18/12/2015 - 12:04

Freo $2bn port plan no easy sell

18/12/2015 - 12:04

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The planned sale of Fremantle Ports is getting more complex amid uncertainty on the Perth Freight Link and the outer harbour development.

TOUGH SELL: The government has plenty of work ahead in its efforts to sell Fremantle Ports.

The planned sale of Fremantle Ports is getting more complex amid uncertainty on the Perth Freight Link and the outer harbour development.

Like any good salesman, Mike Nahan is developing a strong pitch for private investors interested in the state government’s biggest privatisation – the $2 billion sale of Fremantle Ports.

There are several strands to the emerging sales pitch, revolving around the life of the existing inner harbour, the construction of an outer harbour in Cockburn Sound, and the supporting transport links to the port.

One of the most significant aspects is the expected timing of the outer harbour development.

Way back in 2002, then planning and infrastructure minister Alannah MacTiernan kicked off planning for an outer harbour so that work could commence “in the next decade”.

Successive ministers kept on saying the outer harbour would be needed in about 10 years, right up to Dean Nalder, who said last year the outer harbour was expected to be in operation by 2025.

Dr Nahan sees things differently, telling state parliament in August the outer harbour would be built in 10 to 15, or maybe 20 years.

At a recent UWA Business School function, he pushed that out further, saying it might not be needed for 25, 30, 40 years.

Speaking to Business News afterwards, Dr Nahan said “we won’t get to its capacity, at 4 per cent growth a year, for 25 years”.

Based on last year’s volume of 743,000 standard containers, measured as 20-foot equivalent units, that implies capacity is close to 2 million TEUs.

That’s a big change from 2012, when Fremantle Ports chief executive Chris Leatt-Hayter told Business News capacity was about 1.2 million TEUs, and that the inner harbour would reach capacity around 2020.

Mr Leatt-Hayter qualified that by saying that estimation depended on growth in port trade and the quality of transport links.

The Perth Freight Link was designed to improve those transport links, but its future is unclear after the Supreme Court overturned environmental approval for Roe 8, and the government itself is unsure about stage 2.

Speaking before last week’s court ruling, Dr Nahan played down the significance of the roads project.

“We do not need the Perth Freight Link to be completed, or even started, to sell the port,” Dr Nahan said.

He sees bigger challenges at the outer harbour.

“The environmental problems from ripping up 1,000 hectares of seagrass are phenomenal,” he said.

“You think Beeliar Wetlands is an issue; at Beeliar Wetlands we can build the roads over them, but if you build an island port, which is what’s planned, you can’t save the seagrass.

“I’ve been told it would take a minimum of 10 years work, planning and development, before you’d get containers on it of any significant number.

“Then you have to get funding, I’ve heard it’s cost as low as $2.5 billion to as high as $5 billion.

“The main thing is, when do we need it? We don’t need it for 25-plus years, at least.”

Labor’s ports spokesman Bill Johnston agreed with the 10-year development time frame and said that was why detailed planning needed to get under way.

He believes the government’s sales process is behind Dr Nahan’s predictions on the capacity of the inner harbour.

“He wants to delay the planning of the outer harbour because that increases the value of the inner harbour,” Mr Johnston said.

“That’s not in the economic interests of Western Australia.”

Mr Johnston believes the government’s thinking is flawed in other ways.

He said the small ‘laydown’ area at Fremantle would compromise efficiency as volumes grow.

“The closer you are to capacity, then the less efficient the port is,” Mr Johnston said.

He also questioned the idea that the outer harbour would just be an overflow port.

“The outer harbour has to have 200,000, and probably 300,000 container lifts from its first day, because otherwise the costs will be so high nobody would ever use it,” he said.

“It cannot be just an overflow port, it has to take capacity out of the inner harbour, otherwise it cannot be banked.

“That means the inner harbour will never get to full capacity, that’s not possible.”

Dr Nahan said the buyer of the inner harbour would not necessarily be responsible for building the outer harbour, but it appeared the buyer would have a big say.

“We’re selling the inner harbour and all that port land … the land where the outer harbour will go,” he said.

“It will be an integral part of the contract.”

The treasurer said the government was unlikely to follow Victoria’s lead, with plans there to compensate the buyer of Melbourne port if the planned new harbour competes with it.

“I don’t think we’re going to go down that route,” Dr Nahan said.

“We will make sure the buyer of the inner harbour will have a pathway, if they so choose, to participate in the outer harbour development.”

Mr Johnston speculated the government would adopt a similar model to the 2002 sale of Sydney airport, in which the buyer was given first right-of-refusal over the proposed Badgery’s Creek airport.

WA Treasury executive director of asset sales Richard Mann provided further insight when he spoke at a Chamber of Commerce & Industry of WA breakfast this month.

In particular, he hinted the government could opt for a very long lease.

“There has certainly been no decision on a 49-year lease for Fremantle,” Mr Mann said.

“For the majority of port transactions in Australia, the lease term has been significantly longer than 49 years.”

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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