Both the Victorian Government and the Opposition have recently announced that they intend to sell the Port of Melbourne, and possibly the Port of Hastings. Although presented as a win-win outcome, careful consideration of the implications of the sale reveals a more complex picture.

Ports and in particular capital city ports are, by their nature, monopolies and if sold to private investors need careful regulation to prevent the owners from holding stakeholders and users of the port to ransom. Port operators have the power to set the rates for port users and currently Victorian ports have only minimal regulatory oversight by the government through the Essential Services Commission and the Australian Competition and Consumer Commission.

A recent example of overcharging by a privatised port can be seen at Port Botany where port users pay certain charges (such as the Port Logistics Charge and the recovery fee of the Port Botany Landside Improvement Strategy) twice, once to the new owners, NSW Ports, and again to the NSW Government.

Queensland started the privatisation process by selling the Port of Brisbane in 2010, via a 99-year lease for what is now a seemingly cheap $2.1 billion, to replenish its empty Treasury coffers. This money disappeared into consolidated revenue. Since then Global Infrastructure Partners (GIP) sold their 27% stake in the Port of Brisbane to a Canadian pension fund for more than $1 billion, which effectively means GIP doubled their money in three years. Nice work if you can get it but a loss to Queensland taxpayers.

New South Wales followed by selling both Port Botany and Port Kembla in 2012 and raking in a healthy $5.1 billion. Some of this money will, apparently, be re-invested into infrastructure projects such as the Westconnex Motorway and the Pacific Highway

Both the Victorian Government and the Opposition think they can win votes by improving infrastructure; this is a good thing. However, although high on the agenda of both State and Federal governments, infrastructure policies seem somewhat hasty and haphazard, with potentially dire consequences.

The question is whether governments should be so keen to sell off these monopoly assets to fund a shortfall in dollars. Even if the reasoning is to spend the money raised on projects to ease road congestion and/or improve public transport, is it wise in the long run? Whilst the initial sale might be to a benign or passive investor, such as a super fund, ownership further down the track will be out of the control of the government and not all potential buyers are interested in the port as a public good.

Other countries, such as our neighbour Indonesia, restrict foreign ownership of port assets to 49% and many overseas governments are reluctant to sell monopoly assets such as ports to private investors.

Moreover, a port corporation can act as a trade facilitator and play an educational role, functions considered important even if there is no direct contribution to the bottom line. In a number of ports the educational role is clearly visible, and considered vital, given their need to communicate with the community about the importance of the port to the local economy. This is especially important when the port needs to expand and controversial measures need to be taken. For example, during the recent channel deepening of Port Phillip Bay, the management of community expectations and concerns by the Port of Melbourne Corporation was vital in bringing the project to a satisfactory conclusion.

Private owners of ports are less likely to undertake non-revenue raising activities and prefer to ‘sweat the assets’. For example, the Port of Brisbane closed down its port education centre after privatisation. The Port of Melbourne education centre will probably be one of the first port activities to go should privatisation occur. Conversely, the Port of Rotterdam’s multi-million dollar visitors and education centre, on their newly developed Maasvlakte 2, demonstrates the importance the port’s owner, the City of Rotterdam, places on this role.

The proposed price, $6 billion for the Port of Melbourne and up to $8 billion if the Port of Hastings is included, seems overly optimistic. There is virtually no infrastructure on either the landside or the water side at the Port of Hastings to support a large container terminal and hence no direct cash flow for the new owner (whether the Port of Hastings should be considered as an alternative container port at all is another story!).

With an expanded Port of Hastings a possibility, the proposed development of Webb Dock at the Port of Melbourne with a new container terminal and a potential increase of capacity by the current container terminal operators at Swanson Dock could be reviewed. It is doubtful whether the current bidders for the Webb Dock development would like to sink 250 million dollars into a modern container terminal with the threat of the Port of Hastings taking over as the main container port for the State of Victoria.

Although this threat currently exists, it can be better managed while both ports are under the control of the State government. A private operator is more inclined to minimise capital spending and maximise the return on investment.

Proposals from both the Coalition and Labor seem ill-conceived and made on the run in an effort to raise additional monies to spend on projects popular with voters in the lead-up to the November election. It will be interesting to see what the public will think in years to come of the opportunities missed by governments to make Victoria a more liveable and prosperous state through not having the political will to take a long-term view rather than trying to score points by selling off important government-owned assets to fund popular projects.

Dr Hermione Parsons
Director, Institute for Supply Chain and Logistics; Associate Professor, College of Business, Victorian University; Chairperson of the Supply Chain Advisory Network

Peter Van Duyn
Maritime Industry Expert, Institute for Supply Chain and Logistics at Victoria University; Member, Supply Chain Advisory Network