Light is right for Port of Melbourne regulation says ESC

By: Rob McKay

Essential Services Commission raises gas industry approach as successful example

Light is right for Port of Melbourne regulation says ESC
Melbourne's port container operations


The Victorian Essential Services Commission (ESC) is confident that its prescription to solve issues surrounding the Port of Melbourne privatised monopoly’s behaviour will work because it has elsewhere in Australia.

The ESC takes a stern line in its recently released 'Port of Melbourne – Market Rent Inquiry 2020' pubic report for the period 2015-16 to 2018-19.

The report’s findings, which the Port of Melbourne’s operating company rejects and which came after what is said to have been a ‘bruising’ investigation for the ESC, include that it is barely constrained in its market power regarding rents for those operating on port land, such as stevedores.

Despite income nearly quadrupling in three years to 2018-19 and average rent per square metre in 2018-19 rising 15 per cent in Melbourne, compared with 3 per cent in Sydney and 2 per cent in Brisbane, the ESC advises a "relatively light touch approach" involving an "enhanced arbitrate/negotiate framework" towards a remedy.

Read about the reaction to the ESC’s trenchant Port of Melbourne report, here

Asked where in Australia such a framework has worked, it points to the national gas market.

"Gas transportation accounts for up to 15 per cent of the price of gas, and the 2016 Vertigan Review found costs would be lowered through mandating greater disclosure and transparency of pipeline services and pricing, and mandating commercial arbitration," an ESC spokesperson tells ATN.

"Pipelines that are not subject to economic regulation are subject to the information disclosure and arbitration framework set out in Chapter 6A of the National Gas Law and Part 23 of the National Gas Rules, which came into operation in August 2017.

"A commercially-oriented process to resolve disputes about proposed terms of access in a cost-effective and efficient manner was implemented, with an arbitrator required to have regard to principles set out in the gas rules."

While the announcement of the report’s release had an element of equivocation about whether the community is bearing the cost of such port cost rises, the report itself points to the earlier, mostly secret Deloitte Access Economics report on port pricing and access.

"Demonstrating broader harm, a common theme raised by the stevedores in the Victorian Government’s Port Pricing and Access Review was the impact of rapid recent increases in land rentals on their cost base and the need to increase landside charges, at least in part, to recover these costs," the ESC report states.

Asked about difference in emphasis, the spokesperson insists the above quote confirms it drew that link.

"We found pass through of rents and further, as provided for under the Port Management Act, we assessed whether this led to ‘material’ detriment and we found that it does and certainty could in the future."

The ESC, however, would not be drawn on broader implications of how port policy has played out over the past five years.

"The commission’s role in this context is to conduct periodic inquiries into the setting and reviewing of land rents and associated payments at the Port of Melbourne, also known as a market rent inquiry, not to assess the merits or otherwise of privatisation," the spokesperson says.

The full ESC public report can be found here.


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