Competition Watchdog Growls At World's Biggest Coal Port

Rod Sims, the chairman of the Australian Competition and Consumer Commission, has barked at the many monopolists inhabiting Australia, including the world's biggest coal export port, the Port of Newcastle.

Describing the current environment as a "tussle" between Australia's regulatory framework and the owners of monopoly infrastructure, Sims argued that the monopolists are "winning" during a speech to the Australasian Transport Research Forum.

The National Competition Council, which advises on whether third parties should be allowed access to monopoly infrastructure, recently enabled the revocation of a declaration that third parties can have access rights on potentially regulated terms to the privately-owned shipping channels at the Port of Newcastle.

A "monopolist without constraint," Sims asserts

Pictured: Rod Sims, chairman of the Australian Competition and Consumer Commission; Photo: ACCC

Sims argued that the decision transformed the port into a "monopolist without constraint".

He then argued: "a monopolist that controls this type of bottleneck infrastructure, operating without any regulation, has a clear incentive to maximise profits by raising prices even if this means reduced volumes or the use of their service.

"It is bad for the economy when bottleneck infrastructure, at the end of a crucial value chain, is in the hands of a company with unfettered market power.

"A monopolist in that situation will always use its power; the question is only by how much and how often.

"How is it that Australia, much more so than other countries we compare ourselves to, allows this?"

Adding that the ACCC is "deeply concerned" about the likely end consequences, including potentially limited investment from third parties, Sims argued that Australian law is flawed as it "simply does not regulate monopoly infrastructure" when there is no vertical integration.

"With the Port of Newcastle, we already have a monopoly and it seems they are now completely unregulated. That simply does not make economic sense," he told the Australasian Transport Research Forum.

Loss of credibility

Sims argued that Australia now faces the risk that its regulatory system will have no credibility and, he adds, existing monopolies are trying to have their regulation removed.

"As a society, is this what we want?" he asked.

He also argued that Australia needs a range of regulatory tools so that different types of monopolists can be effectively regulated. He added that energy network monopolies are subject to bespoke regulation and that such regulation is "reasonable."

Background

The Port of Newcastle was privatized in 2014 for A$1.75 billion. Prior to privatization, various private companies had paid large amounts of money for the dredging of the shipping channels. After privatization, the new private operators were able to control the terms and conditions of access to the shipping channels, which forms a natural bottleneck for the export of hundreds of millions of tonnes of coal from the local region.

Shortly after privatization, the new owners began hiking the cost to access the shipping channels between 40% to 60% for some types of ships. The hikes were imposed without consultation with the mining or shipping industries and there was no real increase in the volume or quality of services supplied. During that time, world prices for coal dropped by about 30%.

Commodity trader Glencore sought to have an official declaration on the following port services on the "right of access and use of the shipping channel (including berths next to walls as part of the channel) at the port, by virtue of which vessels may enter the port precinct and load and unload at relevant terminals located within the port precinct and then depart the port precinct."

When nationally significant infrastructure service is "declared" under the Australian Competition and Consumer Act 2010 it can provide a way for third parties to access that infrastructure on potentially regulated terms including price.

After a long and complicated battle, Glencore won a declaration on the shipping channel services at Newcastle, which brought with it third party access and potentially regulated pricing.

Newcastle welcomed revocation

The CEO of the Port of Newcastle, Craig Carmody, had late last month welcomed the revocation of third party access to the port's shipping channel.

The Port of Newcastle "has long maintained the view that the Port should never have been declared and that the NCC's original position in 2015 was sound. The NCC's recommendation was founded on robust legal and economic arguments for its position, and the NCC stuck to its guns in the face of some considerable pressure from other parties. This is a victory for a common-sense approach to regulation," he said in a statement.

Following Sim's address to the Australasian Transport Research Forum, the Port of Newcastle said that it agreed with his comments in relation to the appropriateness of a light-handed approach to the economic regulation of airports. The port argued that there are similarities between seaports and airports, which have similar infrastructure and service attributes.

"Economic regulation of similar infrastructure assets should be consistent," the Port of Newcastle asserted.

Trade through the Port of Newcastle

In 2018, the port was host to 2,299 ship visits, of which 77% (1,769) were from dry bulkers calling to load coal. Last year, coal exports out of Newcastle accounted for 95% of the port's trade. That's just over 158.6 million metric tonnes of coal (a metric tonne is equivalent to 2,204.6 U.S. pounds) with a trade value of A$23.64 billion.

Japan took the largest share of Newcastle coal in 2018. It received 72.8 million tonnes (about 45.9% of the total). China the second largest about with 28.0 million tonnes (about 17.6%) and Taiwan took the third largest amount with 21.4 million tonnes (about 13.5%).

Other destinations for Newcastle coal include South Korea, Malaysia, India, Thailand, the Philippines, Vietnam and Indonesia.

Image Sourced from Pixabay