JOHN MENADUE. Media catch-up on Newcastle Port.

Drawing on a report from Deloitte yesterday, Matt Wade in several Fairfax newspapers breathlessly told us that restrictions on privatised ports was adding to Sydney’s gridlock.  He added that the Australian Competition and Consumer Commission is now investigating the secret restrictions on Newcastle Port which were introduced when Port Botany and the port of Newcastle were being privatised.

( This old news was at least not as bad as the media beat up on Vanuatu!)

John Austen, in P & I, on 5 September 2016, broke all the details about this port restriction and “how port privatisation will hobble Newcastle”.  A month later, on 14 October 2016, I wrote a follow up piece “Privatisation and the hobbling of Newcastle Port”.

John Austen’s article of 5 September 2016 follows.  

JOHN AUSTEN. How port privatisation will hobble Newcastle.

Commonwealth action is necessary to undo potential penalties on Newcastle Port.

While the infrastructure conversation focusses on major projects like electricity grids it can ignore more significant matters.

One such matter in NSW that deserves immediate attention is port privatisations. A deal included in the sales of Botany (2013) and Newcastle (2014) impedes the development of Newcastle Port and city. That deal also effects public confidence in privatisation.

The deal, a ‘port commitment’, is that the state government would compensate Botany for competition from Newcastle using funds from Newcastle Port. [1]

The deal reportedly requires Newcastle to pay around $100 to the NSW state Government for each container it handles in excess of an annual 30,000 ‘cap’. The cap increases modestly each year, as might also payments per container. The state government would pay this amount to the new owners of Port Botany. The deal lasts for another 47 years, yes 47 years.

IMPACT ON THE NEWCASTLE CONTAINER PORT

Container ports can be pivotal to economic development and transformation; Singapore is an example. While at present Newcastle is not such a port it did have hopes for a major container terminal . It has an ideal site.

As Newcastle’s dominant trade, coal, will diminish in the next half century it would benefit greatly from having diverse opportunities like containers through better use of its major port.

The efficient scale for a terminal is likely to be much more than the 30,000 cap that has been imposed. At efficient scale of operation the payment from Newcastle would be many millions of dollars per annum. The deal works therefore against potential container operations in Newcastle, disadvantaging the Hunter and northern NSW and adding to traffic snarls on roads and railways to, and in, Sydney.

This is not the first time a NSW government has undermined a Newcastle container terminal. The former Labor government stopped the port negotiating with experienced proponents in 2011. This matter occupyied several chapters of the just released ICAC ‘Operation Spicer’ report. [2]

According to reliable sources the Coalition government also made privatisation decisions in 2012 and 2013 that ‘dictated’ that a Newcastle container port not proceed.

THIS IS ABOUT MORE THAN PRIVATISATION

Many are concerned at privatisations that shield businesses like Port Botany from competition. Stifling full development of a privatised business like Newcastle Port is a step beyond this. The problem here is not privatisation per se.

In fact privatisation of Botany was desirable for reasons identified in the national ports strategy. It would bring to an end counterproductive arguments between bureaucratic fiefdoms who variously owned ports, railways and roads. Ongoing questions about the connection between Westconnex and Port Botany indicate just how bad the pre-privatisation situation was likely to have been.

NEWCASTLE PORT HAS BEEN A MODEL IN PORT MANAGMEN

Privatisation of Newcastle was more contentious because it already was a model of excellence in port management, planning and supply chain coordination. Experts from all over the world visited Newcastle to learn best practice. Reflecting this, the only real point of privatising Newcastle was to remove stultifying influences of Sydney-centric politicians and departments. ’.

The NSW deal referred to became known only very recently via a leak to the Newcastle Herald. Until then its detail was unknown even by the NSW parliament despite many questions. The revelation is among the probable reasons for the Chair of the ACCC,Rod Sims recanting his earlier pro-privatisation views.

Some are calling for a state inquiry perhaps hoping to uncover evidence of misdeeds. From the infrastructure perspective that would be beside the point. An inquiry is not needed to correct the penalty imposed on Newcastle.

A government should not dictate to or penalise a business for 50 years after selling it. The issues go way beyond national competition policy. They are far more important than the matters that led Prime Minister Howard many years ago to threaten a Commonwealth takeover of ports.

