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Updated July 16 2021

Unlegislated penalty is illegal

 

There is a penalty clause in lease agreements between the NSW government and NSW Ports Pty Ltd for Port Botany and Port Kembla dated May 31 2013. The clause sets out the terms of a financial penalty the government must pay to NSW Ports if the government breaches its policy on container facility development. The penalty is not incurred if NSW Ports develops a container terminal at the Port of Newcastle, or leases the Port of Newcastle, or any material part of it. The penalty clause was concealed from the public and Parliament. It expires in 2063.

 

Parliament did not legislate the government’s policy on container facility development. It is illegal for the government to be penalised for breaching an unlegislated policy. Announced on July 27 2012, the policy is:

 

“Once Port Botany reaches capacity, Port Kembla will be developed as the next long-term container facility. The development of a dedicated container terminal at the Port of Newcastle will be considered when both Ports Botany and Kembla become fully developed. However, existing container facilities at the Port of Newcastle which serve shipping lines carrying containers may continue to grow at an organic rate.”

Source: NSW Treasurer, the Hon M Baird, March 4 2014

 

The government’s policy on container facility development is that a container terminal can be developed at any time at the Port of Newcastle subject to the government being penalised for breaching its policy on container facility development. The policy, obviously, is nonsense.

 

Exposed by “The Newcastle Herald” in July 2016, the penalty rate is set at prevailing Port Botany wharfage, which is currently in the order of $100 per container. For example, one million containers a year above the minimum specified cap requires the government to pay a penalty of $100 million a year to NSW Ports.

 

The government breaches its policy on container facility development if the lessee of the Port of Newcastle, Port of Newcastle Investments Pty Ltd (PoN), exercises its contractual right to develop a container terminal. A lease condition is that PoN must re-imburse the government for the cost of the government paying the penalty to NSW Ports. This lease condition was concealed from the public and Parliament. PoN leased the Port of Newcastle on May 30 2014.

 

The requirement to re-imburse the government makes it uneconomic for PoN to develop a container terminal in competition with NSW Ports. The (then) Treasurer, the Hon Gladys Berejiklian, was asked this supplementary question during Budget Estimates on September 29 2015:

 

Question 29: Has the NSW Government entered into any agreements that create a disincentive or obstacle to develop a container terminal at the Port of Newcastle?

 

Answer: I am advised that the lessee could develop a container terminal at the Port of Newcastle if it wished to do so.

 

In answer to Budget Estimates supplementary question 37 on April 1 2021, the Treasurer, the Hon Dominic Perrottet, said: “The State’s contractual commitment to pay NSW Ports has not crystalised, so there is no need to identify a funding source.”

 

On the contrary, the government’s contract with NSW Ports stipulates that the penalty is payable by the government.

 

The government must not use consolidated revenue to pay the penalty, as confirmed on November 14 2017 by (then) Minister for Roads, Maritime and Freight, the Hon Melinda Pavey, in answer to QON 1792.

 

In answer to Budget Estimates supplementary question 39 on April 1 2021, Mr Perrottet denied that the government’s decision to lease the Port of Newcastle to the private sector was for the purpose of funding the penalty. This answer is consistent with the government paying the penalty in the first instance.

 

A decision to lease the Port of Newcastle to the private sector was not taken until November 2013. At that time, the government was negotiating with Mayfield Development Corporation Pty Ltd (Mayfield) to develop a container terminal at the Port of Newcastle.

 

Term Sheets between the government and Mayfield were amended in August 2013 requiring Mayfield to “make the state whole” for paying the penalty to NSW Ports. When Mayfield said it considered the requirement to be illegal under the “Competition and Consumer Act 2010” (CCA), the government terminated their negotiation.

 

The ACCC alleged in the Federal Court in December 2018 that the penalty was illegal under the CCA. The ACCC alleged that the government and NSW Ports contravened the CCA. The ACCC sought a court order restraining NSW Ports from claiming payment. The Court dismissed the ACCC’s case on June 29 2021.

 

Mayfield alleged in the Federal Court May 2019 that it was prevented from developing a container terminal at the Port of Newcastle because the requirement to fund the penalty was illegal under the CCA. The Federal Court web site incorrectly records that Mayfield’s case against NSW Ports – file number NSD862/2019 – was finalised on May 24 2021.

 

In a cross claim in July 2019, NSW Ports alleged that if it was illegal under the CCA for the penalty to be funded by PoN, the government was still obliged to pay the penalty. The Court dismissed the cross claim on June 29 2021.

 

State Legislation

 

The three ports were leased by authority of the “Ports Assets (Authorised Transactions) Act 2012” (the Act).

 

The purpose of the “Ports Assets (Authorised Transactions) Bill 2012” was “to authorise and facilitate the transfer to the private sector of the State’s ports assets at Port Botany and Port Kembla, subject to the restriction that the land concerned can be leased to the private sector for up to 99 years but ownership of the land must remain with the State”.

 

The purpose of the “Ports Assets (Authorised Transactions) Amendment Bill 2013” was “to amend the “Port Assets (Authorised Transactions) Act 2012” to extend that Act to the Port of Newcastle so as to authorise and facilitate the transfer to the private sector of the State’s ports assets at Port of Newcastle”.

 

In answer to QON 5080 on March 18 2021, Mr Perrottet said that the penalty is authorised by section 6 of the Act, which states: “The Treasurer has and may exercise all such functions as are necessary or convenient for the purposes of an authorised transaction. The functions conferred on the Treasurer by any other provision of this Act do not limit the Treasurer’s functions under this section.” Mr Perrottet was asked:

 

Does the Ports Assets (Authorised Transactions) Act 2012 authorise the Government to pay NSW Ports Pty Ltd for container traffic above 30,000 TEUs a year as at 1 July 2013, increasing by six per cent a year for 50 years, at the Port of Newcastle?

(a) If yes, which section?

 

Mr Perrottet: “Section 6 of the Ports Assets (Authorised Transactions) Act 2012 gives the Treasurer the power to exercise all functions as are necessary or convenient for the purposes of an authorised transaction.”

 

On the contrary, section 6 of the Act does not make it illegal for the government to breach its policy on container facility development, because the policy is unlegislated. For the policy to be enforced with a penalty it must be legislated.

