Last week NSW Deputy Premier John Barilaro said it was time to “unpick” the NSW Government’s ports privatisation arrangements. He was referring to the deals the Australian Competition and Consumer Commission (ACCC) described as “brazenly anti-competitive”.
Barilaro responding to the Federal Court’s rejection of the ACCC’s invitation to declare illegal the arrangements the O’Farrell Government secretly entered into when it sold Port Botany. The $5.1 billion winning bid for the monopoly public asset came in at twice the amount originally anticipated.
There can be no doubt that two NSW Government policy decisions helped generate that windfall. The first was a decision to lift the cap on the number of containers Port Botany’s operators could move. The second, and more important, was a deed of arrangement in the sale agreement that guaranteed the buyer compensation if new competition emerged in the container market.
This involved a $100 per container payment to Port Botany’s new owners if the Port of Newcastle lifted its movements above 30,000 20-foot container equivalents. The compensation payments were to be paid by the NSW taxpayer in the first instance, then recovered from the future owners of a privatised the Port of Newcastle. This protection racket has a life of 50 years.
It is difficult to imagine a government-sanctioned arrangement with greater potential to do harm to productivity, consumer prices, and our economy. The lesson for governments is clear: do not privatise monopoly assets without putting in place the necessary regulatory arrangements to protect the economy, competition and consumers.
But there is more. For a decade or more, the Hunter region’s business and political leaders have dreamed of diversifying and expanding the Port of Newcastle. The proposed multi-purpose deepwater terminal could accommodate a facility moving 2 million containers a year. The river’s deep channel allows it to take bigger ships too, adding to port efficiency.
Newcastle is home to the largest coal port in the world and its resident coal terminals will load our high-quality coal for decades to come. But building further diversity and adding to economic activity would be of considerable benefit to the Hunter region.
Beyond building competitive tension in the container market, a large operation in Newcastle would bust road and rail congestion in Sydney and make the goods-movement network more efficient.
It would make so much more sense to ship goods destined for markets beyond Sydney direct to Newcastle. Less congestion in Sydney and more economic activity in the Hunter region. Equally, it’s unfair that Port Botany is the sole option for NSW exporters – it undermines their competitiveness on export markets.
So, what might John Barilaro’s “unpicking” look like? He may not have to do much. ACCC chairman Rod Sims is unlikely to run up the white flag just yet and the Courts may yet do the work for us. If they were to do so, screams of sovereign risk and unfairness would be dulled by the principle of Caveat Emptor. It is reasonable to expect Port Botany’s buyer to wonder whether the deed could be subject to legal challenge.
Killing the sale deed arrangement with an Act of Parliament is another option. But would that be fair? The deed enticed Port Botany’s buyers to pay a significant premium for the asset. Investors would be justifiably aggrieved if a parliament was to act in such a retrospective way. A debate about compensation would surely follow. It’s clear there are no easy or inexpensive solutions.
While the Premier Gladys Berejiklian ponders the potential fiscal cost of correcting the consequence of the Government’s actions, she might also seek advice on how she might fix another complex problem at the Port of Newcastle. A problem created when the monopoly Port was privatised, again without regulatory protections.
The Port of Newcastle battling the mining industry over port charges on exports. The miners are right to be concerned about rising prices, but the port’s owners need revenue certainty to fund their growth and diversification plans. Fixing this problem without harming a key export industry may require some more public investment. Surely there remains some change from that Port Botany sale windfall?
There was a time when opposition to privatisation and competition policy was the raison d’etre of the political Left. None of this phased Bob Hawke and Paul Keating, who forged ahead with the sale of iconic entities like the Commonwealth Bank, CSL and Qantas. John Howard later followed with the privatisation of Telstra.
Few would now argue these were not the right decisions. That is also true of the competition policy, one of the great micro-economic reforms of the twentieth century.
But few would defend the NSW ports privatisation deals. They must be “unpicked”, and Canberra needs to fix our competition laws so that no state government can bolster its budget bottom line at the expense of the economy, business, and consumers.