The following discussion paper about the sale of Fremantle Port and the impact of the Perth Freight Link by City of Fremantle CEO Graeme McKenzie is very long for a blog but I believe the issue is extremely important for Fremantle and surrounding cities, so it is well worth reading what the CEO of our city will present to Council next Wednesday:
CITY OF FREMANTLE
Sale of Fremantle Port Discussion Paper
IntroductionThis discussion paper looks at the issues that arise from the recent announcement by the state government that it will sell the Fremantle Port operations to a private sector operator through a competitive process. Whilst the City of Fremantle may have views on the merits or otherwise of public sector versus private sector operators of key state infrastructure, this paper does not make comment on this point, but rather focusses on the local implications for Fremantle.
This paper is also prepared on the understanding that improved transport infrastructure is planned and will be built in the next 2-5 years to improve the landside transport capacity and therefore longevity of the port of Fremantle as a working port. The decision to sell the port to a private operator is likely to be predicated on a much increased dockside operating capacity, supported by the increased transport capacity, in order to attract the best possible return to the state government through the disposal. Therefore the proposed Perth Freight Link project is integral to the discussion about the proposed sale of the port.
Background and ContextThe City of Fremantle’s vision for the future of Fremantle includes the retention of the Fremantle inner harbour as a working port. Projections for growth port container trade expect a doubling by 2028 to 1.4 million TEU’s, which is estimated to be the maximum capacity of the Fremantle port to handle container trade. The port also handles other bulk cargos such as motor vehicles and livestock.
Perth Freight LinkThe state government, with the assistance of the federal government, is proposing a “Perth Freight Link” (PFL) to increase the road capacity into and out of the Fremantle Port by the creation of a freeway standard road between the port and the Perth Airport, and ultimately linking to a larger road network of similar standard. The PFL as currently articulated by the state government has a project budget of $1.6 billion.
A major flaw in the PFL plans as currently articulated is that there are no planned or funded works on the north side of the Swan River or for the Canning Highway intersection to improve the efficiency of either rail or road transport functions into the inner harbour. This creates a major congestion point at the Fremantle end of the PFL at the Stirling Highway/Canning Highway intersection. This is a major community amenity issue for the City of Fremantle and the Town of East Fremantle which can only get worse with the projected growth in trade and the lack of alternative options to support the inner harbour.
Whilst, there have been statements that the government is currently working on plans to complete the PFL into the inner harbour to resolve the river crossing and North Fremantle issues, the state budget makes no provision for further funding beyond that which has already been allocated.
The construction of improved freight transport infrastructure (in any form) to the port should have positive implications for the longevity of the inner harbour as a working port – a position that the City at the highest strategic level would currently support. However, how that infrastructure is designed impacts local amenity and the local economy of Fremantle to varying, mostly negative, degrees and is therefore problematic. In fact, Council may ultimately reconsider its long term strategic vision of maintaining a working port in the inner harbour. The City’s position on the PFL is currently being considered and is subject to separate reports.
Sale of the Port
It is well known that the state government budget position is weak, running a significant deficit budget and record levels of debt. In an attempt to bring the budget into a more positive position the government announced in May 2015 that it would sell (read long term lease) the Fremantle Port operation to the private sector, with a sale price expectancy of $1.5 – $2.0 billion.
This announcement came as a very big surprise to the City of Fremantle and to the community. In fact, earlier that very same week the Council had met with the Board of Fremantle Ports who stated that they were not the subject of a government sell off, suggesting that even the Board of Fremantle Ports were unaware that this announcement was coming.
Subsequently, the announcement was not supported by any detail as to the scope of the sale or the process for the sale to occur.
Immediately following the announcement, the City wrote to the state Treasurer seeking a meeting with relevant state government Minister/s to clarify a number of questions that immediately came to mind. The City is yet to receive a reply to that correspondence.
