Updated April 3 2020

Public deceived about government’s policy on “container facility development”

 

How did the NSW government succeed in making it uneconomical to develop a container terminal at the Port of Newcastle without telling the public? It announced a policy on container facility development on July 27 2012:

 

“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: The Hon M Baird, NSW Treasurer, private correspondence, March 4 2014

 

The government decided in 2012 to lease Port Botany and Port Kembla to the private sector. The government intended to inflate the value of these leases by eliminating the Port of Newcastle as a future competitor. The government intended to make it uneconomical to develop a container terminal at the Port of Newcastle.

 

Parliament passed legislation in November 2012 – the “Port Assets (Authorised Transactions) Act 2012” (PA Act) – authorising Port Botany and Port Kembla to be leased to the private sector. Parliament was not informed how the government intended to implement its policy on container facility development; Parliament was not informed that the government planned to make it uneconomical to develop a container terminal at the Port of Newcastle.

 

The only people who knew about the government’s intentions were the bidders for the Port Botany and Port Kembla leases. The second-placed bidding consortium was led by “Hastings Funds Management”, which later went on to lead the winning bidder for the Port of Newcastle – the Port of Newcastle Investments Pty Ltd (PoN) consortium.

 

Port Botany and Port Kembla were leased to NSW Ports Pty Ltd on May 31 2013. One of the confidential lease conditions was that NSW Ports would be paid by the government if container volumes at the Port of Newcastle exceeded a minimal threshold level, equivalent to three container ship visits a year. The government was not authorised by the PA Act to pay NSW Ports from consolidated revenue. It needed a source of fund. That source was a private company, Mayfield Development Corporation Pty Ltd (MDC). The government required payment from MDC if container volumes at the Port of Newcastle exceeded the threshold level due to MDC’s activities. MDC had been negotiating with the government to develop a container terminal for two years before the government announced its policy on container facility development in July 2012.

 

MDC was required to pay the government at the rate per container charged by NSW Ports at Port Botany, thereby making it uneconomical for MDC to develop a container terminal.

 

The government concealed its terms for developing a container terminal at the Port of Newcastle from the public, Parliament and the Australian Competition and Consumer Commission (ACCC). 

 

A recommendation had been put to the ACCC on April 26 2013“The New South Wales government’s decision that there will be no container terminal at the Port of Newcastle is anti-competitive and warrants examination by the Australian Competition and Consumer Commission.”

 

The ACCC conducted an investigation. It reported on June 7 2013 that the “Competition and Consumer Act 2010” (CCA) was unlikely to apply to the government’s policy on container facility development. The ACCC did not investigate the government’s terms for developing a container terminal at the Port of Newcastle because it had no knowledge of them.

 

The government terminated its negotiations with MDC in November 2013. A confidential settlement had the purpose and effect of concealing the government’s terms for developing a container terminal at the Port of Newcastle.

 

The government’s terms for developing a container terminal at the Port of Newcastle prove that the government’s policy on container facility development is false.

 

Public funds were used to conceal false government policy. This was a mis-use of public funds.

 

The ACCC declines to acknowledge that the government’s policy on container facility development is false. The ACCC was asked on March 29 2020 whether the government may have contravened the CCA by advising the ACCC that a decision had been made not to develop a container terminal at the Port of Newcastle.

 

The government disclosed the terms for developing a container terminal at the Port of Newcastle on January 14 2019 in its submission to the Legislative Council’s “Public Works Committee”.

 

NSW Treasurer, The Hon Dominic Perrottet MP, was asked on March 31 2020 to retract the previous Treasurer’s letter dated March 4 2014.

 

Details

 

Newcastle Stevedores Consortium Pty Ltd (NSC) was negotiating with the government in 2012 to develop a container terminal at the Port of Newcastle. NSC had won a tender conducted in 2009 by Newcastle Port Corporation (NPC), a state-owned corporation. NSC formed a subsidiary company, MDC, to develop the container terminal. But on August 30 2012, the government directed MDC not to develop a container terminal.

 

The government contractually committed “to make certain payments to NSW Ports in respect of future container capacity development at [the] Port of Newcastle … due to the activities of MDC in the Port of Newcastle”. Items 6(i) and 6(j) of the Federal Court order dated May 15 2019 disclosed the existence of “Mayfield Transaction Parameters”.

 

The Federal Court, on February 28 2020, ordered the government to provide a “copy of the minutes from the meeting or any other document recording the oral communication on Thursday 25 July 2013 by the Honourable Mike Baird MP, NSW Treasurer and the Honourable Duncan Gay MP, Minister for Roads and Ports to the Newcastle Stevedores Consortium and Newcastle Port Corporation that the State did not support the then current form of the proposal for development of a container terminal”.

