Why port privatisation plans are in deep water around the country

Recent plans the privatise a number of Australian ports have become very messy. In Victoria both sides of government were committed to privatising the Port of Melbourne Corporation (PoMC), intending to use the proceeds to remove a number of level crossings throughout the state and enabling it to qualify for the Treasurer Joe Hockey’s 15% recycling assets contribution scheme.

But the Opposition has now said it will oppose Labor’s legislation, which authorises the transfer of port assets to a new lease holder for 50 years, and refer it to a select committee inquiry in the Upper House, supported by the Greens. The move potentially leaves a multi-billion dollar hole in the state budget.

In an attempt to increase the sale price, the PoMC has served a rent review notice to one of the major lease holders in the port, container stevedore DP World, allegedly asking for an increase in excess of 700%. This caused a howl of protests amongst other lease holders such as QUBE Logistics, Patrick Terminals and Logistics (a division of Asciano) as well as other stakeholders in the supply chain such as Shipping Australia, Maersk Line, Mediterranean Shipping Company and numerous importer and exporters.

Even chairman of the Australian Consumer and Competition Council (ACCC) Rod Sims, an old foe of the stevedores who has accused them of running a cosy duopoly, put his hat in the ring by suggesting that oversight of port pricing might be necessary. An independent valuer has been appointed to review the proposed rent increase.

The Tasmanian government which relies heavily on the port of Melbourne for its flow of import, has struck a deal with Victoria to would protect Tasmanian port users from planned fee rises, after complaining to both the Federal and Victorian governments.

Price hike would undermine its competitiveness in local and global markets, especially since in April the state received an extra $200 million to extend freight subsidies to northbound goods from the Federal government.

Encouraged by comments from the ACCC chairman, one of the stakeholders in the Port of Newcastle in NSW, multinational Glencore, has applied to the National Competition Council to force ACCC oversight of pricing in the port. The Port of Newcastle was recently privatised under a 98 year lease. In January this year the port pushed access prices up by an average of 40%.

The Darwin Port Corporation has also been slated for privatisation with the Northern Territory government recently releasing the sale/long term lease documents to the market. In an apparent attempt to increase its sale price, the Corporation announced in December 2014 very significant increases in port fees, which include a new fee of $2,000 per ship call, an increase of 15% to daily berth rates, and a 30% increase in wharfage rates, much to the ire of John Lines, managing director of ANL Container Line, a major customer of the port. LINK?

The Western Australia government, whose revenue stream has been severely hit by the slowdown in the mining industry, announced in its recent budget that the Port of Fremantle has put out the “For Sale” sign in an attempt to raise additional funds. There is no word yet from Fremantle Ports on potential price increases, but watch this space.

Utah Point, an iron ore port facility in Port Hedland in the far north of Western Australia, which was also earmarked to be sold, has recently become less attractive due to the fact that the mining companies which ship iron ore through the port, and make up 90% of its revenue, are struggling amid a sustained low in global iron ore prices.

Overall, it’s a messy picture which, combined with plans in a number of states to open additional ports within the next 15 to 20 years, will make it hard for sellers and bidders to determine a fair price for these attractive infrastructure assets, under what conditions a competing port may be established, and whether compensation should be paid to incumbents.

Sadly all this political posturing could result in importers and exporters paying higher prices for the use of port facilities and could leave taxpayers footing the bill for potential compensation payments.

Peter van Duyn does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.