Given a little more time and now with the benefit of input from elected members and staff, further questions and issues have been identified which this paper will address. In order to bring this paper together in a coherent manner, the issues have been grouped together and should therefore assist in focussing discussion on the important issues.
The Disposal Process – Key Issues
- Sale or lease? If a lease what term of lease is the government considering?
- Is it only the operational areas of the port being considered for sale/lease? Is there an opportunity to review the ports operational area?
- Is the Fremantle Ports Administration building part of the sale/lease?
- What happens to the non-operational areas of the port?
- Will the State consult and involve affected regional local governments in the development of the approach and process for leasing Fremantle Port?
The question is asked whether the government intends to sell the port with all its assets including freehold land, or whether it is intending to lease. It is presumed that the transaction will be a leasing transaction, since this has been what’s occurred in other states in Australia but the point needs to be clarified.
The key questions then relate to lease scope and conditions. In terms of scope – is this a lease of container operations only, all port operations (including other bulk trade, passenger and naval visits), or all current Fremantle Ports responsibilities including non-operational activities? The implications are quite different under each scenario.
The next key question for Fremantle relates to the term of a lease. Any lease would commit the state government to utilising the inner harbour as a working port for at least the term of the lease. Clearly the longer the term, the greater the certainty for Fremantle that it will have to live with and manage port impacts, positive and negative, across the city. This then influences the City’s thinking on current and future transport links, particularly the PFL.
It is expected that the lease will be for all port operations, but will exclude non-operational areas, which leads to questions about development, management and control of those non-operational areas (dealt with separately).
Stakeholder Relationships – Key Issues
- Relationship between Fremantle Ports and the City of Fremantle
- Continuation of the Inner Harbour Community Liaison Group
- What provision in the lease contract will be made for ongoing and formal consultation between the State, local government and the lessee on community and interface issues?
It is recognised that Fremantle Ports is a quasi-government agency that operates within a commercial framework set out in legislation. Fremantle Ports is viewed in the community as a public sector agency, not a private sector agency, and as such has a degree of social responsibility that is not always evident in private sector companies.
This status provides the City of Fremantle with a level of comfort that it can negotiate and influence to some extent the manner in which the port interacts and integrates with the city. Over time, the City and Fremantle Ports have built a very strong relationship that will be put at risk when the port operations are devolved to a private operator, which in turn puts at risk the City’s influence over how the port interacts and works with the City for mutually beneficial outcomes.
It is also recognised the FP has a long established “Inner Harbour Community Liaison Group” which meets quarterly with senior port officers to discuss issues of importance to the broader community on port developments and operations. This may also be at risk under privatised arrangements.
Strategic Plans – Key Issues
- How will the development of the outer harbour be pursued/planned/controlled under any lease arrangement? Will the lease place any rights or obligations on the purchaser for the construction and/or operation of an outer harbour? What is the timeframe for the construction of an outer harbour in Cockburn Sound?
- To what extent will the State’s current strategic plans for metropolitan ports and associated land and access arrangements be maintained by the State and applied in the lease negotiations? Will the State continue its responsibility to plan, facilitate and fund the necessary land assets and service infrastructure to support metropolitan port operations?
To quote from the Newman and Hendrigan report on the PFL – “there has been a long range bipartisan strategic plan to manage growth in freight involving a transition to the outer harbour.” The proposed lease of the inner harbour together with the PFL places uncertainty on this strategic path.
There is a significantly greater risk of a private operator stretching the throughput capacity of the Fremantle port causing a delay in the construction of an outer harbour. Whilst estimates of the capacity of Fremantle port are 1.2 – 1.4 million TEU’s (predicted to be reached by 2028), it is not unreasonable to think that capacity could be increased to 2 million TEU’s with improved technologies in container handling and improved portside logistics. Unfortunately this could be done but without due regard to community impacts, unless the lease terms set clear parameters or limits on trade.
