Updated August 12 2018 

A container terminal can be developed immediately at the Port of Newcastle.

Budget Estimates 2015, Supplementary Questions, September 29 2015
The Hon Gladys Berejiklian MP, Treasurer and Minister for Industrial Relations
 
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.

Ms Berejiklian’s answer compares with NSW government policy that “Port Kembla will act as a progressive overflow facility for Port Botany once its operational capacity has been reached”: government policy is that a container terminal cannot be developed at Newcastle before a container terminal is developed at Port Kembla.

NSW government container port policy was invalid from the day it was announced on July 27 2012.

In 2012, the NSW government concealed its intention to pay a future lessee of Port Botany and Port Kembla “in respect of future container capacity development at the Port of Newcastle”. The amount of payment was what Port Botany would have earned had the container been shipped through Port Botany instead of Newcastle. That amount is currently $150 for a TEU container.

A container terminal at Newcastle, handling a modest one million TEUs a year, will require the port lessee to pay the government $150 million a year, which the government then pays to the lessee of Port Botany and Port Kembla, NSW Ports.

The government concealed its intentions in 2012 for four reasons.

First, the government intended to contractually require a private company, Newcastle Stevedores Consortium (Consortium), to make the government whole for any cost the government incurred to a future lessee of Port Botany and Port Kembla in respect of future container capacity development at the Port of Newcastle, due to the activities of the Consortium in the Port of Newcastle. The government had been negotiating since 2010 to lease land at the Port of Newcastle to the Consortium for development of new port facilities, including a container terminal.

Second, the ACCC, which administers the “Commonwealth Competition and Consumer Act 2010” (Competition Act), reasonably understood government policy to be that a container terminal would not be developed at Newcastle before Port Kembla. The ACCC concluded that the Competition Act could not apply to the negotiation between the government and the Consortium because the government had said it was not going to develop a container terminal. Contrary to the ACCC’s belief, the government, by negotiating with the Consortium, was likely to be carrying on a business for the purposes of the Competition Act, whereby the requirement to make the government whole likely breached the Competition Act.

Third, the government needed to have a secret source of funds to pay a future lessee of Port Botany/Port Kembla. Using consolidated revenue to make the payment defeated the purpose of leasing the ports. It also required the parliament to approve the reason for paying the future Port Botany/Port Kembla lessee. The “Ports Assets (Authorised Transactions) Act 2012” did not authorise the government to pay the Port Botany/Port Kembla lessee from consolidated revenue.

Fourth, the government artificially inflated the lease price of Port Botany and Port Kembla by secretly promising payment in respect of future container capacity development at the Port of Newcastle. The parliament was told that ports would not be leased unless the lease value exceeded the retention value. The government failed to establish the lease value of Port Botany and Port Kembla with competition from the Port of Newcastle. The value to the NSW economy from competition between ports was not examined. It is likely that competition between ports would have provided more value to the State than leasing the ports under secret arrangements to inflate the lease price.

It is in the interests of NSW for there to be competition between ports. The starting point is to establish that the Competition Act applied to the negotiation between the government and the Consortium between 2010 and November 2013.

Opposition Leader, Mr Luke Foley MP, told parliament on June 21:

“The port privatisations are thwarting competition and entrenching a private monopoly. Secret deals deliberately designed to hurt Newcastle and the Hunter are making it economically impossible to develop a container terminal. In an open trading economy like ours, ports are an essential piece of infrastructure. Instead of promoting competition to boost productivity and lower costs, the Liberals and Nationals entered into secret deals to stifle investment, hurt exporters and block jobs growth. If such an anti-competitive arrangement were ever concocted in the private sector the participants would be jailed. The Liberals and Nationals were so ashamed of what this privatisation has done to Newcastle that they tried to hide the truth. I welcome the ACCC investigation into the ports and await the findings with great interest.”

August 12 2018

 

August 10 2018
Mr Rod Sims
Chairman
ACCC

Dear Mr Sims,

The ACCC advised me on June 7 2013 and February 23 2017 that the NSW government decided in 2012 not to develop a container terminal at the Port of Newcastle. The government had announced a policy on July 27 2012 that Port Kembla will act as a progressive overflow facility for Port Botany once its operational capacity has been reached.

The ACCC claimed that Newcastle Port Corporation (Corporation), a statutory state-owned corporation, was unlikely to be carrying on a business for the purposes of the “Commonwealth Competition and Consumer Act 2010” (Competition Act) in respect of a container terminal at the Port of Newcastle, because of the government’s policy.

