Frequently asked questions

Overview

Frequently asked questions about leasing the Port of Melbourne


Who has been awarded the lease for the Port of Melbourne?

The Government has awarded the 50 year lease for the Port of Melbourne to the Lonsdale Consortium comprising Future Fund, QIC, Global Infrastructure Partners (GIP) and OMERS.

The Consortium’s offer provided the best value in terms of both transaction value and terms for the State in what was a very competitive process.

Some of the Consortium members are also part of the consortium that leases Port of Brisbane and Port Botany. Does this create competition issues?

The Consortium received clearance from the ACCC on 11 August 2016.

The ACCC’s review, which followed significant industry consultation, focused primarily on the cross-ownership interests in the Port of Melbourne, NSW Ports, and the Port of Brisbane, and the vertical relationships with port services providers operating at the Port of Melbourne.

Further information regarding the ACCC’s review is available: www.accc.gov.au/media-release/accc-will-not-oppose-proposals-for-port-of-melbourne-lease

The Consortium is majority foreign-owned. What due diligence has been undertaken to ensure the port’s security and the interests of the Victorian community?

After undertaking an extensive review, on 15 September 2016, the Foreign Review Investment Board cleared the Consortium to invest in the Port of Melbourne.

Does the successful bidder have experience in operating major ports such as Port of Melbourne?

Each member of the Consortium is an experienced infrastructure investor, which includes ports. QIC is a shareholder in the Port of Brisbane and GIP is a shareholder in NSW Ports, as well as previously holding a stake in the Port of Brisbane. OMERS is an investor in overseas ports.

What has been the process to appoint the Consortium as leaseholder?

Following passage of legislation to facilitate the Port of Melbourne lease in March 2016, the Government publicly invited interested parties to submit expressions of interest. A strict confidentiality and probity framework governed the initial and binding bid stages of the transaction with shortlisted bidders.

Where required, the transaction process has accommodated the need for bidders to seek clearance from the relevant federal authorities to participate in the transaction.

How will the Government spend the lease proceeds?

Lease proceeds will be paid upfront into the Victorian Transport Fund (VTF), as set out in the Delivering Victorian Infrastructure (Port of Melbourne Lease Transaction) Act 2016, to support the removal of our 50 worst level crossings. This work is already well progressed.

The VTF will also help fund the Metro Rail, Western Distributor and other important transport initiatives. Legislation requires a minimum 10 per cent of net lease proceeds out of the VTF be invested in regional transport infrastructure projects.

A new $200 million Agriculture Infrastructure and Jobs Fund will also be established, supporting investment in agricultural infrastructure and supply chains to boost productivity, increase exports and reduce costs so our farmers, businesses and industries stay competitive.

What happens to Port of Melbourne Corporation employees affected by the lease?

Most people working at the port are employed by port tenants and will be unaffected by the lease of the Port of Melbourne.

The majority of Port of Melbourne Corporation's employees have transferred to Lonsdale, which will ensure continuity of the business. Legislation protects these employees’ rights and entitlements upon transferring to the Consortium.

Employees performing roles relevant to the Port of Melbourne's ongoing business have been given the opportunity to remain employed by the Victorian Port Corporation (Melbourne).

The Government will ensure all employees of the Port of Melbourne Corporation are treated fairly and equitably.

What is the Port of Melbourne?

The Port of Melbourne, like other major ports in Australia, operates as a landlord port. The Port of Melbourne Corporation is responsible for developing and maintaining port infrastructure, property management, maintaining the shipping channels, and ensuring safety in Port Phillip Bay.

Stevedore and logistics operator tenants are responsible for the day‑to‑day operation of their facilities. The container terminals at Swanson Dock East and Swanson Dock West are operated by Patrick Stevedores and DP World. At the Port of Melbourne, around 2.5 million containers are handled annually.

How long is the lease?

50 years.

A 50‑year lease will allow the leaseholder to plan for the investment needed to expand capacity at the port. Importantly, these costs will be met by the leaseholder.

A 50‑year lease also provides the Government with flexibility about developing port land in the future, after the lease term ends.

The port will return to the State's control when the lease term ends.

What has the Government leased?

The 50‑year lease is only for the Port of Melbourne Corporation’s commercial operations:

  • Approximately 500 hectares of land owned by the Port of Melbourne Corporation predominantly used for commercial purposes, but also including certain community assets, buffer land such as Perce White Reserve and other land/assets;
  • All wharves owned by Port of Melbourne Corporation, except for Station Pier and West Finger Pier;
  • The rights to charge port users for the use of the channel by commercial vessels and the associated requirements to maintain the channel;
  • Port infrastructure functions within the Port of Melbourne boundary;
  • The $1.6 billion Port Capacity Project to develop a third international container terminal and expanded automotive facilities; and
  • The transfer of Port of Melbourne Corporation staff identified in roles that support the leased commercial operations and business.

The Consortium will also maintain access to public walkways and bike paths for community use. Commercial and recreational vessels will continue to enjoy the same access.

What has remained with the State?

Port land will continue to be owned by the State.

The Victorian Government will retain responsibility for:

  • The Harbour Master (and Vessel Traffic Service) to ensure safe navigation in Port Phillip Bay;
  • Station Pier and West Finger Pier;
  • Relevant safety and environmental regulation (dangerous goods oversight), waterside emergency management;
  • Marine pollution response; and
  • Towage regulation.

