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EDITORIAL

Turnbull right to get tough over Badgerys Creek

If the Sydney Airport operator wants to muck around, the government has other options for development of the new facility.

Sydney, NSW and Australia need an airport at Badgerys Creek. What we don't need is drawn-out legal games and obfuscation from the operator of Sydney Airport as it tries to maximise its monopoly position at Mascot and its first-right option to develop and operate the new facility near Penrith.

Federal Urban Infrastructure Minister Paul Fletcher and the Turnbull government have every right to play hardball and demand a quick decision either way from Sydney Airport. The company and its predecessor have benefited enough from the cosy privatisation deal at Mascot 14 years ago. It is already being offered taxpayer-funded land and transport support for the new project, which the company opposed for so long.

In October the government withdrew an offer of a very considerable concessional loan to help Sydney Airport with Badgerys Creek. Now the company needs to find about $5 billion for the project. Sydney Airport says it needs nine months to think. Mr Fletcher – and the Herald – thinks four months is enough.

The federal government has alternatives should Sydney Airport withdraw: public funding through "airport bonds" then a sell-off; innovative value capture and road tax methods to fund development; or tapping superannuation or infrastructure funds for joint ventures with other private sector concerns.

In 2002 Sydney Airport's predecessor, Macquarie Bank, paid the Howard government $5.6 billion for the Mascot operation. The price was inflated, to the government's benefit, by a clause giving Macquarie first right of refusal for 30 years to develop and run any new airport within 100 kilometres.

We've learnt a lot about privatisation since then.

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We know the public will support privatisation if the benefits are clearly explained and the process transparent. It is not clear that travellers got the best deal in 2002, given the market value of the operator is now about $14 billion.

Many analysts believe locking monopoly rights into government agreements is risky. The M2 Motorway deal in north-western Sydney, for example, had a clause limiting the state government's ability to support extra rail or bus lines that might undercut the toll road business. That disadvantaged consumers, just as lack of competition for Sydney airport has inflated parking fees and landing fees for airlines.

In 2015 the Australian Competition and Consumer Commission said in relation to Badgerys Creek that the first right of refusal would "provide little relief to airlines and other airport users". If the two airports in Sydney were to have different owners, "it could provide airlines with greater bargaining power [and] encourage each airport to lower prices and increase the quality provided".

We also know today that voters support extra investment in infrastructure. What's more, the government needs an economic circuit-breaker. With interest rates at record lows, governments should take on so-called "good debt" to build productive assets then sell them off later.

Yet the federal government is probably stuck for now with Sydney Airport at Badgerys Creek. True, some say both airports should be run by one operator because they can balance flights and not undercut each other. The Harper competition review also told the government in March 2015 that the light-touch regulation approach to airports, even in monopoly cases like Mascot, "appears to be working overall".

Airlines disagreed. What's more, the Harper review accepted that "if prices continue to increase as fast as they have been", tougher regulation might be needed for "individual airports".

The business case for Badgerys Creek remains uncertain, at least in the short term. But let's be clear. If Sydney Airport does not want to proceed with Plan A at Badgerys Creek because, it claims, "the project would require material support from the Commonwealth to make it commercially viable", then the government can go to Plan B or Plan C.

Last year Parliament passed a law preparing for just that scenario. It says that if the current operator at Mascot pulls out of Badgerys Creek, the Commonwealth could "develop and operate the airport itself, or offer the development opportunity to a third party". The law also removed cross-ownership restrictions, thereby helping maximise the success of any market offering for Badgerys. The Future Fund, institutional shareholders and in particular giant super funds with stakes in other airports would be free to invest.

That might well produce a better result.