Beware privatisation that hinders competition
Australia’s consumer watchdog chief, Rod Sims, is a long-term advocate of privatisation. But he's on the brink of changing his mind.
Why? Because Australian governments keep sacrificing the long-term good of the economy in a bid to artificially boost the price of assets they put on the market.
Sims, who is chair of the Australian Competition and Consumer Commission, said in a recent speech he was "almost at the point of opposing privatisation because it's been done to boost proceeds, it's been done to boost asset sales and I think it's severely damaging our economy".
A few years after the privatisation of NSW’s three biggest ports, NSW voters are beginning to get a sense of why Sims is so frustrated.
In April 2013, then NSW treasurer Mike Baird declared the $5.1 billion long-term lease of Port Botany and Port Kembla together “a great win for NSW”. A year later he announced another “momentous result” with his $1.75 billion privatisation of the Port of Newcastle, the world’s biggest coal port.
But in mid-2016 The Newcastle Herald published a secret document that must have had Rod Sims rolling his eyes.
It was a confidential “Port commitment” obliging the operator of a future Newcastle container terminal to pay a compensation fee (called a "cross payment" by the NSW government) to the operator of Port Botany and Port Kembla once it had moved a relatively small share of the containers that arrive in the state each year.
That helped boost the price the NSW government received for the long-term of lease of Port Botany and Port Kembla.
But now a report by Deloitte, commissioned by the Port of Newcastle, has drawn attention to the potential downsides.
Even though Newcastle port operators knew about the restrictions when they took on the long-term lease, they would now like to diversify into handling containers.
But the Port of Newcastle would have to pay about a $100 "cross payment" for each container unit it moves above a 30,000-per-year threshold (Port Botany now moves about 2.4 million a year).
That makes a Newcastle container terminal unviable.
But as the Deloitte report shows, moving more containers through Newcastle could have real benefits for Sydney motorists by slashing the number of truck movements now clogging up our roads.
A new container port to the north might also reduce or delay the amount spent in future on infrastructure to help get containers in and out of Sydney's congested streets and rail links.
It would also create more competition in the NSW ports sector, which would improve productivity and boost the state’s economic output.
Deloitte estimates that once WestConnex is operating, the tolls to move each container west from Port Botany will add $60-80.
That’s a handy boost for the controversial WestConnex project. But ultimately that cost will be paid by the state’s producers and consumers.
No wonder Rod Sims has become so disillusioned about privatisation.