 

The government declines to acknowledge that the penalty is for breaching the policy on container facility development, as indicated by Question on Notice 5718:

 

5718 – NEWCASTLE PORT RESTRICTIONS, Crakanthorp, Tim to the Treasurer, May 6 2021

 

(1) Is the purpose of the penalty on container traffic at the Port of Newcastle to create a disincentive or obstacle to developing a container terminal?

 

(a) If not, what is the purpose of the penalty on container traffic at the Port of Newcastle?

 

(2) Can a container terminal at the Port of Newcastle be developed?

 

(3) What consideration has been given to the Prime Minister’s view that a container terminal should be built at the Port of Newcastle?

 

Answer June 10 2021:

 

Treasury has advised me as follows:

 

(1) This is a matter currently before the Courts. The Port Commitment Deed contains commercial arrangements between the Port of Newcastle and the State of New South Wales that were agreed as part of the State’s transaction for the long-term lease of the Port of Newcastle in 2014. The State received $1.75 billion as a result of the transaction, which is helping to fund State infrastructure.

 

(2) We refer the Honourable Member to the current NSW Freight and Ports Plan as to the State’s policy position on the development of additional container capacity in New South Wales. Any decision to build a container terminal at Newcastle is a matter for the private operator of the Port of Newcastle.

 

(3) The State’s position in relation to the development of a container terminal at the Port of Newcastle is set out in the NSW Freight and Ports Plan.

 

Newcastle Port Corporation 

 

In 2008, the government gave approval to Newcastle Port Corporation (NPC), a statutory state-owned corporation, to develop a dedicated container terminal and a new container terminal for general cargo ships, at the Port of Newcastle. NPC called public tenders in 2009. A requirement was that the dedicated container terminal must have minimum capacity of one million TEUs a year. NPC selected a “Preferred Proponent”, Newcastle Stevedores Consortium Pty Ltd (NSC), in 2010.

 

Term Sheets were agreed by the end of 2010. In December 2011, NSC formed Mayfield Development Corporation Pty Ltd to implement its proposal. 

 

A container terminal received government planning approval on July 16 2012. But on August 30 2012 and again on July 26 2013, the government directed NSC not to develop a container terminal. However, on August 6 2013 the government required Mayfield to agree to re-imburse the government for the cost of paying the penalty to NSW Ports, as a condition of continuing their negotiation.

 

The government terminated its negotiation with Mayfield on November 8 2013 after Mayfield informed the government it considered the requirement to re-imburse the government to be illegal under the CCA.

 

Mayfield is now jointly-owned by Maersk Line and Anglo Ports Pty Ltd.

 

Meaning of container

 

Under the “Port Commitment Deeds” (PCD) for Port Botany and Port Kembla dated May 31 2013, the meaning of “container” is:

 

“Container means any moveable device, designed for continuous use in loading and unloading cargoes on and from Ships, including boxes, crates, cylinders, tanks, TEUs, other stackable units and any similar cargo-carrying device which is designated as a container by international stevedoring standards from time to time and Containerised has a corresponding meaning.

Container includes:

(a) overseas import containers;

(b) overseas export containers; and,

(c) local containers (coastal inwards or outwards); and

(d) empty containers and transhipped containers.”

Source: Port Commitment – Port Botany and Port Kembla

 

Mr Perrottet answered “no” to QON 5036(5) on March 11 2021: “In relation to the government’s policy on container facility development, does “container” mean any moveable device designed for continuous use in loading and unloading cargoes on and from Ships, including boxes, crates, cylinders, tanks, TEUs, other stackable units and any similar cargo-carrying device which is designated as a container by international stevedoring standards from time to time?”

 

Mr Perrottet said in answer to QON 5675 on June 3 2021 that the meaning of container in the lease contracts is confidential. The reason remains undisclosed.

 

Containers, as defined in the PCDs dated May 31 2013, are a main cargo carried on general cargo ships at the Port of Newcastle.

 

The Federal Court ordered on March 26 2020: “Nothing in these Orders prevents the [Australian Competition and Consumer] Commission from considering, commenting on or investigating the terms of any variation to a Port Commitment Deed.”

 

In answer to QON 2943 on June 16 2020, Premier Gladys Berejiklian was unable to say whether the government’s terms for developing a container terminal at the Port of Newcastle apply to the existing container terminal for general cargo ships: “Given this matter is currently before the court, it would be inappropriate to comment.”

 

At Budget Estimates on September 5 2019, Premier Berejiklian said: “You would need to triple container movements at the Port of Newcastle before any penalties came into play. So I say to those communities that want to increase their container movements at the [port], there is capacity to triple that under the current arrangements. …. Unless I am mistaken, there would need to be a significant increase in the number of containers moving to and from that port before any type of financial impediment was struck.”

 

There is an existing container terminal at the Port of Newcastle servicing  general cargo ships. Current throughput is 3,000 TEUs a year carried on 500 general cargo ships. In comparison, one container ship visiting an Australian container port averages 10,000 TEUs per visit, comprising 5,000 import and 5,000 export.

 

Port of Newcastle lease decision

 

On June 26 2013, Parliament passed the “Ports Assets (Authorised Transactions) Amendment Act 2013”, which authorised the Port of Newcastle to be leased to the private sector. However, no decision was made to lease the port to the private sector while the government conducted a scoping study.

 

Shortly after amending the Act, the government required Mayfield to re-imburse the government for paying the penalty.

 

No decision was made to lease the Port of Newcastle to the private sector while the government was negotiating with Mayfield. An announcement to this effect was made on October 28 2013. The government could not continue negotiating with Mayfield after making a decision to lease the Port of Newcastle to the private sector. A decision to lease the port to the private sector was announced on November 5 2013. The government terminated its negotiation with Mayfield on November 8 2013.

 

It was open to Mayfield to withdraw from the negotiation before the decision was made to lease the port to the private sector. If Mayfield withdrew, the government was able to negotiate with another party. NSW Ports was advantaged in this respect because the penalty on the government would no longer apply.