The Newcastle container penalty needs to be quickly undone.

Obviously undoing the deal should not disadvantage the owners of Botany if they paid over the odds in the privatisation for the protection they where afforded at the expense of Newcastle.

FIXING THE PROBLEM

It is unlikely NSW will initiate necessary action. While the Premier apologised for political donation issues highlighted in Operation Spicer, there is little recognition of problems caused by penalising Newcastle’s container prospects.

Equally unlikely is support from the infrastructure club who, while noisy about Treasurer Morrison rejecting the Chinese bid for NSW power assets, have been very quiet about this appalling deal on ports.

National leadership is needed.

The Commonwealth should act. It has responsibility for trade and commerce. The main federal political parties have cities agendas. The Government is in favour of privatisation. The Commonwealth’s reputation is untouched, so far, by the issues revealed in NSW inquiries.

Advisers, politicians and Prime Ministers should understand that containers are a central part of world trade. Newcastle is getting a bad deal and privatisation is discredited. In offering the states money for privatisations the Commonwealth ‘owns’ problems like this.

As noted in previous posts, Commonwealth engagement in second tier cities on issues like infrastructure and trade is more sensible than becoming enmeshed in byzantine big city agendas. Newcastle, is an obvious starter.

Potential mechanisms for the Commonwealth include:

  • legislation countermanding the payments from Newcastle to Botany; or
  • conditions on specific purpose payments to NSW.

Undoing the ports deal does not guarantee a container terminal in Newcastle tomorrow, but it would give the city and northern NSW a fair go. It would also be an essential, albeit modest, start to restoring loss of trust in privatisation.

If the parties and their agendas don’t deal with this case, if Canberra based urbanites are too spineless to challenge NSW, they deserve whatever contempt inevitably comes their way.

Fifty years is an awful long time for a deal like this.

Without action on this squalid ports deal claims about leadership, cities, trade, infrastructure, and asset-recycling will be very hollow.

 

Notes

[1] https://cdn.fairfaxregional.com.au/iKQx4aiD4Q7fvCgDvFeGgz/c4faa7cc-efd5-4795-b0cb-ea5c263b7026.pdf.

[2] https://www.icac.nsw.gov.au/documents/investigations/reports/4865-investigation-into-nsw-liberal-party-electoral-funding-for-the-2011-state-election-campaign-and-other-matters-operation-spicer/file.

 

John Austen is a former state and Commonwealth transport official, now happily retired in western Sydney. More detail is available at: thejadebeagle.com

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2 Responses to JOHN MENADUE. Media catch-up on Newcastle Port.

  1. Greg Cameron says:

    “Capping” the argument

    More than 200 “Questions On Notice” have been asked in the NSW Parliament since 2013 about the now infamous “cap” on containers at the Port of Newcastle. This “cap” applies to the number of container for which no fee is payable. The “cap” is 30,000 containers a year as from July 1 2013 increasing by six per cent a year until 2063.

    No media outlet has yet reported the meaning of “container” provided in the “Port Commitment – Port Botany and Port Kembla”, as published by “The Newcastle Herald” on July 28 2016. “Container” means:

    “Any moveable device, designed for continuous use in loading and unloading cargoes on and from Ships, including boxes, crates, cylinders, tanks, TEUs, other stackable units and any similar cargo-carrying device which is designated as a container by international stevedoring standards from time to time and Containerised has a corresponding meaning.
    Container includes:
    (a) overseas import containers;
    (b) overseas export containers; and,
    (c) local containers (coastal inwards or outwards); and
    (d) empty containers and transhipped containers.

    Source: “Port Commitment – Port Botany and Port Kembla”
    http://www.containerterminalpolicyinnsw.com.au/wp-content/uploads/2016/07/Port-Commitment-Newcastle-Herald-web-site-160728.pdf

    The number of TEU containers shipped through the port is 10,000 a year. The number of non-TEU “containers” would easily exceed 20,000 a year, carried on general cargo ships. Non-TEU containers are not counted.

    Last year, with 10,000 TEU containers shipped, the fee amounted to $1.5 million, based on the estimated average price currently charged by NSW Ports at Port Botany of $150 per TEU.

