Updated May 24 2019

 

Government policy is to make a Newcastle container terminal uneconomic

 

A year before leasing Port Botany and Port Kembla to NSW Ports on May 30 2013, the NSW Government made a secret decision deigned to increase competitive bids for the two 99-year leases.

 

The Government decided it would prevent the Port of Newcastle from competing with Port Botany by making it uneconomic to develop a container terminal.

 

To make a container terminal uneconomic, the Government decided to require a developer to pay a “fee” for exceeding a minimal specified annual “cap” on container traffic. The Government would then pay this “fee” to a lessee of Port Botany and Port Kembla as “compensation” for losing business to the Port of Newcastle.

 

If a container terminal was not developed at the Port of Newcastle, because it was uneconomic, the Government would not have to pay “compensation” to a lessee of Port Botany and Port Kembla.

 

The Government’s so-called “cap on numbers” was an instruction given Morgan Stanley early in 2012 for conducting a scoping study into leasing Port Botany and Port Kembla. The instruction was revealed by the (former) Minister for Roads and Ports, The Hon Duncan Gay MLC, on October 17 2013.

 

The Government did not inform the ACCC because the “cap and fee” was likely to contravene the Competition and Consumer Act 2010 (CCA).

 

The Government did not inform the public or the Parliament.

 

It did not inform the NSW Ports consortium, led by IFM Investors (IFM), about the “fee” component.

 

But it did inform a consortium comprising Hastings Funds Management (Hastings) and the Ontario Teachers Pension Plan (OTPP). According to a report by The Australian Financial Review on October 10 2018, Hastings “promoted” the “cap and fee” to the Government.

 

Hastings later joined with China Merchants to form Port of Newcastle Investments Pty Ltd (PoN), which became the lessee of the Port of Newcastle on May 30 2014.

 

PoN accepted the “cap and fee” until 2018, when it publicly called for its removal.

 

The ACCC took no action to enforce the CCA until December 10 2018.

 

But as at June 7 2013, the ACCC believed that it was unlikely the Government was carrying on a business for the purposes of the CCA in 2013 in respect of a container terminal development at the Port of Newcastle.

 

The ACCC believed the Government had decided not to develop a container terminal at the Port of Newcastle before Port Botany reached capacity, after which a container terminal would be developed at Port Kembla. Only after a Port Kembla container terminal reached capacity would a container terminal be developed at the Port of Newcastle.

 

The ACCC’s belief was based on the Government publicly announcing its container terminal policy on July 27 2012. The ACCC, along with the public and the Parliament, was entitled to believe this policy announcement was the truth.

 

In 2012, the Government was negotiating with a private company, Newcastle Stevedores Consortium (NSC) to develop a container terminal at the Port of Newcastle.

 

Newcastle Port Corporation (NPC), a statutory state-owned corporation, had Government approval to invite NSC to develop a container terminal by conducting a normal commercial negotiation. This negotiation commenced in 2010. It finished in November 2013, with no agreement reached to develop a container terminal.

 

NPC was carrying on a business for the purposes of the CCA when it commenced its negotiation with NSC.

 

When the ACCC said, on June 7 2013, that the Government decided not to develop a container terminal at the Port of Newcastle, it did not know that the Government required NPC to include the “cap and fee” in the Term Sheets with NSC.

 

Now, the ACCC is alleging in the Federal Court that NSW Ports contravened the CCA because the lease agreement for the Port of Newcastle is an anti-competitive consequence of the lease agreements for Port Botany and Port Kembla.

 

The Federal Court web site reveals that the ACCC called into evidence two documents relating to NPC’s negotiation with NSC to develop the container terminal site, called the “Mayfield Site”.

 

Confidential Document 8” is an email with subject line “Mayfield Transaction Parameters” dated August 5 2013. “Confidential Document 9” is titled “Mayfield Development Transaction Parameters” dated August 6 2013.

 

Confidential Documents 8 and 9 are direct consequences of the Government’s 2012 decision to make NSC its source of funds to pay “compensation” to a lessee of Port Botany and Port Kembla.

 

The Government made a serious allegation about NSC’s negotiation with NPC on August 22 2014. It 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.”

 

In making this allegation, the Government failed to acknowledge its 2012 decision to require NSC to satisfy the “cap and fee” requirement. The lead partner in NSC, Anglo Ports Pty Ltd, rejected the Government’s allegation.

 

Anglo Ports said on February 10 2015:

 

“Further the second sentence in the answer – “As the container port did not proceed, there is no decision to review” – is erroneous because the Hon M Baird MP, as Treasurer, by decisions of 30 August 2012 and 26 July 2013 dictated that a container port not proceed at Newcastle. There were other decisions on the container port proposal, including by Mr Baird and by Mr E Roozendaal. There were thus several decisions about the container port proposal capable of being reviewed.

 

“The second sentence is misleading in allowing the interpretation that the proposal for the container terminal did not proceed because of a supervening event or because the proposal was withdrawn. Anglo Ports did not withdraw the proposal and denies there was any such supervening event.”

 

When the Government amended NPC’s Term Sheets with NSC, the meaning given to the term “container” was:

 

“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

 

By defining the meaning of “container” as it did, the Government made it uneconomic for NSC to develop the “container” terminal site because “containers” are a primary cargo carried by general cargo ships.

 

Confidential Documents 8 and 9, together with the Term Sheets between the NPC and NSC, prove that NPC did not stop carrying on a business for the purposes of the CCA in relation to “container” capacity development, in the period 2010 to November 2013.

 

The Government does not want the contents of Confidential Documents 8 and 9 to be publicly disclosed.

 

It filed an Interlocutory Application in the Federal Court on April 12 2019 reportedly seeking “to ensure that the Government’s confidential information – which the ACCC wishes to use in the proceedings – remains confidential”.

 

The Government’s promise of compensation payment for container traffic at the Port of Newcastle was attractive to the leases bidders. As “The Australian” reported on June 21 2013:

 

“Himbury confirms that the IFM consortium made a “material increase” in the offer between the indicative bid in December and the final bid on April 8. “The more we got to know about the asset, the more comfortable we got with the higher price. We are confident that if the state continues to grow at the rate it has in the past 10-20 years – because that is the big driver here, the gross Government product – then the returns we get will be consistent with [our] expectations.”

…..

“The IFM bid was the clear winner. Runner-up the Hastings-OTPP consortium was less than $20 million behind, but it had heavier mark-ups that could have left the Government at risk for some liabilities.”

One of the Government’s potential liabilities was being prevented from charging the “fee” at the Port of Newcastle.

 

The ACCC is seeking an order restraining NSW Ports from claiming compensation from the Government.

 

If NSW Ports is found guilty by the Federal Court, it is open to NSW Ports to allege that the Government knowingly placed NSW Ports in the position of contravening the CCA.

 

It was revealed on November 14 2017 that the Government was not authorised to use consolidated revenue to pay NSW Ports its so-called “compensation”.

 

The Government was not authorised by the Parliament to lease the Port of Newcastle for the purpose of funding payment of “compensation” to NSW Ports.

 

The Government was not authorised by the Parliament, obviously, to lease Port Botany and Port Kembla with a provision that contravened the CCA.

 

It is likely that the Government contravened the CCA because the Term Sheets with NSC were an anti-competitive consequence of the lease agreements for Port Botany and Port Kembla.

 

THE WAY FORWARD: HOW NSW BENEFITS

 

The Government, NSW Ports and Port of Newcastle Investments, should they so choose, are able to collaborate in planning a rail freight bypass of Sydney.

 

The Government did not evaluate the costs and benefits to NSW and Australia of railing 100 per cent of containers in NSW, which is accomplished by establishing a container terminal at the Port of Newcastle.

 

Railing containers, rather than trucking them, will pay for privately funding, building and operating, a rail freight bypass of Sydney, between 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

 

A container terminal established at Port Kembla would be able to operate interchangeably with the Port of Newcastle. 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.

 

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. Unless WestConnex is built, 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.