 

PoN’s contractual right to develop a container terminal  

 

PoN’s contractual right to develop a container terminal at the Port of Newcastle was disclosed by the (then) Treasurer, the Hon Gladys Berejiklian, in answer to Budget Estimates supplementary question 29 on September 29 2015:

 

Question: “Has the NSW Government entered into any agreements that create a disincentive or obstacle to develop a container terminal at the Port of Newcastle?”

 

The Hon Gladys Berejiklian: “I am advised that the lessee could develop a container terminal at the Port of Newcastle if it wished to do so.”

 

In answer to Budget Estimates supplementary question 78 on April 23 2020, Mr Perrottet said that the public and Parliament were informed that the government’s terms for developing a container terminal at the Port of Newcastle were announced on July 27 2012, namely that a container terminal will not be developed at the Port of Newcastle before Port Botany and Port Kembla become fully developed.

 

As (then) Treasurer, Ms Berejiklian was questioned about the cap at Budget Estimates on September 3 2015:

 

The Hon. ADAM SEARLE: When you sold the Port of Newcastle was a cap put on the number of containers that can be moved through the Port of Newcastle?

Ms GLADYS BEREJIKLIAN: I understand there is no legislated container cap.

The Hon. ADAM SEARLE: So there is no cap on container movements there?

Ms GLADYS BEREJIKLIAN: There is no legislated container cap.

The Hon. ADAM SEARLE: Is there any other restriction in the sale of the lease documents?

Ms GLADYS BEREJIKLIAN: I am not aware of that.

The Hon. ADAM SEARLE: What about in the contracts?

Ms GLADYS BEREJIKLIAN: I am not aware.

The Hon. ADAM SEARLE: Will you take that on notice?

Ms GLADYS BEREJIKLIAN: I am happy to take that on notice

 

GENERAL PURPOSE STANDING COMMITTEE NO. 1 Thursday, 1 September 2016

The Hon. ADAM SEARLE: I would like to ask you some questions about the Port of Newcastle and the cap on containers. Last year we asked whether or not a cap was put on the number of containers that could be put through the Port of Newcastle. You were very careful to say there was no legislated container cap.

Ms GLADYS BEREJIKLIAN: Correct.

The Hon. ADAM SEARLE: We asked also whether there was any other restriction in the sale or lease documents and you answered, “Not that I am aware of.” We also gave you some questions on notice about this and we referred you specifically to the port commitment deeds, which you refused to release. Now we know thanks to the Newcastle Herald, which published the port commitment deeds for Port Botany and Port Kembla, that there was in fact as part of the arrangement a cap on container movements through the Port of Newcastle. If they exceeded the cap the operator would have to pay to the State Government essentially a fine and your Government would then pay that to the operator of Port Botany and Port Kembla. Why were you not frank and honest with the Committee last year about the fact that there was, as a result of your Government’s policy and actions, a cap on container movements through the Port of Newcastle?

Ms GLADYS BEREJIKLIAN: I appreciate your question and I am happy to go into detail around those arrangements, but my concern at the time was that I was not sure what was subject to commercial in confidence and what was not.

The Hon. ADAM SEARLE: I asked you whether there was a cap. You were very careful to say there was no legislated cap.

Ms GLADYS BEREJIKLIAN: Correct.

The Hon. ADAM SEARLE: And I asked you whether there was anything else in the sale or the lease documents.

Ms GLADYS BEREJIKLIAN: That is why I had to go back.

The Hon. ADAM SEARLE: But you did not come back to us. You were dissembling. You said there was no legislated cap. When did you know about the cap and why did you not inform the Committee? Why have you tried to hide this?

 

Port of Newcastle container cap

 

In answer to QON 1792 on November 14 2017, the (then) Minister for Roads Maritime and Freight, the Hon Melinda Pavey, confirmed that the Act does not authorise the use of consolidated revenue to pay NSW Ports for container traffic above the cap at the Port of Newcastle.

 

The term “cap” was introduced by the (then) Minister for Roads and Ports, the Hon Duncan Gay, in answer to a question without notice on October 17 2013: “How much compensation will be paid to the private operator of Port Botany if a new container terminal is developed at Newcastle Port?”

 

Mr Gay: “I have indicated in the House, as I have in Newcastle—indeed, I made a special visit to Newcastle to talk to the board, the chief executive officer and the local community—that part of the lease and the rationalisation was a cap on numbers there.” 

 

….. “Certainly, a number of containers will come in under general cargo, but there will not be an extension. The only time an extension is allowed is when a specific number is reached and is tripped in Port Botany and Port Kembla.”

 

….. “We do not envisage that any compensation will need to be put in place.”

 

Mr Gay told Budget Estimates on August 31 2015 that there is no cap at the Port of Newcastle.

 

The Hon. SOPHIE COTSIS: In terms of the cap on containers, are any fees paid if the number of containers through Newcastle exceeds a set amount?

The Hon. DUNCAN GAY: Not that I am aware of.

The Hon. SOPHIE COTSIS: You are not aware of that?

The Hon. DUNCAN GAY: You asked me whether there was a cap in Newcastle and I said there is not. Now you are asking me whether there is a fee paid if they go beyond a certain number. General cargo containers are part of what happens in Newcastle. My understanding is that within the general cargo that needs to go to Newcastle that is fine.

 

Mr Gay said on September 13 2016 and August 10 2016: “The port transaction deeds do not trigger any cross‑payments until a threshold container throughput is reached.”

 

In answer to QON 1201 on October 22 2019, Mr Perrottet said: “There is no minimal specified cap and no compensation payments to NSW Ports have been incurred under the respective Port Commitment Deeds for Port Botany and Port Kembla.”

 

Policy origin

 

The government’s policy on container facility development originated in a scoping study conducted in the first half of 2012 into long-term leases to Port Botany and Port Kembla. The scoping study included an “optimal container strategy for NSW”, as disclosed by then Treasurer, the Hon M Baird, on March 22 2012 and April 26 2012.

 

The government gave a commitment in 2012 not to lease Port Botany and Port Kembla to the private sector if the lease price did not exceed the retention value. The government’s decision to make it uneconomic to develop a container terminal at the Port of Newcastle was concealed from the public and Parliament because it was designed to inflate the lease value of Port Botany and Port Kembla.

