NSW Ports sued over Port Botany and Kembla deals

10 December 2018 - 12:00 am UTC

Australia’s competition watchdog has taken the operator of Port of Botany and Port Kembla to court over what it claims was an “illegal” deal embedded in the 99-year lease of the ports. 

The agreement signed in 2013 requires the NSW government to compensate NSW Ports – the owner of the two ports in Sydney and Wollongong about 100km south of Sydney – if container traffic at the Port of Newcastle about 170km north of Sydney exceeds a specified cap over a 50-year period, the Australian Competition and Consumer Commission (ACCC) alleged in a statement today. 

The deal, featured in the Port Commitment Deeds, formed a key part of the privatisation agreement struck between the then Michael Baird-led government and the NSW Ports consortium, which paid AUD 5.07bn (USD 3.65bn) for the 99-year lease on the ports.

The contract terms are “anti-competitive and illegal”, ACCC Chairman Rod Sims said today (10 December). 

“This makes development of a container terminal at the Port of Newcastle uneconomic,” he added. 

The Port of Botany is one of the country’s largest. It handled 2.7m 20-foot equivalent units (TEUs) in 2017-18 and is NSW’s only container port.

In a statement today, NSW Ports denied any wrongdoing, saying it “will be vigorously defending the proceedings”. 

Another deal signed in 2014 following the AUD 1.75bn privatisation of the Port of Newcastle then passed the onus on to its new private operators (China Merchants and The Infrastructure Fund) to reimburse the NSW government for any compensation paid to NSW Ports if Newcastle went over its specified volume capacity. 

The ACCC said the two deals mean the Port of Newcastle would be financially punished for processing cargo above a minimal level if Port Botany and Port Kembla have spare capacity. The Port of Newcastle handles just 10,000 TEUs annually since it was privatised in 2014 and currently has a cap of 30,000. 

Investors in NSW Ports includes a string of prominent Australian funds and fund managers including IFM Investors, Australian Super, Cbus, Hesta and Abu Dhabi Investment Authority. 

The proceedings by the ACCC have been taken against NSW Ports Operations Hold Co Pty Ltd and its subsidiaries Port Botany Operations and Port Kembla Operations. The regulator is seeking injunctions restraining the port operators from seeking compensation under these provisions, as well as fines and costs.

The compensation the contract allows NSW Ports to claim is equivalent to the wharfage fee the port operators would receive if they handled the containers, although no compensation has yet changed hands. 

Sims also re-iterated comments he made two years ago about “the short-term thinking of state governments when privatising assets and making decisions primarily to boost sales proceeds, at the expense of creating a long-term competitive market”.

“These anti-competitive decisions ultimately cost consumers in those states and impact the wider economy in the long term.”

The ACCC said it is not currently planning to take action against the NSW government as the Competition and Consumer Act the regulator enforces only applies to states in “limited circumstances”.

One of the largest coal ports in the world, the Port of Newcastle has plans to build a container terminal and diversify away from coal, but has been hindered by the NSW government’s plan outlined in the NSW Freight and Ports Plan 2018-2023 to increase capacity at Port Kembla, once Port Botany reaches its capacity limit. 

Port Botany is currently the only port in NSW with dedicated container terminal facilities and is close to reaching capacity with calls to build a new port outside Sydney.

“If a competing container terminal cannot be developed at the Port of Newcastle, NSW Ports will remain the only major supplier of port services for container cargo in NSW for 50 years,” Sims said.
 
In its statement, NSW Ports said it  “firmly believes that the agreements (including provisions of the 2013 Port Commitment Deeds) signed with the NSW Government, to lease its assets at Port Botany and Port Kembla, operate in the best interests of all stakeholders, the economy and people of NSW.

It added “the success of Port Botany and Port Kembla is in the national interest” as the investors in the two ports are primarily super funds.

 

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