Surprise! Port of Melbourne’s privatisation gouges users

In 2016, the Victorian Government privatised the Port of Melbourne via a 50-year lease, which raked in $9.7 billion directly, plus another $1.45 billion earned via the federal government’s asset recycling program, thus taking the total sale proceeds to just over $11 billion.

However, the sale of the Port of Melbourne also raised genuine competition risks, with ACCC head, Rod Sims, turning against further privatisations following this (and other) port sales, as reported in The AFR at the time:

Price gouging by inadequately regulated monopolies before or after privatisation – all aimed at buffing the sale price for cash-strapped governments – is the common thread…

The Port of Melbourne hiked rents to stevedore DP World by about 750 per cent last year… and rents are not included in the proposed regulatory regime.

Last month it was revealed that users of the Port of Melbourne were up in arms over the continuing increase in fees charged by stevedoring companies. For example, fees charged by Victorian International Container Terminal on full containers at the Port of Melbourne would rise by 143% from 1 January, prompting calls for greater regulation:

Victorian Transport Association claims the Port of Melbourne is on track to becoming the most expensive port in the southern hemisphere as not only port access fees, but other charges like late arrival and “no show” fees increase.

“There is no avenue for appeal and no means of offsetting the cost, with the wharf carrier being left with passing these costs onto their customer and ultimately the consumer,” said the association’s CEO, Peter Anderson.

Thus, the high sale price for the Port of Melbourne came at the expense of the new private owners using their market power to force-up user costs and boost their profits.

This is a common thread seen time and time again with the privatisation of other ports, airport parking, toll roads, and utilities (e.g. electricity, water and gas). In almost all cases, the cost-of-living burden for users is the same as raising their taxes, albeit it in a less transparent manner since monopoly profits are easier to hide from public view.

As argued by professor Stephen King:

The government gets more today because we will all be paying more tomorrow…

Privatisation without competition risks turning a public monopoly into a private monopoly. The owners may change but the public will get ripped off just the same.

Hilarously, after creating the problem in the first place, now the Victorian Government has held a review into port fees, which will present its findings on 30 January:

Transport operators in Victoria will find out by the end of the month whether the state government is likely to regulate port fees when they are briefed on the outcome of a Deloitte review…

The Victorian government hired Deloitte to do the review after freight and transport groups complained about continued increases in “infrastructure surcharge fees” at the Port of Melbourne…

Road and rail companies as well as importers and exporters have to pay the fees, which have risen sharply over the past three years, to enter container terminals.

This is classic Australian governance: create a problem then retrospectively attempt to mitigate the problem via regulation.

More broadly, there are three general criteria for ensuring privatisations are in the public interest:

  1. it should increase competition within the relevant market, not lessen it;
  2. the upfront funds received from the asset sale should outweigh the expected net present value of future profits; and
  3. with respect to new infrastructure, the social benefits should exceed its social costs.

Unfortunately, most of Australia’s privatisations have not met these criteria, instead placing short-term financial windfalls above longer-term competitive and budgetary concerns.

The end result has been price gouging and, in many cases, greater economic inefficiency.

Leith van Onselen

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