 

ACCC examination in 2013

 

The ACCC commenced an examination of the government’s policy on container facility development on April 26 2013, after receiving a complaint from Greg Cameron (author of this web site) that the government’s decision not to develop a container terminal at the Port of Newcastle was anti-competitive under the CCA.

 

On June 7 2013, the ACCC concluded: “From the information provided, it was unlikely that the NSW government was carrying on a business when it decided not to develop a container terminal at the Port of Newcastle. As such, policy or planning decisions are likely to fall outside the operation of the [Competition and Consumer] Act, therefore the ACCC will not be taking any further action.”

 

The ACCC took no action to enforce the CCA in 2013 or 2014 because it had no knowledge of the penalty or its purpose.

 

The ACCC did not know that the government amended its Term Sheets with Mayfield to include funding the government’s concealed contractual commitment to pay NSW Ports for container traffic above the cap at the Port of Newcastle. The ACCC did not know that Mayfield had advised the government that it considered the requirement  to provide the funds to be illegal under the CCA (see page 14 here). The ACCC did not know that the government leased the Port of Newcastle to PoN for the purpose of requiring PoN to agree to the penalty.

 

However, in answer to Budget Estimates supplementary question 42 on April 1 2021, Mr Perrottet said that the ACCC was informed about the penalty before the port was leased to PoN: “In asset transactions Treasury typically consults with a range of regulators including the ACCC. This was the case in relation to the ports transactions, and the ACCC was aware of the Port Commitment Deeds prior to the Port of Newcastle transaction,” Mr Perrottet said.

 

The government said at page 15 of its submission to the Public Works Committee dated January 14 2019: “When Newcastle Port was leased in 2014, some of the State’s obligations to NSW Ports were contractually passed through to the Lessee of Newcastle Port. This arrangement was known to bidders and the ACCC ahead of the transaction and is documented in the Port of Newcastle PCD.”

 

In answer to QON 6677 on January 16 2015, the (then) Treasurer, the Hon Andrew Constance, said: “The government’s transaction team engaged extensively with the Australian Competition and Consumer Commission regarding the competition and regulatory framework, including the container arrangements.”

 

“When the Government sought to lease the ports, the arrangements were properly examined by the then chair of the [Australian Competition and Consumer] Commission,” Mr Gay told Parliament on August 11 2016.

 

The ACCC does not corroborate these claims.

 

NSW Ports told the Public Works Committee on January 21 2019 and January 31 2019 that it was unaware of the government’s actions before details were published by “The Newcastle Herald” on July 28 2016.

 

Court ordered discovery of Mayfield documents 

 

Mayfield told the government on October 14 and 18 2013 see pages 13 and 14 here that it considered the requirement to fund the government’s commitment to NSW Ports to be illegal under the CCA. When Mayfield did not withdraw its proposal, the government terminated their negotiation, on November 8 2013.

 

On February 28 2020, the Federal Court ordered – see Annexure 2, item 3 – the government to give discovery of: “All documents provided to Mayfield Development Corporation Pty Ltd in relation to any settlement entered into with Mayfield upon ceasing negotiations in relation to the Proposed Mayfield Development (as defined in Annexure 4 and howsoever described in the documents).”

 

The government does not confirm or deny reaching a settlement with Mayfield, including whether the government had authority to reach a settlement.

 

In answer to Budget Estimates supplementary question 76 on April 23 2020, Mr Perrottet said: “These matters are commercial in confidence.”

 

Any settlement reached between the government and Mayfield was required to satisfy government guidelines.

 

The NSW “Independent Commission Against Corruption” (ICAC) reported in August 2016:

 

“As a statutory state-owned corporation, the NPC [Newcastle Port Corporation] was obliged to comply with the NSW Government’s “Working with Government Guidelines”. Mr Webb [Chief Executive Officer of NPC] explained that, in accordance with the guidelines, the NPC had conducted “direct negotiations” with the NSC [Newcastle Stevedores Consortium Pty Ltd, owner of Mayfield]. By 2010, the direct negotiations had been completed and the process had moved to the point where the NSC had been identified as the preferred proponent. From this point, the NPC could enter “commercial negotiations” with the NSC with a view to concluding a final contract. This required ministerial approval and the NPC was seeking that permission from [NSW Treasurer] Mr Roozendaal.”

 

The government’s “Working With Government Guidelines” dated 2006 were updated in August 2012 and re-named “NSW Public Private Partnerships Guidelines”.

 

The NSW Treasury web site says, “Public Private Partnerships (PPPs) are one of the options the Government uses to procure infrastructure and offers opportunities to improve services and better value for money, primarily through appropriate risk transfer, encouraging innovation, greater asset utilisation and integrated whole-of-life management.”

 

Under the “Working With Government Guidelines” and the 2012 PPP Guidelines, NPC was required to receive approval from Treasury for the Term Sheets with NSC. When Mayfield informed Treasury and NPC that it considered the requirement to fund the commitment to NSW Ports be illegal under the CCA, thereby obliging Treasury to seek advice from the ACCC, Treasury terminated the negotiation on November 8 2013.

 

Presumably, Treasury concealed the terms from the ACCC.

 

Had Treasury sought the ACCC’s advice, that advice would have been that the requirement to fund the government’s commitment to NSW Ports was likely to be illegal under the CCA.

 

Under the 2012 PPP Guidelines, Treasury had authority to pay compensation to Mayfield:

 

“4.3.4 REIMBURSEMENT OF BID COSTS

While processes outlined in these Guidelines endeavour to minimise the bid costs for the private sector, Government will not normally reimburse bidding costs.

In certain circumstances, consideration may be given to the full or partial reimbursement of bidders’ reasonable bidding costs. Any reimbursement will be based on the quality and quantity of information supplied by the proponent(s). Where reimbursement is paid, the agency will retain the proprietary rights to the bidding material. 

Any reimbursement will be at the sole discretion of the NSW Government with Cabinet approval, based on recommendations by NSW Treasury.”

 

Timeline and References 

 

Government policy statements to January 2020 are here.

 

2008 March 6: Member for Newcastle, Ms Jodi McKay, informs Parliament of government decision to develop a container terminal at the Port of Newcastle. 

