The share price of Transurban Group (ASX: TCL) edged higher this morning after the competition watchdog gave the toll road operator the green light to bid on Sydney’s WestConnex motorway.
The stock rose 0.6% to a three-week high of $11.97 on the news when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 0.2% at the time of writing.
The implication of the approval from the Australian Competition and Consumer Commission (ACCC) goes beyond the WestConnex tender for Transurban.
The nod from the regulator effectively clears the way for Transurban to acquire other domestic assets to grow its earnings to support further increases in its dividend payouts as the ACCC doesn’t believe our only listed toll road company has monopolistic power over the sector, particularly after Transurban agreed to provide timely detailed traffic data to its rivals.
Transurban has an information advantage over rival bidders on toll road projects as it owns many of the tollways that feed traffic into other key motorways (Transurban owns 15 of the 19 toll roads in Australia).
There were fears that a knockback from the ACCC will mean the end of Transurban’s ability to grow via acquisitions in the local market, where it is arguably the most powerful non-government player.
However, getting the blessing of the ACCC won’t mean the end to the regulatory pressure on Transurban.
The company is still facing a parliamentary enquiry in Queensland that was called by the Palaszczuk government to address concerns of Transurban’s growing market dominance. The enquiry will hand in its findings on September 13.
The latest decision by the ACCC will add to Transurban’s defence, but it won’t change the fact that we are entering into a period of re-regulation with a number of sectors facing threats to tighter regulation.
It isn’t only the big banks like Commonwealth Bank of Australia (ASX: CBA) that are likely to come under government scrutiny. Power companies like AGL Energy Ltd (ASX: AGL) and Origin Energy Ltd (ASX: ORG) are facing similar risks after the new federal energy minister Angus Taylor accused energy companies of being as bad as the banks.
The ACCC has also cautioned state governments against accepting unsolicited proposals from toll road operators (but we know who it is really pointing the finger at) in a swipe at the Victorian Andrews’ government.
Transurban has secured generous concessions in Melbourne’s West Gate Tunnel as well as Sydney’s NorthConnex, and the ACCC believes accepting unsolicited proposals will generally lead to “higher costs for taxpayers, drivers, or both”.
The unfettered market power of Transurban has made it a hot favourite with investors over the years, but its golden run is under threat as I can’t remember a time when the regulatory risks to the business have been this high.
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Motley Fool contributor Brendon Lau owns shares of AGL Energy Limited. The Motley Fool Australia owns shares of and has recommended Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.