Sitting on the dock of the bay

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.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Kon Vatskalis
Kon Vatskalis
6 years ago

I am responding here as a territorian and not as an ex politician.

I agree with some of your points and disagree strongly with the way this agreement was put in place:
1. The current government never went to elections with a platform to privatise public assets. Should they have done so the outcome of the 2012 elections maty have been a bit different.
2. The current government not only does not have the mandate to sell or lease public assets but also does not have the majority in Parliament , hence does not represent the majority of Territorians in order to claim legitimacy to sign such agreement. I wonder what would have been the outcome had they brought this to the NT Parliament.
3. The current agreement ties 24 future government to a decision made by a minority government in 2015 and nobody knows what will happen in the near or distant future and how this can affect any future government of the NT.
4. They say that under the agreement not only they will receive $.5 billion but also 15% of any future super profits the company will make. However I can attest that private companies have a variety of ways to minimise profits , as I found out when I was dealing with some mining companies in the NT as the then Minister for Mines.
5. The CLP has a history of botched deals that turn against local workers. Remember the TDZ? I do.
6. As Ashley Manikaros pointed out this agreement is outside the normal commercial arrangements. Perhaps the ALP should also go outside the usual commercial arrangement and declare that should they become government in 2016 the will suspend the agreement, they will seek a mandate either directly from the people or throu parliament, and if the people do not agree they will return the deposit to the company and return the port to NT hands. This should be used as “buyer beware” warning to the company nit to spend any money on the port until the situation is cleared and the agreement is properly ratified by a government that represents the majority of the people of the NT.
6. My worry is that the money raised through the lease will be spend to “infrastructure” projects somehow targeting key electorates and not absolutely necessary projects. If the money were put in a trust fund out of the reach of the government then I would have been somehow more comfortable.

And a final question: If a Chinese private company can see the potential of the darwin port and is prepared to pay so much money why then the current executive of the port have not seen these opportunities? they are either incompetent or not up to the task.

Peter WARWICK
Peter WARWICK
6 years ago
Reply to  Ken Parish

Kon/ Ken,

I am greatly disturbed that an Australian owned consortium could not have taken this role. Surely there would be a number of superannuation funds willing to join together and do this.

I am acutely embarrassed to call myself an Australian at the minute. We seemed to have lost the spirit of doing things ourselves.

I am concerned that we are not capable of gathering the best brains we have right across the board to build our own submarines. I am not suggesting that designing and constructing a submarine is a simple task – indeed it would be extremely complex.

But I thought we had both the brain and brawn power to undertake the task. Even if the cost is higher when built by Australians, and its the knowledge and skills capital we gain that is the “profit” in such an undertaking. Very soon the motor car industry in Australia will be limited to new car sales franchises, some maintenance procedures designed overseas, and vacuum and wash boys.

Why could not this port project have been undertaken by Australians ?

Patrick
Patrick
6 years ago
Reply to  Peter WARWICK

They could have, they just didn’t want to pay as much.

There could be any number of reasons for that, Ken discusses some of them in his post. Most of them in fact.

As for submarines, are you kidding?

Patrick
Patrick
6 years ago
Reply to  Peter WARWICK

Why not design our own computers and mobile phones as well?

Patrick
Patrick
6 years ago
Reply to  Kon Vatskalis

The “no mandate” argument is, in the vast majority of cases, utter bollocks.

If we are really going to become a country where every f?*çen major government contract is conditional on having enough sops to unions or the next labor government will just revoke it, then you really need to revise your understanding of a “mandate”, let alone of “legitimacy”.

This is of course different to where a government gets elected with a specific clear platform (i.e.: introduce a GST, do not introduce a carbon tax), they definitely have a “mandate” to do that thing.

Your final point is more interesting, but ultimately it just seems to be a fact of life that bureacracies don’t do very well at running things and private companies do do better at it.

I am and will always be Not Trampis
I am and will always be Not Trampis
6 years ago

A Chinese company in charge of the port where Our Government and US marines will be ‘bonding’ for quite a while.

Did they get any agreement from the National security agencies at all or didn’t they think of that?

Kon Vatskalis
Kon Vatskalis
6 years ago

My comment regarding”mandate” refers to the total lack of any mention during the previous election campaign by the CLP on selling Territory assets. Also it refers to how legitimate is for a minority government that does not have even the numbers in Parliament to bind 24 future Territory government to a”lease”.

As for the term “lease” that is debatable considering that anywhere else in Australia a 99 year lease is considered as “sale”.

I am also conscenred about the sale price (too low) and the total lack of information about what will happen when the so called lease expires. The company will return the asset to the then governement but are there terms in the contract to safeguard againsta claims by to company for the government to pay back investment and equipment installed by the leasee?

I would like to see the terms of agreement , just like the Waterfront Convention centre, and not hid behind “Commercial confidentiality”

John walker
6 years ago
Reply to  Ken Parish

It does look like a very high price. Could it be to do with with an insider expectation of massive growth in Chinese demand for ‘clean environment ‘ beef and other agricultural products ?