timber Resource Group are also the target of Greens’ ire over their Victorian operation which will clearfell much of the Strzelecki Ranges.
QR National will dwarf the Forestries sale in scale, impact and money lost to the state. In parliament on 7 October, Treasurer Andrew Fraser called the QR National share offer a “historic moment for QR, for Queensland and indeed for the nation.” Australian interest was an afterthought. This is a major blunder given QR National’s size and reach into the important NSW market, a state which will recover its crippled mojo when Labor is turfed out of power in 2012.
The Queensland Government is expecting to receive between $3.6 billion and $5 billion from the float, but the true value of future earnings is not included. Bligh is aware of this but is pressing on. Her fear of bankers is worse than her fear of voters who don’t want the sales to proceed.
Billions of dollars will be lost to Australia. If Bligh cannot act in a notional national interest, then Prime Minister Julia Gillard ought to. She could buy the remaining assets for the cost of a tenth of a stimulus package.
Tens of billions are leaving the economy which will not be compensated by the benefits of privatisation. Stephen Bartolemeusz gives the game away when he says the value of QRN is in privatisation. Given the company’s strong set of businesses with dominant market positions it ought to release considerable value. Against that he outlines reasons why investors won’t pay premium prices: The grandfathering arrangements to protect jobs, the retention of 25-40 percent Government ownership and a 15pc ceiling on individual shareholding.
Queensland’s troubles show federalism is a mess and economically unsustainable. State-based power structures are crippling Australia. In the “future directions for rural industries and rural communities” session in the 2020 summit two years ago, session chair Tim Fischer admitted their solutions saw them “almost demolishing the states”. It’s a worthy vision for 2020 – the quicker it happens the better.