By Roy Green
This month my term as chair of the Port of Newcastle comes to an end. It’s been a time of transformational change for the world’s biggest coal export port, with an ambitious growth and diversification plan ready to weigh anchor.
Despite this progress, it wasn’t all plain sailing, and nor will it be in the future.
When I took up my role in December 2017, I wrote in the Herald that, “The only way for the Port of Newcastle to thrive is for the Hunter region to thrive. No one has placed a bigger bet on the prospects for the Hunter’s economy than the Port of Newcastle.
“We have a 98-year lease on the port, the value of which is inextricably linked to the Hunter’s current and future competitive advantages”.
While the powerful headwinds facing the port’s traditional coal-driven business model were becoming apparent, so were the opportunities.
The first and most significant headwind was something beyond our control and surprisingly not anticipated at the time of privatisation. This was the demonstrable fact that the global market for coal was flattening with a serious prospect of the port becoming a stranded asset.
With coal shipments constituting 85 per cent of port revenues, the task of the board and management was to identify new lines of activity for the medium to long term. An obvious candidate was the much-discussed proposal for a large-scale, deep-water container terminal.
As readers who follow these developments will be aware, this proposal has been on the drawing board for Newcastle since the BHP blast furnace was shut down in 1999 and the site remediated with just such an intent.
Responding to a question in parliament, the then NSW Labor government minister stated that, “The development of the BHP multi-purpose freight terminal will be an important step in achieving the long-term objective of being recognised as the import⁄ export gateway for the East Coast of Australia”.
Subsequently, the 2003 NSW Ports Growth Plan identified Newcastle as “the State’s next major container facility”. It was explicitly acknowledged that Sydney was already well on the way to becoming too congested for efficient port operations, with limited rail access and a distant intermodal requiring double-handling.
According to World Bank data, Port Botany and Australia’s other east coast container ports now rank in the bottom 20 per cent of global port productivity, just as the container freight task is set to triple by 2050.
However, the Newcastle project was not to be, with a notorious series of events leading up to the Operation Spicer corruption inquiry, which handed down its findings in 2016. These findings may still be accessed on the Independent Commission Against Corruption (ICAC) website.
Meanwhile a second, even more destructive headwind intervened. In 2013-14, the newly elected Liberal-National Party government decided to sell off all three publicly owned ports, ostensibly to fund its “asset recycling program”. It was determined to make ports privatisation a showcase for the program’s success, no matter what the collateral damage.
To facilitate this outcome, NSW Treasury found it necessary to boost the sale price of Port Botany and Port Kembla by including a secret anti-competitive provision in the contracts. This provision was designed to prevent Newcastle from building a commercially viable container port for the next 50 years.
In addition, a third headwind was also gathering pace. With concern growing about the impact of climate change, governments around the world committed to achieving net zero carbon emissions by 2050, including here in Australia.
This is a complicated process, as we are now discovering with the renewable energy infrastructure roll-out, but it is one where regional economic diversification can potentially gain added momentum from the energy transition.
For the Hunter, at least in the short term, this has meant the closure of coal-fired power stations, being a major source of carbon emissions, with a potential loss of jobs, skills and livelihoods. It also increases the pressure to wind back coal production and restrict the opening of new mines.
Faced with these headwinds, the Port of Newcastle has been determined to turn them into new and expanded opportunities.
Against all the odds, the port secured the passage of legislation in the NSW parliament to remove the container terminal restriction. Subject only to the government’s current freight review, the conditions will at last be in place for Newcastle to undertake this major project, benefiting not only the region but the entire State.
In addition, the port is developing a world-leading “clean energy precinct” with financial backing from the Federal government. This precinct will enable substantial investment in hydrogen infrastructure for both domestic industrial use and cost competitive exports to north Asia and possibly Europe.
With the application of new technologies and skills, Newcastle can even become a steel producer again, but this time it will be “green steel” with zero carbon. This will also provide an opportunity for the broader revival of manufacturing across the region.
Finally, as we have seen in recent weeks, the port is repositioning as a preferred RO-RO (roll on-roll off) destination for passenger vehicle imports.
Currently, Newcastle handles the import of wind turbine components. But given the huge demand, many of these may ultimately be manufactured onshore with the support of the Federal government’s Future Made in Australia program. This will open up more space for the port’s other diversification projects.
The bottom line is that these projects require massive investment to generate returns for the Port of Newcastle shareholders.
If the port was still in public ownership, the government could simply make this decision on behalf of the community, as the Western Australian government has just done by announcing a new container port at Kwinana to take the pressure off Fremantle.
However, in the context of a privately owned port, the shareholders must commit either to investing their own capital or to sourcing it externally through an equity raising.
Happily, there is no shortage of investors here or overseas who are prepared to buy into Newcastle’s future, provided the owners are equally prepared to relinquish some of their control. This is the acid test of commitment.
Soon a new board chair will be appointed to navigate the delivery stage of the Port of Newcastle’s diversification strategy. Further progress will be dependent on shareholder decisions in the months ahead.
Privatisation has some benefits, not least in challenging “business as usual”. But its more problematic legacy is that the wider community most dependent on such momentous decisions will have no say in them, unless they demand to be heard.
Professor Roy Green is the outgoing chair of the Port of Newcastle. This is an expanded version of an article published in the Newcastle Herald on January 18.