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State Owned Corporations: A Review

State Owned Corporations: A Review

Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.
Briefing Paper No. 11/2000 by Stewart Smith

It has been over 10 years since the State Owned Corporations Act 1989 was introduced into Parliament, and five years since major amendments were introduced by the Carr Government in 1995.

A useful definition of corporatisation is: a structural reform process for nominated government entities that (page 1):
    1. changes the conditions and (where required) the structure under which the entities operate so that they operate, as far as practicable, on a commercial basis and in a competitive environment; and
    2. provides for the continued public ownership of the entities as part of the process; and
    3. allows the State, as owner on behalf of the provide strategic direction to the entities by setting financial and non-financial performance targets and community service obligations.

The five principles of corporatisation have been identified as (page 2):
    1. ensuring there were clear and non-conflicting objectives so managers could focus on the ‘bottom line’ of commercial performance, leaving ‘social service’ and other functions to be dealt with separately.
    2. assignment of management responsibility and authority to enable action to achieve stated objectives;
    3. independent, external monitoring of performance against agreed targets;
    4. rewards and sanctions commensurate with performance according to results;
    5. competitive neutrality – ‘the level playing field’ – so that performance was not distorted by privileges or handicaps arising from government ownership, and so that wider market distortions harmful to economic efficiency did not occur.

‘Umbrella’ or ‘template’ State owned corporation legislation was passed in New South Wales in 1989 (page 2). During the Coalition’s term of office only six agencies were brought under the State Owned Corporations Act – the Government Insurance Office; State Bank; Hunter Water Corporation; Graincorp; Department of Water Resources Irrigation Schemes; and the Sydney Water Board. With the election of the Carr Government in 1995, the State Owned Corporations Amendment Act 1995 provided for the establishment of statutory State owned corporations as a different model of corporatisation from that provided for under the original 1989 Act. A statutory State owned corporation is not registered under the Corporations Law. The amendments also introduced the concept of company State owned corporations which are incorporated or registered under the Corporations Law (pages 2-4).

This paper then analyses the differences between the two types of State owned corporations (pages 4 – 13) and, using case studies, looks at the operation of some corporations and the effectiveness of the relevant legislation (pages 13 – 22).