Victorian ESC wonders if it’s a fair WACC and is also under pressure to investigate surcharge hike
The Victorian Transport Association (VTA) is urging the Essential Services Commission (ESC) to investigate infrastructure surcharge pricing at the Port of Melbourne (POM) just days after the ESC released a critical commentary on port’s approach to tariffs a little more than a year after the Lonsdale Consortium won its lease for $9.7 billion.
The VTA was responding to DP World Australia’s (DPWA’s) impending 51 per cent increase in infrastructure surcharge pricing, which the stevedore has put down to higher costs including port land rent.
The ESC says its ‘interim commentary’ – a rare item, one industry observer tells ATN – aims to “ensure that the port has an opportunity to understand, given our current state of knowledge what we will be considering when we are assessing the port’s compliance”.
High on that list is its weighted average cost of capital (WACC) calculation.
“The WACC is a significant driver of the port’s aggregate revenue requirement which will determine the prices paid by port users when the tariffs adjustment limit ceases to apply,” the ESC says.
“The port’s approach to estimating the WACC appears to differ from established regulatory approaches and has resulted in a relatively higher WACC estimate than seen in comparable industries.”
It also noted the port is eyeing a longer “regulatory period”, which will have “implications for port users through the tariffs they pay and on the service level outcomes they receive.
“The longer a regulatory period the higher the risk of divergence between the prices charged for the provision of prescribed port services, and the port’s costs of providing those services.
“We expect the port would consult with us and port users on the practicalities and implications of a longer regulatory period.”
The ESC was also concerned at the treatment of deferred depreciation costs, which accounts for a large share of the port’s aggregate revenue requirement and the recovery of which is yet to be specified.
“Port users could potentially face higher prices when the port begins recovering these deferred costs in the future,” the ESC says.
“We will give consideration to how the port decides to smooth the impact of deferred depreciation on tariffs when undertaking our five-yearly inquiries into the port’s compliance with the pricing order.”
ATN is awaiting a POM response to the ESC’s commentary.
The VTA’s concern was more immediately directed at the DPWA infrastructure surcharge hike.
It notes 51 per cent rise takes the cost per full container received or delivered via road or rail to $49.50 and a substantial increase in March, and increases from rival stevedore Patrick in June.
“Transport operators in Victoria have been slammed by massive spikes in infrastructure costs to the extent that infrastructure prices are now 15 times higher than what they were a year ago,” VTA CEO Peter Anderson says.
“The landside freight industry has been given no increase in productivity and is once again being made to bear the burden directly within a monopolistic environment.
“While this pricing remains unregulated this type of increase will only incite adversarial reaction from an integral part of the supply chain.
“Increases like this are not sustainable in any industry, let alone the transport industry where operators are already doing it tough through low margins and higher compliance costs.”
Anderson describes the infrastructure increases as an effective revenue transfer.
“These increases will inject $80 million per annum into the balance sheets of stevedores and away from the transport industry, who have absolutely no choice but to pass the cost on through the supply chain to customers like Coles, Woolworths and Aldi, or face ruin,” he says.
“Ultimately it is consumers that will be worse off in the form of higher prices for groceries, clothes and other consumable goods that make their way through the port and onto retail shelves.”
Anderson said the VTA would write to the ESC encouraging it to act.