Melbourne's private affair ends in red ink

Australia's first private university set up by a public institution is to close after eight years and losses of at least A$20 million (£8.4 million).

When Alan Gilbert, the University of Melbourne's former vice-chancellor, launched Melbourne University Private in 1997, he predicted it would generate more than A$200 million a year and attract 10,000 students from Australia and around the globe. But Glyn Davis, his successor at Melbourne, announced last week that the private arm would merge with the parent university and that all students would be able to complete their courses there.

Professor Davis described MUP as a "brave experiment" that had hastened the introduction of domestic full fee-paying students at Australian universities. But with A$20 million already invested, spending more money could not be justified, he said.

"As a business enterprise, this has not been as successful as we would like. The point about private institutions is that they live and die by the market, and the market decided."

But Professor Davis credited MUP with influencing federal policy - for example, making it harder for ministers to hold the line against domestic fee-paying students.

"The private university has been a major catalyst for change inside the public university."

He said that Australian universities were now doing what previously only private universities could do. This was a reference to a 1998 federal government decision to allow public universities to charge full fees to Australian students who missed out on a subsidised place.

With more than 3,000 fee-paying Australian students, Melbourne University became the most successful public institution in the private market, Professor Davis said. But that meant the parent university was competing with its own private offshoot.

Melbourne's governing council committed A$25 million to the venture and then took out a $250 million bank loan - the largest sum borrowed by any Australian university - to meet the cost of the building project, which Professor Gilbert had expected would be financed by corporations.

Although more than a dozen of Australia's top corporations and Victoria's state Government financed a A$250,000 feasibility study, the project failed to attract business community support.

By 2001, MUP had already lost almost A$3 million. Professor Gilbert later told a meeting of deans and heads of department that MUP was unlikely to be commercially viable. Only a merger with one of the university's other commercial offshoots, a company running English language schools around the world, saved it from financial collapse. Four years later, MUP had only 600 higher-education students enrolled.

Professor Davis said that shutting the private arm would also affect the federal Government's efforts to involve more private institutions in higher education.

"If the federal Government wants for-profit private universities, then it will have to think about its regulatory framework," he said. "We have struggled to run under these conditions."

A former premier of Victoria and professorial fellow at Melbourne, John Cain, who last year co-authored a book attacking MUP, said last week that the venture had been a fiasco for which the university council had to accept responsibility. Merging MUP with its parent proved that the original business model was flawed because the private money necessary for success was never there, he said.

A spokesman for Professor Gilbert, now vice-chancellor of the University of Manchester, said it would be inappropriate for him to comment on decisions made by his successor.