Australia’s competition watchdog has launched legal action against NSW Ports, arguing its deal with the state government to compensate Port Botany and Port Kembla if Newcastle develops a container terminal is both illegal and anti-competitive.
The Australian Competition and Consumer Commission started proceedings in the Federal Court on Monday against NSW Ports and its Port Botany and Port Kembla subsidiaries “for making agreements with the State of NSW that the ACCC alleges had an anti-competitive purpose and effect”.
The state privatised Port Botany and Port Kembla in 2013 with 50-year deeds which oblige the government to compensate the NSW Ports consortium if container traffic at Newcastle is above a specified cap.
ACCC chair Rod Sims said the state had used the compensation arrangement to fatten up the $5.1 billion lease price, but the deal came at the expense of a “long-term competitive market”.
Another 50-year deed, signed in May 2014 when the state leased Newcastle for $1.75 billion, requires Port of Newcastle to reimburse the government for any compensation paid to NSW Ports.
The Newcastle Herald revealed the secret agreements in 2016 after repeated denials in and out of parliament that any such limits on Newcastle’s container trade existed.
The ACCC alleges the reimbursement provision in the Newcastle deed is an anti-competitive consequence of the Port Botany and Port Kembla agreements and makes the development of a container terminal in Newcastle uneconomic.
A spokesman for Port of Newcastle welcomed the ACCC action and said the firm had a “clear plan to build a world-class container terminal and protect Australia’s competitiveness in a global market”.
The company’s plans are for a terminal on the site of the former BHP steelworks on the Hunter River.
The largely automated terminal would not be a significant employer, but it would cost several hundred million dollars to build and could spawn distribution warehouses at or near the Mayfield site.
Newcastle handles only about a third of the 30,000 containers it can receive before it must start paying compensation, but it is keen to build a new terminal and attract new business if the cap is removed.
The port is half-owned by China Merchants Group, a Chinese state-owned enterprise with extensive experience in developing and operating container terminals.
“At a time when Australia risks being left behind, Newcastle is uniquely placed as a deep-water port with mature road and rail connections to handle the ships now managing much of the task,” the Port of Newcastle spokesman said.
“It is in the interests of the NSW and Australian economies that a world-class container terminal be built in Newcastle.”
Mr Sims said he had “long voiced concerns about the short-term thinking of state governments when privatising assets and making decisions primarily to boost sales proceeds”.
The ACCC is seeking declarations that the compensation provisions in the 2013 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.
Mr Sims may have the government in his sights, but the Act applies to the conduct of state governments only in certain limited circumstances.
The government is not a party to the ACCC’s proceedings and the ACCC is not seeking orders against the state.
NSW Ports said in a media statement that its agreements with the NSW government were “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,” it said.
“NSW Ports is 80 per cent owned by Australian superannuation funds investing on behalf of more than 6 million individual Australians.
“The success of Port Botany and Port Kembla is in the national interest.”
Mr Sims said the ACCC was taking legal action to remove a barrier to competition in an important market which had “significant implications for the cost of goods across the economy, not just in NSW”.
“The impact of any lessening of competition is ultimately borne by consumers,” he said.
“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.
“These anti-competitive decisions ultimately cost consumers in those states and impact the wider economy in the long term.”