JOHN AUSTEN. Newcastle port – some progress in undoing a privatisation fiasco

Pressure is mounting to overcome the ridiculous anti-competitive constraints on Newcastle port.

As set out in Pearls and Irritations over the last two years, the NSW Government port privatisations constrained Newcastle port from being able to establish an efficient container terminal.  The mechanism was a financial penalty on each container over a certain very small number, the proceeds of which would be used to pay a competitor in Port Botany!

This was privatisation gone mad.

To the State Government it didn’t matter that a Newcastle container terminal:

  • had long been mooted;
  • could significantly ease traffic problems in inner Sydney;
  • would boost the competitiveness of northern NSW agriculture and industry;
  • would help the diversification of the Hunter area so obviously necessary given coal’s uncertain future;
  • would only proceed if commercially viable, so any artificial impediment to its development would damage NSW businesses, its economy and Government revenues!

But after pretending there was no such ‘legislative’ restriction – until belatedly exposed in the Newcastle Herald press – the NSW Government then had the hide to argue its anti-competitive arrangement was good for one and all.

Then it added further insult to Newcastle  injury by putting privatisation proceeds towards an idiotically short light rail line that both degraded the public transport network and set a record for costs.

These events shattered declining faith in privatisation and no doubt had a hand in the chair of the Australian Competition and Consumer Commission recanting his support of Government asset sales.

Reversal of the constraint on Newcastle port  is undoubtedly at the top of any real infrastructure priority reform  list.

However, the Commonwealth, Infrastructure Australia and worthies of the infrastructure club have been missing-in-action on this burning issue.

Nonetheless pressure is building on NSW to change its disgraceful mis-treatment of Newcastle.

To cover its mistake The NSW Government is  now seeking public comments on a ‘ports and freight plan’.

While the relevant discussion paper avoids the issue – as did the Commonwealth’s paper on logistics – no doubt some responses will condemn the Newcastle-restriction folly and recommend repair of the damage being inflicted on the Hunter and NSW.  Governments and advisers will be unable to ignore such comments.

Newcastle port itself has a new Chairman, distinguished academic and business leader, Professor Roy Green.  He reportedly sees the container trade as an opportunity to assist the essential and increasingly urgent broadening of the Hunter’s economic and employment base and to reduce its dependence on coal.

He is absolutely right.

All power to his arm!

John Austen is a happily retired former official. He was Director of Economic Policy for Infrastructure Australia from its inception in 2008 until his retirement in 2014.  Further background will be at:  thejadebeagle.com. 

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2 Responses to JOHN AUSTEN. Newcastle port – some progress in undoing a privatisation fiasco

  1. Jim KABLE says:

    Bravo, John. One hopes that the politicians and their string-pullers who set up this incredible nobbling of Newcastle Port will be charged with criminal acts and sentenced to an appropriate term in gaol – to send a message to other treasonous actors within our community that this kind of criminal activity will not be tolerated!

  2. Greg Cameron says:

    The secret NSW ports’ leasing arrangements were exposed on July 28 2016 when “The Newcastle Herald” published the 2013 “Port Commitment – Port Botany and Port Kembla” (Port Commitment). The purpose of the Port Commitment is to provide the NSW State Government (State) with a source of funds with which to pay NSW Ports (lessee of Port Botany) for containers shipped through the Port of Newcastle in excess of the State’s secret “cap”. Leasing the Port of Newcastle for this specific purpose was unauthorised by the “Ports Assets (Authorised Transactions) Act 2012” or the “Ports Assets (Authorised Transactions) Amendment Act 2013”. The State’s decision to lease the port was for the purpose of securing funds outside the operation of the “Commonwealth Competition and Consumer Act 2010” (Competition Act). The decision to lease the port was announced on November 5 2013, after the State had ”received and considered the recommendations of the comprehensive scoping study”.

    In 2010, the State took a policy decision to allow the private sector to develop a container terminal at the Port of Newcastle. The State was not leasing the Port of Newcastle between 2010 and November 2013 when Newcastle Port Corporation (Corporation) was negotiating to lease the port’s container terminal site to Newcastle Stevedores Consortium (Consortium) for development of a container terminal at no cost or risk to the State. This negotiation was administered by NSW Treasury under the State’s “Public Private Partnerships Guidelines”, thereby giving the Treasurer ultimate control over the negotiation.

    In 2013, NSW Treasury amended “Term Sheets”, which had been agreed between the Corporation and the Consortium in December 2010. The Consortium was required to make the State whole for any cost the State incurred under the Port Commitment arising from the Consortium’s activities, which included developing a container terminal.

    The ACCC claims that in 2012 the State decided not to develop a container terminal at the Port of Newcastle. The ACCC’s claim is wrong. The State’s 2010 policy decision to allow the private sector to develop a container terminal at the Port of Newcastle is unchanged to the present time. The decision the Treasurer announced on July 27 2012 was that “the Government’s freight strategy to be released later in 2012 would seek to develop Port Kembla as the logical next long term tranche of container capacity after Port Botany”.

    Between July 27 2012 and November 5 2013, the Corporation continued to negotiate the lease of the container terminal site to the Consortium. This negotiation was terminated after the State decided to lease the Port of Newcastle, on November 5 2013. Until then, the Consortium was the State’s source of funds to meet its contractual obligation under the Port Commitment.

    Sovereign risk took on a new and alarming dimension in Australia when the Corporation terminated its contract with the Consortium.

    In mid-2013, the ACCC investigated the negotiation between the Corporation and the Consortium. It redefines “sovereign risk” when the reason the Corporation terminated its negotiation with the Consortium was because of a likely breach of the Competition Act.

    When the Port Commitment was exposed, ACCC Chairman Rod Sims told “The Australian Financial Review (“Call to end state immunity from competition law”, August 1 2016) “his hands were tied in the case of the Port of Newcastle because governments were subject to scrutiny under competition laws only when they were carrying on a business, not when selling assets”.

    The question is: Does the ACCC claim that the Corporation ceased carrying on a business for the purposes of the Competition Act while it was negotiating to lease the container terminal site to the Consortium between 2010 and November 2013?

    By refusing to answer this question, the ACCC is failing to discharge its primary responsibility, which is to enforce the Competition Act.

    If the answer is yes, Australia’s national PPP guidelines must be amended to reflect the soverign risk whereby a government, by an alleged policy decision, may remove itself from the operation of the Competition Act while conducting a PPP negotiation.

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