One would expect it would be in the government’s interest to allow this stretch in capacity as it could to provide a greater financial return to the government through the ability to offer a longer term lease.
The key long term future of the inner harbour as a functional working port that does not unduly have negative impacts on community amenity and lifestyle is the opening of a second port to serve the metropolitan area of Perth.
Planning and Development Controls – Key Issues
- Which agency becomes responsible for planning over non-operational port areas, either within or outside of the lease?
- What happens to the proposed commercial development on Victoria Quay? Who takes control of progressing that and other developments?
- Will the City be given any planning control over the non-operational port areas?
- To what extent would a lessee be required to consult with local government for development approvals?
- What are the implications for the planning buffer zone and for the future development of the disused tanks area in North Fremantle?
Whilst the Western Australian Planning Commission (WAPC) is currently the responsible planning authority for development decisions on non-operational areas of the port, and it is expected that agency would retain that authority, there is an opportunity to “normalise” planning controls to the City of Fremantle. This of course depends on the extent of exclusion/inclusion in a lease of non-operational areas.
There exists a window of opportunity for the government to transfer planning controls of the areas of the port that are excluded from the lease to the City and the City should advocate to government for this to occur.
In the event non-operational areas are not included in a lease, the key question for the City is who “owns” those areas and who drives development of those areas? Without Fremantle Ports working with the City to develop non-operational areas for commercial and community uses there is a strong likelihood that those areas will remain undeveloped for years to come and all of the City’s desires for development of that precinct with strong links to the city centre will be put indefinitely on hold.
There is also concern about the “tanks” area in North Fremantle. The WAPC, Fremantle Ports, and the City have cooperatively initiated a structure planning exercise over this area. Fremantle Ports owns land in this precinct also and has been a willing partner in the exercise. Fears again exist about this potential redevelopment area falling away as a priority.
Transport Infrastructure – Key Issues
- Will the lease terms impose a maximum number of containers for the inner harbour and if so what will that be?
- Is the government going to maintain its commitment to 30% freight on rail, and will that be included in lease terms?
- Will the lessee be obligated to fund any access infrastructure as part of the lease contract?
Without going into the merits or otherwise of the Perth Freight Link, there are a couple of key questions that relate directly to the proposed sale/lease. The City has long advocated for more freight to be moved by rail in preference to road, and despite not reaching much more than 50% of the target rate, the government remains committed to transporting some of the freight by rail. This is being achieved through a financial subsidy from the government.
The current percentage of freight on rail varies monthly between 13% and 17%, averaging close to 15% per annum against a target of 30% total freight on rail. The City needs assurances that the government will require as much freight as possible to be moved on rail through contractual requirements in a lease. Without this, there is a potential for rail to cease operating with all freight being moved into and out of the port on road. This exacerbates a range of problems identified in the PFL Report prepared for council.
As identified above, the City is absolutely clear that the outer harbour construction is the best solution to minimising the impacts of freight transport into and out of the inner harbour as it allows a capping of throughput in the inner harbour at a manageable level. That cap needs to be set by government within the lease reflecting the volume of freight that can be moved by road. Total throughput may be increased if the quantity of freight moved on rail is increased, providing of course that the level of rail disruption is managed.
Tourism – Key Issues
- What happens to the collaborative approach to cruise ship passenger management between the City and the Port?
- Are the ferry terminals and E-Shed Markets impacted by the sale/lease?
- Who takes over the parking contracts at the port?
- Is there still a commitment to the Maritime Museum?
The cruise ship industry has grown significantly in the past decade to a point where over 100,000 passengers went through the passenger terminal in the 2014/15 season. During this time the City and FP have worked together to provide the best possible visitor experience for embarking and disembarking passengers. For Fremantle this means easy movement into and out of the city centre, access to visitor information and generally a better visitor experience. This in turn provides a reputational benefit for Fremantle and evidence indicates local businesses benefit by having more passengers staying in Fremantle instead of taking day trips into Perth, the Swan Valley or even Margaret River.
