A publication of the Centre for Advancing Journalism, University of Melbourne

Politicking to push Melbourne port deal well into 2016: experts

The State Government’s open tender for the lease of the Port of Melbourne will take much longer to get off the ground than first expected, according to maritime experts. 

Words by Derrick Krusche

Michael Neylan, a partner at global law firm K&L Gates who specialises in maritime infrastructure, said that the tender would probably be delayed well into next year given the current political stalemate.

“I don’t think the process will be complete until 2016, so they’re looking I think at another 12 months,” he warned.

Peter van Duyn, a maritime logistics expert at Victoria University, agreed with the emerging time lines, lamenting that once again political bickering was hindering a big infrastructure project in the state. 


“There’s talk that the lease might be finalised by early next year, so it could be quite a lengthy process,” he said. “What really upsets me is that the privatisation of the port has now become a political football. We are seeing more and more infrastructure projects like this, like the East West Link, becoming political footballs.”

Victorian Treasurer Tim Pallas reiterated the Government’s commitment to the tender in an email exchange with The Citizen, saying he expected it to go to market in the first quarter of 2016.

“Should the Liberal Party break its own pre-election promise to lease the Port of Melbourne, the State Owned Enterprises Act — which has been used in recent transactions, most recently in 2014’s Rural Finance Corporation transaction — could be used,” he wrote. Provisions of the act, which was introduced by Kennett Government Treasurer Alan Stockdale, would allow Labor to go ahead with the lease without parliamentary approval.

The former Napthine Government announced the sale of the Corporation to Bendigo and Adelaide Bank in May last year, netting state coffers more than $400 million.

The leasing of the Port of Melbourne, Australia’s busiest shipping hub, is a means of underwriting the Andrews Government’s $6 billion signature election policy of removing 50 level rail crossings throughout Melbourne. A lease, as opposed to a sale of the port, would also allow for the underlying land and improvements to be put back into public ownership on its expiry.

During last year’s election both major parties campaigned in support of the lease but the Coalition has backed away in Opposition, citing as its reason a clause expected to be included in the deal that could entitle the prospective leaseholder to compensation should an additional port be built in Victoria within the 50-year lease term.

Opposition Leader Matthew Guy has described the rider as a “poison pill”, ensuring that a second port will never be developed.

Leading maritime industry analyst Sandy Galbraith said the clause guaranteeing compensation was an onerous penalty for any future government, as well as for Victorians.

Both Mr van Duyn and Mr Neylan agreed that the Port of Melbourne would reach capacity well before the 50-year lease expired.

The Napthine Government had previously recruited KPMG to assess when the Port of Melbourne would likely reach capacity. It concluded that the port would not be able to process more then 5.3 million shipping containers annually.

However, an unnamed KPMG executive reportedly told Fairfax Media that the capacity figure had been forced upon the firm by the Napthine Government in order to “fast track the development” of the Port of Hastings in Western Port Bay.

Mr Neylan said it appeared that the Napthine Government had wanted to jump on the bandwagon after ports privatised in New South Wales in 2013 attracted very high prices. “I think there was an imperative in Victoria to get the assets to the market quickly, to cash in on that market appetite,” he said.

Mr Neylan said it was now a test for the Andrews Government to see whether it could generate that same level of interest. The potential development of another port in Victoria had cast a long shadow over the lease. Further complicating matters was Labor’s preference for that port to be located in the west of Port Phillip Bay (Bay West) rather than at Hastings.

Due to Australia’s economic geography, ports typically do not compete directly with one another for business, but an additional port in Victoria would deprive the Port of Melbourne of its monopoly.

Mr Neylan was adamant that investors would need to think twice about this, given that they would be required to put down a large amount of money up front and that returns could not be expected until well into the lease period.

“If another port is up and running [then] they’ve got a contestable, competitive environment rather than a monopoly environment, so this calls into question their ability to achieve their rates of return,” he said.

Mr Neylan said that the eventual buyer would likely be a consortium of pension and superannuation funds, and institutional investors.

“Ports have very stable, long-term cash flows, which suit pension or superannuation funds that must meet liabilities that are also of a long-term nature,” he said.

Once a consortium was formed it would typically hire a large financial advisory firm to work out funding and structuring matters and then participate in a bidding war with other competing groups.

Meanwhile, the Port of Melbourne Corporation apparently confronted stevedore DP World with a massive 700 per cent rent hike after its lease came up for renewal at the end of last year. Both Mr van Duyn and Mr Neylan viewed this as an effort to increase the sale price of the port.


“My gut feeling is that some sort of commercial sanity is going to have to prevail,” said Mr Neylan. “Pumping up their lease rental by 700 to 800 per cent is a pretty transparent exercise in increasing the value of the asset or, as some commentators have described, ‘fattening the pig for market’.”

Mr van Duyn, who has previously worked as a manager for stevedore Patrick Corporation, said that company was in a similar position to DP World a decade ago but it received a better deal after taking a rent hike to an independent valuer. DP World had now invoked a similar process.

Both analysts also noted that a private company’s primary motive was turning a profit rather than a sense of community obligation. “The new owner could use its monopolistic position to squeeze extra money out of the port and shippers wouldn’t have any other option,” Mr van Duyn said.

The political difficulty facing the Andrews Government was to ensure that the interests of all competing participants were harmonised, according to the experts. In the past, this had proven difficult. Extracting too high a price for the port could force a buyer to increase charges in an attempt to recoup its investment, as was the case with Brisbane’s port privatisation in 2010.

But accepting too low a price would expose the Government to charges of hiving off public assets on the cheap. 

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