 

Moorebank Intermodal Terminal

 

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

 

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, Moorebank intermodal would be cancelled and 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”.

 

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.

 

Regional economic development

 

Rail-based access to a container terminal 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.

 

……………………………………………………

 

 

NSW Ports had no knowledge of “cap and fee”

 

NSW Ports likes to point out that six million Australians own 80 per cent of the Port Botany and Port Kembla operator.

 

It is unthinkable that the lead partner in NSW Ports, IFM Investors, would have recommended a deal that involved the slightest chance of contravening the CCA.

 

NSW Ports became the lessee of Port Botany and Port Kembla in May 2013, when the Government accepted IFM Investors’ $5.1 billion offer of super funds members’ money.

 

NSW Ports denies having any knowledge of the “cap and fee” requirement in the Port of Newcastle lease agreement, before it was uncovered by The Newcastle Herald on July 28 2016.

 

IFM Investors should not have gone anywhere near the Botany/Kembla leases, if there was the merest sniff that the deal might contain an illegal condition.

 

Why the meaning of “container” is significant

 

The Port Commitment Deeds for Port Botany and Port Kembla define “container” to 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 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

“Containers” are a primary cargo carried on general cargo ships visiting the Port of Newcastle. The number of “containers” transported annually through the port is not counted. However, this number would significantly exceed the minimal “cap”, which is 30,000 “containers” as at July 1 2013, increasing by six per cent per year until 2063.

 

On average, there are 10,000 TEU containers travelling through the Port of Newcastle each year. The “fee” for this number of TEU containers is $1.5 million, based on the current average fee for a TEU charged at Port Botany.

 

NPC could not conclude a contract with NSC that included the Government’s meaning of “container”, because it defeated NPC’s corporate objective for developing the container terminal site.

 

The Government continued negotiating with NSC because it needed time for Morgan Stanley to conduct a scoping study into leasing the Port of Newcastle, between June 2013 and November 2013.

 

IFM Investors did not seek ACCC opinion

 

Lead partner in the NSW Ports consortium, IFM Investors, did not seek an opinion from the ACCC as to whether the Government’s promise of “compensation” payment for container traffic at the Port of Newcastle, above a minimal specified “cap”, complied with the CCA.

 

This was a mistake because the ACCC is now alleging that NSW Ports contravened the CCA by signing the lease agreements for Port Botany and Port Kembla on May 30 2013.

 

Had IFM consulted the ACCC, undoubtedly the ACCC would have raised the matter of the “cap” with the Government, with questions including the Government’s source of funds for making the payment.

 

Questions aim to establish legislative authority for the “cap and fee”

 

LEGISLATIVE ASSEMBLY

0155 – NEWCASTLE PORT

Crakanthorp, Tim to the Treasurer

May 9 2019

 

  1. What authorisation did the Government obtain to require a developer of a container terminal at the Port of Newcastle to reimburse the Government for any cost the Government incurs in paying compensation to a lessee of Port Botany and Port Kembla, for container traffic at the Port of Newcastle above a minimal specified cap?

 

  1. Did the Government lease the Port of Newcastle for the purpose of requiring a developer of a container terminal at the Port of Newcastle to reimburse the Government for any cost the Government incurs in paying compensation to NSW Ports for container traffic at the Port of Newcastle above a minimal specified cap?

 

  1. Does the Government have a source of funds, other than the developer of a container terminal at the Port of Newcastle, to reimburse the Government for any cost the Government incurs in paying compensation to NSW Ports, for container traffic at the Port of Newcastle above a minimal specified cap?

 

  1. Did Hastings Funds Management write to the Government in 2013 proposing that the Government should require a developer of a container terminal at the Port of Newcastle to reimburse the Government for any cost the Government incurs in paying compensation to NSW Ports, for container traffic at the Port of Newcastle above a minimal specified cap?

 

Answer due June 13 2019

 

Decision to lease Port of Newcastle: Key Dates 

 

The ACCC is not currently alleging that the Government contravened the CCA. Under the CCA, a government that is selling a lease to an asset is not carrying on a business for the purposes of the CCA in respect of that asset.

 

On June 18 2013, the (former) Treasurer, The Hon M Baird MP, said: “Today I can announce the Government intends to proceed to a long-term lease of the Port of Newcastle, the largest coal port in the world, subject to a scoping study. The success of Port Botany and Port Kembla dictates that we act now.”

 

On October 28 2013, Mr Baird said: “While we are awaiting the scoping study on the proposed long-term lease of Newcastle Port and no decision has been made, Mr Whitlam’s experience in steering the Port Kembla and Sydney Ports Boards through a successful transaction process will prove to be incredibly valuable, should we proceed.”

 

Mr Baird’s statement read: “Mr Baird reiterated that the scoping study for the proposed port transaction remains on track, with the NSW Government expecting to make a decision by the end of the year.”

 

On October 28 2013, NPC was still negotiating to lease the port’s container terminal site to NSC for development.

 

If the Government approved NPC leasing the container terminal site to NSC with the “cap and fee’ in place, it was likely that agreement would have contravened the CCA.

 

NPC concluding the negotiation with NSC enabled Mr Baird to announce, on November 5 2013, a decision to lease the Port of Newcastle.

 

If the Government  did not lease the Port of Newcastle, it had no source of funds to meet its contractual commitment to pay NSW Ports the so-called “compensation”.

 

Treasurer answers “no” to key question

 

NSW Treasurer, The Hon Dominic Perrottet MP, answered, “No” when asked in May 2017: “Was a decision made in 2012 to require any future operator of a container terminal at the Port of Newcastle to make the government whole for any cost the government incurred from paying the operator of Port Botany in respect of future container capacity development at the Port of Newcastle?”

 

The (former) Treasurer, The Hon Gladys Berejiklian MP, answered, “I understand there is no legislated container cap”, when asked, in September 2015: “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?”

 

On October 17 2013, the (former) Minister for Roads and Ports, The Hon Duncan Gay MLC, confirmed that the State’s instruction to Morgan Stanley in 2012 about a “cap on numbers” was in relation to the number of containers that can travel through the Port of Newcastle before the State is required to pay compensation to a lessee of Port Botany.

 

Mr Gay answered, “We do not envisage that any compensation will need to be put in place”, when asked: “How much compensation will be paid to the private operator of Port Botany if a new container terminal is developed at Newcastle Port?”

 

Ms Berejiklian confirmed on September 1 2016 that the State considered the reimbursement requirement was “commercial in confidence”.

 

ACCC investigated negotiation

 

The ACCC investigated the negotiation between NPC and NSC in 2014 using information supplied by the Government in confidence, but took no action, because a development agreement had not been concluded.

 

The (former) Minister for Roads, Maritime and Freight, The Hon Melinda Pavey MP, said on September 11 2018: “The lease arrangements for the Port of Newcastle reflect the Government’s policy that Port Kembla will be the State’s next container terminal when Port Botany reaches capacity. The arrangements aim to promote trade and port development in a manner consistent with Government policy.”

 

The Term Sheets were a consequence of the Port Botany and Port Kembla agreements.

 

Proving that the Term Sheets were not capable of complying with the CCA, is all the evidence the ACCC needs to prove that the Port of Newcastle lease agreement is an anti-competitive consequence of the Term Sheets.

 

The Australian Financial Review reported in October 2018:

 

“The really remarkable thing about that cap and fee system is that it was introduced to the sale process by one of the two final bidders for the ports Botany and Kembla. The fee effectively guaranteed that the future of ports in NSW would play out as the government had proposed, which was that Port Botany would remain the main container hub, that Port Kembla would be the future spillover container port and that Newcastle would be sustained by coal and a car import terminal.

“The bidder that promoted the cap and fee was the Hastings infrastructure group and, after just missing out on securing a future in NSW containers, it went on to become the original operator for, you guessed it, the successful bidders for PoN [Port of Newcastle].