 

2009 November: Newcastle Port Corporation (NPC), a statutory state-owned corporation, receives government approval to develop a container terminal with minimum capacity of 1 million TEUs a year, calls for expressions of interest.

 

2010 February 11: Newcastle Stevedores Consortium Pty Ltd (NSC)  submits detailed proposal to NPC.  NPC negotiates with NSC. Term Sheets are prepared. NPC seeks approval from the NSW Treasurer to enter into a contract with NSC. 

 

In its “Statement of Corporate Intent” for 2010-11, Newcastle Port Corporation says:

“6.2 Executing NPC’s Container Strategy

NPC’s strategy for establishing the next container terminal in New South Wales on the Mayfield site is:

to ensure the NSW Ports Plan confirms that the Mayfield site in the Port of Newcastle would be the site for the next major international container terminal in the State;

to ensure State and National reviews (such as the NSW Freight Strategy) are informed on the opportunities that the Mayfield site offers as a future container terminal site that is capable of being delivered at low cost to the State; and

to seek a suitable partner to establish a container facility on Mayfield ahead of the facilities at Port Botany reaching capacity.”

 

NPC seeks formal planning approval for its “Concept Plan” for developing the Mayfield Site.

 

2010 May 5: NPC invites NSC (and no other bidder) to engage in further discussions regarding the development and operation of cargo terminals at Mayfield. 

 

2011 March 26: NPC does not receive government approval to enter into a contract with NSC before the March 26 2011 state election for the reasons noted by the NSW “Independent Commission Against Corruption”.

 

2011 April 12: NPC endorses NSC as preferred proponent for the development a Container Terminal and other port infrastructure at Mayfield; commences negotiating the terms of leases and project delivery agreements, the execution of which would require approval of NPC’s board of directors and the government. 

 

2011 October 24: NPC and NSC complete negotiation of agreements for development by NSC of a Container Terminal and other port infrastructure at Mayfield.

 

2011 November 3: NPC’s Board resolves to seek government approval for NPC to execute the proposed project agreements .

 

2011 December 9: Government decides to conduct a scoping and strategy study in respect of its proposed lease of Port Botany and will not consider approving the execution by NPC of the proposed project agreements until the scoping and strategy study are concluded.

 

2011 December 14Mayfield Development Corporation Pty Ltd (MDC) is registered by NSC. MDC is owned 61 per cent by Grup Maritim TCB and 39 per cent by Anglo Ports Pty Ltd.

 

Morgan Stanley is appointed to conduct a scoping study, in the first-half of 2012, into leasing Port Botany and Port Kembla. Government instructs Morgan Stanley to include a container “cap” for the purpose of making it uneconomical to develop a container terminal at the Port of Newcastle. 

 

2012 March 2Written brief to Hon M Baird proposing rail freight bypass  

 

2012 March 22: Reply from Hon M Baird 

 

2012 April: Bidders for Port Botany advise government that a competing container terminal at the Port of Newcastle could negatively affect perceived value of Port Botany to potential bidders.

 

2012 April 4Written brief to Hon M Baird about Newcastle rail bypass

 

2012 April 26Hon M Baird advises “at this stage, a decision is yet to be made about whether to proceed with a container terminal at Newcastle”.

 

2012 July 16: Minister for Planning and Infrastructure approves NPC’s “Concept Plan” under the “Environmental Planning and Assessment Act 1979”.

 

2012 July 27Government announces a decision to lease Port Botany and Port Kembla. Included in this announcement is a decision not to develop a container terminal at the Port of Newcastle. The government’s intention to require MDC to pay the penalty is concealed from the public, parliament, NPC and MDC.

 

2012 August 30: Treasurer informs NSC the government will not approve a proposal that involves developing a Container Terminal at the Port of Newcastle before the developable container handling capacity at Port Botany and Port Kembla has been developed and is being fully utilised; and, the government will not execute the proposed project agreements negotiated by NSC and NPC. The government conceals its intention to apply the penalty to MDC.

 

2012 October 17 2nd reading of “Ports Assets (Authorised Transactions) Bill 2012” committing government not to lease Ports Botany and Kembla unless lease values exceed retention values.

 

2012 November 22Parliament passes the “Ports Assets (Authorised Transactions) Act 2012”.

 

2013 March 15: Government provides bidders for Port Botany/Port Kembla with draft Port Commitment Deeds and a memorandum concerning the development of multi-cargo facilities at the Port of Newcastle. Did this memorandum inform bidders about the government’s intention to require payment from MDC for developing a container terminal?

 

2013 April 26Letter requesting ACCC examination of “decision” not to develop a container terminal at the Port of Newcastle. 

 

2013 May 30: Port Botany and Port Kembla are leased to NSW Ports Pty Ltd. The government contractually commits to pay NSW Ports for losing container business to the Port of Newcastle. NSW Ports is aware that a container terminal may be developed at the Port of Newcastle contrary to government policy. 

 

2013 June 7: ACCC responds to the April 26 request to examine the government’s “decision” not to develop a Newcastle container terminal; decides to take no action to enforce the CCA in the belief that the CCA does not apply to the government due to government policy that a container terminal will not be developed at the Port of Newcastle. The government’s intention to apply the penalty to MDC is concealed from the ACCC because the penalty disproves the government’s policy. 

 

2013 June 18: Treasurer Baird announces a scoping study into leasing the Port of Newcastle.

 

2013 June 26: Parliament passes “Ports Assets (Authorised Transactions) Amendment Act 2013” enabling the Port of Newcastle to be leased while concealing its unfunded contractual commitment to pay NSW Ports and its intention to apply the Port of Newcastle container penalty to MDC.

 

2013 July 23 – letter from Hon A Albanese

 

2013 July 26NSW Treasurer again “dictates” to MDC that “a container port not proceed at Newcastle”. The government conceals its intention to apply the penalty to MDC.

 

2013 August 5: MDC is informed about the penalty (see 6 i, j). NPC is required to include the penalty in the Term Sheets with MDC. NPC Board is obliged to satisfy itself that the penalty is legal under the CCA.