Presumably, the ACCC was unaware, and remains unaware, that the NSW government had an undeclared policy in 2012 that a future lessee of Port Botany and Port Kembla would be paid in respect of future container capacity development at the Port of Newcastle. The government intended that its source of funds for paying any future Botany/Kembla lessee would be a private company, Newcastle Stevedores Consortium (Consortium).

Between 2010 and November 2013, the Corporation was negotiating under contract to lease a 90 ha. parcel of land at the Port of Newcastle to the Consortium for development of new cargo facilities, including a container terminal. This negotiation concluded on commercial terms without the land being leased to the Consortium.

After Port Botany and Port Kembla were leased to NSW Ports on May 30 2013, the Corporation contractually required the Consortium to make the NSW government whole for any cost the government incurred to NSW Ports in respect of future container capacity development at the Port of Newcastle, due to the activities of the Consortium in the Port of Newcastle. “Container” was defined as:

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 ACCC is respectfully requested to acknowledge that the negotiation between the Corporation and the Consortium proves it was impossible for the government to have a policy that “Port Kembla will act as a progressive overflow facility for Port Botany once its operational capacity has been reached”. You are asked to acknowledge that it was impossible for the government to have a policy not to develop a container terminal at the Port of Newcastle, when the Corporation was conducting a negotiation in respect of “future container capacity development at the Port of Newcastle” within the defined meaning of “container”.

Presuming that the Competition Act applied to the Corporation in respect of the negotiation, it is likely the contractual requirement that the Consortium make the government whole for any cost the government incurred to NSW Ports in respect of future container capacity development at the Port of Newcastle, due to the activities of the Consortium in the Port of Newcastle, was non-compliant with the Competition Act.

The government was in breach of its contract with NSW Ports if the requirement of the Consortium breached the Competition Act. Therefore, the government decided to lease the Port of Newcastle in order to access a source of funds to pay NSW Ports that was outside the operation of the Competition Act.

The government requires payment from the Newcastle port lessee on the same terms as it required of the Consortium.

It is in the public interest to establish that the NSW government leased the Port of Newcastle because contractually requiring the Consortium to pay the government’s fee was a likely breach of the Competition Act.

By deciding to take no enforcement action, the ACCC would have the general public believe that NSW government policy from July 27 2012 was “Port Kembla will act as a progressive overflow facility for Port Botany once its operational capacity has been reached”.

By taking a decision based on a government policy that is invalid, the ACCC’s decision is invalid.

Yours faithfully,

Greg Cameron

https://www.containerterminalpolicyinnsw.com.au/

Copy: The Hon Scott Morrison MP; The Hon Michael McCormack MP; The Hon Melinda Pavey MP; Ms Jodi McKay MP; Mr Tim Crakanthorp MP; Ms Heather Ridout AO; The Hon Anthony Albanese MP; The Newcastle Herald

 

NSW government freight and ports policy is that a container terminal will be built at the Port of Newcastle “if the lessee wished to do so”. $150 million a year until 2063 is what the private Newcastle port lessee must pay to the NSW government to operate a container terminal with modest throughput of one million a year.

The NSW government pays this $150 million a year to the private lessee of Port Botany and Port Kembla. NSW freight and ports policy is not a policy at all – it is a tax to fund a subsidy. The long term policy implications of using an anti-competitive tax to artificially support a contrived monopoly, are immense.

The NSW government has cloaked its container port policy in secrecy. 

In 2009, the NSW government, under Labor, gave approval to Newcastle Port Corporation (Corporation), a statutory state-owned corporation, to issue an invitation to the private sector to lease the 90 ha former Newcastle Steelworks site, called the “Mayfield Site”, for development of new port facilities, including a container terminal.

In 2010, the Corporation selected Newcastle Stevedores Consortium (Consortium) as its “Preferred Proponent”. The Consortium signed a contract – “Invitation To Submit Detailed Proposal, Mayfield Site” – containing the Corporation’s terms and conditions.

On December 14 2011, the newly elected Coalition state government appointed a financial adviser, Morgan Stanley, to conduct a scoping study into leasing Port Botany. An instruction the government gave Morgan Stanley was that a future lessee of Port Botany would be paid by the government in respect of future container capacity development at the Port of Newcastle. This instruction was kept secret because the guarantee of payment artificially inflated the lease price of Port Botany and Port Kembla. The government concealed that its source of funds would be a secret tax on containers shipped through the Port of Newcastle.

