Will Port Botany battle through the Newcastle storm?

Will Port Botany battle through the Newcastle storm?

The ACCC has instituted proceedings in the Federal Court against NSW Ports Operations Hold Co Pty Ltd and its subsidiaries Port Botany Operations Pty Ltd and Port Kembla Operations Pty Ltd for making agreements with the State of New South Wales that the ACCC alleges had an anti-competitive purpose and effect.

“We are alleging that making these agreements containing provisions that would effectively compensate Port Kembla and Port Botany if the Port of Newcastle developed a container terminal, is anti-competitive and illegal,” ACCC Chair Rod Sims said.

The NSW Government privatised Port Botany and Port Kembla in May 2013 and the agreements, known as Port Commitment Deeds, were entered into as part of the privatisation process, for a term of 50 years.

The Botany and Kembla Port Commitment Deeds oblige the State of NSW to compensate the operators of Port Botany and Port Kembla if container traffic at the Port of Newcastle is above a minimal specified cap.

The ACCC alleges that entering into each of the Botany and Kembla Port Commitment Deeds was likely to prevent or hinder the development of a container terminal at the Port of Newcastle, and had the purpose, or was likely to have the effect of, substantially lessening competition.

Another 50-year deed, signed in May 2014 when the Port of Newcastle was privatised, requires the Port of Newcastle to reimburse the State of NSW for any compensation paid to operators of Port Botany and Port Kembla under the Botany and Kembla Port Commitment Deeds.

The ACCC alleges that the reimbursement provision in the Port of Newcastle Deed is an anti-competitive consequence of the Botany and Kembla Port Commitment Deeds, and that it makes the development of a container terminal at Newcastle uneconomic.

“The compensation and reimbursement provisions effectively mean that the Port of Newcastle would be financially punished for sending or receiving container cargo above a minimal level if Port Botany and Port Kembla have spare capacity. This makes development of a container terminal at the Port of Newcastle uneconomic,” Mr Sims said.

“We are taking legal action to remove a barrier to competition in an important market, the supply of port services, which has significant implications for the cost of goods across the economy, not just in New South Wales. The impact of any lessening of competition is ultimately borne by consumers.”

“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.”

“I have long voiced concerns 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,” Mr Sims said.

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

The ACCC is seeking declarations that the compensation provisions in the 2013 Port Commitment Deeds contravene the Competition and Consumer Act 2010 (CCA), injunctions restraining the operators of Port Botany and Port Kembla from seeking compensation under these provisions, pecuniary penalties and costs.

The CCA only applies to the conduct of state governments in certain limited circumstances. The State of NSW is not currently a party to the ACCC’s proceedings and the ACCC is not seeking orders against the state.

Background

Port Botany Operations Pty Ltd is the operator of Port Botany. Port Kembla Operations Pty Ltd is the operator of Port Kembla. Both are subsidiaries of NSW Ports Operations Hold Co Pty Ltd. All are all entities within the NSW Ports group and all are parties to the 2013 Port Commitment Deeds.

Port Botany is currently the only port in NSW with dedicated container terminal facilities. Port Botany had a container throughput of approximately 2.7 million twenty foot equivalent container units (TEU) for FY17/18.

Port Kembla has handled approximately 1,600 TEU per year since it was privatised in 2013.

The Port of Newcastle has handled approximately 10,000 TEU per year since it was privatised in 2014.

Under the 2013 Port Commitment Deeds, it was agreed the State of New South Wales would pay compensation to the operators of Port Botany and Port Kembla if container traffic at the Port of Newcastle exceeded a cap of 30,000 TEU per annum (adjusted by an annual growth rate).

The compensation to be paid by the State of New South Wales to the operators of Port Botany and Port Kembla is equivalent to the wharfage fee the port operators would receive if they handled the containers.

Container traffic at the Port of Newcastle has not yet exceeded the specified cap, and therefore no payments have been made by the state under the 2013 Port Commitment Deeds.

NSW Ports responds to the ACCC

NSW Ports has issued the following statement:

NSW Ports notes the ACCC announcement that it has instituted proceedings in the Federal Court in relation to the 2013 Port Commitment Deeds.

NSW Ports 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.

Having paid a consideration of $5.1 billion to the NSW Government in 2013 based on the full contractual terms contained in the agreements, NSW Ports will be vigorously defending the proceedings.

NSW Ports is 80 per cent owned by Australian superannuation funds investing on behalf of more than six million individual Australians. The success of Port Botany and Port Kembla is in the national interest.

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