 

2013 October 17Minister advises Parliament that the NPC Board was informed about a “cap on numbers”, but does not disclose that NPC’s Term Sheets with MDC were amended to include the penalty. NPC Board is aware that no decision has been made to lease the Port of Newcastle. NPC Board is aware that NPC is not exempt from the CCA in respect of the penalty.

 

2013 October 28: Treasurer Baird announces that no decision has been made to lease the Port of Newcastle.

 

2013 November: NPC terminates its negotiation with MDC on an undisclosed date because the penalty is likely to contravene the CCA. 

 

2013 November 5A decision to lease the Port of Newcastle is announced.

 

2014 March 4: Hon M Baird confirms official container terminal policy.

 

2014 May 1: NSW Treasury advises media: “The [Port of Newcastle] lease has been drawn up in accordance with the current NSW Government freight policy of Port Botany being the first container facility priority, with Port Kembla designated to take the overflow once Port Botany is full. Newcastle will be further developed once Port Kembla is full. Newcastle container throughput is, in the meantime, fully able to grow organically.” The contractual commitment to pay NSW Ports is not disclosed. The inclusion of the penalty in the lease to PoN is not disclosed.

 

2014 May 7: Parliament is informed that the proposed lease of the Port of Newcastle does not contain any provision that prevents a container terminal being developed on the former steelworks site. The inclusion of the penalty in the lease arrangements with PoN is not disclosed.

 

2014 May 11Newcastle Herald reports:

 

“The government has confirmed it leased Botany with a clause that prevented Newcastle from competing against it with a container terminal.

“And the Newcastle lease is believed to contain a similar undertaking.”

 

2014 May 31: Port of Newcastle Investments Pty Ltd (PoN) signs a lease agreement with the government for the Port of Newcastle. The penalty is concealed from the public, parliament and NSW Ports.

 

2014 June 11: The Hon Gladys Berejiklian representing the Minister for Roads and Freight answers QON 5536 asked on May 7 2014: “Does the proposed lease of the Port of Newcastle contain any provision that prevents a container terminal being developed on the former steelworks site? Answer: No.”

 

2014 June 25ACCC says:  

 

 “… the ACCC remains concerned over arrangements designed to maximise proceeds received by a government by reducing the prospect of competitive provision of port services. Another example relates to Port Botany and the Port of Newcastle. An article in the Newcastle Herald on 11 May 2014 stated:

“The government has confirmed it leased Botany with a clause that prevented Newcastle from competing against it with a container terminal.

And the Newcastle lease is believed to contain a similar undertaking”.

(“Reinvigorating Australia’s Competition Policy”, ACCC, Submission to the Competition Policy Review, 25 June 2014, p.38)

 

2014 October 30ACCC says:

 

 “The ACCC encourages early engagement from State governments on any competition issues that may arise in relation to the proposed sale structures or sale conditions for any monopoly or near monopoly assets, including any restrictions on competition proposed in the arrangements. Such restrictions may be unlawful and could be unenforceable.”

(“Container Stevedoring Monitoring Report No.16”, ACCC, October 2014, p.21)

 

2014 November 26ACCC says:

 

“… since the 1990s, Australian governments have increasingly been participating in markets in ways that may not amount to “carrying on a business” for the purpose of competition law. Market-based mechanisms are used by governments to finance, manage and provide government goods and services (described as “contractualised governance” for the delivery of public services). Such mechanisms have the potential to significantly improve efficiency but also have the potential to harm competition – for example, by incorporating, in the contract, provisions that are likely to have the purpose or effect of restricting competition. The ACCC’s Initial Submission (section 3.3.1) includes the examples of:

Sydney airport – where the Commonwealth government leased Sydney Airport with the right of first refusal to operate a second Sydney airport at Badgery’s Creek.

Ports Botany and Kembla and the Port of Newcastle – where the NSW government leased the ports with clauses that may restrict Newcastle from competing against Botany and Kembla for container trade.”

(“Submission to the Competition Policy Review – Response to the Draft Report 26 November 2014”, ACCC, p.32)

 

2015 January 16: Treasurer, The Hon Andrew Constance MP, answers Question On Notice 6677  

 

LEGISLATIVE ASSEMBLY 12 December 2014

*6677 PORT OF NEWCASTLE AND PORT BOTANY LEASES—Mr Tim Crakanthorp asked the Treasurer, and Minister for Industrial Relations

(1)      Did the Government advise the Australian Competition and Consumer Commission (ACCC) of a cap on container numbers at the Port of Newcastle prior to leasing the Port of Newcastle and Port Botany?

(2)      Did the Government agree to compensate NSW Ports for container numbers in excess of the cap at the Port of Newcastle?

(3)      Did the Government advise bidders for the ports leases to obtain regulatory approval from the ACCC in relation to the cap on container numbers at the Port of Newcastle?

(4)      Will the cap on container numbers at the Port of Newcastle reduce competition between ports in New South Wales for the container trade?

(5)      Has the ACCC advised the Government that the cap on container numbers at the Port of Newcastle may be unlawful and could be unenforceable?

Answer (16 January 2015):

The transaction arrangements that the State entered into with the successful bidders for Port Botany and Kembla and the Port of Newcastle reflect its Freight and Ports Strategy, that Port Kembla should be the State’s next container terminal once Port Botany reaches capacity.

This strategy recognises that Port Botany has significant capacity for container growth; most containers travel within a relatively short distance of Port Botany; future demand for containers is expected to occur in the South West of Sydney and thereby closer to Port Kembla than Newcastle; and the landside infrastructure costs to support a major container facility at Newcastle are higher than for Port Kembla.

The arrangements do not prohibit the development of a container terminal at the Port of Newcastle and enable the growth of container volumes through Newcastle servicing that region.

The Government’s transaction team engaged extensively with the Australian Competition and Consumer Commission regarding the competition and regulatory framework, including the container arrangements.

 

2015PoN enters into an exclusive agreement with DP World to develop a container terminal. 

 

2015 February 10: Anglo Ports statement published on NSW Parliament web site. 

 

2015 August 31: The (former) Minister for Roads, Maritime and Freight, The Hon Duncan Gay MLC, denies there is a container “cap” at the Port of Newcastle.