On July 27 2012, the government announced a policy that the next container terminal to be developed in NSW would be at Port Kembla. However, the ongoing negotiation between the Corporation and the Consortium precluded the government from having such a policy.

The “Ports Assets (Authorised Transactions) Act 2012”, which was passed in November 2012, did not authorise the government to use consolidated revenue to pay any future lessee of Port Botany or Port Kembla in respect of future container capacity development at the Port of Newcastle.

A private company, NSW Ports, leased Port Botany and Port Kembla from the government on May 30 2013, paying $5.1 billion for a 99-year lease.

The government then proceeded to require the Consortium to make the government whole for any cost the government incurred to NSW Ports in respect of future container capacity development at the Port of Newcastle, due to the activities of the Consortium in the Port of Newcastle. The Consortium accepted this requirement by continuing to negotiate with the Corporation.

The government decided on November 5 2013 to lease the Port of Newcastle. The government decided to lease the port specifically because it was in breach of its contract with NSW Ports if it was unable to pay NSW Ports.

Decision to pay lessee of Port Botany and Port Kembla (NSW Ports)

Member for Newcastle, Mr Tim Crakanthorp MP, asked the Treasurer, The Hon Dominic Perrottet MP, on May 25 2017 (QON 5764):

Mr Crakanthorp: 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?

Mr Perrottet: No.

On October 17 2013, the (former) Minister for Roads and Ports, The Hon Duncan Gay MLC, said that a “cap” on containers was an instruction the government gave its financial adviser, Morgan Stanley, in 2012:

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.

The government’s “cap on numbers” is the number of containers that may be shipped through the Port of Newcastle before the government charges a fee on the TEU component. The government pays this fee to the lessee of Port Botany and Port Kembla, NSW Ports. Details of the “cap” and the fee for exceeding it are included in the “Port Commitment – Port Botany and Port Kembla” (Port Commitment), as published by “The Newcastle Herald” newspaper on July 28 2016. The Port Commitment defines a container to be:

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 “cap” is 30,000 containers a year as from July 1 2013, increasing by six per cent a year until 2063. The fee charged for exceeding the “cap” applies to the TEU component. The fee charged for each TEU container is the same as the fee charged by NSW Ports for a TEU container shipped through Port Botany (currently $150).

The number of containers, as defined, shipped through the Port of Newcastle on general cargo ships would easily exceed 30,000 a year. The number of TEU containers currently shipped through the port is around 10,000. The only way the fee can be avoided is if no TEU containers are shipped through the port.

Mr Crakanthorp asked the Minister representing the Minister for Roads, Maritime and Freight, on November 17 2016 (QON 4612):

Mr Crakanthorp: For purposes of the Government’s lease agreement with “Port of Newcastle Investments”, does the meaning of container have the same meaning as contained in the “Port Commitment – Port Botany and Port Kembla”?

Answer: The details of container in the Port Commitment Deeds are commercial in confidence.

It is farcical that container terminal policy in NSW is based on a confidential meaning of the term “container”.

Newcastle Port Corporation’s Objectives

Mr Crakanthorp asked Mr Perrottet on May 25 2017 (QON 5764):

Mr Crakanthorp: Did the Government decide in 2009 to develop a container terminal at the Port of Newcastle?

Mr Perrottet: This Government was not in office in 2009.

Newcastle Port Corporation (Corporation), a statutory state-owned corporation, concluded a contract with Newcastle Stevedores Consortium (Consortium) in 2010 to negotiate leasing the 90 ha “Mayfield Site” at the Port of Newcastle for development. The Corporation’s objectives were contained in its “Invitation To Submit Detailed Proposal, Mayfield Site” contract. They were:

(a) have cargo handling terminal activity for containers and other cargo which may include bulk, break bulk, roll on roll off, etc., consistent with the characteristics, assets and capabilities of the Site;

(b) include a best practice container operation capable of handling in excess of 1 million TEU per annum;

(c) select a Proponent that is committed and has the capacity, resources and expertise to successfully deliver and grow their development proposal;

(d) increase the proportion of northern NSW trade for NSW ports;

(e) generate employment opportunities in the Hunter region;

(f) provide environmental, safety and community amenity benefits through reduced road traffic congestion in Sydney, thereby reducing greenhouse gas, vehicle emissions and noise;

(g) optimise public value for money by maximising land use intensity and engaging the private sector in the development of the State’s port and transport infrastructure for handling container and general cargo trades;

(h) ensure investment and development is delivered in a timely manner;

(i) recognise relationships between parties who may use the existing facilities and access points to and from the Site; and

(j) secure an appropriate commercial return to Newcastle Port Corporation.

