Australian government backs Port of Newcastle over customers in dispute

Treasurer Josh Frydenberg ruled in favour of Port of Newcastle, partly owned by MIRA-managed The Infrastructure Fund, in a dispute over access with the NSW Minerals Council.

Australian treasurer Josh Frydenberg has ruled in favour of the Port of Newcastle in a dispute over access charges between its owners and the New South Wales Minerals Council, a body representing the state’s minerals and mining industry.

The ruling saw Frydenberg accept that the Port of Newcastle, owned by The Infrastructure Fund (managed by Macquarie Infrastructure and Real Assets) and China Merchants Group, is a bottleneck for the export of coal from the Hunter Valley region, giving it considerable bargaining power over coal producers who have sunk costs in the area.

However, he stated in his decision that the port is not vertically integrated into dependent markets (defined as the coal export market, markets for the provision of infrastructure related to mining operations, specialist services and bulk shipping) in any meaningful way and as such has no incentive to deny access to firms operating in those markets.

The ruling is significant in that it sees the Australian government side with a monopoly infrastructure asset in a dispute over pricing with its customers, an area that has caused tension at the Port of Newcastle and in other assets in recent years.

In July 2020, the NSW Minerals Council applied to the National Competition Commission, an advisory body that provides recommendation to governments on the regulation of third-party access to services provided by monopoly infrastructure, requesting that certain services at the Port of Newcastle be declared under the National Access Regime.

It was doing so because it argued that miners were not able to access the port’s shipping channels and other services under reasonable terms and conditions, which the port’s owners denied.

If declaration were granted, it would facilitate third-party access to the port, and overturn a revocation of the port’s declared status that was made in September 2019.

After an appeal was made to try and have the declaration reinstated, the NCC ruled in December 2020 that it would not declare the port’s services under the National Access Regime, a decision which Frydenberg has now endorsed.

Frydenberg also said that the port was not capacity constrained and was unlikely to be in the near future, had provided an open access arrangement and offered a 10-year deed to exporters wishing to use the port, and the prospect of potential NSW Government intervention would provide a low level of constraint on the port’s pricing, absent a declaration of its services.

“Given the importance to the Port of Newcastle of coal mining revenue, and its long lease, where there is the prospect of further investment and continued demand for coal export services, [Port of Newcastle] is likely to be mindful of reputation effects caused by its pricing,” the treasurer said.

Frydenberg said that while he was satisfied that the Port of Newcastle did meet the criteria for declaration under Australia’s National Access Regime, he was not satisfied that a declaration would lead to a material increase in competition in Australia or any other market and would not promote the public interest.

‘Disappointing’ decision

NSW Minerals Council chief executive Stephen Galilee said in a statement: “The decision taken by the treasurer to not declare the Port of Newcastle is disappointing. However, this outcome is not surprising given the weakness of the current regulatory framework relating to monopoly infrastructure providers in Australia.

“This decision further highlights the need for reform to address the ability of the monopoly provider of such a critical piece of national infrastructure to operate without any effective regulatory oversight relating to how it treats its users and customers.

“These concerns are further heightened by the desire of the Port of Newcastle to significantly expand its container terminal operations, with associated pricing and access risks for existing and future Port users without appropriate regulatory oversight in place.

“The NSW Minerals Council will continue to seek all options available to secure appropriate regulatory oversight for what is the world’s biggest coal export terminal, including fair and reasonable terms of access and pricing for port users.”