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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4 Responses to JOHN AUSTEN. How port privatisation will hobble Newcastle

  1. derrida derider says:

    The only real argument for most privatisation is to further competition, or at least contestability. If as part of the privatisation you have to put anticompetitive provisions in then that is a strong signal you should not be doing the privatisation at all. Sydney Airport (with Macquarie’s effective veto on Badgery’s Creek), the cross city tunnel (with its artificial narrowing of streets that might compete with it), and now the port privatisation are all cases in point.

    And if your privatisation raises a big heap of money that is a bad, not good, sign because it means the buyer expects monopoly profits. Governments consistently get this wrong.

    • john austen says:

      derrida derider: you are right. but the newcastle case is a step beyond for 3 reasons:
      1. it relies on penalising a business competitor, not merely promising not to subsidise competition
      2. it is a very long term deal
      3. there has been no opportunity for democratic accountability, and there has been an election in the meantime.

      none of the other privatisations i am aware of have all these characteristics. perhaps someone else knows a precedent?
      for example the m2/no public transport competition clause in effect is that the government is not to subsidise competition against the m2 (as public transport is subsidised). maybe unattractive but this is far less than the penalty on newcastle – nobody was suggesting a subsidy for newcastle.
      thank you for your comment.

  2. Philip Laird says:

    Although the NSW government did well with the long term lease of Port Botany and Port Kembla to one owner in 2013, there are some costs.
    It is clear that competition would have been enhanced if the long – term leases of Port Botany and Port Kembla gone to different private sector owners instead of the same owners. This ‘two owner’ model works well in New Zealand (with ports at Auckland and Tauranga both servicing Auckland city), and may eventuate for Victoria (for Melbourne and Hastings).
    Future growth of Port Kembla is constrained because of poor transport infrastructure.
    The main road between Sydney and Wollongong/Port Kembla already has too many heavy trucks on it (moving coal, grain, quarry products and car imports as well as general freight).
    The existing South Coast railway is now capacity constrained, with Boral being advised a few years ago, with Pacific National agreeing, that there were no more paths available for freight trains.
    One solution would be to complete the 35 kilometre Maldon Dombarton rail link. This would also get coal trains out of Sydney’s inner west and Illawarra lines. West Connex will do nothing for Port Kembla. However, instead of Port Kembla lease proceed funds going to improve rail freight, they are mainly going to WestConnex and on the NSW government’s proposed North West Rail Link in Sydney
    Newcastle would also benefit from track upgrades to speed up Newcastle Sydney passenger trains with more refuge loops for freight trains.

    • john austen says:

      Dr Laird; thanks for that, you make many good points. While the NSW government and financial press may think NSW did well out of the privatisations, to my mind the test is whether they advance the strategic purpose of putting discipline into transport planning, rather than converting a dividend stream into a lump sum. i think the jury is out on this; the fact of questions about the connection of Westconnex to Botany (and more pointedly whether there will be any change to the routing of dangerous goods) is a negative. a potential positive may be realisation of the impact on port kembla were the metro to take over one of the illawarra lines to around hurstville; ie. a possibility once raised but not advanced (so far).
      regards

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