Thursday, April 5, 2012

ANSTO broke competition rules in nuclear medicine tender, Productivity Commission finds

By Business editor Peter Ryan

Australia's government-owned nuclear and scientific agency been has criticised for unfairly using its public ownership to win a contract to supply nuclear medicine to hospitals in New South Wales.

A report by the Productivity Commission has found that the Australian Nuclear Science & Technology Organisation (ANSTO) breached some rules on competitive neutrality when it outbid a small private company, Cyclopharm Limited, in a tender process.

After a nine month investigation into the awarding of the contract, the Commission's Competitive Neutrality Complaints Office found ANSTO breached regulations, suggesting it leveraged the benefits of public ownership in its tender submission.

Cyclopharm referred the complaint to the Productivity Commission last year claiming that ANSTO's subsidiary Petnet had failed to comply with rules on competitive neutrality.

Cyclopharm said the prices included in the Petnet tender did not reflect the true costs and its forecast profits were not commercially acceptable.

In the report released yesterday, the Productivity Commission made two key findings in favour of Cyclopharm's complaint that competition rules were broken.

"Forecasts over ten and 15 years demonstrate that Petnet Australia's operations are unlikely to achieve a commercial rate of return on equity over either time period. This represents an ex ante breach of competitive neutrality policy," the report says.

"To comply with with competitive neutrality policy it would need to adjust Petnet's business model such that it can be expected to achieve a commercial rate of return that reflects its risk profile of the full investment."

Cyclopharm's managing director James McBrayer has welcomed the findings and has called for a shakeup up at ANSTO to ensure small companies are able to compete on a level playing field with government.

"We are very pleased with the outcome and feeling quite vindicated through all our efforts over the past nine months," Mr McBrayer told AM.

"We would expect that the New South Wales Department of Health will rescind the tender based on the fact that ANSTO was supposed to be in compliance with competitive neutrality which they are clearly not.

"We would be seeking that the New South Wales Department of Health re-let the tender as we have been disadvantaged from day one. We would expect that the department would do the right thing in awarding us the tender while the review process is underway."

Mr McBrayer called on the federal government to call ANSTO to account to ensure it plays by the rules.

"ANSTO gets about $165 million of taxpayer's funds each year. ANSTO's role is to support Australian industry in this particular area instead of preventing it from happening," Mr McBrayer said.

ANSTO has defended its conduct in the tender process but says it will review the Productivity Commission's findings.

"ANSTO will now carefully consider the report, its recommendations, and the need to ensure continued supply of radiopharmaceuticals to Australian patients," a spokesman said.

“That said, ANSTO notes that Royal Prince Alfred Hospital produces and sells FDG at significantly lower prices than both PETNET and Cyclopharm."

The New South Wales Ministry of Health is yet to respond to the Productivity Commissions findings and said it would be inappropriate comment until the report has been completely reviewed.

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