Presentation by Brendan Bourke, CEO Port of Melbourne to the ESC’s public forum on the inquiry into compliance with the Pricing Order

Good morning commissioners, ladies and gentlemen.

My name is Brendan Bourke and I am the Chief Executive Officer for the Port of Melbourne.

Thank you for the opportunity to address the ESC’s Public Forum on the ESC’s first inquiry into Port of Melbourne’s compliance with the Pricing Order. We welcome this inquiry and look forward to engaging constructively with the ESC and its advisors throughout.

It’s clear the framework and regulatory environment we operate in is achieving its purpose:

• Prices are compliant with the tariffs adjustment limit
• We are actively engaged with port users and,
• We’re investing to drive efficiencies, optimise capacity as the volumes continue to grow, and respond to industry changes.

We welcome the Five-Year Review as it will establish guidelines and assist with compliance demonstration in the next five-year review period.

As you will be aware, Port of Melbourne is Australia’s largest container port, facilitating more than one-third of the nation’s container trade and playing a critical role as a key driver of economic activity.

The financial year just finished saw a record for containers volumes, with approximately 3.3million TEU in total and around 3.0 million international TEU. This is a great outcome for everyone in the port and freight supply chain.

On 31 October 2016 the Port of Melbourne Group was granted the 50-year Port Lease by the Victorian State Government.

As part of this process, the State government established a statutory, regulatory, and contractual framework to ensure continued investment in capacity and operational performance at the port.

As managers of the port, we and our shareholders take our stewardship commitments very seriously to ensure the port’s ongoing operational efficiency, capacity and amenity.

We operate under a landlord port model, which means we have a relatively low operational cost structure that is corporate in nature with our largest fixed costs under the concession deed, payable to the State in the form of the Port Licence Fee and the State Cost Contribution which funds the harbor master and vessel traffic services.

Our prices are subject to the Tariffs Adjustment Limit until at least 2032 and most likely to 2037, which means that the annual weighted average increase in tariffs can be no more than CPI during this time.

It’s our role to continue to invest, along with industry and government to support the efficiency and growth of the port and its supply chain that enables over 19,600 jobs, and contributing over $6 Billion to the Victorian economy.

It’s been almost five years since the port lease transaction, which established a regulatory regime that is specific to the Port of Melbourne and unique amongst other ports.

We consider that we have achieved compliance with the regulatory regime.

It has been a process of transition. The interpretation and understanding of the regime has evolved both for Port of Melbourne and the ESC.

We recognize the ESC’s work during this period to articulate its interpretation of the regime, and I want to emphasise that Port of Melbourne has been committed to effectively transitioning the business from a government owned entity to a private asset manager under a new and bespoke regulatory environment

We have continuously improved how we demonstrate compliance with the regulations and responded to the ESC’s feedback each year.  We have been clear to address the comments raised in the ESC’s interim commentaries and, we are substantially aligned with the ESC.

We have also worked with our port stakeholders and wider port and supply chain participants to assist in their awareness, knowledge and understanding of the regime.

This has included the port undertaking annual engagement sessions, forums, meetings, providing information and making it publicly available.

Understandably, most port Stakeholders have not been previously exposed to regulatory concepts but have been comforted by the fact that tariff pricing under the TAL is limited to CPI for a considerable period of time.

In addition to the regulatory regime that is the topic of today, we also have broader statutory and contractual obligations (principally to the State of Victoria) that govern our approach to how we manage the port.

Under these overarching stewardship commitments, we have an obligation to manage, maintain, operate and develop the port to be a major seaborne trade gateway to the benefit of the State’s economy.

As part of these stewardship commitments, Port of Melbourne must, among other things:

• Manage, operate, and maintain the port in accordance with good operating practice; and
• Ensure the port is able to reasonably accommodate vessels of the size and type reasonably required to meet the trade requirements at the Port.

Regarding development of the Port, Port of Melbourne must develop land and infrastructure so as to:

• cater for actual and reasonably anticipated growth and demand;
• provide quality and efficiency standards reasonably expected of a comparable major port in Australia;
• maintain the port’s leading position among Australian ports in terms of quality, efficiency and effectiveness; and
• Comply with good operating practice and applicable laws.

Over the period since 2016 we have met these commitments in full, and we remain unreservedly focused on ensuring that we continue to deliver on these stewardship commitments to the benefit of the State’s economy and consumers.

It’s clear we are delivering on our investment obligation.

Since the commencement of our lease from the Victorian Government in November 2016, Port of Melbourne has invested more than $370m in infrastructure to support ongoing trade growth, operating performance and catering for industry changes and trends. This is an ongoing commitment to improve and maintain facilities to deliver a more productive and efficient port for port users, Victorian consumers and the State’s economy.

Examples of major initiatives we have undertaken during the review period include:

• Consulting with the industry to firstly develop, and commence delivering, major capital plans under the Port Development Strategy, Rail Access Strategy and Port Rail Transformation project;
• To extend the lives of the wharves there have been upgrades to Swanson Dock East (which is complete) and now commencing Swanson Dock West. These have been a more significant undertaking than forecast in the State’s plans at the time of the Port Lease;
• Completing works to enable access for larger vessels at Swanson Dock. The ability for 336 metre long vessels to access Swanson Dock has been a major achievement as the need to service these size vessels was not anticipated at the time of the port lease. In addition, the ability to get larger vessels to Swanson dock was not considered possible at that time;
• Commencing the delivering of improved rail infrastructure and a new open access operating framework for rail that connects to significant private and public investment in metropolitan rail terminals to enable port rail shuttles to commence; and
• Strengthening good practice by developing and implementing our Integrated Management System, including four ISO certifications covering: Asset Management, Environmental Management, Occupational Health and Safety, and Quality Management Systems. We are the first organisation in Australia to have concurrent certifications against all four standards.

As we undertake projects we recognise that there are competitive dynamics that exist in the port environment and we expect that sometimes there will be a diversity of views, as we have seen in the competitive container stevedoring sector. Given that, we recognize that not all stakeholders will be supportive of all investments, all of the time, particularly amongst such competitors.

We have and will continue to listen to all feedback and make decisions to invest prudently and effectively in the best interests of port users and the Victorian economy.

To conclude, we have complied with the pricing regulations over the last five years.

We have operated within the reference tariff schedule with prices in accordance with the tariff adjustment limit and undertaken extensive consultation on our programs and projects.

We have made prudent and efficient investments in port infrastructure.

We have continuously improved how we demonstrate compliance with the regulations and responded to the ESC’s feedback each year.

The process of refinement of the interpretation and application of the regulatory framework has occurred under the commitment to stable pricing established in the regulations, reflecting the strong commitment we have made to port users and the ESC.

We will continue to make the right decision and investments such as those within this five year review period to optimise capacity and maintain and develop the port infrastructure for the betterment of all port users in the long-term interests of the State.

Once again, I’d like to thank the ESC for the opportunity to address the ESC’s Public Forum today. We welcome this inquiry and look forward to engaging constructively with the ESC and its advisors throughout the review.

Thank you.

Email us at information@portofmelbourne.com.au