“So the mess that PoN is now working to clear up is the product of the very same people who were invited in by privatisation. Oh, and the reason that the handcuffs on PoN are described so often as ‘‘secret’’ is that the terms of the sale process required utter confidentiality on the container fee. The new owners knew it existed and, ultimately, they took a bit of a punt on being able to overturn it.”

The AFR’s analysis does not recognise that the “cap on numbers” was an instruction the Government gave Morgan Stanley in 2012.

 

ACCC kept in the dark by NSW Treasury

 

The key elements of the lease agreements were exposed by “The Newcastle Herald”, which reported on May 11 2014: 

 

“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.”

After reading the newspaper report, the ACCC decided to investigate the lease agreements. With the “commercial in confidence” aspects reported in the media, it was a delicate matter for the ACCC to explain why, on June 7 2013 it announced that the Government was unlikely to be carrying on a business for he purposes of the CCA due to Government container terminal policy announced on July 27 2012.

 

The ACCC was provided with information by the Government about its negotiation with NSC on the basis it would keep that information confidential.

 

NPC concluded its negotiation with NSC in November 2013 because NSW Treasury could not recommend to State Cabinet a contract with NSC that incorporated a requirement that was likely to contravene the CCA.

 

More questions for the NSW Treasurer

 

NSW Treasurer, The Hon Dominic Perrottet MP, was asked about container terminal policy implementation on June 29 2017.

 

  1. Did the Government decide in 2009 to develop a container terminal at the Port of Newcastle?

Answer: This Government was not in office in 2009.

 

  1. Was a decision made in 2012 to require any future operator of a container terminal at the Port of Newcastle to make the government whole for any cost the government incurred from paying the operator of Port Botany in respect of future container capacity development at the Port of Newcastle?

Answer: No.

 

  1. Was Newcastle Stevedores Consortium required in 2013 to make the Government whole for any cost the Government incurred from paying NSW Ports in respect of future container capacity development at the Port of Newcastle?

Answer: Newcastle Ports Corporation did not conclude a contract to build a container terminal with Newcastle Stevedores Consortium in 2013.

 

  1. Was a decision made in 2013 to require any future lessee of the Port of Newcastle to make the Government whole for any cost the Government incurred from paying NSW Ports in respect of future container capacity development at the Port of Newcastle?

Answer: Any decision regarding NSW ports is consistent with the Government’s policy that Port Kembla will be the State’s next major container terminal after Port Botany has reached capacity.

 

  1. Was the lessee of the Port of Newcastle required in 2014 to make the Government whole for any cost the Government incurred from paying NSW Ports in respect of future container capacity development at the Port of Newcastle?

Answer: No compensation payments to NSW Ports were incurred in 2014.

 

  1. Did the Government inform the Australian Competition and Consumer Commission in 2012 that the Government decided not to develop a container terminal at the Port of Newcastle?

Answer: The Government’s transaction team engaged extensively with the Australian Competition and Consumer Commission regarding the competition and regulatory framework supporting the port transactions.

 

Acts did not authorise “compensation” payment for exceeding Newcastle “cap”

 

The Government knew in 2012 that it was not authorised to use consolidated revenue for paying compensation to the lessee of Port Botany and Port Kembla. The Act authorising these ports to be leased – the “Ports Assets (Authorised Transactions) Act 2012” – did not allow the State to use consolidated revenue.

 

The Government intended in 2012 to implement its policy by requiring reimbursement from the developer of a container terminal at the Port of Newcastle because there was no other means available to make development of a container terminal uneconomic.

 

The Government terminated its negotiation with NSC in November 2013 because the Term Sheets proved how the Government had decided in 2012 to implement its container terminal policy.

 

But terminating the negotiation removed the Government’s ability to make developing a container terminal at the Port of Newcastle uneconomic. The Government needed a new way to implement its policy.

 

So it decided to privatise the Port of Newcastle.

 

The lessee was required to comply with the “cap and fee”.  The ACCC said that, because the State was privatising the port, it was unlikely to be carrying on a business for the purposes of the CCA.

 

……………………………………………

Container terminal “Concept Plan” approval

In 2010, Newcastle Port Corporation sought formal planning approval from the Labor government for its “Concept Plan” for developing the Mayfield Site. On July 16 2012, the Minister for Planning and Infrastructure approved the “Concept Plan” under the “Environmental Planning and Assessment Act 1979”. Since 2009, the policy of each successive NSW government has been for the private sector to develop a container terminal at the Port of Newcastle without reference to Port Botany or Port Kembla.

For example, The Hon Gladys Berejiklian MP (former) Treasurer, answered this Question On Notice on September 29 2015 at a Budget Estimates hearing:

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.

As confirmed on June 29 2017, Coalition government policy is that Port Kembla will be the State’s next major container terminal after Port Botany has reached capacity. This policy is consistent with NSW government policy to develop a container terminal at the Port of Newcastle under the terms of the approved “Concept Plan”.

Timeline

 In 2009, Newcastle Port Corporation (NPC) conducted a public tender for a private consortium to develop a multi-purpose terminal, including a container terminal with minimum capacity of 1 million TEU per year, at the Port of Newcastle. NPC chose a proposal from a consortium led by Anglo Ports Pty Ltd in 2010.

On 14 December 2011, the State announced the appointment of Morgan Stanley as its financial adviser to conduct a scoping study into leasing Port Botany. One of the State’s instructions was a cap on the number of imported and exported containers by the Port of Newcastle for which the future Port Botany Lessee would not be permitted to claim payment from the State.

On 31 January 2012,“The Newcastle Herald” reported:

“A $600 million proposal to redevelop the BHP steelworks site for port uses, including a container terminal, will be considered as part of the case being mounted for plans to lease Sydney’s Port Botany.

“A spokesman for NSW Ports Minister Duncan Gay said yesterday that an announcement on a Newcastle container terminal would be made after the scoping study for the Port Botany transaction, due to the government early this year, is completed.”

On 27 July 2012, the State “confirmed it would proceed with the long-term lease of State-owned assets Port Botany and Port Kembla to fund priority infrastructure projects across NSW”. There was no disclosure of compensation payable to the future Lessee or that the Port of Newcastle operator would be charged for any such payment.

On 30 August 2012, the State wrote to Anglo Ports to advise that a container terminal would not proceed at the Port of Newcastle. Anglo Ports released this information in a statement published on the NSW Parliament web site dated 10 February 2015. A container terminal can be developed at the Port of Newcastle any time the Lessee wishes to do so, The Hon Gladys Berejiklian disclosed to a Budget Estimates Committee on 29 September 2015.

On 12 April 2013, the State accepted NSW Ports’ bid of $5.07 billion for 99-year leases to Port Botany and Port Kembla. 

On 18 June 2013, the State announced it would commence a scoping study for a possible lease of the Port of Newcastle.

On 26 July 2013, the State, for the second time, wrote to Anglo Ports to advise that a container terminal would not proceed at the Port of Newcastle.

On 17 October 2013, the State disclosed a “cap on numbers” of containers imported and exported by the Port of Newcastle for which NSW Ports could not claim payment. The disclosure was made by The Hon Duncan Gay MLC to State Parliament in response to a Question Without Notice. Mr Gay said:

“The Government has been clear on this all the way through the process, even before it indicated it would lease the port at the stage when Newcastle Port Corporation was in place.”

On an undisclosed date in November 2013, the State concluded its negotiations with Anglo Ports. Anglo Ports, in its 10 February 2015 statement, said it did not withdraw its proposal. In a media statement released on 4 March 2015, the State said:

“Newcastle Port Corporation concluded its negotiations with Anglo Ports in November 2013 after it was unable to reach a suitable outcome for the redevelopment of the Mayfield site.”

On 5 November 2013, the State announced that it had received and considered the recommendations of the scoping study, and would proceed with the lease.

On 30 April 2014, the State announced agreement with Port of Newcastle Investments Pty Ltd for a 98-year lease to the port for $1.75 billion.

On 1 May 2014, NSW Treasury said:

“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.”

