Are we selling off the family silver by privatising Australia’s ports?

Queensland Premier Campbell Newman has flagged it will consider the sale of two ports: but should such assets be in private hands?

Should major Australian ports be in public or private hands?

This question goes to whether we are selling off vital assets for short-term financial gain and political expediency, or for commercially sound reasons.

Queensland Premier Campbell Newman this week backed away from plans to privatise electricity assets; but he is reported to be still considering offering long-term leaseholds on the Ports of Gladstone and Townsville, as recommended by Peter Costello’s commission of audit to stabilise the state’s finances.

The government is expecting the sale of the two ports might net the cash-strapped state $3 billion that would be used to reduce state debt - although such moves would not take place until after the 2015 state election.

The Queensland government under Anna Bligh already off-loaded its capital city Port of Brisbane to Q Port Holdings on a 99-year leasehold for $2.1 billion (at the lower end of the expected price), in 2010.

Elsewhere, the NSW government recently sold Port Botany and Port Kembla to the NSW Ports Consortium - made up of a group of superannuation and infrastructure funds - on a 99-year lease basis for a combined $5.1 billion, well in excess of NSW’s Treasury expectations of $3-4 billion.

Once debt has been repaid, the net benefit to the NSW government will be $4.3 billion, which it says will be spent on infrastructure projects such as the WestConnex Motorway, between the M4 and Port Botany, the Pacific Highway and the Princes Highway.

But while many may welcome the sale of such assets to fund necessary infrastructure projects, others have flagged that the concentration of port ownership may lead to steep price rises, as well as concerns over regulatory oversight.

This concentration of ownership is well exemplified in the sale of Port Botany and Port Kembla.

The successful bidder, NSW Ports Consortium, is made up of three Australian firms - Industry Funds Management (IFM), AustralianSuper and QSuper - as well as Tawreed Investments, a wholly-owned subsidiary of the Abu Dhabi Investment Authority.

As well as a 45% share in NSW Ports Consortium, IFM has a reported 27% share in Q Port Holdings, the owner of the Port of Brisbane. Tawreed Investments is reported to have a 20% stake in the consortium as well as a 19% stake in Q Port Holdings. Together the two owners have a 65% stake in NSW Ports and a 46% stake in the Port of Brisbane.

In an interview with trade publication Lloyd’s List, Shipping Australia Chairman Ken Fitzpatrick expressed concern over the amount of control this gives port owners on the Eastern seaboard. Despite assurances from IFM chief Brett Himbury that IFM would exercise its position responsibly as long-term owners, Mr Fitzpatrick said he remained concerned over whether there were sufficient regulatory measures in place to ensure competitive pricing.

The consortium is required to report to the NSW Independent Pricing and Regulatory Tribunal if they wish to increase charges. However, Mr Fitzpatrick is concerned whether this may not be enough to prevent large price increases.

Private ports are not a new phenomenon and a large number of bulk ports in Australia are privately built and owned, usually by the end user, such as a mining company. But before the sale of the Port of Brisbane, only some of Australia’s smaller public ports, such as Portland, Geelong and Adelaide, had been privatised.

The need to fund infrastructure by the states should not lead to “a one policy fits all” approach that includes the sell-off of prized assets such as capital city general cargo ports.

The international experience of port privatisation is not necessarily reassuring. Privatisation in the United Kingdom took place many years ago, but according to Professor Alfred Baird from the Transport Research Institute, at Edinburgh’s Napier University, it has not always been a success.

Professor Baird points out since privatisation, investment in port infrastructure has slowed, leading to UK ports to lose trade to continental rivals with shipping consortia switching vessel routing to European ports such as Rotterdam and Hamburg.

Once the shipping lines leave, it is difficult to get them back, as importers and exporters adjust their supply chains to adapt to the new situation. In some cases, ports were on-sold to new owners for a lower price.

The onus on a private port owner is to maximise the profits for shareholders and “sweat the assets”. In contrast, a publicly owned port on the other hand has the capacity (and some commentators say duty) to stimulate regional development by investing in port infrastructure.

This might not have an immediate benefit to the port’s bottom line but will benefit its public owners (usually the state) by creating additional economic activity.

For example, the recent $750 million channel deepening in Port Phillip Bay may not bring more containers to the Port of Melbourne initially, but it does enable larger vessels to enter the port. This lowers the unit cost of shipping containers and ultimately allows the port (and Victoria) to take a more competitive market position.

The NSW-government-owned Sydney Ports Corporation spent $600 million on the development of additional container berths at Port Botany which increased the port’s capacity by more than a third. These development costs were offset by the sale of wharves and prime Darling Harbour land at Barangaroo to real estate developers. Would a private port owner have invested this sort of money given it would not have the assets to offset these costs?

The Port of Melbourne is the only major capital city port on the East coast still owned by the state government. No doubt senior Victorian Treasury officials have been doing their sums and looking at their wish list of infrastructure projects they would potentially be able to fund with proceeds from the sale of the port.

The Victorian government has so far put up the “Not for Sale” sign at the Port of Melbourne. Let’s hope they are able to resist the temptation for a quick dollar and realise that a port is a vital asset to the national economy and it is dangerous to leave it entirely to market forces.

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