Sims criticises port deal 'sweetener'

27 Oct, 2016 02:33 PM

A STATE government plan to "sweeten" the proposed Fremantle Port privatisation deal has drawn criticism from competition watchdog chief Rod Sims.

Addressing the Ports Australia Conference in Melbourne on Thursday last week Australian Competition and Consumer Commission (ACCC) chairman, Mr Sims, singled out one aspect of the initial proposal to privatise the last State-owned capital city port in Australia as an example of what not to do.

But while critical of the WA government's plan to privatise Fremantle, Mr Sims also complimented it on its preparedness to modify its proposal to privatise the Utah Point Bulk Handling Facility, Port Hedland, on the ACCC's recommendation.

He said the ACCC was continuing to "engage" with the government over privatisation of the Fremantle Port.

WAFarmers, the State's peak agriculture representative organisation, has opposed the plan, preferring instead a redevelopment of the outer harbour at Kwinana to be brought forward.

Mr Sims criticised a promise to redevelop the outer harbour, which was used as a sweetener for any privatisation deal.

He questioned moves by "fiscally challenged" State governments to sometimes "sweeten deals for port buyers" by putting in place "arrangements that ensure little to no prospect of future competition".

"What the ACCC is concerned about is governments seeking to boost one-off sale proceeds through privatisation processes at the expense of creating a competitive market structure or putting in place appropriate regulation to curb monopoly pricing," Mr Sims said.

"This effectively provides one off proceeds but places a 'tax' on future generations of Australians."

As an example Mr Sims used the potential privatisation of Fremantle Port, including the Kwinana outer harbour, noting the port "handles almost all of WA's container trade, it also handles most of WA's livestock exports, motor vehicle imports, as well as bulk grain and mineral exports".

"To date we have expressed concern about the proposal by the WA government to offer the new owner of the Port of Fremantle the first right to develop a new port south of Fremantle in the future," he said.

"Allowing the owner of the existing facility the right to develop a new port forecloses the potential for future competition between two Fremantle ports.

"This limits the competitive constraint on the privatised port operator, to the detriment of users.

"If the privatisation is to benefit the WA economy, it is important that it does not create or maintain a market structure that will hinder potential future competition."

Another example, he said, was the Victorian government's clause to pay the Melbourne Port lessee compensation if a second port is developed by the government and is in operation in the first 15 years of the lease.

Mr Sims also stressed an appropriate regulatory regime to protect port customers into the future needed to be in place before any deal was signed.

He said "a negotiate-arbitrate framework" was the minimum for effective regulation of monopoly infrastructure.

"This approach doesn't impose upfront requirements on the infrastructure owner, so the regulatory burden is minimal. It allows robust commercial negotiations to take place," he said.

Mr Sims argued a simple price monitoring regime and reliance on the Consumer Price Index was not enough protection to constrain monopoly pricing.

An example was Newcastle, in NSW, the world's largest coal export port which was privatised in 2014 with a sale price of $1.75 billion.

Less than a year later, the new owner revalued its port assets to $2.4b and increased navigation charges by more than 40 per cent, Mr Sims said.

Port customer Glencore Coal unsuccessfully sought to have the shipping channel declared under the Competition and Consumer Act 2010 but ultimately had the National Competition Council (NCC) and NSW minister's rejection of its application overturned by the Australian Competition Tribunal (ACT) earlier this year.

But Newcastle Port's owner had since appealed the ACT decision in the Federal Court with the matter still unresolved 18 months after Glencore first applied to the NCC.

"There is no effective regulatory regime to constrain monopoly pricing at this port. Instead, there is simply a price monitoring regime," Mr Sims said.

He said the NCC had also noted the price monitoring regime was unlikely to be robust enough to sustain a successful shipping channel declaration.

ACCC negotiations with the Victorian government about strengthening the regulatory regime for the privatisation of Melbourne Port had helped thwart an attempted 750 per cent port space rent increase, he said.

"An even more pleasing result has been our recent engagement with the WA government on the proposed privatisation of the Utah Point Bulk Handling Facility," Mr Sims said.

"After the ACCC pointed out the limits of price monitoring to constrain pricing, the WA government now proposes to replace the monitoring regime with a negotiate-arbitrate framework.

"We consider that this will provide a credible constraint on monopoly pricing, while still allowing users to commercially negotiate terms of access."

Mr Sims said the ACCC did not oppose privatisation of monopoly assets such as ports, but believed longer-term competition issues needed to take precedence over sale price.

"While governments may have the initial benefit of revenue from the sale, over the long-term the impact of reduced competition and efficiency and higher prices will harm consumers and the economy," he said.

"To avoid this, appropriate regulatory regimes should be in place before assets with monopoly characteristics are privatised."

Mal Gill

Mal Gill

is wool and dairy writer for Farm Weekly


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