 

On July 26 2013, the government again directed MDC not to develop a container terminal, but concealed its intention to make it uneconomical for MDC to undertake “container capacity development”.

 

The Federal Court, on February 28 2020, ordered the government to provide a “copy of the minutes from the meeting or any other documents recording or evidencing, or tabled in relation to, the meeting between representatives of NSW Treasury, Newcastle Port Corporation and the Newcastle Stevedores Consortium held on or around 6 August 2013”. 

 

At that meeting, the government amended its Term Sheets with NSC to include terms for “container capacity development”. MDC was required to pay the government for container volumes exceeding a minimal threshold level. A threshold level was set at 30,000 containers a year (equivalent to three container ship visits a year) on July 1 2013, increasing by six per cent a year, until 2063. For every container in excess of the threshold, MDC’s payment was set at the Port Botany container wharfage.

 

Under the government’s terms for “container capacity development”, a “container” was defined 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”.

 

The government terminated its negotiations with MDC in November 2013 to conceal its terms for “container capacity development”, including the meaning of “container”. The government’s settlement with MDC had the purpose and effect of concealing the terms for “container capacity development”, including the terms for new capacity for general cargo ships carrying “containers” as defined.

 

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.”

 

The government stated on March 4 2014: “In November 2013, the government proceeded to market with the long-term lease of the Port of Newcastle, after a scoping study confirmed it was in the best interests of the people of NSW. The introduction of a private operator at the Port of Newcastle will help drive efficiency on the waterfront and provide a boost in funds for priority infrastructure. This will help to grow the port and in turn strengthen the NSW economy.”

 

The people of NSW would have been informed if the government’s method for making it uneconomical to develop a container terminal at the Port of Newcastle was in their best interests.

 

When the government leased the Port of Newcastle to PoN on May 30 2014, PoN agreed to the government’s terms for making it uneconomical to develop a container terminal. PoN now disagrees with these terms.

 

Parliament authorised the Port of Newcastle to be leased to the private sector by passing the “Ports Assets (Authorised Transactions) Amendment Act 2013” on June 26 2013. Bidders for the lease were obliged to satisfy themselves that the terms for developing a container terminal were authorised by Parliament and were legally compliant. 

 

The government became exempt from the CCA in respect of the Port of Newcastle from the day it decided to lease the port. The NSW Treasurer announced that no decision had been made to lease the port as at October 28 2013. A decision to lease the port was announced on November 5 2013. The port was to be leased to enable the terms for “container capacity development” to be applied outside the operation of the CCA. 

 

 ACCC misled

 

The ACCC re-confirmed on February 23 2017 that it had no knowledge in 2013 about the terms for developing a container terminal at the Port of Newcastle.

 

The ACCC alleged in December 2018 that the terms were illegal when it commenced an action in the Federal Court against NSW Ports for making agreements with the government that “had an anti-competitive purpose and effect”. The ACCC is asking the Federal Court for an injunction restraining NSW Ports from seeking payment from the government. The ACCC is not currently taking action against the government.

 

The government claims to have informed the ACCC about its terms for developing a container terminal at the Port of Newcastle “ahead” of the port being leased: “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.”

 

When the ACCC was asked to provide “the date on which the ACCC became aware that NPC was negotiating commercial terms with NSC in relation to the development and operation of a container terminal at the Port of Newcastle”, it said on February 23 2017: “….the ACCC investigated the contractual arrangements for the long-term leases of Ports Botany, Kembla and Newcastle in 2014. In reaching its decision, the ACCC had access to relevant information about the prior negotiations between NPC and NSC, which ultimately did not proceed. The ACCC took this information into account in reaching its decision not to pursue the investigation.”

 

The ACCC is yet to disclose the date it was informed. The Federal Court ordered on March 26 2020: “For the avoidance of doubt, nothing in these orders prevents a Confidentiality Claimant or party from having access to or otherwise dealing with: a. its own Confidential Information; or b. the Confidential Information of another party to the Proceeding or a third party that was in its possession or control prior to the commencement of the Proceedings.”

 

Presumably, the Court order applies to any information supplied to the ACCC by the government and MDC in 2014.  The ACCC said on June 25 2014:

 

“… 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”.

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

 

Premier admits container terms penalise Port of Newcastle 

 

Container shipping lines are unable to use the Port of Newcastle because the port does not have facilities for container ships. General cargo ships carry containers as incidental cargo at the Port of Newcastle. The current volume of container shipments is around 10,000 a year, which is the equivalent of one container ship visit a year.

 

The terms for developing a container terminal at the Port of Newcastle were described as being a penalty by the Premier, the Hon Gladys Berejiklian, at a Budget Estimates hearing on September 5 2019: “You would need to triple container movements at the Port of Newcastle before any penalties came into play…. You would need to triple existing container movements before any financial impediments came into place.”