Source: “Invitation To Submit Detailed Proposal, Mayfield Site”, Contract between Newcastle Port Corporation and Newcastle Stevedores Consortium, 2010

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

The reasons for the NPC’s [Newcastle Port Corporation’s] decision [to develop a container terminal] were explained by Mr [Gary] Webb [CEO and Director of Newcastle Port Corporation from 2004 to 2013] and included general economic considerations, local issues and features pertinent to the particular site. The Port of Newcastle did not have a container terminal. The development of a container terminal was consistent with the 2003 “Ports Growth Plan”, which provided for Newcastle to supplement Port Botany as Port Botany approached its capacity. The NPC had actually entered into a statement of corporate intent signed by the NPC and its shareholder ministers that incorporated this proposal. The location of a container terminal in Newcastle was strategic, as there was no container terminal between Sydney and Brisbane, and existing rail and road facilities meant that a Newcastle-based container terminal was in a desirable position for market purposes. The Mayfield site allowed access for container ships up to 280 metres long. A container terminal would permit an upgrade of the outdated bulk handling facilities of the Port of Newcastle and allow for more grain exports, an area in which the Port of Newcastle was lagging.

Source: ICAC, “Investigation into NSW Liberal Party electoral funding for the 2011 State election campaign and other matters”, August 30 2016, page 42

The ICAC reported:

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

Source: ICAC, August 30 2016, page 43

In 2012, the “Working With Government Guidelines” were replaced by the “NSW Public Private Partnership Guidelines”. The negotiation between the Corporation and the Consortium was administered by NSW Treasury.

NSW Treasury also was the government department responsible for leasing the three ports – a conflict of interest.

Mr Crakanthorp asked Mr Perrottet on June 18 2018 (QON 8605):

Mr Crakanthorp: Did the Public Private Partnership Guidelines require there to be a legally enforceable contract between the Government and Newcastle Stevedores Consortium during the term of their negotiation between 2010 and November 2013?

Answer July 12.

I am advised that the negotiation process between Newcastle Port Corporation and Newcastle Stevedores Consortium was not undertaken as a Public Private Partnership and that a contract was not concluded.

The ITSDP contract between the Corporation and the Consortium was concluded in 2010. The negotiation was terminated by the Corporation in November 2013 on commercial terms. As noted by the ICAC, the Corporation was “obliged to comply with the NSW Government’s “Working with Government Guidelines”.”

Government announcement July 27 2012

On July 27 2012, the government made a media announcement about the Port of Newcastle. The (former) Federal Member for Newcastle, Ms Sharon Grierson MP, commented on the announcement in her report to parliament on her overseas study tour in 2012. Grup TCB, a Spanish firm, was a partner in Newcastle Stevedores Consortium at that time. Ms Grierson reported:

On the morning of 27 July [2012] it was announced by the NSW Government that the Port of Newcastle would not have approval to develop a multi-purpose terminal with container terminal capacity and that instead Port Kembla (Wollongong) would be privatised along with Port Botany (Sydney) with increased container terminal capacity. Both the management of Grup TCB and I were shocked by this announcement. Grup TCB had been in negotiations with the NSW Government since October 2011 and had been given no prior indication of this announcement, learning it from media reports.

Source: Overseas Travel Study Report, Port Cities: Examining Urban Development in Barcelona, Valencia, Amsterdam, Rotterdam, Antwerp and Hamburg, Sharon Grierson MP, Federal Member for Newcastle, July-August 2012

An Australian company, Anglo Ports Pty Ltd, was the lead partner in the Consortium. Anglo Ports disclosed that The Hon Mike Baird MP, as Treasurer, on August 30 2012, “dictated” to the Consortium not to develop a container port. Anglo Ports made this disclosure in a statement published on the NSW Parliament web site dated February 10 2015.

“Term Sheets” had been agreed between the Corporation and the Consortium in 2010. In 2013, the Corporation amended the Term Sheets to require the Consortium to pay the government in respect of future container capacity development at the Port of Newcastle due to the activities of the Consortium in the Port of Newcastle. Details were contained in the Port Commitment.

The ACCC investigated the Port Botany and Port Kembla leasing arrangements in May-June 2013. The ACCC said, on June 7 2013, that the government had decided in 2012 not to develop a container terminal. It repeated this advice on February 23 2017:

… it was clear from at least 27 July 2012 that the NSW government’s position was for a further container terminal to be developed at Port Kembla when this became required to supplement Port Botany. Although negotiations between Newcastle Port Corporation and Newcastle Stevedores Consortium were not formally concluded until a later date, this appears to remain an accurate reflection of the Government’s position from 27 July 2012 to the present time.

