Moves to privatise the Port of Melbourne have taken a further step forward with the Australian Competition and Consumer Commission (ACCC) determining that it will not oppose proposals by two different consortia to acquire the 50 year lease of the Port of Melbourne.

The Port of Melbourne (POM) is the largest container and cargo port in Australia. The Victorian government commenced the formal transaction process for the 50 year lease of the POM in March this year. Ports have strong natural monopoly characteristics — there are usually few close substitutes, they are capital-intensive and expensive to replicate, and are often considered essential infrastructure because of the vital role they play in facilitating international trade and economic growth. The POM size and unique position and infrastructure gives the Port a degree of market power. It is generally agreed that there is a strong prima facie case for industries and assets with these characteristics to be regulated formally. However, with a few exceptions, in Australia (and, indeed, many other parts of the worlds) ports have not been subjected to formal, intrusive forms of economic regulation. In part, this is because government ownership is seen to provide a discipline on the pricing of port services.

The ACCC’s informal review of both the IFM Consortium and QIC Consortium proposals focused primarily on the cross-ownership interests in the NSW Ports, and the Port of Brisbane, and vertical relationships with port services providers operating at the POM. The ACCC found that the proposed acquisitions were unlikely to lessen competition, for a number of reasons. The ACCC found that competition between major Australian ports is limited, and the structure of the acquisition meant that there were consortium members who would not have interests in other ports, and so were likely to have an incentive to continue to compete for the above trade and customers.

The ACCC also considered the protections, particularly in relation to general port charges, offered by the new price regulatory regime. This regime will be administered by the Victorian Essential Services Commission (ESC). Consistent with Frontier (Asia-Pacific)’s advice to clients over many years, the sale of critical infrastructure often gives rise to new regulatory arrangements which formalise or strengthen previous Government controls. The new ESC-administered regime has a number of protections for users, including directions to the port lessee to cap annual tariff increases at CPI for 15 years, and otherwise to price consistently with a standard regulatory building block model for the majority of the port’s services. The ESC will monitor compliance and conduct 5 yearly formal reviews of pricing behaviour.

Frontier is assisting the ESC with implementation of the price regulatory regime that will apply to the Port of Melbourne.

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