Retaining these functions by Government will help ensure safety of the Bay for all users, recreational and commercial.

Future dredging of the shipping channels in Port Phillip Bay will continue to require the relevant environmental conditions and approvals.

What are Port of Melbourne’s charges?

Port of Melbourne’s current tariff schedule is available at www.portofmelbourne.com.au/port‑operations/port‑pricing.

The Port of Melbourne Corporation has frozen prices on loaded international container export charges in 2015‑16 and will progressively reduce export charges, by 2.5 per cent price annually for the four years thereafter.

Additionally, other Prescribed Services are limited to an average annual increase of CPI for at least the next 15 years.

How much of the port revenue is rent from port tenants?

In the 2014 financial year, rents comprised 14 per cent of total Port of Melbourne Corporation revenues.

This amount will fluctuate from year to year depending on land rents and trade revenues. The vast majority of Port of Melbourne Corporation revenues (excluding rents) are subject to Essential Services Commission price monitoring.

What are the costs of the port to users and end‑customers?

Port landlord costs are generally the smallest contributor to total supply chain costs for the import and export of goods.

Commonwealth Bureau of Infrastructure, Transport and Regional Economics data indicates port costs contribute less than 10 per cent of the domestic supply chain costs of imported and exported containerised goods.

Some examples of Port of Melbourne landlord costs per unit of imported goods include:

  • less than 90 cents per 50 inch television;
  • less than 4 cents per pair of shoes; and
  • less than 2 cents per bottle of wine.

How will port pricing be set by the leaseholder?

The existing Essential Services Commission regulatory arrangements will be strengthened such that the leaseholder will set prices in accordance with clear and transparent pricing principles contained in a Pricing Order.

The scope of regulated charges will be expanded to cover all trade charges for cargo and shipping movements. Property rents will continue to be set by contract.

A CPI price cap for at least 15 years will be monitored by the Essential Services Commission.

How does the regulatory regime differ from other price regulated assets, for example, businesses regulated under the federal regulatory regime?

The principles of the regulatory regime, which provides for the recovery of efficient costs on a defined asset base, reflect a conventional regulatory approach which is substantially similar to other price regulated assets.

In addition, the CPI price cap provides further certainty for port users.

Does the Delivering Victorian Infrastructure (Port of Melbourne Lease) Act 2016 exempt the port from the potential application of the federal regulatory regime?

No, the Act does not exempt the port from the potential application of federal regulation.

However, the Port of Melbourne is a competitive, open‑access port. The Essential Services Commission provides effective oversight of pricing of regulated services, and the leaseholder will be required to comply with the strengthened regulatory arrangements.

How large will the Port of Melbourne become?

The Port of Melbourne has the potential to grow trade volumes within its existing footprint and accommodate trade growth for many years.

Future development will depend on investment and productivity of stevedores and other tenants, investment by the leaseholder in incremental capacity and overall trade growth.

Any future development by the leaseholder will be subject to the relevant planning and environmental approvals.

Will ‘big ships’ bypass the Port of Melbourne?

The Government has received technical advice that it is highly unlikely that a significant number of ‘big ships’ will seek to call on the Port of Melbourne within the lease term.

However, the State will have an unfettered ability to respond to any changes in demand by developing a second container port in line with demand.

When will a second port be needed?

The Port of Melbourne is capable of supporting Victoria’s economy, trade and jobs well into the future.

A 50‑year lease will allow the leaseholder to plan for the investment needed to expand capacity at the port. Importantly, these costs will be met by the leaseholder.

A 50‑year lease provides a sufficient horizon to promote this investment and ensure the maximum opportunity for the port to be efficiently utilised.

It gives the Victorian Government the ability to plan for the future and consider options for a second container port.

The State will retain the unfettered flexibility to build a second container port.

On 17 May 2016, Infrastructure Victoria announced it will provide advice to the Government on the merits of developing a second Victorian container port, and options for the location of a second port, including at the Port of Hastings and the Bay West location. Infrastructure Victoria will present its final report to the Government within 12 months.

Will the Port of Melbourne leaseholder have rights in relation to a second port?

No, the transaction does not include rights in respect of a new port.

Has the State promised not to build a second port during the lease?

No, a second container port will be developed in line with demand.

Does the legislation prevent the State from developing a second port?

No, the legislation in no way prevents the State from developing a second port.

Will the State need to compensate the Port of Melbourne leaseholder if a second port is developed during the lease?

The legislation restricts compensation to 15 years from the lease's commencement.

The second port, if state-sponsored, will be subject to competitive neutrality pricing applying to a state-sponsored second port. This ensures a level playing field to allow ports to compete head to head without the distortion of state subsidies and will provide investors with confidence on likely outcomes.

What happens to the Port Capacity Project?

Completion of the remaining stages of the $1.6 billion Port Capacity Project (Webb Dock) will become the responsibility of the new leaseholder.

What does the lease of the Port of Melbourne mean for the work that Infrastructure Victoria is doing regarding the timing and location of a second international container port?

The lease of the Port of Melbourne will have no impact on the work that Infrastructure Victoria is doing other than providing an opportunity for the Consortium to contribute to Infrastructure Victoria’s considerations.

In addition to transport infrastructure, what other projects will be funded by the lease proceeds?

The Government will also establish a Port Phillip Bay Fund worth $10 million over four years. The fund will support projects including water quality improvement works, foreshore upgrades, dune stability works, amenity upgrades and wetlands improvements.