What if the NSW government set up a new state-owned business corporation and handed it sweeping powers that duplicated those of several established authorities, including the power to prepare strategic plans, buy, develop and sell land, run other businesses (including bus services) and, incidentally, manage a railway system?
Well, this isn’t a hypothetical question, as the government has just pushed the Transport Administration Amendment (Sydney Metro) Bill 2018 through parliament. The legislation, which passed yesterday with little fanfare, amends the Transport Administration Act 1988 to constitute the Sydney Metro as a corporation. It also creates the Sydney Metro Board to run the new entity, which can undertake all the activities outlined above.
Why has the government done this? Setting up a government-owned corporation to oversee the development and operation of a privately-operated metro is not so surprising for a Coalition Government, but why give this new body a range of powers that goes well beyond ensuring the metro trains run on time?
Not surprisingly the opposition thinks it has the answer – the metro is being “fattened” for privatisation, a claim the government strenuously denies. However, the government may have another agenda for the Metro, one which may prove to be even more controversial.
Sydney Metro: open for business
The legislation starts with a clear commercial focus. The “orderly and efficient development of land” near metro stations, depots and stabling yards is given equal top billing as a key objective alongside the delivery of “safe and reliable metro passenger services”.
The rest of the objectives follow this trend. The Metro is to be a successful business, operated “at least as efficiently as any comparable business” with the aim of maximising the “net worth of the State’s investment in the metro”. This imperative is leavened with requirements that the Metro is to “exhibit a sense of social responsibility” and have a “regard to the interests of the community” while conducting operations “in compliance with the principles of ecologically sustainable development”.
The functions listed in the bill (Section 38B) cast the Metro’s net even wider. Clause 3(a) for example allows the Metro to conduct any business even if its unrelated to its functions, as long as it “will further its objectives” – which would seem to indicate that the new Sydney Metro Board will be able to do just about anything it likes. Almost to emphasise this commercial and operational freedom, clause 3(b) states that the metro can operate other transport services “including bus services”, whether these are connected to the metro or not.
Other parts of clause 3 also give the Metro the right to “build, modify, hold, manage, maintain, finance and establish” transport and metro assets. These rights extend to the assets of other public transport agencies; Sydney Metro can also dispose of any assets, other than the metro itself.
Clause 4 gives the Metro authority to acquire, develop, lease or sell land, while section 38D greatly expands on the Metro’s role as a property developer. It’s worth quoting part of clause 1:
Sydney Metro may carry out, finance, manage or otherwise participate in development for residential, retail, commercial, industrial, mixed use, community, public open space or recreational purposes on land in the locality of a metro station, depot or stabling yard, or a proposed metro station, depot or stabling yard….
Division 4 of the bill covers the composition and role of the Sydney Metro Board. Up to seven directors will be appointed by the Minister for Transport, with one appointed by the Transport Secretary. This division also provides for the appointment of the Board’s Chair and CEO. Division 5 permits the Board to appoint advisory committees and also requires it to prepare an annual corporate plan which must be made available in draft form for public comment.
The completed plan is also to be made public, though the Metro is not required to make available commercially sensitive information unless required do so under the Government Information (Public Access) Act 2009. The rest of the bill comprises largely procedural amendments to the Act. An interesting exception is the creation of a Sydney Metro Fund to be administered by the Board.
The political response
It’s also worth looking briefly at the debate in parliament. In his speech introducing the bill, Transport Minister Andrew Constance stressed the benefits the new corporate structure would bring in terms of delivering services and carrying out “the orderly and efficient revitalisation of land” around metro assets. He also claimed that the Sydney Metro Board would have the expertise “to maximise Government’s already significant investment in the metro and future growth”. Constance also stated:
Establishing the Sydney Metro as a dedicated statutory corporation is a demonstration of this Government’s commitment to delivering world-class, customer centred transport services to meet the needs of the community, both now and into the future.
However, the Minister largely failed to explain why the new corporation needed to be a property developer or to run enterprises (including bus services) unrelated to the metro. Nobody from the government in either house was able to provide a convincing rationale for providing the new corporation with such a strong commercial focus.
In her reply to the Minister opposition MLA Jodi McKay said the government had “one agenda, and one agenda only: privatisation”. Along with other opposition and cross bench speakers she questioned the necessity of creating a corporation with such sweeping powers, comparing it to the government’s strategy in setting up the Sydney Motorways Corporation and then putting 51 percent of it on the market. McKay said:
Why does this Sydney Metro authority, this Sydney Metro Board, this statutory corporation need the ability to buy or lease land? It needs it because the Minister is fattening the pig for market. If you buy that land and put it within the statutory corporation—hey presto!—you have a big corporation, a big agency, that has bus services and can develop land, and it is in legislation. This means that the Government will try to push this legislation through today because it needs to start work so that, if it wins the next election, it can then sell the Sydney Metro.
Privatising Sydney Metro – or another agenda?
It is tempting to agree with the state opposition’s assessment of the legislation, especially given the government’s failure to specify why Sydney Metro is being given such broad commercial powers. There is little that the Metro cannot now do as long as its activities support its role as a “successful business”.
It is also true that the government has form in this area, with the partial sale of the Sydney Motorways Corporation, another recently-created arms-length body being put forward as “Exhibit A”. There is also the Transport Minister’s statement that in the future governments won’t need to deliver transport services as the private sector will do a better job.
The broadening of Sydney Metro’s mandate would certainly increase its value if privatisation is contemplated. As many metro systems overseas have shown the real money is likely to be made not in the sale of train tickets but in the ability to redevelop land in the vicinity of train stations. If the Metro has the right to plan these developments and then invest in them – and in doing so can bypass other government agencies which would otherwise have control – it would be able to capture the resulting uplift of property prices, thus turning it into a much more attractive package for sale.
However, privatisation may not be the government’s real goal, even in the long term. While the legislation makes the Metro a more sellable item it also turns it into a new model of streamlined and corporatised quasi-government agency. What if this has been the government’s intent all along?
The government now has a body that will be able to offset much of the cost of future metro construction through property development, capitalising on its advantages as a notional state agency that can operate with limited public scrutiny. As its capital base increases it will be able to make more investment in its own right and become self-sustaining. The government could then start to transfer other government services – for example, bus services (as mentioned in the legislation) – to Sydney Metro.
Inevitably these services would themselves become commercialised, further reducing the cost to government. Over time the government could either continue to transfer other services to the Sydney Metro or alternatively set up new corporations covering other areas of government operation.
In other words, the value to the current government may lie not in selling off the Sydney Metro, but rather in retaining it as a mechanism and model to drive the corporatisation and commercialisation of the rest of the public sector. Many would regard this as a being a much more concerning outcome than even the impact of privatisation.