IPART has determined how much the Port of Newcastle needs to pay the state of NSW to end the legislative process that requires the port to reimburse the state if its container trade exceeds a specified level.

IPART – the NSW Independent Pricing and Regulatory Tribunal – determined that the current value of the one-off compensation payment owed to the state (to reimburse the state for compensation payments owed to NSW Ports) is $13.1 million.

This figure was adjusted for inflation to December 2023. In 2014 dollars, the value is $10.12 million.

Port of Newcastle said the the details of the determination are yet to be fully examined, but once complete, the port would “no longer be penalised for competing against Port Botany” with its own container trade.

Speaking to media on Friday, Port of Newcastle CEO Craig Carmody said it was “a great day” for the port.

“Today is a significant and historic milestone for Port of Newcastle and regional NSW, a path forward that means we will no longer be penalised for wanting to offer choice and competition in NSW container trade,” Mr Carmody said.

But NSW Ports believes IPART’s decision confirms the perceived merit of the state’s exisiting port policy.

“The extraordinarily low compensation value attributed by IPART re-affirms that the state’s container port policy remains fit-for-purpose,” a spokesperson for NSW Ports said.

“At a mere 0.6% of the total acquisition cost by the Port of Newcastle the compensation value confirms that there is limited economic viability in a container terminal at Port of Newcastle.”

NSW Ports has previously raised concerns with DCN around the movement of containerised freight from Newcastle to Sydney, such as truck movements, road congestion, emissions and the cost of infrastructure.

The NSW Ports spokesperson believes the “billions of taxpayer dollars” that would need to be spent on road and rail infrastructure to support the container terminal remain unjustified.

“There has been no change since Port of Newcastle was privatised that alters this position, as reflected in the Federal Court’s judgment in 2021 in the action brought by the ACCC, which noted that the prospect of Port of Newcastle developing a container terminal in the reasonably foreseeable future while Port Botany has capacity ‘is fanciful, far-fetched, infinitesimal or trivial’,” they said.  

“Container handling through Port Botany remains the most cost-effective, efficient and sustainable supply chain for the state.”

Determination background

IPART, appointed in March last year to determine the value of this payment, did so under the Port of Newcastle (Extinguishment of Liability) Act 2022.

“IPART was appointed under that legislation to determine this value and the law requires that determination to be made in a very specific way,” IPART chair Carmel Donnelly said.

IPART was required to determine how much the inclusion of the reimbursement provision would have reduced the financial value of the right to operate and lease the assets of the Port of Newcastle for 98 years, in the opinion of a reasonable person, at the time the Port of Newcastle Deed was entered into.

“This could be described as what a reasonable person, bidding for the right to operate and lease the Port of Newcastle in 2014, would have reduced their bid by, because of the requirement to reimburse the state for payments to NSW Ports,” Ms Donnelly said.

“IPART was only allowed to consider information that could have been known in May 2014, when the transaction to privatise the Port of Newcastle was finalised.”

“One final regulatory roadblock”

Mr Carmody said with the determination figure handed down, the port has “one final regulatory roadblock” to remove before it can make meaningful progression on a container terminal.

With the legislative process nearing completion, the port has turned its attention to the NSW Freight Reform Review, which is a determinant of state planning decisions.

“While we are delighted that the determination has been made, we now need to ensure the NSW Freight Reform Review, which the NSW government has commenced, also reflects the decision by Parliament to promote competition through the Port of Newcastle (Extinguishment of Liability) Act,” Mr Carmody said.

“The current Freight and Ports Policy states that Port Kembla is the designated second port for a container terminal in NSW, which impacts Port of Newcastle’s ability to get planning approvals for its own container terminal.

“We hope the NSW Freight Reform Review will agree that there should be a level playing field for competition rather than the state trying to pick winners,” he said.

NSW Ports maintains that Port Kembla is the most appropriate location for the state’s second container terminal.

“Once Port Botany reaches capacity, Port Kembla, as the next proximate location to the state’s largest population and business centres, makes the most sense for a second container terminal,” NSW Ports’ spokesperson said.

The emerging container trade

Port of Newcastle has noted the IPART determination process allowed interested parties to make submissions, informing the independent body’s review and determination for the one-off payment.

As such, the port assumes it has the support of all sides of parliament to move toward expanding container operations.

Port of Newcastle intends to keep growing its exiting container trade through its new Multipurpose Terminal.

“Our immediate focus will be the continued growth of container trade through our existing Multipurpose Terminal, which we have invested over $35 million in and currently has planning approval for 350,000 containers [TEU] a year,” Mr Carmody said.

A regular container service to Newcastle began in September 2023 with Neptune Pacific Direct Lines calling the terminal. Mr Carmody said Port of Newcastle has also been in conversation with other shipping lines regarding the emerging container trade.

“We started that work before we’d even have this success, because we decided we could no longer just keep being told ‘no’,” he said.

“So we started developing a container operation at Mayfield, essentially to prove to people in Sydney that there is a need for competition, there is a need for choice.

“I’m hoping off the back of this it will give us a bit more momentum and a bit more attention from shipping lines.”

Mr Carmody believes IPART’s determination gives the container trade a sense of inevitability.

“It doesn’t matter whether we build this container terminal in the next seven years – which is how long it will actually take – or the next 10 to 15 years. The facts are, there will be a container terminal built at Newcastle, and it will have competition, and once that competition happens, I’m absolutely certain the Port of Newcastle container terminal will continue to grow.”

According to IPART, any amount payable by the state to NSW Ports under a separate 2013 arrangement, may be “quite different” to the Port of Newcastle can pay the state to extinguish its liability.

The amount of any compensation payable by the state to NSW Ports is calculated each year based on actual container throughput at the Port of Newcastle and wharfage charges at Port Botany and Port Kembla.

IPART noted it was not tasked with determining the amount payable under this separate 2013 arrangement.

This story has been updated to include comments from NSW Ports.