NSW Ports taken to court over ‘anti-competitive and illegal’ deal

The Australian Competition and Consumer Commission has launched court proceedings against NSW Ports and its subsidiaries – Port Botany Operations and Port Kembla Operations – over what it calls an “anti-competitive agreement” the private ports operator made with the state government of New South Wales in 2013.

NSW Ports is owned by IFM Investors (with a 45 percent stake on behalf of Cbus, Hesta and Hostplus), AustralianSuper (20 percent), Tawreed Investments (20 percent) and QSuper (15 percent). The consortium secured the 99-year lease to operate Port Kembla and Port Botany for A$5.01 billion ($3.6 billion; €3.2 billion) in April 2013.

As part of that privatisation process, NSW Ports signed agreements with the NSW government that obliged the latter to compensate the operators of Port Kembla and Port Botany if container traffic at the Port of Newcastle, north of Sydney, rises above a minimum specified cap, set at 30,000 TEUs (20-foot equivalent container units) annually.

These agreements, known as the Botany and Kembla Port Commitment Deeds, have a term of 50 years and the ACCC contended today that they were “likely to prevent or hinder the development of a container terminal at the Port of Newcastle” and “had the purpose, or was likely to have the effect of, substantially lessening competition”.

The ACCC is taking NSW Ports to federal court, seeking a ruling that the deeds contravene the Competition and Consumer Act 2010 as well as an injunction against NSW Ports from seeking compensation under the provisions. The NSW Government is not a party to the proceedings because the Competition and Consumer Act only applies to state governments in limited cases.

It is the latest intervention by the ACCC in Australia’s private infrastructure sector, following uncertainty over whether it would approve the Transurban-led consortium’s bid for the WestConnex road project earlier this year. The bid was eventually approved.

It is unclear why the competition watchdog has initiated court proceedings six years after the signing of the deal.

Port Botany is currently the only port in NSW with dedicated container terminal facilities and had a throughput of approximately 2.7 million TEUs for FY17/18, the ACCC said.

Port Kembla has handled approximately 1,600 TEUs per year since it was privatised, while the Port of Newcastle has handled approximately 10,000 TEUs per year since it was privatised in 2014.

During the Port of Newcastle privatisation, the NSW Government signed another 50-year deed with the successful bidders that, in turn, required them to reimburse the government for any compensation it would have to pay to the operators of Port Kembla and Port Botany should container traffic rise above the cap.

The ACCC alleged that the Port of Newcastle deed was “an anti-competitive consequence” of the Kembla and Botany deeds and that it made the development of a new container terminal at Newcastle “uneconomic”.

“The compensation and reimbursement provisions effectively mean that the Port of Newcastle would be financially punished for sending or receiving container cargo above a minimal level if Port Botany and Port Kembla have spare capacity,” ACCC chairman Rod Sims said in a statement.

A consortium comprising Hastings Funds Management, on behalf of The Infrastructure Fund, and China Merchants Port Holdings Company, secured the 98-year lease for the Port of Newcastle for a price of A$1.75 billion in 2014.

Sims said: “We are taking legal action to remove a barrier to competition in an important market – the supply of port services – which has significant implications for the cost of goods across the economy, not just in New South Wales. The impact of any lessening of competition is ultimately borne by consumers.”

He added that he had “long voiced concerns” about the “short-term thinking” of state governments when privatising assets, accusing them of making decisions that boosted sale proceeds at the expense of creating a competitive market in the long term.

NSW Ports said it would “vigorously defend” the proceedings as it had paid A$5.1 billion to the NSW Government based on the “full contractual terms contained in the agreements”.

“NSW Ports is 80 percent owned by Australian superannuation funds investing on behalf of more than six million individual Australians. The success of Port Botany and Port Kembla is in the national interest,” it added.

IFM Investors directed requests for comment to NSW Ports.