 

As (then) Treasurer, Ms Berejiklian was asked at a Budget Estimates hearing on September 3 2015 (question 31) :

 

“Has the NSW Government entered into any arrangement[s] that create a financial penalty if the number of containers moved through the Port of Newcastle exceeds a set threshold?

 

(1) If so, what is the threshold?

 

Answer: There is no legislated cap on the number of containers that can travel through the Port of Newcastle.”

 

Ms Berejiklian did not answer the question because the terms for developing a container terminal constitute the penalty. Ms Berejiklian confirmed government policy that a container terminal can be developed immediately at the Port of Newcastle in answer to Budget Estimates supplementary question 29 on September 29 2015:

 

“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 (then) Minister for Transport, and Minister for the Hunter, representing the Minister for Roads and Freight, Ms Berejiklian answered Question on Notice 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.”

 

The purpose of the government’s terms for developing a container terminal at the Port of Newcastle is to make it uneconomical to develop a container terminal. For this reason, the government refuses to answer the question: What is the policy objective of the Port of Newcastle’s container penalty?

 

The (former) Minister for Roads and Ports, The Hon Duncan Gay, was asked in the Legislative Council 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?”.

 

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

 

The Minister also said: “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.”

 

Minister Gay later denied that “cap on numbers” was a reference to the threshold level of containers under the terms for “container capacity development”.

 

Minister Gay did not disclose MDC as being the government’s intended source for paying NSW Ports.

 

The government consented to provide the Federal Court with the following documents by March 25 2020: “Copy of the minutes from the meeting or any other document recording the oral communication on Thursday 25 July 2013 by the Honourable Mike Baird MP, NSW Treasurer and the Honourable Duncan Gay MP, Minister for Roads and Ports to the Newcastle Stevedores Consortium and Newcastle Port Corporation that the State did not support the then current form of the proposal for development of a container terminal.”

 

MDC action against NSW Ports

 

MDC, which is jointly owned by Maersk Line and Anglo Ports Pty Ltd, commenced an action in the Federal Court against NSW Ports on May 31 2019, without disclosing its claim, which was published by “The Newcastle Herald” on February 26 2020. Doubtless, MDC’s action was precipitated by the ACCC’s action against NSW Ports. It is also probable that NSW Ports’ July 18 2019 Cross Claim against the government and PoN, was precipitated by MDC’s action.

 

If the ACCC’s action against NSW Ports is upheld, it is possible that the NSW Ports’ Cross Claim against the government and PoN could also be upheld.

  

When the Federal Court stayed the MDC proceedings on August 19 2019, it said that “the ACCC proceeding involves several issues for determination that are threshold issues with respect to the Mayfield proceedings, with significant overlap in the factual allegations”. On February 26 2020 the Federal Court heard MDC’s application to lift the stay in proceedings.

 

MDC’s application was dismissed on March 5. The Court said: “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.”

 

The ACCC did not foresee that the government’s 2012 policy for “container facility development” had the purpose and effect of concealing the government’s arrangements for making it uneconomical to develop a container terminal at the Port of Newcastle.

 

Timeline and References 

 

Government policy statements to January 2020 are here.

 

2008: 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.

 

2009 November: NPC calls for expressions of interest from the private sector. 

 

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 The 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 – November: Parliament passes the “Ports Assets (Authorised Transactions) Act 2012” (PA Act), authorising Port Botany and Port Kembla to be leased. The government conceals its intention to apply the penalty to MDC. Parliament is informed that Port Botany and Port Kembla will not be leased unless the lease value exceeds the retention value:

 

17 October 2012 LEGISLATIVE ASSEMBLY

Mr MIKE BAIRD (Manly—Treasurer, and Minister for Industrial Relations): “… In response to the points raised by the member for Heffron I advise the House that the bill is designed to maximise the proceeds from the sale and exceed the retention values set for the assets. I say to the House— and I will say this every day before the transaction—that we will not necessarily proceed with this transaction. We will only proceed if we exceed the retention values for the assets. That is not what happened with the gentrader transactions. The former Labor Government sold those assets for less than the retention value and members opposite know it. That should not have occurred, but it happened under Labor. It will not happen here. The O’Farrell-Stoner Government stands for producing transactions for the community that deliver the funds we need for infrastructure. But we will not do it at any price; we will do it only at a price that ensures there is maximum value for the people of this State. We make that commitment here today.”

 

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 July: The PA Act is amended to enable the government to lease the Port of Newcastle. The government conceals its unfunded contractual commitment to pay NSW Ports and its intention to apply the penalty to MDC.

 

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 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 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 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 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.

 

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

 

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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