The Victorian state government announced that the Lonsdale Consortium was the successful bidder for the 50-year lease for the commercial operations of the Port of Melbourne.  The port is the largest cargo and container port in Australia, with over 3,000 ships visiting each year. The announced lease price was $9.7 billion, well in excess of earlier forecasts.

While the Lonsdale Consortium will be responsible for improving and managing the operation of the port, the government will continue to regulate various aspects of the port.  Victoria’s independent economic regulator, the Essential Services Commission (ESC), will oversee an enhanced regulatory regime to provide some assurance to port users.

The regulatory regime, as implemented through a ‘Pricing Order‘ and the Ports Management Act, has a number of unusual features. This includes provisions that control prices for the first 15-20 years of the lease. Annual tariff increases will be capped at CPI through this period. In addition to this control, the Consortium will have to comply with a requirement to set an annual revenue requirement based on a ‘building block model’. While the ESC does not set or approve the inputs into the model, at defined review points it may make findings that the Port Licence Holder is not complying with Pricing Order; a finding of significant and sustained non-compliance could then trigger a range of remedies or further investigations.

Frontier (Asia-Pacific) is advising the ESC on the implementation of the new regulatory regime applying to the port.

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