On 11 May 2014 “The Newcastle Herald” reported “restrictions” in the ports leases.

On 30 May 2014, Newcastle Port Corporation ceased being the operator of Port of Newcastle. Port of Newcastle Investments Pty Ltd became the port operator.

On 25 June 2014 the ACCC said:

“… 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)

On 22 August 2014, (former) NSW Treasurer, The Hon Andrew Constance MP, was asked a question in a Budget Estimates Hearing:

“The Hon. Dr John Kaye:

Question:

  1. Given that there has been significant allegations of at least influence peddling and political interference under Labor surrounding proposals to the [sic] develop a container facility in Newcastle, will Treasury be reviewing that decision?

(a) If so please provide details

(b) If not why not”

Mr Constance answered:

“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.”

On 30 October 2014 the ACCC said:

“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)

On 26 November 2014 the ACCC said:

“… 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)

On 12 December 2014, (former) NSW Treasurer, The Hon. Andrew Constance MP, was asked by Member for Newcastle, Mr Tim Crakanthorp MP:

“Did the Government advise the Australian Competition and Consumer Commission of a cap on container numbers at the Port of Newcastle prior to leasing the Port of Newcastle and Port Botany?”

Mr Constance answered (on 16 January 2015):

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

On 10 February 2015, a statement by Anglo Ports was published on the NSW Parliament’s web site.

On 4 March 2015, Treasury said in a media statement:

Newcastle Port Corporation concluded its negotiations with Anglo Ports in November 2013 after it was unable to reach a suitable outcome for the redevelopment of the Mayfield site.

On 29 September 2015, The Hon Gladys Berejiklian answered a supplementary question in Budget Estimates:

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.

On 29 October 2015, Mr Crakanthorp asked The Hon Duncan Gay MLC:

“When did the Competition and Consumer Act 2010 stop applying to the Government in respect to the operation of the Port of Newcastle?

Do the Port Commitment Deeds include a fee on container throughput at Newcastle Port under certain specified conditions?”

Mr Gay’s answer on 4 December 2015 was:

“This is a matter for the Treasurer.”

On 16 February 2016, Mr Crakanthorp directed these questions to Treasurer, The Hon Gladys Berejiklian, who answered on 22 March 2016:

  1. The operation of the Port of Newcastle is the responsibility of the private sector lessee, Port of Newcastle Investments.
  2. Please refer to my response to questions 24 & 25 at Budget Estimates 2015, Answers to Supplementary Questions, General Purpose Standing Committee 1, 9 am, Thursday 3 September 2015.

The answer Ms Berejiklian gave to questions 24 and 25 was the same for both: “There is no legislated cap on the number of containers that can travel through the Port of Newcastle.”

On 18 February 2016, Mr Crakanthorp asked Ms Berejiklian:

“What is the cap on numbers at the Port of Newcastle?”

Ms Berejiklian’s answer on 23 March 2016:

“Please see my answer to this question in Budget Estimates 2015: Answers to Supplementary Questions General Purpose Standing Committee 1, dated 3 September and available on the NSW Parliament website.”

This answer was: “There is no legislated cap on the number of containers that can travel through the Port of Newcastle.”

Competition between ports

A charge proving unlawful, or unenforceable, would benefit the northern NSW economy by removing the impediment to developing a container terminal at the Port of Newcastle.

A container terminal would attract container ship visits for the northern NSW market but would also justify building a rail freight bypass of Sydney for the Sydney market. This bypass line would run from the Port of Newcastle to Glenfield, in south western Sydney, where it would connect with the main southern line. Paying for a bypass line by railing containers for the Sydney market would replace building stages 2 and 3 of the Northern Sydney Freight Corridor. The cost, $5 billion, is unfunded.

Port Botany’s dominant market position relies exclusively on its monopoly status as the state’s only container port. Most containers are trucked within 40 km of Port Botany to minimise cost.

It is more economical, obviously, to supply northern NSW by rail from Newcastle than it is by truck from Port Botany.

Presently, import containers are trucked between Port Botany and western Sydney and goods are trucked between western Sydney and Newcastle for distribution throughout northern NSW. Likewise, trucking export goods between regional areas and Port Botany is prohibitively costly and logistically challenging, and rail freight is inadequate.

Substantial costs incurred by northern NSW residents and businesses would be removed by developing a container terminal at the Port of Newcastle.

However, direct access to a container terminal is also essential for participating in international trade. Because of the Port Botany monopoly, there is little opportunity for decentralizing economic activity into regional areas of NSW. Regional areas are economically disadvantaged and needless pressure is placed on Sydney’s already stressed infrastructure.

Around 25 per cent of the NSW population lives north of Sydney. They would account for around 25 per cent of Port Botany container throughput when a proportionate number of Sydney-based manufacturing firms reliant on Port Botany relocated to northern NSW to take advantage of a container terminal at the Port of Newcastle. According to NSW Ports, intermediate goods (used in the eventual production of a finished product) make-up 50 per cent of the content of all containers imported through Port Botany.

The Port of Newcastle enjoys a natural competitive advantage over Port Botany because 100 per cent of containers for the Sydney market can be railed to new intermodal terminals in outer western Sydney, via a bypass line. This enables removing container trucks from Sydney’s roads.

However, government policy supports an increase in Port Botany container transportation by truck from 2 million per year in 2014 to 5.4 million per year by 2045.

Government policy supports railing 3 million Port Botany containers in 2045 up from 0.3 million in 2014. But achieving this 10-fold increase in rail transportation requires building a new rail freight line, the “Western Sydney Freight Line”, between Chullora and Eastern Creek. The cost, $1 billion, is unfunded.

The optimum use of Sydney’s existing rail network is people, not freight, as demonstrated in a report by Deloitte Access Economics, “The True Value of Rail”.

Developing container terminal policy

In 1997, BHP (now BHP Billiton) proposed developing a container terminal on the site of its Newcastle Steelworks, scheduled to be closed in September, 1999. BHP recognised that regional firms required access to a container terminal in order to participate in world trade. A development application was lodged for a container terminal on the “Mayfield” site of the former steelworks on 21 August 2000.

The NSW government assumed ownership of the “Mayfield” site in June 2002 and BHP’s plans were abandoned. The government’s purpose in taking ownership was disclosed one year later when it was announced that a container terminal would not be built at the Port of Newcastle.

It took another 10 years for confidential details of the transaction to be disclosed, as reported by the “Newcastle Herald” on 1 September 2012:

BHP steelworks site: pollution time bomb 

AN environmental deed that BHP Billiton and the state government refused to release under freedom of information shows taxpayers will pay the costs of any problems at the Newcastle steelworks site once BHP’s initial payment of $100million is gone.

Environmentalists believe the site is a ticking time bomb, with most of the hydrocarbons and other potential contaminants still in the ground because the decade-long clean-up has been based on containment rather than removal of toxic materials.

BHP handed the steelworks site and four other parcels of land to the state government in 2002, and while $13million of the $100million was reportedly paid back to the government as payment for the land, few details of the environmental responsibilities lumped on to the public have ever emerged.

Details of the deal, which the former Carr government instigated, are in a 55-page environmental deed obtained by the Newcastle Herald.

The extraordinary legal document reveals how BHP transferred its liability to the Crown for land-based contamination, including where it migrates off the site after the land was transferred.

On 5 October 2003, (former) Premier, The Hon. Bob Carr MP, announced the NSW government’s “NSW Ports Plan”:

The former BHP steelworks site at Newcastle Port will be secured for port use. When Port Botany reaches capacity Newcastle will be the state’s next major container facility.

Only weeks later, on 26 November 2003, Sydney Ports Corporation lodged a $1 billion development application to expand Port Botany container capacity.