Source: ACCC, February 23 2017

On July 26 2013, Mr Baird again “dictated” to the Consortium not to develop a container port. Anglo Ports said:

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.

Source: NSW Parliament web site, statement by Anglo Ports Pty Ltd, February 10 2015

The ACCC does not acknowledge that the Corporation amended the 2010 Term Sheets with the Consortium in 2013 to require the Consortium to pay the government in respect of future container capacity development at the Port of Newcastle, due to the activities of the Consortium in the Port of Newcastle. ACCC Chairman, Mr Rod Sims, responded to questions at the October 2016 Senate Budget Estimates Hearing:

Senator McALLISTER:  … Can I ask you specifically about the privatisation of ports, Mr Sims? I think you have some concern about the arrangement whereby Newcastle Port has to compensate Port Botany and Port Kembla if it receives more than a certain number of containers. Can you talk us through those concerns?

Mr Sims:  Yes, I can. Our first concern with the Port of Newcastle was that it was privatised without what we would see as any effective regulation over price. They bought it at $1.75 billion. They revalued it to $2.4 billion and immediately pushed up the navigation charges by 40 per cent or more. So we thought that was, I am afraid, a rather good example of what we were worried about, because they are a complete monopoly—the range of people who just have to use them. So that was our dominant concern. That is the thing we have been talking about a lot, as I say, and to repeat, because it is just such a great example of what we were worried about privatised assets doing when they have no effective regulation on them.

The issue you raised has been reported particularly a lot in the Newcastle press and in the state parliament of New South Wales, where there is a reported clause in the agreement that they would pay certain moneys if they were taking containers that were otherwise going to go to Botany or Kembla. We did have a look at that and we did engage with the state government on that. We are still keeping an eye on that. There are certain complexities when you are dealing with government decision making. So it is quite a complex issue. At the moment, I would say we have a bit of a watching brief on it, but not much more.

Source: Senate Economic Legislation Committee, Estimates, October 19 2016, page 121

The evidence on the public record is that Newcastle Port Corporation was negotiating a commercial contract with Newcastle Stevedores Consortium between 2010 and November 2013 in respect of container and cargo capacity development at the Port of Newcastle.

In March 2018, the ACCC said it was “currently seeking information relating to the viability of a container terminal at the Port of Newcastle and the impact of such a terminal on competition”.

The ACCC is making inquiries into:

  • the movement of containerised goods throughout NSW;
  • the import and export of containerised goods on the east coast of Australia; and
  • the delivery of landside services at ports on the east coast of Australia

The ACCC said it will use this information to assist with its assessment of whether competition “issues” may arise under the Competition Act.

The ACCC is now investigating restrictions on container capacity development. 

Application of Competition Act

The Competition Act generally applies to a government entity when it is carrying on a business. Between 2010 and November 2013, the Corporation was undertaking a commercial negotiating with the Consortium in respect of future container capacity development at the Port of Newcastle due to the activities of the Consortium in the Port of Newcastle. As such, it is likely that the Corporation was carrying on a business for the purposes of the Competition Act.

Government policy on Port of Newcastle container capacity development  

NSW government policy is that a TEU container terminal can be developed at the Port of Newcastle before a container terminal is developed at Port Kembla.

In 2012, NSW Treasury instructed its financial adviser, Morgan Stanley, about the government’s intentions in respect of future container capacity development at the Port of Newcastle due to the activities of the Consortium in the Port of Newcastle. The government intended applying a “cap” on the number of containers that could be shipped through the port before a fee was charged on the TEU component.

In 2012, the government announced a policy that the state’s next container terminal would be built at Port Kembla. This policy was contradicted by the secret plan for the Port of Newcastle. The Hon Gladys Berejiklian MP, in the (former) capacity of Treasurer, was asked supplementary question 29 at the 2015 NSW Budget Estimates hearing:

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

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

Mr Tim Crakanthorp MP, asked The Hon Dominic Perrottet MP, on May 25 2017 (QON 5764):

Mr Crakanthorp: 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?

Mr Perrottet: 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.

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.

On June 5 2015, Mr Berejiklian said in answer to QON 001:

The terms of the Port Botany transaction are consistent with the NSW Freight and Ports Strategy which was released in 2013. The Port Botany lease is a public document.

The details of the container arrangements in the Port Commitment Deeds are commercial in confidence.

