Industry restructuring and a small open regional economy

The paper examines the regional implications of the microeconomic reform of the electricity generation industry in the state of Victoria. 93 per cent of the electricity generation is located in a small open region of La Trobe Valley, in which this sector is a major industry base. The ultimate goal of the reform has been to transform the State Electricity Commission of Victoria, the natural monopoly responsible for coal mining, electricity generation, transmission and distribution, into a privatised competitive industry. As a result, even though the state as a whole is enjoying some benefits of this measure, the main power supplying area of the State - the La Trobe Valley Region appears to be negatively affected. A few thousand people have been retrenched and considerable migration of population has taken place from the region to other areas of Victoria and interstate. General equilibrium approach to regional economics and the MONASH Model instrumentality are used to evaluate the overall impact of the microeconomic reform on the regional economy in terms of the reduction of local employment and purchasing power. A combination of primary and secondary information is used to implement the model. The multi-regional version of the Monash model and its data are used as an environment for a regional model. The model of the region is based on a comprehensive survey of the La Trobe Valley's economy. Three kinds of primary information were explored. The State Electricity Commission and its successors financial statements and personnel data were used to identify how the industry injected money into the regional economy both prior to and during the reform, and how the reform affected employment in the region. An income and expenditure survey of the current employees was undertaken as well as of a sample of voluntary departure package recipients still residing in the region. The results of the survey were used to determine the changes the reform generated in expenditure patterns. Interviews were conducted with senior managers from both the newly established commercial ESI companies and businesses who assumed facilities outsourced by the State Electricity Commission. The purpose of the interviews was to obtain expert estimates of the components of the industry's expenditure into the region not otherwise available. In addition, a sample survey of local business was used to adjust the state of Victoria's input-output tables from the MONASH model to the regional Economy of La Trobe Valley.