Spotlight returns on convoluted port privatisation saga - NSW Treasurer to reveal Privatisation deals

Today's mainstream media has picked up on the long-known fact known by the international trade sector that the Port of Newcastle is liable for a cost back to the state of $100 (to facilitate compensation to NSW Ports for throughput it may have lost) for every container moved once it handled 30,000 20-foot equivalent units annually.

PORT PRIVITISATION

There has been much debate over the years as to whether port privatisation is a good idea or not.Some have argued that by privatising ports we run the risk of monopoly assets being used to force excessive pricing on tenants and supply chain participants to maximise returns for shareholders.Others see merit in having the private sector in control of these assets by providing a long-term vision for ports for the duration of the lease in contrast to control by a turnstile of state governments and ministers.

No matter what your view, the reality is that most of our containerised seaports across Australia have been privatised with state governments (and arguably citizens) benefitting from significant financial windfalls.

Refer to The Australian 11 March 2024 The Real Cost of Super Fund Monopolies from the Sky to Sea

PORT BOTANY, KEMBLA AND NEWCASTLE DEALS

Port Botany and Port Kembla were privatised as a part of a combined deal in 2013 – according to today’s Australian Financial Review (AFR), this was a 99-year lease for $5.07 billion to the NSW Ports consortium comprised of IFM Investors, AustralianSuper, QSuper, and Tawreed Investments, a subsidiary of the Abu Dhabi government.

The AFR also refers to the Port of Newcastle 2014 deal being a 98-year lease to Hastings Funds Management and a Chinese state-owned corporation, China Merchants for $1.75 billion.

These arrangements coincided with the NSW Container Port Policy that set out to fully utilise capacity at Port Botany, before building additional capacity at another port (once Port Botany nears capacity, the next container terminal to be developed would be Port Kembla).

To meet this policy and to maximise the financial return to the state for the Port Botany and Port Kembla lease, a restrictive cap was placed on the number of containers that could be handled by the Port of Newcastle. Any handling of import or export containers above this cap would attract a fee that would be paid to the state who in turn would make an equivalent payment to NSW Ports as a form of compensation.

Putting aside the view of the Australian Competition and Consumer Commission (ACCC) that see these arrangements as being uncompetitive (a position dismissed in February 2023 by the Full Federal Court 2 to 1 – not a unanimous decision), the fact is that both consortia agreed to leases on the above terms.

WHAT HAS CHANGED?

In late 2022 the Port of Newcastle Extinguishment of Liability Act 2022 provided the Port of Newcastle the option to request determination of compensation. In essence, instead of paying transactional fees for each container movement above the cap, an upfront compensation payment can be made to the state.

The former NSW government on 1 March 2023 announcement that the Independent Pricing and Regulatory Tribunal (IPART) had been appointed as the independent valuer under the Act.

IPART at the time sought submissions from interested parties on what amount of compensation the Port of Newcastle should make to compensate the state for the lower acquisition price it paid for Newcastle.

These submissions are yet to be made available by IPART to the public. IPART is required to complete its determination by 2 June 2024, if it issues a draft determination.

Refer to IPART Port of Newcastle compensation

The arrangements between NSW Ports and the state will remain unchanged; that is the state will still be required to compensate NSW Ports the established fee for every container handled by the Port of Newcastle above the cap.

WHERE TO FROM HERE?

The NSW Treasurer today has announced that further documentation related to these port transactions is imminent.

Refer Treasurer Daniel Mookhey media release 21 March 2024 Privatisation deals made public

Sensitive documents were kept secret by the previous government and remained so until 2016 when they were revealed by the Newcastle Herald. These documents were known as the Port Commitment Deeds (PCDs) and in spite of many questions in State parliament by this now government about the existence of such arrangements and compensation provisions, the previous government denied they existed.

Potentially further complicating matters is a Federal Court action by Mayfield Development Corporation Pty Ltd (MDC) under the Competition and Consumer Act 2010 (CCA). For MDC’s case to proceed, it must convince the Federal Court that the then Treasurer was not authorised by Parliament in May 2013 to lease the Port of Newcastle to the private sector, whereby the government was not exempt from the CCA.

The matter is to be heard on 4 and 5 April 2024 before Justice Lee in Sydney.

It is understood that MDC had successfully negotiated in 2011 with the then Newcastle Port Corporation to develop a multi-purpose cargo facility that included a 1.0 million TEU container terminal. Execution of its 40-year concession was held off by the government until after Port Botany and Kembla were sold.  Presented with similar PCD terms, that MDC considered anti-competitive, its fully funded proposal to develop the Newcastle container terminal was aborted at the end of 2013 by the state government.

It will be fascinating to see what the transparency of documentation and court proceedings reveal, the outcome of the IPART deliberations and the quantum of the upfront compensation payable by the Port of Newcastle to the state.

If the Port of Newcastle commits to making the compensation payment and proceeds with large-scale containerised cargo handling, it leaves the question as where this leaves the decade old state government NSW Container Port Policy and furthermore, what does this uncertainty do in terms of much needed private and public infrastructure investment?

Clearly the intent of the above convoluted legislative outcome is to create an environment where the Port of Newcastle can compete with NSW Ports for containerised trade. There is no doubt that effective competition is the most effective way to meet customer’s needs and keep a lid on costs. If Government had allowed Newcastle Port Corporation to proceed in 2011 with MDC then a competitive terminal may well have already been operational for some time.

Whether this will offset the arguments to maximise use of existing assets is to be determined.

More to come ... stay tuned!!