    A container terminal should be operating now. With throughput of one-half million, the fee payable would be $75 million a year.

  2. Greg Cameron says:

    The ACCC is currently seeking information relating to the viability of a container terminal at the Port of Newcastle and the impact of such a terminal on competition. The ACCC is making inquiries into:

    • the movement of containerised goods throughout NSW;
    • the import and export of containerised goods on the east coast of Australia; and
    • the delivery of landside services at ports on the east coast of Australia

    The ACCC will use this information to assist with its assessment of whether competition issues may arise under the “Commonwealth Competition and Consumer Act 2010” (Competition Act).

    The underlying issue is that the Coalition government concealed information from the Parliament in 2012. The correct forum to deal with this abuse of Parliamentary process is the Parliament itself.

    In 2009, it was a Labor government that approved the statutory, state-owned Newcastle Port Corporation’s decision to develop a container terminal at the Port of Newcastle. The Corporation had investigated the market and satisfied the government that a container terminal was a commercially viable enterprise. The Corporation gained the government’s approval to invite expressions of interest from private sector container terminal developers. Newcastle Stevedores Consortium was selected in 2010 as the “preferred master developer” for a container terminal with minimum capacity of one million TEUs a year. Based on wharfage, the capacity of the container terminal site is two million TEUs a year, which compares with Port Botany’s current throughput of 2.4 million TEUs a year.

    The Coalition government froze the negotiation between the Corporation and the Consortium in 2011. In 2012, the Coalition government made a decision, which it concealed from the Parliament, to charge the Consortium a fee for containers and to pay this fee to a future lessee of Port Botany and Port Kembla. The existence of this fee was revealed only on July 28 2016 when “The Newcastle Herald” published the now infamous “Port Commitment – Port Botany and Port Kembla” (Port Commitment).

    After the negotiation resumed, NSW Treasury instructed the Corporation to make the Port Commitment a contract condition. When the ACCC learned about the Port Commitment, it could not enforce the Competition Act. Apparently, it could only enforce the Competition Act after the Corporation entered into a contract with the Consortium.

    A contract between the Corporation and the Consortium – “Invitation To Submit Detailed Proposal, Mayfield Site” – formed the legal basis of the negotiation. This contract was administered by NSW Treasury in accordance with the “NSW Public Private Partnership Guidelines”. It did not permit, obviously, the Corporation to breach the Competition Act. NSW Treasury terminated the negotiation between the Corporation and the Consortium in November 2013 because proceeding to lease the “Mayfield Site” to the Consortium was likely to breach the Competition Act.

    Only a Court can determine whether the Corporation breached its contract with the Consortium by making the Port Commitment a lease condition and then terminating the negotiation to avoid the Parliament from finding out about the Port Commitment, including its lawfulness.

    On August 9 2016, Labor proposed a Parliamentary Inquiry. Had that Inquiry taken place, it would have provided information as to whether the Corporation may have breached its contract with the Consortium and thus the Competition Act

    It is not the ACCC’s responsibility to rectify actions against the public interest by the Coalition government. This is the Parliament’s responsibility.

    The terms of reference of the proposed Parliamentary Inquiry remain relevant:

    Legislative Council Notice Paper No. 66—Wednesday 10 August 2016

    883. Mr Searle to move—

    1. That General Purpose Standing Committee No. 2 inquire into and report on the privatisation of New South Wales ports, and in particular:

    (a) the terms of the Port Commitment Deeds for Botany, Kembla and Newcastle,

    (b) whether the privatisation of the New South Wales ports was structured to limit competition, or has that effect,

    (c) whether anti-competitive restrictions have been imposed on the development of the Port of Newcastle as part of the sale strategy followed by the NSW Government,

    (d) whether any agreement has been designed to restrict the development of container capacity at Newcastle by imposing a financial penalty that would make such a development economically unviable,

    (e) the nature and effectiveness of port pricing regulatory arrangements and the impacts that these arrangements may have on port users, consumers and the economy, and

    (f) any other related matter.

    2. That the committee report by 24 November 2016.

    (Notice given 9 August 2016—expires Notice Paper No. 85)

    Presumably, the government still opposes a Parliamentary Inquiry. The relevant question is why?

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