Competition tsar pans new power

Ian Harper has criticised the Turnbull government’s hasty introduction of a new divestment power targeting the energy sector.

Professor Ian Harper.

The head of the government’s landmark 2015 competition review, Ian Harper, has criticised the Turnbull government’s hasty introduction of a new divestment power targeting the energy sector, arguing that the aim of market intervention should be to “block anti-competitive conduct, not to restructure the industry”.

Business leaders also blasted the government for dropping plans for emissions target, saying it had capitulated to short-term political considerations.

They warned proposals including price caps and forced sales of assets introduced political risk into the sector that could reduce investment in new generation capacity and keep electricity prices high.

The Australian can reveal the Nationals have held talks about broadening the divestment power unveiled yesterday by the Prime Minister, who was forced to shelve his 26 per cent emissions reduction target in a bid to quell an open revolt from the government’s conservative wing.

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Professor Harper’s critique was in contrast to former Australian Competition & Consumer Commission chief Allan Fels who said any new ­divestment power should apply across the board, in order to ­capture the banks and the retail duopoly.

Under the energy reset, a ­default price will be set from which energy companies can offer discounts — saving households ­between $183 and $416 a year — while legislation will be introduced to underwrite investment in new baseload power generation, including “clean” coal-fired power plants.

Professor Harper said provisions ­already existed to force ­divestment in specific industries — such as the telecommunications sector — but acknowledged “this doesn’t mean pressure wouldn’t mount politically” on the government to target the banks if it moved on ­energy “gentailers”.

The dean of Melbourne Business School said his 2015 review had considered and rejected calls to introduce a ­divestiture power to the Competition and Consumer Act. “The chief problem is that the separate parts of a disaggregated conglomerate might not be commercially viable,” Professor ­Harper said.

“If ­divestiture effectively drives firms out of the market, the effect can be counter-productive.”

He argued that provisions to deal with misuse of market power provisions were already strong enough to combat anti-competitive conduct but said that, if the government moved, it should ­ensure divestiture powers were applied broadly.

“If would be preferable, if such powers are to be legislated, for them to be general,” Professor Harper said.

Professor Fels sounded the alarm on the shake-up by warning that limiting a new divestment power to the energy sector risked fuelling a political campaign for other industries to be targeted, ­including the banks and Coles and Woolworths.

He said Mr Turnbull’s announcement was a welcome ­“forward step” but he suggested the incorporation of general ­divestiture power into competition law would avoid the impression the move was driven by politics.

“This situation and the banking royal commission exemplifies why having a sensible court-applied ­divestiture sanction rather than a political process is desirable,” Professor Fels said. “The leading example is the separation of marketing their own products and providing so-called independent impartial advice on which are the best products in the market … The banking royal ­commission shows that reliance on regulation or good behaviour of banks will not solve problems, so structural remedies seem ­necessary.”

He suggested the “possibility of divestiture would have a powerful effect on retailer duopoly ­behaviour”.

Mr Turnbull said yesterday the energy reset, which was heavily driven by demands from the ­Nationals, would invest government with new powers to “issue ­directions on operations, functional separation and even, as a last resort, divestiture of parts of the big power companies”.

He acknowledged this could be used to “keep a power station going”, putting AGL Energy’s contentious Liddell coal-fired power station in NSW back in the spotlight. It is due to close in 2022.

NSW Nationals senator John Williams, one of the leading figures who pushed the government to accept a royal commission into the banks, said he would back any move to expand the new divestiture power. “Organisations that have financial products should not have financial planners. Vertical integration should be abolished,” he said. “We’ve got CommInsure sold out of by Commbank. You’ve got NAB getting out of MLC. It’s already happening in part and I’d welcome it in full.”

Former Nationals leader Barnaby Joyce welcomed the divestiture power, saying it would put greater pressure on AGL to keep the Liddell power station open.

“Talking tough and puffing out your chest and looking angry doesn’t cut it with AGL. Sitting them down and saying, ‘we have the power to break you up’ — then they pay attention,” Mr Joyce said.

He foreshadowed moves to apply the divestiture powers more broadly. “This is a step in an area which is needed right now, and if it works in that area — and I believe it will — there may be the case to ask for it in other areas at a later stage,” he said.

The default price flagged by Mr Turnbull would be set by the Australian Energy Regulator in consultation with the ACCC. It would achieve savings for small businesses of between $561 and $1457.