The Hon Duncan Gay MLC informed the Legislative Council on August 10 2016: “As the Government has consistently said, the leasing terms of Botany and Port Kembla do not prohibit the development of a container terminal at the Port of Newcastle.”

 The Hon. ADAM SEARLE:  My question without notice is directed to the Minister for Roads, Maritime and Freight. Following the release of the confidential Newcastle port commitment documents revealing the details of caps and penalties applying to container movements, will the Minister now admit that his Government’s port privatisation will restrict Newcastle’s economic development for the next 100 years?

The Hon. DUNCAN GAY (Minister for Roads, Maritime and Freight, and Vice-President of the Executive Council):  Will I admit that the Government’s port privatisation will restrict Newcastle’s economic development for the next 100 years? No, absolutely not—never ever. We have done more for Newcastle than any other government has in the last several decades. Gone is the day when the Labor Party got the votes out of Newcastle but left it to become a rust belt. We are working to encourage and fix up Newcastle. As the Government has consistently said, the leasing terms of Botany and Port Kembla do not prohibit the development of a container terminal at the Port of Newcastle. In fact, there is ample opportunity for increased container trade at the port.

This is the important thing that the Labor Party does not understand. The port transaction deeds do not trigger any cross-payments until a threshold container throughput is reached. That threshold is based on 30,000 containers each year, plus an extra 6 per cent growth in volume each year—and that 6 per cent compounds. Based on current growth rates, it is highly unlikely current container trade in Newcastle will reach the applicable threshold before such time as Newcastle is required to establish high-intensity container terminals to meet the forecast population and business needs of the Hunter.

Yearly trade at Newcastle is currently at a steady 9,000 containers. In other words, it would take a massive 230 per cent increase in container trade volume just to reach the 30,000 TEU threshold. That is where it is now. It is at 9,000 and it can go to 30,000. That is a 230 per cent increase to get to that threshold—and that still does not take into account the compounding 6 per cent growth allowed for each year.  Labor Party members have had their Cuisenaire rods out, but they have not been adding up properly.

What leasing arrangements were examined by the ACCC?

The government states that the ACCC examined the leasing arrangements “when the government sought to lease the ports”, as disclosed by The Hon Duncan Gay on August 11 2016:

The Hon Adam Searle:  My question without notice is directed to the Minister for Roads, Maritime and Freight. What is the Government’s response to community and business concerns expressed by Rod Sims, Chair of the Australian Competition and Consumer Commission, about the Government’s privatisation of ports Botany, Kembla and Newcastle and his repudiation of this approach as a tax on consumers?

The Hon Greg Donnelly:  Be careful.

The Hon Duncan Gay (Minister for Roads, Maritime and Freight, and Vice-President of the Executive Council) (14:30):  I am always careful. In large part I answered this question earlier in the week. I probably gave too much information. Being the generous man that I am, I thought it was appropriate. I will go back over that information. When the Government sought to lease the ports, the arrangements were properly examined by the then chair of the commission. Mr Sims was not the commissioner at that time. I think it was his predecessor, Mr Samuel. I am seeing nods around the Chamber. The Government went through all proper processes to ensure that everything received the appropriate approval. Mr Sims has made public comments and it is within his purview to do that. I can only reiterate my answer from earlier in the week, which is that the Government went through the proper processes at the time.

Payment to NSW Ports unauthorised from consolidated revenue

The Rev Hon Fred Nile MLC asked the Minister representing the Minister for Roads, Maritime and Freight on October 10 2017 (QON 1792):

Rev Nile: Is the use of consolidated revenue to pay NSW Ports for container shipments above the Government’s cap at the Port of Newcastle authorised by the 2012 Act [Ports Assets (Authorised Transactions) Act 2012], and if so, under what section?

Answer: No.

Term Sheets and Competition Act

The Corporation and the Consortium reached agreement on Term Sheets in December 2010 pursuant to their negotiation under the “Invitation To Submit Detailed Proposal, Mayfield Site” contract. The Corporation had the right to change the contract terms and conditions at any time.

The contractual requirement to pay the government in respect of future container capacity development at the Port of Newcastle due to the activities of the Consortium in the Port of Newcastle was included in the Term Sheets in 2013. The government did not claim immunity from the Competition Act in respect of the Term Sheets.

Mr Crakanthorp asked the Minister representing the Minister for Roads, Maritime and Freight, on September 15 2016 (QON 4008):

Mr Crakanthorp: Did the Government claim immunity from the Commonwealth Competition and Consumer Act 2010 in respect of the Term Sheets with Newcastle Stevedores Consortium?

