Monday, December 17, 2018

The grab for cash that affected New England exporters - short backgrounder on the sales of Ports Botany and Port Kembla

Container Ship entering Newcastle Harbour. A Sydney grab for cash imposed costs on New England exporters that are only now emerging. 

On 10 December 2018,  the ACCC (Australian Competition & Consumer Commission) announced that had instituted proceedings in the Federal Court against NSW Ports Operations Hold Co Pty Ltd and its subsidiaries Port Botany Operations Pty Ltd and Port Kembla Operations Pty Ltd for making agreements with the State of New South Wales that the ACCC alleges had an anti-competitive purpose and effect.

“We are alleging that making these agreements containing provisions which would effectively compensate Port Kembla and Port Botany if the Port of Newcastle developed a container terminal, is anti-competitive and illegal,” said ACCC Chair Rod Sims.

The following day, 11 December 2018, the Port of Newcastle released a commissioned report on the economic impact of a container terminal at the Port of Newcastle. This suggested (among other things) that a modern container terminal would cut land transport costs for northern NSW businesses by $2.8 billion by 2050. This would, according to Port of Newcastle CEO Craig Carmody, increase exports from from Northern NSW including the Hunter by $1 billion by 2050

"Businesses in Newcastle, Singleton, Tamworth, Gunnedah, Port Macquarie, Kempsey, Liverpool Plains and Narrabri can look forward to savings of more than $500 per standard container, if they shipped their goods through Newcastle rather than Port Botany or Port of Brisbane," Mr Carmody said.

With these actions, the originally secret agreements preventing the Port of Newcastle competing against Port Botany and Port Kembla in the container trade finally entered full public gaze. It had been some time coming.


In April 2013, then NSW Treasurer Mike Baird announced that a consortium, NSW Ports, had agreed to pay $4.31 billion for for a 99-year lease over Port Botany with a further $760 million for a similar lease over Port Kembla. After net debt was repaid, the net proceeds of $4.3 billion would be funneled into the state government's investment fund, Restart NSW. There would  lso be an annual lease payment of $5 million to the government.

Mr Baird said that the transaction meant the government's $1.8 billion commitment to the $10 billion WestConnex motorway between the M4 and Port Botany was funded. In addition it would provide $400 million for the Pacific Highway, $170 million for the Berry bypass on the Princes Highway, $135 million for the ''Bridges for the Bush'' program and a further $100 million for projects in the Illawarra region.

What was not said at the time, was that a commercial agreement provided that the State Government would provide a financial reimbursement to NSW Ports should container traffic at the Port of Newcastle pass a certain trigger point.

Just over twelve months later, now Premier Baird announced that a 98 year lease over the Port of Newcastle, the world's biggest coal port, had been sold for $1.75 billion. Of this amount, $340 million would go to Newcastle projects to aid the city's revitalisation.

The sale agreement included a clause that the new owners would have to reimburse the NSW Government should container traffic trigger the compensation clauses under the original agreement for the sale of Ports Botany and Kembla. The effect was to make a new container terminal un-economic.


The original agreement would appear a restraint of trade designed to maximise the sale value of the southern ports. I know of no evidence to suggest that the potential adverse effects on exporters across the broader New England were even identified, let alone discussed in the context of the sale. It is only now that we are starting to get the data to assess the economic costs to the North of Sydney's decisions.

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