Note: this article was written the day before the State Government announced that the Morgan Stanley report (to which the article refers) had been completed, and that the port privatisation would proceed. They have refused to release the report.
Most readers will be aware of the NSW government's decision -
announced as part of this year's state budget - to privatise the Port
of Newcastle, partly to fund light rail for the Newcastle CBD.
The state government's handling of the Newcastle Port privatisation
has affirmed the oft-quoted view of two prominent British economists in the
1980s that privatisation was "a policy in search of a rationale".
After the O'Farrell government auctioned 99 year leases for both
Port Botany and Port Kembla last year, Newcastle was left the only remaining major
public owned port in NSW.
The state government has engaged banker Morgan Stanley, who did
the job for them with the other two ports, to advise them on the commercial
sense of the Newcastle sale, and - if it proceeds - to find a buyer.
It struck some (including me) that a study into whether privatising
the port made commercial sense might have been more useful before deciding to sell it.
This gave the announcement the appearance of yet another
O'Farrell government policy "thought bubble", an impression
reinforced by the fact that senior NSW Ministers had specifically disavowed any
plans to privatise the Port of Newcastle and rejected the viability of light
rail for the Newcastle CBD in the months leading up to the sudden budget backflip.
In an article titled "Are we selling off the family silver by privatising Australia’s ports?", published just before the NSW
budget announcement, Peter van Duyn, a maritime industry expert based at Melbourne's
Institute of Supply Chain and Logistics at Victoria University, said:
The onus on a private port owner is to maximise the profits for shareholders and 'sweat the assets'. In contrast, a publicly owned port on the other hand has the capacity (and some commentators say duty) to stimulate regional development by investing in port infrastructure.
Of the Port Botany and Port Kembla sales, Mr van Duyn said:
while many may welcome the sale of such assets to fund necessary infrastructure projects, others have flagged that the concentration of port ownership may lead to steep price rises, as well as concerns over regulatory oversight.
So how does the proposed privatisation of an
income-generating asset such as the Newcastle Port Corporation stack up for the
NSW state government?
The corporation's current annual report values its total assets
at $502.18million. Its total revenue for 2012/13 was $99.475million, with an
after-tax profit of $22.84million. It paid $32.35million to the people of NSW last
financial year, in the form of $16.966million in taxes and interest payments, and
a dividend of $15.384million.
The state government says it expects to receive around
$700million from the sale (which will probably exclude pilotage and navigation
services), from which it will spend $350million on a light rail system for the
Newcastle CBD to replace the existing inter-city rail infrastructure and
service somewhere between Wickham and Broadmeadow.
Like the port sale, the state government hasn't yet
presented any detail of their proposed light rail system, or any business case
for it.
With so little crucial detail available, it's difficult to conclusively
assess the financial case for selling the port to fund light rail, but even the
most ardent advocates of the proposal have to accept that it involves swapping an
income-generating asset for one that will require significant ongoing government
expenditure, and will probably lead to an overall loss in public transport
patronage.
Hardly a persuasive case for privatising one of the Hunter's
key regional assets.