Answer: No.

Mr Crakanthorp asked Mr Perrottet on June 18 2018 QON 8605:

  1. Did the Public Private Partnership Guidelines require there to be a legally enforceable contract between the Government and Newcastle Stevedores Consortium during the term of their negotiation between 2010 and November 2013?
  2. Was the Government required to comply with the Commonwealth Competition and Consumer Act 2010 in respect of requiring Newcastle Stevedores Consortium to pay the Government’s fee for exceeding the Government’s cap on containers?

Answer July 12 2018

  1. I am advised that the negotiation process between Newcastle Port Corporation and Newcastle Stevedores Consortium was not undertaken as a Public Private Partnership and that a contract was not concluded.
  2. Please refer to the responses to questions LA Q4271, LA Q4621 and LC Q4008.

LEGISLATIVE ASSEMBLY OCTOBER 13 2016

4271 – PORT OF NEWCASTLE

Crakanthorp, Tim to the Treasurer, and Minister for Industrial Relations

Did the Government claim exemption from the Trade Practices Act 1974 (as replaced on 1 January 2011 by the Competition and Consumer Act 2010) when Newcastle Port Corporation conducted a tender in 2010 for a multi-purpose terminal, including a container terminal with minimum capacity of 1 million twenty-foot container equivalent unit (TEU) per year, at the Port of Newcastle?

Answer November 17 2016

I am advised that no exemption was claimed.

November 17 2016

4621 – PORT OF NEWCASTLE

Crakanthorp, Tim to the Treasurer, and Minister for Industrial Relations

 

  1. Did the Government advise Newcastle Stevedores Consortium that the Government considered itself to be exempt from the Commonwealth Competition and Consumer Act 2010 in respect of the negotiations that occurred between Newcastle Port Corporation and Newcastle Stevedores Consortium pursuant to a tender conducted by Newcastle Port Corporation?

 

  1. Did the Government advise the Australian Competition and Consumer Commission that the Government considered itself to be exempt from the Commonwealth Competition and Consumer Act 2010 in respect of the negotiations that occurred between Newcastle Port Corporation and Newcastle Stevedores Consortium pursuant to a tender conducted by Newcastle Port Corporation?

 

  1. In answering part (3) of Question On Notice 4008, was the Minister referring to section 51(1) of the Commonwealth Competition and Consumer Act 2010, which provides that conduct that would normally contravene the law may be permitted if it is specifically authorised under other Australian, state or territory legislation?

 

  1. Did the Government establish that changing the Term Sheets with Newcastle Stevedores Consortium by way of requiring payment of a fee for “containers”, complied with the Commonwealth Competition and Consumer Act 2010?

Answer December 22 2016

(1) and (4) 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.

 

(2) Please see my answer to question 4271, dated 17 November 2016. [I am advised that no exemption was claimed.]

 

(3) As the response to question 4008 was provided by the Minister, points of clarification should be directed to the Minister.

Legislative Assembly
15 September 2016

4008 – PORT OF NEWCASTLE

Crakanthorp, Tim to the Minister for Transport and Infrastructure representing the Minister for Roads, Maritime and Freight, and Vice-President of the Executive Council

  1. Has the operator of the Port of Newcastle entered into an agreement for the development of a container terminal at the Port of Newcastle?

 

  1. If a container terminal was developed in Newcastle during this term of Government, does the Government plan to charge the port operator, or the operator of the container terminal, a fee for container movements?

 

  1. Did the Government claim immunity from the Commonwealth Competition and Consumer Act 2010 in respect of the Term Sheets with Newcastle Stevedores Consortium?

Answer – 20 October 2016

(1) This is a matter for the operator of the Port of Newcastle.

(2) and (3) No.

Mr Crakanthorp asked Mr Perrottet on May 25 2017 (QON 5764):

Mr Crakanthorp: 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?

Mr Perrottet: Newcastle Ports [sic] Corporation did not conclude a contract to build a container terminal with Newcastle Stevedores Consortium in 2013.

In 2013, the Corporation contractually required the Consortium to pay the government for future container capacity development at the Port of Newcastle due to the activities of the Consortium in the Port of Newcastle.

The answer to Mr Crakanthorp’s question is “yes”.

Effect of Port Commitment on competition

Had the government disclosed in 2012 its intention to adopt the Port Commitment, it would have enabled the Port Commitment to be examined by the parliament for its effect on competition with Port Botany. Newcastle port would also compete with the Port of Melbourne for containerised wheat exports. However, the government’s view was that competition was not prevented by the ports leases (Budget Estimates Hearing, Roads, Maritime and Freight, Mr T Reardon, Secretary, Transport for NSW, August 31 2015).

