An intriguing month lies ahead in the Port of Melbourne lease process, with the state government confirming an April 18 deadline for expressions of interest.
This follows the recent passage of the Delivering Victorian Infrastructure (Port of Melbourne lease) 2015 bill through the state parliament.
In a recent statement, state Treasurer Tim Pallas said he expected a leaseholder to be chosen before the end of the year.
“We’re moving to market quickly because of the strong bidder interest in the Port of Melbourne and we’re confident the lease will deliver significant, long-term economic benefit to Victorians,” he said.
Some lease proceeds are expected to be directed to the removal of 50 train level crossings around greater Melbourne with Mr Pallas saying the government was “getting on with the leasing of the Port of Melbourne and using the proceeds to build key infrastructure across the state and create jobs”.
“The lease will make our port even better, increasing efficiencies and competitiveness,” he said.
Figures of a lease figure of anywhere between $5bn and $7bn have been bandied about and Drewry Shipping port economist David Bayne told Lloyd’s List Australia the market for leases was “extremely attractive”.
“For example, in the privatisation of PNG (Ports), we had over 13 respondents of which six were major international players.
“The Chinese have been aggressive bidders in Indonesia and recently bought the Greek port of Piraeus for a multiple of 30 times earnings,” he said.
“The demand is coming not only from China but enquiries are already being made by Canada, the Middle East and other pension funds including the usual Australian players.”
Mr Bayne said there were few investment opportunities with the characteristics of stability, almost guaranteed cash flow and significant barriers to entry.
“This is particularly attractive to pension and state-owned sovereign funds.
“To quote Warren Buffett ‘boring companies with a wide moat’ and landlord port leases fit this bill.”
Mr Bayne said low interest rates being charged in other developed countries only made port investment more attractive.
Regulation
“Japan, Denmark and Sweden already have negative interest rates and Canada bank rate is 0.5% as is the USA. This low cost money reinforces the attractiveness of the proposition.”
But an intriguing aside is the national security element, with the federal government expected to scrutinise any deal heavily, especially after it was criticised in some quarters for approving the Port of Darwin lease by a Chinese entity.
Federal Treasurer Scott Morrison recently announced the government had secured state and territory support to change the Foreign Acquisitions and Takeovers Regulation, so for the first time the Foreign Investment Review Board (FIRB) would assess the sale of critical state-owned infrastructure assets to private foreign investors.
“While we welcome foreign investment in Australia it is imperative that critical infrastructure sales are scrutinised to ensure any potential national security risks can be addressed,” Mr Morrison said.
“These new measures reflect the Turnbull Government’s policy to be open, transparent and sovereign in foreign investment decisions.”
From March 31, the FIRB is to formally review critical infrastructure assets sold by state and territory governments.
“Under current rules, which have not been amended by previous governments, FIRB assessment of critical infrastructure was only required when assets were sold to state-owned enterprises,” Mr Morrison said.
“Foreign investment is an important source of capital to build the infrastructure that Australia needs and the Government recognises that this investment can provide access to funds to restore and enhance ageing infrastructure networks and assets.
“But the Government recognises this investment should occur on our terms, must be appropriately scrutinised and not be contrary to the national interest.”
Critical infrastructure assets now subject to formal review when sold include:
- Public infrastructure (an airport or airport site; a port; infrastructure for public transport; electricity, gas, water and sewerage systems);
- Existing and proposed roads, railways, inter-modal transfer facilities that are part of the National Land Transport Network or are designated by a state or territory government as significant or controlled by the government; and
- Telecommunications infrastructure; and nuclear facilities.
The appointment of David Irvine (a former Director General of both the Australian Security Intelligence Organisation and the Australian Secret Intelligence Service) to the FIRB is aimed at bolstering the board’s ability to provide national security advice.
This article originally appeared in the print edition of Rail Express affiliate Lloyd’s List Australia on March 31, 2016.