LUKE FRASER. Federal Court decision at Port of Newcastle: a failure of bureaucratic leadership.Sep 4, 2017
A recent episode of ABC television’s satire Utopia saw political spivs trying to convince the fictional Nation Building Authority to endorse anti-competitive conditions on a multi-billion-dollar port asset sale. Head of that Authority Tony Woodford – played beautifully by Rob Sitch – resisted valiantly. Shortly thereafter, a newspaper review criticised Utopia thus: ‘…the writers of Utopia make their point by reducing pivotal players in the policy formation process to idiots. (They) are straw men, delivering obviously untenable arguments, which guide the viewer to think no one in government knows what they are talking about. It’s a lazy critique, but the writers get away with it because the viewers are entirely sympathetic. Lampooning “those clowns in Canberra” is hardly a controversial undertaking’. If only that sniffy assessment were accurate.
It would be better for the TV reviewer to see our ‘policy formation process’ – in ports at least – as it is today – an altar at which we worship at our own peril.
Within a week of Utopia’s port episode airing, the full bench of the Federal Court ruled to introduce price-regulation at the coal port of Newcastle, which had been privatised a few years earlier. The court ruled the port’s monopoly features – left unaddressed in the privatisation – created undue risks of anti-competitive outcomes in coal. (http://www.theherald.com.au/story/4859403/pricing-blow-for-port-of-newcastle/ )
This decision is a bombshell for Australia’s ports, and potentially other monopoly infrastructure – especially privatised infrastructure. It confirms the ACCC’s stated intentions for greater port competitiveness. (“…what the ACCC is concerned about is governments seeking to boost one-off sale proceeds through privatisation processes at the expense of creating a competitive market structure or putting in place appropriate regulation to curb monopoly pricing. This effectively provides one-off proceeds but places a ‘tax’ on future generations of Australians”. http://www.portsaustralia.com.au/assets/Uploads/Sims-Rod-Ports-What-measure-of-regulation-Oct-2016.pdf )
There might yet be an appeal to the High Court. No doubt privatisation zealots and the usual infrastructure cheerleaders will be apoplectic and cry ‘sovereign risk’ from the rooftops. The people who bought Newcastle’s port, including organisations that look after superannuation funds, may suffer.
This is worse than the situation satirised in Utopia in several respects. In the Utopia episode, the head of the Nation Building Authority fought a good fight and saw off the worst anti-competitive elements in the privatisation agreement. In doing so, he was helping avoid the sort of decision the Court has just imposed on Port of Newcastle.
It is the New South Wales Government that is primarily to blame for Newcastle – not the “Canberra clowns” referred to by Utopia’s reviewer. But as culprits for port problems, Canberra is also at fault; it has been insufficiently involved in protecting Constitutional objectives for ports. Far from a byword for the ‘policy formation process’, as far as ports and their privatisation are concerned, the federal infrastructure department has become a watchword for sloth.
Third, and by far the worst, there was no suggestion that the port satirised in Utopia would be hamstrung by trading restrictions made in secret by the Government for the benefit of another private port owner. (http://www.theherald.com.au/story/4059508/port-war-botany-protected-against-newcastle-competition). This arrangement is more easily imagined in some 1970s African dictatorship, yet it happened at Newcastle.
In real life, the private owners of Port of Newcastle – generally regarded as one of the most modern and professionally-run coal ports in the world – will be hamstrung in dealing with price regulation, because the secret 50-year trade restriction on this port prevents Newcastle’s owners from diversifying revenue streams into profitable container trades for another 47 years. Such diversification would have been necessary in any event for Newcastle – a city with a population larger than all of Tasmania. It would also greatly assist in reducing congestion in Sydney.
Blocked from this solution, some might argue Newcastle’s new owners should just make savings elsewhere. Where? Over half the cost of moving a container through an Australian port lies in road freight (See successive Bureau of Infrastructure, Transport and Regional Economics Waterline reports). These costs remain the sole responsibility of road agencies to fix, yet they have been rising across Australia’s ports unchecked for years, even as stevedoring, tugs, customs fees and other costs inside the port gate have fallen. In 2012 the Prime Minister and Premiers agreed to trials which were to have occurred in the hinterland of such ports to resolve these road problems. (Agreement of the Council of Australian Governments consideration of the National Ports Strategy.) Subsequently, quietly, these trials were dropped by the road agencies.
Another win for the ‘policy formation process’, in which none of the pivotal players are idiots.
With help from Canberra, the New South Wales Government also managed to agree a c.$20 billion Westconnex project which was expected to improve freight efficiency, but which does not yet have a plan to link to Port Botany, despite passing almost past this port’s front door. Yet again, very professional port managers and truck operators as well as the community and the economy all suffer from bureaucratic sloth.
There are issues about ports in Melbourne, Perth, Darwin, Tasmania and Wollongong; too many and too big to deal with here. Limiting ourselves to Newcastle’s port, what might Rob Sitch’s Tony Woodford have done?
Even the ‘lazy’ writers of Utopia would appreciate that ‘no containers at Newcastle’ is a deal that needs scuttling. Tony might have put the removal – by Federal legislation – of the State Government’s disgraceful secret deal at the top of his National Infrastructure Priority List. He might also order ‘down tools’ on all other Nation Building Authority work until the outrageous trading restrictions on Newcastle were removed. He would advise the Prime Minister that the State deal at Newcastle port runs counter to the Constitutional objective of free trade and trashes our national reputation as both a sound investment destination and a country which respects competition principles. He would give short shrift to the pathetic ‘State’s rights’ arguments that would be slung at his Authority in return.
But I suppose the show is called Utopia for a reason.
Back in the real world of infrastructure ‘policy formation’, where none of the pivotal players are idiots, how have we fared on this matter? We have seen repeated ‘infrastructure audits’, ‘priority project lists’ and high-minded ‘reform’ statements. In all of this, port policy and divestment arrangements do not rate a mention.
Who has the courage in Canberra – or Sydney – to advise on such matters of national consequence? And when did transport infrastructure policy find itself reduced to a simple race to rubber stamp more and more new projects and asset sales on botched terms?
Dr Michael Keating AC observed in a recent post (https://johnmenadue.com/michael-keating-why-blame-neo-liberal-economics) that neo-liberal economics is resented nowadays by many people, but the root causes of their resentment relate perhaps to broader cultural shifts rather than liberal microeconomic reform policies.
At first glance the failures of port privatisations do not fall into this category. They are instead straightforward malpractices by State Governments, presumably on advice from so-called ‘experts’. They are not liberal, they conflict with microeconomics and they certainly are not reforms. However, Dr Keating’s point is deeper than this. Cultural shifts have included a loss of trust in politicians and a proliferation of ‘independent’ advisers – many of whom represent rent-seeking vested interests. The Newcastle deal was hidden entirely from the public and even from the Parliament. It is a prime example of where such a loss of public trust is thoroughly deserved.
How is it that those who publicly acquiesce to such travesties – by their silence – continue to complain that the ‘appetite for economic reform’ is diminished compared with Australia’s Hawke-Keating reform era? Why argue that more effort is needed to make the public ‘understand’ reform? Perhaps the public understands only too well.
Rob Sitch – we need you. Bring your mates.
Luke Fraser is the founder and principal of a transport policy and investment advisory. In 2012 he was appointed to the board of the Prime Minister and Premiers Road Reform Project. Prior to this he was a national freight industry chief executive.