NT Chief Minister Adam Giles announced yesterday that his government had signed a deal to lease the Darwin Port to the Chinese-owned Landbridge Group for 99 years for $506 million. The deal involves the NTG/Australian interests retaining a 20% interest in the ongoing port business and a 15% share of any “super profits” of the business.
From an immediate electoral viewpoint it will be interesting to see whether the announcement succeeds in recasting the public view of the Giles government into one of a go-ahead “can-do” government with a viable vision for future jobs and growth, or whether voters will continue awaiting election day with an axe sharpened for application to CLP necks (as they did for Paul Keating back in 1996 despite his having achieved a remarkable transformation of Australia’s economy). It is conceivable that 3 years of government chaos and division have resulted in the majority making a permanently adverse decision about the fate of Mr Giles and his colleagues. On the other hand. recent Labor antics involving Delia Lawrie may have reminded at least some that the other mob isn’t much better. In any event the next few published opinion polls will be watched closely by all concerned.
Looking at the actual Port deal itself, on the face of it the price and terms sound pretty good.
As NT News journalist (and former long-time CLP spin doctor) Ashley Manicaros argued this morning: “Any time a business can get more than 25 times its last posted profit when it’s for sale and a share of future “super profits” it should be grabbed with both hands.” But the city’s (and the Territory’s) only port is not just a business, it’s a vital piece of community infrastructure whose continued operation at affordable prices is critical to every local resident and business. It remains to be seen whether this deal includes enough regulatory and commercial safeguards to ensure that Landbridge can’t use its private monopoly position to gouge excessive monopoly profits from a captive market.
Moreover, even if we accept the business analogy for the sake of the argument, receiving 25 times annual earnings as a sale price is only a good deal if the seller (i.e. Territory taxpayers via our elected government) then invests the proceeds in other ventures or infrastructure that have an equal or better rate of return. If they’re just invested in electoral bribes or “boondoggles”, or pie-in-the sky fantasies to aggrandise the politicians of the day, then that would be the government equivalent of a worker p***ing his pay packet down the gutter.
A gas pipeline to eastern Australia probably would be a good investment, but the Tennant Creek-Mount Isa railway that Giles has recently mused about would certainly be p***ing the profits down the gutter. The most recent study (in around 2005) showed that it simply wouldn’t be a commercial proposition. Moreover, with the Queensland rail system being narrow gauge track, there is no plausible way for such a railway to facilitate the long-fabled inter-modal freight “landbridge” to the east coast that might give reality to Darwin as Australia’s “gateway” to Asia.
There are no doubt quite a few worthwhile infrastructure and other projects in which the NT government could invest the Darwin Port sale proceeds (not to mention the unspent $250 million from the TIO sale). Whether the sale is/was a good idea from a policy and economic viewpoint will largely be judged by the wisdom of the investments they make with those proceeds.
In a similar vein, to the extent that a motivation for the sale/lease arrangement is to allow/require the private operator to invest in expanding and upgrading of port facilities over time, the reality is that governments can borrow more cheaply than the private sector. The need for future capital expenditure on the port does not in itself provide a plausible justification for the sale. In any event, Darwin Port freight traffic projections in the immediate future don’t suggest a need for significant expansion in the short term. Container and general freight volumes have not grown since 2005. The live cattle trade has certainly boomed (albeit with some blips), and the volume of minerals shipped through the port expanded rapidly until a couple of years ago but has since fallen significantly as Territory mines have closed under the impact of falling mineral prices.
No doubt the major concern of Labor and the unions is that the new operator (in league with the CLP government) has secret plans for a 21st century re-run of the 1998 Maritime Dispute where Patricks (illegally) sacked its entire workforce and replaced it with lower paid non-unionists. Despite claims that workers’ jobs are safe until the end of the current EBA in 2018, it’s hard to imagine that some such long-term plan isn’t contemplated. The Port’s history and current and projected trading performance doesn’t provide a plausible basis for any rational business agreeing to pay $506 million for 80% of a poorly-performing business, unless there is a plan for radical transformation. I can’t help thinking that the imminent signing of the China-Australia Free Trade Agreement is a factor in this deal. Landbridge could revert to the (much less generous) Award once the current EBA expires in 2018. When Australian workers don’t sign up they could replace them with a much cheaper (and possibly harder-working) Chinese workforce.
Unlike Labor and the unions, I don’t think that would necessarily be a bad thing. If Landbridge drives down freight rates and increases efficiency, and uses its alleged advantages/contacts with Chinese corporations to grab a slice of the freight task into Australia to be shipped via Darwin, that could just provide the impetus for the long-fantasised freight landbridge to become a reality and for Darwin to become Australia’s true “gateway” to Asia. That would bring massive ongoing benefits to all Territorians. With cheap backloading rates, rail freight from Darwin to Adelaide isn’t all that much more expensive than shipping, especially if containers are double-stacked on long trains.
On the other hand, if the inter-modal landbridge concept (on which Alice-Darwin railway projections were based) remains just a fantasy, then sacking the Australian workforce and replacing it with a Chinese one will merely be a vehicle for generating windfall profits for the Chinese company at the expense of Territory workers. It will probably take a decade or so for us to know the truth.