A controversial Bill that could remove a financial penalty imposed on the Port of Newcastle, which prevents it from developing a container terminal, will now pass into law.
It’s been a fast-moving week in the NSW Parliament, with the “Port of Newcastle (Extinguishment of Liability) Bill 2022“, being substantially re-written by the NSW State Government, then passed in the Lower House (the Legislative Assembly), being substantially re-written by the Opposition in the Upper House (the Legislative Council), undergoing a complete re-write back to the State Government version, and then clearing the Upper House.
Cross-payments and liabilities
The Port of Newcastle was put at a disadvantage in relation to any future container handling operations during the 2013 and 2014 port privatisations by the Mike Baird administration. The State Government set up two deeds (the Port Commitment Deeds) – one between itself and NSW Ports and, another, separate, deed between itself and the Port of Newcastle. Under the deeds, the State Government is required to pay a fee to NSW Ports for every TEU handled above a certain trigger point at the Port of Newcastle. The payment then triggers a requirement for the Port of Newcastle to pay about $100 per TEU to the State Government every time makes a payment to NSW Ports.
There have long been proponents of building a container terminal at Newcastle. The former version of the Newcastle Port Corporation wanted to build a container terminal as far back as 2003.
“Newcastle Port Corporation has a longstanding strategy to develop the next container terminal in New South Wales on the Mayfield site. This strategy is consistent with the NSW Ports Growth Plan (2003) which identified the Mayfield site in the Port of Newcastle as the location for the State’s next container terminal”, the Newcastle Port Corporation annual report of 2010-11 reads (page 59, bottom paragraph, left-hand column).
There was also substantial interest from a private port operating company based in Australia in developing a container terminal at Newcastle.
However, by potentially subsidising NSW Ports at the expense of the Port of Newcastle, the financial arrangements in the Port Commitment Deeds effectively sabotaged any chance that a container terminal would be developed at Newcastle.
The Greg Piper MP (the NSW elected official for Lake Macquarie; Independent), who introduced the Port of Newcastle (Extinguishment of Liability) Bill 2022 commented in Parliament that the privatisation arrangements were “a very bad deal brokered by a former government to the great detriment of the State’s economic potential… what was not clear at the time [of the privatisation] was that the reason NSW Ports was willing to pay so much for Botany and Kembla was because they were essentially given a monopoly on container trade in and out of the State for the next 50- plus years. That did not happen by accident. It later emerged that NSW Ports had lobbied the Government for the sweetest of deals, locking out competition on containers until 2065. That drove up the sale price for obvious reasons, and it was gladly accepted by a government with dollar signs in its eyes at the time and little regard for the long-term impacts”.
Version one of the Bill
As introduced, the first version of the Bill simply proposed to extinguish the liability of the Port of Newcastle to reimburse the State Government.
Version two (and the final version) of the Bill
The second version of the bill, as it passed the lower house, was substantially re-written by the State Government. Although the Opposition re-wrote the bill for the Upper House, the NSW State Government changed it right back. The final version of the Bill as passed by both Houses would give the Port of Newcastle a one-off right to request a “determination of the relevant compensation”.
The State Treasurer would then be required to appoint an “appropriate person” who would then determine – on an objectively-reasonable basis – the amount by which the value of the Port of Newcastle lease was reduced because of the financial arrangements made at the time of privatisation. This is labelled as the “relevant compensation” the Bill.
From the day that the Port of Newcastle operator pays that compensation to the State Government, then the provision in deed requiring the Port of Newcastle to pay the State Government would have no legal effect.
So, in simple terms, if the Port of Newcastle requests it, a valuer will be appointed to work out by how much the price of the lease of the Port of Newcastle was depressed by the financial arrangements of the privatisation. If the private port operator then pays that value to the State Government then the State will have received fair and true monetary compensation in return for granting a right to the private port operator to run the port. Accordingly, the financial penalties that would greatly discourage the private port operator from developing a container port will be extinguished.
The Hon. Sam Farraway (Minister for Regional Transport and Roads), commented in Parliament on behalf of the State Government that, “the bill [as it originally was] would likely have had a significantly negative impact on the taxpayer as it would have removed the reimbursement provisions that were a condition placed upon the Port of Newcastle, for no due consideration. In effect, it was a taxpayer subsidy to the Port of Newcastle. It left the State as the sole party liable for any compensation payable to NSW Ports under its port commitment deeds”.
The plot thickens… yet continues to be kept secret
In the Legislative Council, the Opposition proposed a near complete re-write. Much of that detail is now somewhat irrelevant as the State Government’s version of the bill has now passed. However, it is worth noting that, under the Opposition version of The Bill, the State Treasurer would have had to publish the Newcastle, Botany, and Kembla Port Commitment Deeds and table the documents into the State Parliament (which would make them public documents).
Under the version as passed, however, there is no requirement to publish any of this documentation.
The original deals were done under great secrecy – the details were not openly, fully, and transparently revealed to the taxpayer. The subsequent litigation in the Federal Court by the Australian Competition and Consumer Commission was also thrown under a broad cloak of secrecy.
The State Government issued a gagging order under the “Public Interest Immunity” doctrine and there is an eight-year ban on the court file documents being made public. The judgement itself has, of course, been redacted.
Shipping Australia will leave it to the reader to determine for him or herself whether the imposition of such a broad secrecy regime, which has already lasted for about a decade and which is scheduled to last for another seven years, is justifiable in relation to a public transaction by public officials involving public assets, which was then litigated by one set of public officials (the ACCC) before another set of public officials (judges) in a public forum (the courts) – all of which was funded by the use of public money.
Backgrounder: a disadvantaging deal
Port Botany and Kembla were leased on a 99 year lease for AUD$5.07 billion to NSW Ports and, the following year, Port of Newcastle was then leased for 99 years for AUD$1.75 billion. Many of the details of the deal were kept secret.
It later transpired that the NSW Government had entered into two, secret, separate Port Commitment Deeds, of 50 years in duration, with each of the new port operators.
The NSW Port / NSW Government deed requires the State Government to pay a compensation fee for each container handled by the Port of Newcastle above a 30,000 threshold figure (Shipping Australia understands that trigger point is now increased to about 50-55,000) in any given year.
The Newcastle / NSW Government deed then obliges the Port of Newcastle to pay a reimbursement fee of about $100 to the State Government if the State Government has had to pay NSW Ports.
The competition watchdog, the Australian Competition & Consumer Commission, subsequently litigated against NSW Ports but lost in the Federal Court on a series of technical points. The ACCC has subsequently launched a legal appeal.
Further reading:
ACCC takes action against NSW Ports
Court dismisses ACCC case against NSW Ports
Judgement: Australian Competition and Consumer Commission v NSW Ports