Mr Reardon: So I would not subscribe to the view that there is not competition because of the leases. There is competition on the east coast, and it is up to New South Wales to position itself as strongly as possible within that to ensure its ports continue to grow. As the Minister has pointed out also, in terms of a legislative cap within Newcastle there is no such thing. So in terms of what we are focused on it is the growth of Port Botany.

Government policy is that the Port of Newcastle will continue to be NSW’s primary coal export port and will continue to service bulk grain and other commodities (Budget Estimates 2016, Treasury and Industrial Relations, Supplementary Questions 50 and 51, September 27 2016; QWN, The Hon Paul Green to The Hon Duncan Gay, September 13 2016).

This government policy may breach the Competition Act because grain and other commodities are shipped in TEU containers (NSW ICAC, page 42).

A standard TEU container holds around 20 tonnes of wheat. A container ship carrying 5,000 TEUs will transport 100,000 tonnes of wheat. In 2015, Australia exported 2.2 million tonnes of wheat in containers and 16.4 million tonnes in bulk (ABS). The Port of Melbourne is the primary export port for containerised wheat.

Using containers for wheat exports is generally cheaper than bulk shipping because of the cost advantages in backloading otherwise empty containers. The government’s “cap” at the Port of Newcastle prevents the port from competing with Port Botany and Port of Melbourne for shipping wheat in containers.

Developing a major container terminal at the Port of Newcastle is viable if the fee is removed.

A container terminal at Newcastle would justify building a rail freight bypass of Sydney between Newcastle, Badgery’s Creek and Port Kembla. This bypass would be paid for by replacing Port Botany’s container trucks with Newcastle’s container trains.

It would enable trains to replace trucks for transporting the bulk of Sydney’s regional and interstate freight.

Port Botany relies on trucks for transporting containers. There were one million container trucks moved through Port Botany in 2014. By 2040, there will be six million.

An intermodal terminal is being built at Moorebank. This terminal requires all of Sydney’s available rail freight capacity. If Moorebank reaches capacity, there will still be 4.9 million container truck movements through Port Botany by 2040.

With the Moorebank intermodal terminal operating at capacity, the economic disbenefits of trucking containers will increase five-fold – from one million per year to five million per year – by 2040.

A rail freight bypass of Sydney will justify building the Maldon-Dombarton rail freight line to enable building a container terminal at Port Kembla to operate interchangeably with the Port of Newcastle.

The South Coast of NSW will be served by container ports at both Port Kembla and Port of Newcastle.

By building the section of the bypass line between Glenfield and Eastern Creek as the top priority, containers can be railed between Port Botany and a new intermodal terminal in outer western Sydney. The remainder of the line to Newcastle will take about 10 years to build. But there would be no intermodal terminal built at Moorebank.

Upon line completion, containers railed between Newcastle and intermodal terminals in outer western Sydney would be de-consolidated at the intermodal terminals and the goods transported to their end destinations in Sydney.

Export goods manufactured in Sydney would be consolidated into containers at the intermodal terminals and the containers then railed to Newcastle for export.

Empty containers would be railed from Sydney to all regional areas of NSW to be filled with export goods and the containers then railed to Newcastle for export.

All container trucks would be removed from Sydney’s roads.

Freight currently entering Greater Sydney by road can be railed.

There would be no need to build stages 2 and 3 of the $5 billion Northern Sydney Freight Corridor to provide the equivalent of a dedicated rail freight line between Newcastle and Strathfield. 

There would be no need to build the $1 billion Western Sydney Freight Line, between Chullora and Eastern Creek, to enable containers to be railed between Port Botany and outer western Sydney.

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

Freight would be removed from the Wollongong-Sydney rail line.

All of Sydney’s current rail freight capacity would be used for passenger services to provide a higher economic return than freight.

The Southern Sydney Freight Line could be used for express passenger services from southwestern Sydney growth areas, including Badgery’s Creek Airport.

All of the current rail capacity between Newcastle and Sydney would be used for passengers.

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

The short parallel runway at Sydney airport could be extended from 2600 metres to 4000 metres by terminating container operations at Port Botany.

A rail freight bypass would enable Sydney firms to relocate to regional areas.

It is appropriate and necessary for the State to examine the implications to NSW of removing the State’s anti-competitive fee for containers shipped through the Port of Newcastle.

 

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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