 

2015 September 3: Hon Gladys Berejiklian denies there is  a container “cap” at the Port of Newcastle.

 

2015 September 29: Hon Gladys Berejiklian continues to deny there is a container “cap”. Ms Berejiklian confirms: “I am advised that the lessee could develop a container terminal at the Port of Newcastle if it wished to do so.” (See question 29)

 

2016 March 9: Maersk Group completes $1 billion acquisition of Grup Maritim TCB’s rail and port interests, including MDC, which it owns with Anglo Ports Pty Ltd.

 

2016 July 28: “The Newcastle Herald” exposes the Port of Newcastle container “cap”.

 

2016 July 29 – Hon A Albanese media release

 

2016 August 10: Following media exposure of the container “cap” at the Port of Newcastle, the (former) Minister for Roads, Maritime and Freight, The Hon Duncan Gay MLC, provides some details.

 

2016 August 30ICAC releases “Operation Spicer” report detailing negotiations in 2010 between Newcastle Port Corporation and Newcastle Stevedores Consortium.

 

2016 September 1/2015 September 3: Budget Estimates testimony Hon G Berejiklian MP

 

2016 September 1: Hon Gladys Berejiklian defends her denial in 2015 that there is a container “cap” at the Port of Newcastle, on grounds that the “cap” is confidential.

 

2016 September 27: Hon Gladys Berejiklian advises that the “Government’s transaction team engaged extensively with the ACCC from the early stages of all the port transactions regarding the competition and regulatory framework supporting the transactions”.

 

2017 January 27 – letter on behalf of Federal Treasurer, Hon S Morrison

 

2017 February 23ACCC confirms advice provided on June 7 2013 that the CCA does not apply to the government in respect of a container terminal at the Port of Newcastle due to the government’s decision on July 27 2012 not to develop a container terminal at the Port of Newcastle.

 

2017 October 10Government confirms that “the use of consolidated revenue to pay NSW Ports for container shipments above the Government’s cap at the Port of Newcastle” is not authorised by the PA Act.

 

2018 August 16: PoN’s exclusive contract with DP World to develop a container terminal lapses. PoN to proceed with developing a container terminal itself.

 

2018 December 10ACCC commences court action in the Federal Court against NSW Ports for making agreements with the NSW government that the ACCC alleges “had an anti-competitive purpose and effect” (see pages 7 and 30).

 

2019 January 14: Government provides details about the penalty but does not acknowledge that the penalty and the “cap on numbers” are the same thing.

 

Government states: “When Newcastle Port was leased in 2014, some of the State’s obligations to NSW Ports were contractually passed through to the Lessee of Newcastle Port. This arrangement was known to bidders and the ACCC ahead of the transaction and is documented in the Port of Newcastle PCD.”

 

2019 January 21NSW Ports was aware of the government’s actual container terminal policy but not the penalty.

 

2019 January 31NSW Ports says it became aware of the government’s funding arrangements – the penalty – when a report was published by “The Newcastle Herald” in July 2016. 

 

2019 February 12PoN answers supplementary questions from the Public Works Committee.

 

2019 May 15Federal Court order revealing MDC “transaction parameters”.

 

2019 May 31: MDC commences legal proceedings against NSW Ports in the Federal Court.

 

2019 July 18NSW Ports makes a cross claim against the NSW government and PoN – see page 31

 

2019 August 19: MDC and NSW Ports Pty Ltd agree in the Federal Court to stay proceedings.

 

2019 September 5Hon Gladys Berejiklian tells parliament:

 

“You would need to triple container movements at the Port of Newcastle before any penalties came into play. So I say to those communities that want to increase their container movements at the point, there is capacity to triple that under the current arrangements…. Unless I am mistaken, there would need to be a significant increase in the number of containers moving to and from that port before any type of financial impediment was struck.”

 

TEU containers are carried as incidental cargo on general cargo ships at the Port of Newcastle and the annual total is around 10,000. A dedicated TEU container ship carries around 10,000 import/export TEUs per port visit. The purpose of the government’s penalty is to create a financial impediment sufficient to make it uneconomical to develop a TEU container terminal in competition with Port Botany. 

 

2019 October 11Federal Court orders include this:

 

“52.3

… at all relevant times prior to 31 May 2013 …

(E) …. any prospect that the operator of Port Kembla and/or the operator of the Port of Newcastle could materially increase supply of Container Services including by development and use of a Container Terminal at Port Kembla and/or the Port of Newcastle was so slight or hypothetical as not to be a relevant competitive constraint on the operator of Port Botany.

(F) the policy position of the State of New South Wales was that any new Container Terminal at Port Kembla or the Port of Newcastle would not be built until Port Botany reached full capacity.”

 

At all relevant times prior to May 31 2013, and until November 2013, the government’s preferred proponent for developing a container terminal at the Port of Newcastle was NSC. A container terminal could be developed under the government’s planning approval dated July 16 2012. 

 

2019 November 6ACCC releases “Container Stevedoring Monitoring Report 2018-2019”.

 

2019 November 27: The government’s meaning of container is confidential and sub judice (see question 16 here).

 

There is a dispute between the government and the ACCC (see question 8 here) about the date the ACCC was told the developer of a container terminal at the Port of Newcastle is required to pay the government for container volumes exceeding a threshold level.

 

The Treasurer, The Hon Dominic Perrottet MP, claims (see question 18 here) that the current Minister for Transport, The Hon Andrew Constance MP, was not the Treasurer when the Treasurer answered supplementary question 53 on August 22 2014. Treasurer Constance said: “Attempts by Government to dictate uneconomic enterprises contrary to market demand are examples of the kind of rent seeking activity likely to encourage influence peddling or corruption. As the container port did not proceed, there is no decision to review.”

 

2019 December 4 : Government policy features prominently in Federal Court orders

 

2019 December 12: The Federal Court orders the parties to the ACCC’s action to agree a mediator by no later than January 31 2020. The parties are to attend a conference with the mediator by no later than April 3 2020.

 

2020 February 3: MDC files affidavit and interlocutory application with Federal Court. A Court hearing date is set for February 11 2020.