The Hon Greg Pearce MLC told parliament on 24 October 2006:

Papers provided several years ago by the Government relating to the approval of the ports expansion strategy by Cabinet in 2003 show that Cabinet considered a report from Mr Chris Wilson who was then the Director, Major Development Assessment of the then Department of Infrastructure, Planning and Natural Resources. Mr Wilson noted, when considering concerns related to the development application and the environmental impact statement for Port Botany at that stage, that there was inadequate supporting information on the wider strategic issues, particularly transport. He also noted that any consent for the port’s expansion, regardless of whether a commission of inquiry was undertaken, would not address the significant off-site issues that exist.

Sydney Ports Corporation released a study supporting the proposed expansion, as reported by the “Newcastle Herald” on 28 August 2004:

Report Favours Botany For Port

SYDNEY Ports is determined to expand the Port Botany wharves, despite residents, business groups and politicians pushing for a new terminal in Newcastle or Port Kembla.

It has released a consultants’ report supporting its plans as originally announced, despite Planning Minister Craig Knowles ordering it to consider alternatives within Botany Bay, and an upper house committee urging the Government to look at Newcastle and Wollongong.

NSW Treasury argued that a new operator at a new container terminal at Port Botany “may be more viable” than a new operator at a new container terminal at the Port of Newcastle. The difference between the two locations was that BHP had proposed to build a container terminal at the Port of Newcastle as no cost to the state. In comparison, expanding Port Botany involved the state government borrowing $1 billion. Former NSW Treasurer, The Hon. Michael Egan MP, wrote to Commissioner Kevin Cleland, Commissioner of Inquiry for Environment and Planning, on 18 October 2014:

A new entrant at the same location [Port Botany] as its competitors may be more viable than a start up at a regional port [Newcastle], particularly in the short term. For example, a new entrant at Port Botany could directly pitch for existing Sydney based customers with local logistic infrastructure (transport, warehousing and distribution).

Disquiet by the state’s “top planners” was reported by the Sydney Morning Herald on 18 February 2005:

Expanded cargo terminal too big, say planners

By Darren Goodsir, Urban Affairs Editor
Sydney Morning Herald February 18, 2005

The state’s top planners have cast adrift an ambitious plan to massively expand cargo facilities at the Port Botany container terminal – arguing its size should be reduced by 25 per cent to avoid traffic gridlock.

The Sydney Ports Corporation is arguing at a commission of inquiry for a 63-hectare boost to the existing terminal, which it claims would allow 3.2 million container movements a year by 2025.

This would increase the size of the stretched cargo area by nearly 30 per cent – with a potential impact on air-traffic control radars.

But the Department of Infrastructure, Planning and Natural Resources has been spooked by predictions by the stevedores Patrick Corp and P&O that the expansion could lead to 8 million container movements a year. In a reversal, the department said yesterday it would only support a 47-hectare expansion, and that it should be built in stages.

In a last-minute submission to the commission of inquiry, the department said the foreshore area should also be reduced by 70 metres – widening the mouth of the nearby Penrhyn Estuary and improving tidal flows.

It said a smaller terminal expansion would still allow a third player to enter the freight market, and also allow planners enough time to gauge the impact of increased traffic.

Under the department’s plans, a proposed fifth berth would be put on hold, and only approved after another detailed environmental analysis. The submission, presented to Commissioner Kevin Cleland, argues that “any increase in container throughput over and above 3.2 million … must therefore be the subject of a further environmental assessment”. This was “to ensure that such throughput can be accommodated on the surrounding road and rail networks and beyond”.

Last year the Herald revealed leaked cabinet papers showing that, even if incentives were provided to increase rail freight, semitrailer movements would leap by 300 per cent by 2021, clogging all road arteries near Sydney airport.

In response, the Planning Minister, Craig Knowles, raised the prospect of a levy of up to $30 per container being placed on freight vehicle movements to encourage more rail freight. He set a target of doubling to 40 per cent the proportion of cargo carried by train within six years. Mr Knowles also created a new body, chaired by the former Labor politician Laurie Brereton, to look at ways to accommodate the increased traffic.

First opened in 1976, Port Botany currently has 1.2 million container movements a year, with movements rising by about 7 per cent a year.

In earlier evidence yesterday, Patrick’s managing director, Chris Corrigan, rubbished the Carr Government’s embryonic freight strategy. He said plans to establish a rail-truck interchange at Enfield, only 18 kilometres from the port, were questionable. It made more sense to create a facility further away, on the city’s outskirts, to improve costs and efficiencies.

Mr Corrigan has been frustrated in his attempts to build a large transfer station on Sydney’s south-western fringes, at Ingleburn, which is in Mr Knowles’s electorate. After a series of bitterly contested court battles, the matter has again gone to the Land and Environment Court for a decision.

However, Mr Corrigan said yesterday he supported the planned construction of a freight-only rail line from the port, saying it would be enough to tilt the balance more favourably to rail freight.

On 13 October 2005, the expansion was approved. A container throughput cap of 3.2 million per year was imposed under the “Port Botany Determination”:

A1.4 Port throughput capacity generated by operations in accordance with this consent shall be consistent with the limits specified in the EIS, that is, a maximum throughput capacity at the terminal of 1.6 million TEUs per annum and a total throughput at Port Botany of 3.2 million TEUs. These limits may not be exceeded by the development without further environmental assessment and approval. Sydney Ports Corporation shall prepare, or have prepared on its behalf, such further environmental assessment for the determination of the Minister.

“The Australian Financial Review” described on 3 January 2014 the Port Botany cap as “antiquated” in a feature article about the Port Botany leasing process:

There were two important reasons the [Port Botany leasing] process had attracted four seemingly serious offers.

…The second reason was Baird’s decision to scrap a cap limiting the number of containers that could be moved at the ports. The antiquated rule was even more silly, given the NSW government had just spent $1 billion expanding the port by a third. This meant bidders were offered a near monopoly on container shipping in NSW with increased capacity. Port Botany handles almost three-quarters of the two million containers that move through the state’s ports, transporting everything from furniture to heavy machinery.

[Note: 100 per cent of container ships visiting NSW use Port Botany because it is the only port with terminals for container ships. This leaves industry no alternative but to locate as close as possible to Port Botany because of reliance on trucks for transporting containers.]

In 2009, the government-owned business “Newcastle Port Corporation” conducted a public tender for developing a multi-purpose terminal on the “Mayfield” site, to include a container terminal with capacity of not less than one million containers per year.

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

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.

Newcastle Port Corporation accepted a tender from an international consortium led by Anglo Ports Pty Ltd in 2010 and commenced negotiating under contract.

Questionable dealings by Treasury in 2010/2011 involving this negotiation were uncovered in the “Operation Spicer” investigation conducted by the NSW “Independent Commission Against Corruption” (ICAC) in 2014. On 30 August 2014, the “Newcastle Herald” reported:

Port boss kept vital meeting notes

TREASURER Eric Roozendaal pressed the boss of Newcastle Port Corporation to resign and blocked details of a container terminal proposal going to its board within days of Labor power-broker Joe Tripodi meeting Buildev about their rival coal-loader idea.

A 2010 file note tendered to the Independent Commission Against Corruption and prepared by then corporation chief executive Gary Webb records the gist of a meeting with Mr Roozendaal, who was then also ports minister.

Mr Roozendaal ordered him not to send details of the Anglo Ports consortium’s container terminal project for the Mayfield former steelworks site to the port corporation’s board for it to endorse the start of detailed negotiations.

‘‘The minister said that he found it very hard to accept that building a coal terminal on that site was anticompetitive and he felt uncomfortable and he said he was going to have Treasury review the process and then he told me not to send the paper to the board,’’ the note reads.

Newcastle Port Corporation was not to take any action until the review was done, Mr Webb was told.

‘‘The minister then asked me had I threatened one of his staff that I would resign. My answer was no,’’ the note continued.

The meeting took place on November 24, 2010, the day before the scheduled port corporation board meeting and just a few days after Mr Tripodi was flown aboard Buildev’s helicopter to Newcastle for a meeting with the company’s directors on November 19, when he was still a Sydney-based member of parliament.

