VICTORIA’S economic regulator, the Essential Services Commission, is conducting its first five-year inquiry into the Port of Melbourne’s compliance with the state government’s requirements for how it has set prices for services.
The scheduled inquiry, which covers 1 July 2016 to 30 June 2021, is the commission’s first five-yearly examination of the port’s compliance.
A public hearing was held Thursday, where Port of Melbourne CEO Brendan Bourke and three stakeholders – Shipping Australia, DP World and Patrick – gave presentations to the commission, outlining issues.
The two stevedores that presented said the Port of Melbourne’s proposed investment in Webb Dock would be inefficient and it would favour one container stevedore over the other two at the port.
DP World CEO Andrew Adam said his company it intends to play an active role in the ESC process, after having been inactive in other such processes.
“Our recent experience with the Port of Melbourne Webb Dock extension proposal, which removes a knuckle and extends the quay line at Victoria International Container Terminal by 70 metres, will create disproportionate and lopsided excess capacity at the port,” he said.
“We believe this is a flawed decision, and highlights for us the need for stronger and better regulatory oversight.”
“The role of the pricing order is to ensure that investment in the port happens on the right assets, at the right time and at the right price to serve the need of the overall port. It is also meant to ensure transparency so we can have confidence around our own costs and capital investments.”
Mr Adam said DP World would make submissions to the ESC that identify areas where the Port of Melbourne has “consistently failed to comply with the pricing order of the last five years, as well as make suggestions as to how better and more effective oversight can occur”.
“From our perspective, the risk of allowing the Port of Melbourne to continue to fail to comply with the pricing order are becoming critical to Victorian port users and the wider economy. If the Webb Dock extension proceeds, it will have a serious and long-term impact on stevedoring and stevedoring jobs,” Mr Adam said.
“This is not just a consequence of inefficient cost of the project … but the exponential impact that the port’s decision will have on competition – what I regard as picking a winner and investing to favour one stevedore over others.”
He also said if Port of Melbourne is allowed to make inefficient investments, port costs will rise, and quickly outstrip other privatised container ports in Australia.
The current level of friction between stevedores and the port owner is serious, Mr Adam said.
“This is not the sign of a regulatory model that is working,” he said.
“This will ultimately undermine confidence in Melbourne as an attractive place for any of us to invest relative to other ports.”
Patrick Terminals CEO Michael Jovicic in is presentation largely echoed Mr Adam’s sentiments around the issue of the port’s proposed investment at Webb Dock.
“Our view as Patrick is that the Port of Melbourne is accelerating its published port development plans for Webb Dock,” he said.
“Our view is this is a rushed investment without proper assessment, it is unnecessary and will have significant ramifications for investments made at Swanson Dock in particular, port users and consumers more generally.”
Port of Melbourne CEO Brendan Bourke said the port considers it had achieved compliance with the regulatory regime.
“It is clear the framework and the regulatory environment we operate in is achieving its purpose; prices are compliant with the tariffs adjustment limit, we’ve been actively engaging with port users, and we’re investing to drive efficiencies, optimise capacities as volumes continue to grow and respond to industry changes,” he said.
“I want to emphasise that Port of Melbourne has been committed to effectively transitioning the business from a government-owned entity to a private asset manager under the new regulatory environment.”
Mr Bourke said there is a competitive dynamic in the port.
“This competitive dynamic means that it is unlikely when you’re doing work at precincts that you’re going to get endorsement or support across all three stevedores. That’s just the nature of the environment that is Melbourne.
“We’ve been very responsible in terms of the works we’ve undertaken, both at Swanson Dock in terms of the larger ships, in terms of rail.”
Shipping Australia CEO Melwyn Noronha said the flavour of his presentation is to focus on the governance framework.
He said, from a SAL point of view, it was pleasing to see the current framework in terms of the pricing order that the ESC has put in place since 2016.
“It has provided some restraint on price increases for some of the prescribed services since the port was privatised,” he said.
“Having said that, the biggest concern our members have at the moment and moving forward, is any proposed amendment to the pricing order and the process associated with it. Our members have told me loud and clear that any process moving forward they would like to be consulted and have input early in the piece, preferably some form of mechanism where the ESC can put in place where input is not just taken onboard but addressed appropriately.”
Under the port legislation, the commission must conduct a formal inquiry every five years and complete it within six months of the end of a review period. The inquiry will be completed by 31 December 2021, with a final report to the minister responsible for the commission, the Victorian Assistant Treasurer.
Over the past four years, the commission has provided annual feedback on aspects of the port’s annual tariff compliance statements to facilitate a transparent and predictable approach to the five-year inquiry.
In a press release announcing the commencement of the inquiry last month, ESC executive director of pricing Marcus Crudden said the commission would review how the port has calculated prices and the extent prices have changed between years, as required under legislation.
“The pricing order allows the Port of Melbourne to recover efficient costs for providing services such as wharfage, channel use, berth or area hire and other services,” Mr Crudden said.
“Our inquiry will examine whether the port has complied with the pricing order over the past five years, and the extent of any non-compliance.”