 

2020 February 10: Federal Court order ACCC V NSW Ports 

 

2020 February 11: Federal Court order MDC V NSW Ports

 

2020 February 26: Judgement reserved in Federal Court hearing. 

 

2020 February 28: Federal Court order in ACCC V NSW Ports; Court orders discovery of MDC documents  

 

2020 March 5: Federal Court dismisses MDC’s application to lift the stay in proceedings. The Court said: “24  If, as MDC foreshadowed, the ACCC proceeding settles or is otherwise to be resolved on the basis of limited agreed facts, then MDC could apply at that time to lift the stay and the delay it may suffer will not be as great as might otherwise be the case. Similarly, if the hearing of the ACCC proceeding is itself delayed by unforeseen circumstances, it may be possible to achieve the concurrent hearing of the two proceedings. MDC will be able to re-agitate its claim to lift the stay in any of these circumstances.”

 

2020 March 9 – Treasurer is asked eight supplementary questions at Budget Estimates about the terms for developing a container terminal at the Port of Newcastle. 

 

2020 March 26Federal Court orders

 

2020 April 23Treasurer Perrottet answers supplementary question 78

 

2020 May 26Revised MDC Statement of Claim

 

A better way

 

The NSW government does not support removing container trucks from Sydney’s roads.

 

Moorebank Intermodal Terminal Company Ltd (see Table 3-7 here) estimates that by 2040, there will be six million container trucks movements a year through Port Botany, which will reduce to five million if the Moorebank Intermodal Terminal operates at full capacity. Current container truck movements through Port Botany are one million a year. However, the government is unable to identify the capacity of the rail freight network serving the Moorebank Intermodal Terminal.

 

Industry super funds own 80 percent of NSW Ports and 50 percent of Port of Newcastle Investments. These funds represent more than six million Australian workers and retired workers. Their responsibility to their members obliges then to act in the best interests of the Australian economy. It is in the best interests of the economy to transfer container terminal operations from Port Botany to the Port of Newcastle and Port Kembla, enabled by building a rail freight line between the Port of Newcastle, Badgery’s Creek and Port Kembla.

 

A rail freight bypass of Sydney – between Newcastle, Badgery’s Creek and Port Kembla – could be paid for by developing a container terminal at the Port of Newcastle and railing all containers for the entire NSW market.

 

A bi-partisan approach between the government and the opposition in the Parliament is required. Collaboration between NSW Ports and Port of Newcastle Investments is required. Development of a commercial arrangement to enhance all investors’ commercial returns by properly engaging the ACCC, is required. The objective is to develop an economic development strategy that is demonstrably better for the NSW economy than current arrangements.

 

This is what an investigation will involve:

 

Funding

 

Railing containers, rather than trucking them, will pay for privately funding, building and operating a rail freight bypass of Sydney, between the Port of Newcastle, Badgery’s Creek and Port Kembla. The compelling benefits of a rail-based freight transport strategy were provided in the “Deloitte Access Economics” report “The True Value of Rail, in June 2011

 

Intermodal terminals

 

Intermodal terminals would be established along the rail freight line to maximise logistics efficiency. Intermodal terminals established in regional areas would enable long term planning of the state’s future development based on rail transportation of containerised goods.

 

Regional economic development

 

Rail-based access to a container port is a prerequisite for regional economic development because 95% of world trade in goods is conducted using containers. Linked container terminals at the Port of Newcastle and Port Kembla would enable Sydney firms to profitably relocate to regional areas to take advantage of under-utilised regional infrastructure.

 

WestConnex

 

Around 85% of Port Botany’s containers are trucked. Currently, there are one million container truck movements a year through Port Botany. By 2040, there will be six million container truck movements a year. Even if the Moorebank Intermodal Terminal operates at full capacity, it will reduce the total by a mere one million a year.

 

A container truck carrying a full container in the M5 East west-bound tunnel is the equivalent of six passenger cars. A container truck in the east-bound M5 East tunnel is the equivalent of three passenger cars. Without WestConnex, there is no road capacity to handle the predicted increase in container truck movements through Port Botany.

 

However, it is necessary to connect WestConnex to Port Botany. This significant cost can be avoided if all containers are railed from the Port of Newcastle, with back-up from Port Kembla.

 

Port Botany

 

Port Botany would be closed as a container port after capacity was developed at Newcastle and Port Kembla, and the rail freight bypass was completed. While this work was underway, Botany freight would be railed via Glenfield to intermodal terminals at Badgery’s Creek or Eastern Creek, once built.

 

Increased rail passenger capacity

 

Removing freight from Sydney’s existing rail network would enable the capacity to be used for passenger services. Likewise removing freight from the existing rail lines between Newcastle and Sydney, and Port Kembla and Sydney, would allow the capacity to be used for passenger services. The economic value of converting rail freight capacity to passenger capacity is examined in “The True Value of Rail”.

 

Moorebank Intermodal Terminal

 

There would be no intermodal terminal at Moorebank because the existing rail freight capacity would be used for passenger services.

 

Northern Sydney Freight Corridor

 

The $1 billion “Northern Sydney Freight Corridor Stage One” will reach capacity by 2026. Stages 2 and 3 – to create the equivalent of a dedicated freight line between Newcastle and Strathfield – will cost at least $5 billion. This cost would be saved by building a rail freight bypass that would also have capacity to carry freight that would otherwise be trucked into Sydney, not only from the north but also from the south and west.

 

Maldon-Dombarton freight line

 

The $800 million cost of the Maldon-Dombarton freight line – connecting Port Kembla to the main southern line, extending to Badgery’s Creek and the Port of Newcastle – would be met by railing containers after Port Botany was closed.

 

Western Sydney Freight Line

 

There would be no need to build the $1 billion Western Sydney Freight Line, between Chullora and Eastern Creek.

 

Port Botany Rail Freight Line

 

There would be no need to spend $400 million upgrading the Port Botany rail freight line.

 

Hawkesbury River bridge

 

A vital second rail bridge would be built over the Hawkesbury River as part of the rail freight bypass.

 

Sydney Airport

 

Removing container ships from Port Botany would enable the short parallel runway at Sydney airport to be extended from 2600 metres to 4000 metres.

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