KPMG’s Bernard Salt yesterday penned an interesting piece in The Australian on the importance of Australia’s port assets, given we are a “trading nation” highly dependent on international trade for prosperity and living standards:
Australia is a trading nation. We rely on our ports to deliver and to facilitate much of our wealth. The logic is simple. We produce far more than we consume, which means that we must export products and services in order to maintain our standard of living.
About 20 per cent of the Australian GDP is underpinned by the export industry…
It is in our standard-of-living interests to have ports that are clinically efficient in getting excess production to overseas markets. By my reckoning, there are 43 leading ports around Australia that manage the import/export trade although perhaps a quarter of these handle most traffic…
Most of Australia’s container traffic comes through the ports of Melbourne and Sydney, which in 2013 ranked No 58 and No 66 busiest in the world with 2.5 million TEU (twenty-foot equivalent units) and 2.2 million TEU, respectively…
But Australia’s trading strength doesn’t lie in the export of containerised product through Melbourne and Sydney. It lies in the bulk handling of agribusiness and mining product coming out of ports in remote locations. Ports are like secret access points through which Australia accommodates the inflow of foreign wealth…
Australia’s ports deliver the export dollars, the cream if you like, that underpin the Australian way of life…
The obvious question that arises after reading this article is: if our ports are such important gatekeepers to our prosperity, then why have our government’s been so keen to sell them off?
This exact question was posed recently by ACCC head, Rod Simms, who warned that the privatisation of key port assets – like the Port of Newcastle and the Port of Melbourne – could create genuine competition risks, whereby the new private owners use their market power to force-up user costs and boost their profits, thus acting as a hidden private tax on the Australian public, making us worse-off.
Indeed, as reported earlier this week by Fairfax’s Kenneth Davidson, former ports boss Michal Frydrych noted deep reservations about selling the Port of Melbourne:
“I have always operated on the premise that ports are vital to the development of countries and should play a supporting role to the rest of the economy”…
[We’ll] pay more for goods, as the logistics chain is hugely overpriced.”
ANL managing director, John Lines, is also concerned:
“We remain opposed to the privatisation of state-owned monopoly ports.”
He said the prices paid to cash-strapped governments are attractive but the consequence is prices will go up and flow through the whole economy: “Port and other State asset privatisation are taxes by stealth which will be paid for decades to come,” Mr Lines wrote.
Some simple calculations show that the cost of these taxes will be horrendous…”the only way is up for prices”.
Davidson also noted:
The world’s greatest container ports such as Singapore, Rotterdam and New York remain in public ownership for the simple reason that they have to serve conflicting objectives…
Port efficiency defined as serving the public’s interests was never a consideration in the POM privatisation. The real objective was to find someone prepared to pay the highest price in order to create the biggest slush fund for the incumbent government to fight the next election.
Why should governments like Victoria with AAA credit ratings effectively borrow money at 11.5 per cent to finance anything – good or bad – when an equivalent amount of money could be borrowed on international financial markets for 20 years at 2.2 per cent?
The first rule of any asset privatisation should be that it boosts competition within the relevant market, or at a minimum does not lessen competition.
In the case of natural monopolies, a proper regulatory environment must first be put in place (which inevitable lowers the sale price), otherwise its sale will merely shift a public monopoly to a private monopoly, raising costs for end-users.
Unfortunately, the privatisation of Australia’s ports have broken this golden rule, placing achieving a heavy sale price above the interests of users, in turn stifling the nation’s competitiveness, productivity and growth in living standards.
