Pearls and Irritations

As a former Minister for Transport, Gladys Berejiklian leaves a very dubious record in port privatization. The Chair of ACCC, Rod Sims has said ‘Privatisation (of NSW ports) is costing consumers and damaging economic reform’.  

The Baird and Berejiklian governments privatized major NSW ports. In order to improve the sale price of the privatized assets, they deliberately reduced competition.

The NSW government sold Port Botany and Port Kembla to the same buyer. Competition between the two ports became impossible. John Mullen of Asciano commented that Sydney port rentals had increased as a result by 400%. Maersk Lines, the world’s largest shipping container company warned Victoria and Queensland not to make the same mistakes as NSW where there had been major increases in port charges.

In 2014, the Baird/Berejiklian government sold a 99 year lease on the port of Newcastle. The new owners, Hastings Fund Management and China Merchants Group then increased port charges on coal exports by 40% to 60%. The National Competition Council ruled against these increases, but the new private owners of the port appealed. That appeal is still pending.

Rod Sims, the Chair of the ACCC, spoke very strongly last year about the consequences of the privatization of natural monopolies like ports. He said ‘Privatisation is costing consumers and damaging economic reform’.

But it is even worse in Newcastle with the Baird government’s curtailment of the Newcastle Port’s container business. As I pointed out in an earlier post ‘Privatisation and the hobbling of Newcastle Port’.

• The NSW government will compensate Port Botany for competition from Newcastle Port. These compensation funds will be paid by Newcastle Port.
• Newcastle Port will pay around $100 to the NSW government for each container in excess of an annual cap of 30,000 containers.
• This cap will increase moderately each year. The $100 per container payment could also increase.
• The NSW government will pay this income from Newcastle Port to the new owners of Port Botany for 47 years.
• The efficient scale of operation for Newcastle would be well in excess of 30,000 containers. This means that Newcastle Port will have to pay Port Botany millions of dollars per annum.
• Port Botany is effectively shielded from competition from Newcastle Port.

See also John Austen’s post ‘How port privatisation will hobble Newcastle.’

I recall at the time of the BA privatisation that BA senior officials told me that privatisation was a ‘once in a lifetime opportunity ‘ to skew the market in their favour. And that is what Maggie Thatcher did. She helped get rid of BA’s major domestic competitor and shored up BA with more routes on the Atlantic and many more gates at Heathrow. It helped ensure the financial and political success of privatisation but at the expense of consumers in a more competitive market.

Mike Baird and Gladys Berejiklian have left a similar unfortunate legacy in the privatisation of NSW ports. The mess is even greater in roads and rail. There will be further posts on that subject.

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