A Buildev record of the meeting reads: ‘‘Joe- going to get Eric to stop Anglo deal going to board this Thursday’’.

Giving evidence to the inquiry yesterday, Mr Tripodi , a former ports minister, declared: ‘‘I wasn’t their mate.’’

But counsel assisting the inquiry Geoffrey Watson SC said ‘‘all of the evidence points one way’’ – that Mr Tripodi had agreed to lean on Mr Roozendaal who then blocked the container terminal proposal.

‘‘I have no recollection of speaking to Mr Roozendaal about this,’’ Mr Tripodi insisted.

‘‘. . . What we’re asking you to do is take this opportunity Mr Tripodi and grab it with both hands – explain why that inference should not be drawn,’’ Mr Watson said.

‘‘Because there’s a whole range of possible reasons why minister Roozendaal did what he did, a . . . massive gammit of possibilities,’’ Mr Tripodi said.

Mr Tripodi said he had agreed to meet with Buildev because he had a ‘‘policy interest’’ in ports and was ‘‘happy’’ to give advice to any company helping the state.

Extracts from a NSW Treasury report ”Review of Proposed Uses of Mayfield Intertrade Lands at Newcastle” dated 4 February 2011 were leaked to The Newcastle Herald and reported on 18 February 2011:

The 22-page document titled Review of Proposed Uses of Mayfield and Intertrade Lands at Newcastle Port was prepared for Mr Roozendaal on February 4.

It states that Treasury had not been provided with a rigorous analysis of the demand forecast for containers and bulk goods.

“A 2006 PWC [Port Waratah Coal] study for bulk goods berth on the [Mayfield] site was based on the Newcastle Port Corporation-generated demand forecasts that were not subjected to critical analysis,” the report says.

“A 2003 study [updated in 2009] into container demand to Newcastle identified a total current demand of 266,000 TEU [20 tonne equivalent units] pa, which is dwarfed by the current and potential capacity of Port Botany.”

Treasury alleged on 22 August 2014 that the Anglo Ports negotiation involved an attempt by sections of the government “to dictate uneconomic enterprises contrary to market demand [and was an example] of the kind of rent seeking activity likely to encourage influence peddling or corruption”. Presumably, this allegation was directed at the Board and Management of Newcastle Port Corporation.

Former Treasurer, the Hon Andrew Constance MP, made the allegation in answer to a Supplementary Question in Budget Estimates, asked by The Hon. Dr John Kaye MLC on 22 August 2014:

Given that there has been significant allegations of at least influence peddling and political interference under Labor surrounding proposals to the [sic] develop a container facility in Newcastle, will Treasury be reviewing that decision?

(a) If so please provide details

(b) If not why not

Answer:

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.

Anglo Ports responded:

The answer conflates the proposal of Anglo Ports or its consortium with government dictation, with uneconomic enterprises, with the absence of market demand, with influence peddling and with corruption. Anglo Ports on behalf of the consortium categorically denies that its proposal or the tender under which it was conducted had any of these characteristics.

In a submission to Infrastructure Australia dated November 2011, the NSW government said (page 12):

Port Botany is the nation’s second largest container port and container volumes are expected to increase over 3.5 times or by 5.5 million containers a year by 2030-31, subject to an approved increase in the port’s current planning limit of 3.2 million containers a year.

The “Newcastle Herald” reported on 6 December 2011:

Container port bound for Botany 

THE state government is looking to ditch a long-standing promise to make Newcastle the next container port after Botany.

Changing Labor’s ‘‘three ports strategy’’ would make it easier for Nathan Tinkler to achieve his plans for a coal-loader on part of the former BHP site.

A state government submission lodged last month with federal agency Infrastructure Australia shows the government intends allowing as many as 7million containers a year through Botany, or more than three times the 2.02million containers shipped last year.

Botany’s existing approval is for 3.2 million containers a year and 7 million a year would kill Newcastle’s chances of building a successful terminal, despite its natural advantages and Botany’s already critical congestion.

…. A spokesman for Ports Minister Duncan Gay said the government was reviewing Labor’s 2003 ‘‘three ports’’ strategy along with plans to expand Botany.

The Hon. Mike Baird MP announced the appointment of Morgan Stanley as the government’s financial advisor for leasing Port Botany on 14 December 2011. An unlegislated “cap on numbers” was not disclosed.

The “Newcastle Herald” reported on 31 January 2012: “A spokesman for NSW Ports Minister Duncan Gay said yesterday that an announcement on a Newcastle container terminal would be made after the scoping study for the Port Botany transaction, due to the government early this year, is completed”:

Container terminal plan for BHP site 

A $600MILLION proposal to redevelop the BHP steelworks site for port uses, including a container terminal, will be considered as part of the case being mounted for plans to lease Sydney’s Port Botany.

A spokesman for NSW Ports Minister Duncan Gay said yesterday that an announcement on a Newcastle container terminal would be made after the scoping study for the Port Botany transaction, due to the government early this year, is completed.

But financial advisers are also expected to consider whether to lift a cap on container movements on Port Botany’s operator, Sydney Ports Corporation.

Last week, Premier Barry O’Farrell threw the spotlight back on a container terminal for Newcastle when a government panel led by his department rejected a proposal from the Nathan Tinkler-owned Hunter Ports for a $2.5billion coal-loader at the Mayfield site.

He said last week the government wanted to maintain the existing long-term strategy for diversifying Newcastle harbour.

In line with the former Labor government’s port strategy, the Newcastle Port Corporation has long earmarked the land for the state’s next container terminal once Port Botany reached capacity.

The Sydney Ports Corporation has an annual cap of 3.2million container movements. This will also be considered as part of the scoping study of a 99-year lease of Port Botany, through which the government hopes to raise about $2billion.

A consortium involving Newcastle Stevedores and Anglo Ports had submitted to the former Labor government a $600 million private-sector development proposal that would entail various uses for the Mayfield site, including container freight.

Mr Gay’s spokesman said the Minister considered Newcastle Port Corporation’s Mayfield concept plan, which is similar to the Anglo Ports proposal and includes a container terminal, to be the best use of the land.

This “Newcastle Herald” report made no reference to Anglo Ports’ contract with Newcastle Port Corporation pursuant to the 2009 tender.

The “NSW Long Term Transport Master Plan Discussion Paper, February 2012” said  (Page 85):

At the Port of Newcastle, various infrastructure projects to increase the port’s coal export capacity are underway and a concept plan is currently being considered to develop the former BHP site at Mayfield to support a range of cargo handling infrastructure for trades such as general cargo, bulk materials, bulk liquids and containers.

The “Discussion Paper” made no reference to Anglo Ports’ contract with Newcastle Port Corporation pursuant to the 2009 tender.

In March 2012, a container terminal at the Port of Newcastle became a permissible development.

On 9 May 2012, the (former) CEO of “Infrastructure NSW”, Mr Paul Broad, was reported by the “Sydney Morning Herald” as disclosing that the Port of Newcastle “would not be developed as a container port”.

On 10 May 2012, Mr Gay told parliament that “Transport for NSW” was reviewing “the freight and regional development sector … I do not know whether Mr Broad said what was attributed to him … people will be able to express their views”. Mr Gay made no reference to Anglo Ports’ contract with Newcastle Port Corporation pursuant to the 2009 tender:

The Hon. CATE FAEHRMANN: My question is directed to the Minister for Roads and Ports. Yesterday the Sydney Morning Herald reported that the chief executive officer of Infrastructure NSW, Paul Broad, said that Newcastle will not be developed as a container port. However, in January 2012 the Premier said that Mayfield “is more suited to handling multi-product, container, general cargo and dry bulk terminal freight”. Does the Minister agree with Infrastructure NSW or the Premier’s comments?