This benefit is at a very high risk of being lost in the move to a private port operation. In fact, even the work that FP has done to attract cruise ships and manage the competing demands for space between cruise ships and the vehicle imports at the terminal is at risk. FP has done a lot of work with the cruise ship industry to attract these visits, and it is understood the terminal fees for these are much less than the fees for commercial shipping. Where does a private operator put their priority for visitation?
Recently the City lost the management contract for parking at Victoria Quay. The contract was awarded to Wilson Parking because they offered a significantly better return to FP than the City was able to offer. Whilst that is accepted, in discussions with FP they were acutely aware of maintaining a fee regime in line with City policy, including fines which are particularly important for Fremantle’s reputation as a visitor destination. The potential for a future contract to be awarded without regard to these factors and being purely for best financial return could be damaging. This is a matter that needs attention.
- What arrangements will be made for visiting defence vessels?
- Will the operator be obligated to pay council rates?
It would be expected that the government would ensure that visiting naval ships were managed with appropriate security and that appropriate civic arrangements were in place for each visit, but it is something worth raising with government because Fremantle is a destination that many international sailors value as a port for R&R. Again, if not managed properly Fremantle reputation suffers.
Finally, there is the key question of whether the City will benefit directly by having the operator being required to pay council rates. Fremantle Ports as a government agency is exempt from rates for land it occupies, although it does pay rates for land it leases for commercial purposes as part of port operations.
There are many other issues for the state government to consider in preparing for a lease of the Fremantle port to a private operator. Whilst many of these issues may be of general interest, it is not the purpose of this discussion paper to address those issues that are a responsibility of the state and have little or no impact on Fremantle. There needs to be a level of trust that the state government will, if a lease is awarded, have protected its interests in the transaction. The following links to information about proposed lease of the Ports of Melbourne and Darwin provide a lot of information on such matters.
Norton Rose Fulbright have a 2014 document on privatisation of the Melbourne Port at http://www.nortonrosefulbright.com/knowledge/publications/116595/privatisation-of-port-of-melbourne-australia .
A recent document (April 2015) for the privatisation of the Port of Darwin is at http://www.nt.gov.au/lant/parliamentary-business/committees/pod/Port_of_Darwin_Report.pdf .
However, of note are a couple of interesting comments from the ACCC about disposal of government assets to the private sector.
“Benefits from privatisation will be maximised where there is strong potential for competition or where, in the absence of competition due to monopoly or near monopoly characteristics, there is sufficient regulatory oversight to ensure that competition in upstream or downstream markets is not hindered” (Australian Competition and Consumer Commission, Privatisation of State and Territory Assets and New Infrastructure, p.4) and
“Without an adequate regulatory regime (covering access and/or pricing) monopoly infrastructure service providers would be capable of earning monopoly profits or foreclosing competition. Benefits would therefore flow to investors, at the expense of users of the asset and, ultimately, end consumers. Inadequate economic regulation can also dampen investment in markets that depend on access to the monopoly asset, thereby denying at least some of the benefits the community could obtain from greater competition.” (Australian Competition and Consumer Commission, Privatisation of State and Territory Assets and New Infrastructure, p.4)
Similarly, a quote from Infrastructure Australia is also very pertinent:
“As a maritime nation, Australia’s ports are an important gateway for goods and for our defence. Consequently, ports and associated infrastructure are of the utmost economic and social importance to Australia” (Infrastructure Australia, National Ports Strategy, Australian Government, Sydney, NSW, 2011, p. 6)
There are clearly a range of implications for Fremantle that should be addressed by the state government as it establishes details of its disposal process for the port of Fremantle. It is recommended that a workshop be held with elected members and key staff to facilitate the preparation of a submission for government on agreed matters following adoption of the council’s position on the PFL at the June Council meeting.
Graeme McKenzie. CEO City of Fremantle