The Port of Newcastle introduced savage price hikes that led to Federal Court action

THE head of Australia’s competition watchdog described price hikes of up to 60 per cent by the Port of Newcastle’s new owner in 2015 as an “ugly hit” that came back to bite it this week.

“I thought they’d be more subtle. I thought they’d eke out increases rather than just do it in one big ugly hit,” said Australian Competition and Consumer Commission chair Rod Sims after a Federal Court decision on Wednesday he described as “hugely significant” for unregulated ports around the country.

The Port of Newcastle’s “ugly hit” prompted a Glencore appeal in 2015 that ended with the Federal Court decision allowing the ACCC to intervene in pricing disputes between the port and its users.

It means unregulated ports like Botany, Port Kembla and Brisbane “would know they need to deal with their customers in a more commercial way” because of the precedent set by the Port of Newcastle decision, Mr Sims said.

Failure would mean the likelihood of other successful appeals in cases where unregulated ports used their monopoly status to disadvantage customers.

Glencore said it welcomed the decision, but did not respond to a question about whether it would immediately call for pricing to be re-negotiated, after Mr Sims said the decision against the port meant the users had bargaining muscle.

“Our hope is they will sort it out through negotiation. That was the ACCC’s aim all along, that this action would give some bargaining power for the users. If there are pricing issues the port users can say ‘Let’s take it to arbitration’.”

I thought they’d be more subtle. I thought they’d eke out increases rather than just do it in one big ugly hit.

ACCC chair Rod Sims

The competition regulator had “robust” discussions with the NSW Government before the port was leased for 98 years in 2014, reaping the state $1.75 billion. The ACCC expressed its strong concerns over the port’s unregulated monopoly status and the impact that would have on port users, and particularly mining exporters.

“We were very concerned that in selling the ports the objective was to maximise price rather than ensure good outcomes for the users of the port,” Mr Sims said.

Within months of taking control of the port the lease owners, Hastings Funds Management and China Merchants Group, flagged significant price rises of up to 60 per cent for the largest coal exporters, arguing that in the previous 20 years coal ship usage charges had increased by just 1.2 per cent.

“I think they just wanted to make as much money as they could, as quickly as they could,” Mr Sims said.

Glencore unsuccessfully appealed to the National Competition Council in 2015 to “declare” access to Port of Newcastle shipping channels, arguing prices had been substantially increased without any improvement in the quality of service provided, or significant consultation with port users.

Acting Federal Treasurer Mathias Cormann accepted the council’s recommendation not to “declare” the service, and Glencore appealed to the Australian Competition Tribunal in early 2016.

In June, 2016 the tribunal ruled in Glencore’s favour, after evidence from groups including the NSW Minerals Council, which argued the coal industry was facing “fragile market conditions” following more than a 30 per cent drop in coal prices over the previous two years, causing coal producers to re-evaluate their operations.

The tribunal heard the terms of the lease gave the Port of Newcastle the express entitlement to exclude access to the port’s shipping channels if shipping charges were not paid, with no structure in place to “manage” the prices set by the monopoly owner.

While the NSW Independent Pricing and Regulatory Tribunal had some jurisdiction to investigate the port’s pricing, the Australian Competition Tribunal noted “It is common ground that the IPART regime is not a certified or effective access regime.”

The Port of Newcastle appealed after the tribunal found it was a natural monopoly which exerted monopoly power, and there was no practical and realistic commercial alternative for users in the coal export market.

Glencore was joined by the ACCC in the Federal Court hearing.

The port on Wednesday expressed its disappointment after the Federal Court ruled against it.

Chief executive officer Geoff Crowe said the decision could have “wide-ranging implications for the profitability and value of nationally significant assets” and warned there could be “unintended consequences” for other infrastructure providers.

The port would “continue to engage proactively with its customers and the ACCC on this matter” because it had a “commercial imperative to maximise trade volumes through the port and ensure continued access for customers”, Mr Crowe said.

This story ‘Ugly hit’ that came back to bite port first appeared on Newcastle Herald.