….. The Hon. DUNCAN GAY: I will answer if members opposite stop interjecting. Colonel Blimp sitting on the losers lounge keeps interjecting while I am trying to answer. The Government has established some new sections in Transport for NSW, including the Freight and Regional Development Section, which is headed by Rachel Johnson. She is a terrific deputy director general who has a private enterprise background. Her job is to review the sector and the roles of the various ports. That review is underway and people will be able to express their views, either publicly or not. I know that there was a newspaper report, but I do not know whether Mr Broad said what was attributed to him. A review is underway and members will have to wait until it is completed. It is a statewide review involving not only the Port of Newcastle but also Port Botany and Port Kembla, and it will examine freight movements from roads to the ports.

On 27 July 2012 Mr Baird announced the government’s decision to proceed with long-term leases of Port Botany and Port Kembla after considering Morgan Stanley’s  confidential scoping study recommendations:

The Government has received and considered the recommendations of the scoping study and based on this advice, we have decided to proceed with long-term leases on both assets.

The decision to develop the state’s next container at Port Kembla, rather than at Newcastle, reflected the scoping study recommendations and the government’s study instructions. Mr Baird said:

The development of intermodal terminals across South and West Sydney, [sic] 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.

Commenting on this announcement, Newcastle Port Corporation noted:

In July 2012 the NSW Government announced that Port Kembla will be the logical next long-term tranche of container capacity after Port Botany. In accordance with the government’s announcement, subject to any relevant government approvals, any future container terminal development at Newcastle will occur only once Port Botany and Port Kembla are fully developed and developable handling capacity is fully utilised at both Port Botany and Port Kembla. (Newcastle Port Corporation, Draft Strategic Development Plan for the Port of Newcastle, February 2013, page 23)

On 12 August 2012, Mr Gay informed the parliament about the “Newcastle Port Strategic Development Plan”:

The plan sets out how the port will grow and develop over time taking into account global shipping trends, expected growth in task and volumes of goods, safety, channel and marine access and landside transport needs.

The plan is consistent with the planning recommended under the National Ports Strategy and will complement the NSW Freight and Ports Strategy being developed and delivered by the Freight and Regional Development Division of Transport for NSW.

The NSW Freight and Ports Strategy will be delivered later this year.

The “Newcastle Herald” reported on 17 August 2012:

Port development dreams persist

Newcastle Port Corporation chief executive Gary Webb said this week Ports Minister Duncan Gay had explained the government’s decision to privatise Port Botany and Port Kembla, and the impact this would have on the container component of the Newcastle plan.

The concept plan predicted 600,00 containers a year by 2024 and 1million a year by 2034, but these targets would not be met and the corporation would look for other, short-term uses for the container land.

Mr Webb hosed down speculation the navy might want the steelworks site, although state Newcastle MP Tim Owen still believes the idea should be explored.

He said the next step for the corporation was to resolve the future of a ‘‘proposed contract’’ to develop 72 hectares of the site that was agreed in principle by the corporation with a consortium involving Hunter waterfront company Newcastle Stevedores [Anglo Ports consortium].

Mr Webb said the corporation was looking at whether the proposed contract needed to be renegotiated in light of the government’s policy change, but he was hoping the consortium was still interested in the site.

There was no mention in the “Newcastle Herald” report of a “cap on numbers”.

On 30 August 2012, Mr Baird advised Anglo Ports that a container terminal was withdrawn from the government’s requirements in relation to Anglo Ports’ contract with Newcastle Port Corporation pursuant to the 2009 tender. [Note: On 29 September 2015 NSW Treasurer, The Hon. Gladys Berejiklian MP, disclosed that the Port of Newcastle lessee could develop a container terminal at the Port of Newcastle “if it wished to do so”. See question 29.]

On 17 October 2012, Mr Baird introduced the Ports Assets Bill into the Legislative Assembly. Unlimited growth in container throughput at Port Botany was permitted by removing the Port Botany cap.

The “Draft NSW Freight and Ports Strategy” dated November 2012 stated that the Port of Newcastle faced “constraints” in attracting reliable container shipping movements. The Strategy did not discuss that container ships are unable to use the port because it does not have a container terminal and the constraint on building a container terminal was the government’s undisclosed, unlegislated, “cap on numbers”:

Developing the Port of Newcastle for future container shipping faces a range of constraints, such as attracting reliable container shipping movements. Containers accessing Sydney from the Port of Newcastle will also face increasing congestion on the F3 Freeway and capacity constraints on the Northern Sydney Freight Corridor.

Port Corporations and the new lessee(s) of Port Botany and Port Kembla therefore require access to up to date freight information and modelling to support their planning processes. Transport for NSW will, where required, provide this support, which together with ongoing technical input will help strengthen port corporation planning and the provision of freight and logistics infrastructure. (page 92)

The Strategy did not specifically acknowledge that freight accessing Sydney from Newcastle and northern NSW faced increasing congestion on the M1 Motorway (F3 Freeway) and capacity constraints on the Northern Sydney Freight Corridor.

A “marked increase” between indicative bids for the Port Botany and Port Kembla leases between December 2012 and April 2013 was reported by “The Australian” newspaper, in a report dated 21 June 2013:

What transpired was one of the closest races for a major asset seen in Australia. Research by the deal makes it clear that there was a marked increase between the indicative bids given to the government advisers in December [2012] and the final numbers submitted in April [2013]. In the end, according to sources, the top two contenders were separated by less than $20 million.

Port Botany and Port Kembla were leased to NSW Ports for 99 years on 12 April 2013 for $5.1 billion.

On 18 June 2013, Mr Baird announced a Scoping Study for leasing the Port of Newcastle:

The Government has announced in the 2013-14 Budget it will proceed immediately to a scoping study on offering a 99-year lease on the Port of Newcastle.

On 26 July 2013, Mr Baird wrote to Anglo Ports a second time advising that a container terminal was withdrawn from the government’s requirements in relation to Anglo Ports’ contract with Newcastle Port Corporation pursuant to the 2009 tender.

On 17 October 2013, Mr Gay disclosed, for the first and only time, an unlegislated “cap on numbers” at the Port of Newcastle and compensation payable to the Port Botany leaseholder if a container terminal was developed at the port.

Mr Baird announced on 5 November 2013 that the government would proceed with leasing the Port of Newcastle, after having received and considered Morgan Stanley’s Scoping Study recommendations:

The scoping study has revealed strong initial interest from investors for this transaction, that if successful, will drive economic growth and the renewal of Newcastle by fast-tracking critical infrastructure needs in the region.

This “strong initial interest from investors” was identified between 18 June 2013 and 5 November 2013.

The government ”concluded” its negotiation with Anglo Ports in November 2013, as disclosed in a Treasury media statement on 4 March 2015. Treasury said:

Newcastle Port Corporation concluded its negotiations with Anglo Ports in November 2013 after it was unable to reach a suitable outcome for the redevelopment of the Mayfield site.

As at February 2013, the government’s requirement for a “suitable outcome” included:

…. any future container terminal development at Newcastle will occur only once Port Botany and Port Kembla are fully developed and developable handling capacity is fully utilised at both Port Botany and Port Kembla. (Newcastle Port Corporation, Draft Strategic Development Plan for the Port of Newcastle, February 2013, page 23)

On 1 May 2014, the government’s position had not changed. In a media statement, NSW Treasury said:

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.

On 29 September 2015, The Hon. Gladys Berejiklian MP disclosed that the government had reversed its position when she told a Budget Estimates Committee that Port of Newcastle Investments could develop a container terminal “if it wished to do so”.

Anglo Ports disclosed that “it did not withdraw its proposal” when the government “concluded” the negotiation in November 2013.

It is presumed that the “suitable outcome” sought by the government was for Anglo Ports to withdraw from the negotiation. Since Anglo Ports did not withdraw, the government “concluded” the negotiation and later reversed its policy at a time between 1 May 2014 and 29 September 2015.

The Port of Newcastle was leased to Port of Newcastle Investments for 98 years on 30 April 2014 for $1.75 billion.

On 11 May 2014, the “Newcastle Herald” reported:

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.

The government did not disclose details of these clauses in the lease arrangements.

The Australian Competition and Consumer Commission (ACCC) said, on 25 June 2014:

However, 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”. (p.38)

The ACCC does not disclose what information it possessed about the ports lease arrangements before 11 May 2014. Apart from Mr Gay’s disclosure on 17 October 2013, it is presumed the ACCC had no information about a “cap on numbers”. The ACCC does not confirm or deny having knowledge of a NSW government charge on containers at the Port of Newcastle.

On 12 December 2014, (former) Treasurer, Mr Andrew Constance MP, was asked by Member for Newcastle, Mr Tim Crakanthorp MP:

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?

Answer (16 January 2015):

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

The ACCC has not disclosed what it was advised, if anything, about an unlegislated “cap on numbers” at the Port of Newcastle after 11 May 2014.

On 30 October 2014, the ACCC warned about governments imposing “restrictions on competition” that “may be unlawful and could be unenforceable”:

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. (p.21)

In a media statement on 30 October 2014, NSW Treasury said:

“As is the case with all Government asset sales and leases, all bidders for the Port of Newcastle had to seek regulatory approval from bodies such as the ACCC and, where relevant, the Foreign Investment Review Board (FIRB).

“As part of the transaction, the NSW Government entered into arrangements that reflect its Freight and Ports Strategy that Port Kembla will 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 Botany; and the landside infrastructure costs to support a major container facility at Newcastle are higher than for Port Kembla.

“The arrangements do not inhibit the natural growth of container volumes through Newcastle servicing that region.

“The ACCC was made aware of provisions relating to container growth during the Newcastle Port transaction process.”

On 26 November 2014, the ACCC said the leasing arrangements “may restrict Newcastle from competing against Botany and Kembla for containers”:

However, 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. (p.32)

The ACCC and the NSW government have not disclosed whether the government claimed immunity from the “Competition and Consumer Act 2010” when leasing Port Botany, Port Kembla and the Port of Newcastle. It is presumed that immunity was not claimed.

On 12 December 2014, (former) NSW Treasurer, The Hon. Andrew Constance MP, was asked by Member for Newcastle, Mr Tim Crakanthorp MP:

“Did the Government advise the Australian Competition and Consumer Commission of a cap on container numbers at the Port of Newcastle prior to leasing the Port of Newcastle and Port Botany?”

Mr Constance answered on 16 January 2015:

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

More than 150 “Questions On Notice” were asked in parliament between October 2014 and May 2016 as reported in Hansard. Ministers Gay and Berejiklian said there was no legislated cap on container movements at the Port of Newcastle. The “cap on numbers” was not legislated.

On 29 October 2015, Mr Crakanthorp asked Mr Gay:

When did the Competition and Consumer Act 2010 stop applying to the Government in respect to the operation of the Port of Newcastle?

Do the Port Commitment Deeds include a fee on container throughput at Newcastle Port under certain specified conditions?

Answer (4 December 2015):

This is a matter for the Treasurer.

Presumably, the Competition and Consumer Act 2010” (CCA) applied to the government in respect of the three business being conducted by the government at Port Botany, Port Kembla and the Port of Newcastle. A government may claim immunity from the CCA in respect of a public asset while it is privatising that asset. The government and the ACCC have not disclosed that the government claimed immunity from the CCA while leasing the three ports. It is presumed that the government did not claim immunity.

On 19 November 2015 Mr Crakanthorp asked Ms Berejiklian:

Did the Treasury, or any entity of which the Treasurer is a shareholder, receive a request for information from the Australian Competition and Consumer Commission in 2015?

Did the Treasury, or any entity of which the Treasurer is a shareholder, receive a notice from the Australian Competition and Consumer Commission under section 155 of the Competition and Consumer Act 2010 in 2015?

Answer (18 December 2015):

As a normal part of my role as Treasurer I receive correspondence from a variety of organisations.

For information regarding correspondence to individual entities, you may wish to contact them directly.

Section 155 of the CCA gives the ACCC authority to require provision of information where a breach of the CCA may have occurred. The ACCC is able to clarify this matter.

 

“Cap on numbers”

 

 

LEGISLATIVE COUNCIL 17 October 2013

PORT BOTANY CONTAINER TERMINAL

The Hon. ADAM SEARLE: My question is directed to the Minister for Roads and Ports. How much compensation will be paid to the private operator of Port Botany if a new container terminal is developed at Newcastle Port?

The Hon. DUNCAN GAY: The rules in the organisation that did the scoping study for Port Botany and Port Kembla and introduced guidelines there indicate that while general cargo is allowed there will not be an extension under the rules for the lease of Newcastle Port. So the short answer to the question is that we do not envisage that any compensation will need to be put in place. The Government has been clear on this all the way through the process, even before it indicated it would lease the port at the stage when Newcastle Port Corporation was in place. 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. I am not saying that there will be no containers into Newcastle. 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.

In 2012, the NSW government decided to pay compensation to a future leaseholder of Port Botany and Port Kembla based on the number of containers handled at the Port of Newcastle. The government made this decision before announcing, on June 6 2012, the inclusion of Port Kembla in a scoping study for leasing Port Botany.

The government decided to set a limit, or “cap”, on the number of containers handled at the Port of Newcastle for which compensation would not be payable to the leaseholder of Port Botany and Port Kembla. Compensation became payable only when the “cap” was exceeded. For purposes of calculating this “cap” the government defined “container” to 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 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

The amount of payment is calculated by multiplying the weighted average charged per TEU container handled at Port Botany by the number of TEU containers handled at the Port of Newcastle above the “cap”.

The government decided that a future operator of a container terminal at the Port of Newcastle would be required to make the government whole for any cost the government incurred to a future leaseholder of Port Botany and Port Kembla in respect of the “cap” being exceeded. The government took this decision because a source of funds other than government consolidated revenue was required.

In 2009 the government decided to develop a container terminal at the Port of Newcastle and did not change this decision in 2012 because to do so would be to deny the government its source of funds. It is highly likely the “cap” is exceeded every year despite there being no specialised terminal for TEU containers. However, only TEU container movements are counted at the Port of Newcastle.

The government contractually committed to paying compensation to NSW Ports, which leased Port Botany and Port Kembla on April 12 2013, by setting the “cap” at the Port of Newcastle at 30,000 “containers” (as defined) per year, as at July 1 2013, increasing by six per cent per year, for 50 years.

Container ships are unable to use the Port of Newcastle because there is no container terminal. In 2014, general cargo ships carried 10,000 TEU containers through the port. General cargo ships carry their own cranes and do not require a dedicated terminal for TEU containers.

Mr Gay was reported by the “Newcastle Herald” on 15 September 2015 as saying that Port of Newcastle container freight was expected to “more than triple by 2031”:

Mr Gay said Newcastle container freight was expected to ‘‘more than triple’’ by 2031 but in an answer to a question about a Newcastle container terminal he said the current arrangements were working well.

A tripling in container movements from 10,000 per year is 30,000 per year.

In a media statement on 1 May 2014, NSW Treasury referred to “organic” growth of container throughput at the Port of Newcastle:

The 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 “Draft Strategic Development Plan for the Port of Newcastle, February 2013” referred to growth at the port “connected to population growth”.

page 18
Some import cargoes service the expanding population of the region, such as fuels and cement. In time the port will handle containerised cargoes to service the expanding population. Growth in these sectors will be connected to population growth. Some cargoes are necessary to supply industry in the Hunter Region, such as the aluminium industry, where the port handles both the input raw materials and the exported product.

References to “organic” growth and growth “connected to population growth” are references to the cap on numbers increasing at the rate of six per cent per year.

The weighted average charge at Port Botany is nearly $100 per container. For a typical container ship with capacity for 5,000 TEU, visiting the Port of Newcastle fully loaded, and leaving fully loaded, will cost $1 million more than visiting Port Botany.

Mr Gay informed Budget Estimates on 31 August 2015 that there is no “cap” at the Port of Newcastle but “within the general cargo that needs to go to Newcastle that is fine”:

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.

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