Channel Deepening S-EES
Department of Sustainability & Environment
Planning Panels Victoria
8 Nicholson Street
EAST MELBOURNE  VIC  3002


Dear Chairperson


CHANNEL DEEPENING PROPOSAL


In its response to the Essential Services Ports Regulation Review Issues Paper dated 28 January 2004, the Port of Melbourne Corporation PoMC) stated that ‘the deepening of the channels alone is expected to generate benefits in the order of $1.2 billion for the shipping industry’ and that ‘in the light of such significant private benefits and given the large proportion of these benefits that flow to non-Victorians, it is not appropriate for the PoMC’s investment program to be funded by Victorian taxpayers’.

This statement is an acknowledgement by the PoMC that Victorian taxpayers and consumers are not the major beneficiaries of the channel deepening project. 

It is inappropriate that the PoMC is advocating economic benefits based on cost reductions when in fact the PoMC has stated that cost to importers and exporters will be increased by way of an indexed levy or charge of $20 per international container.  On present container volumes this will amount to additional charges of $32 million per year, a cost which will in due course be passed on to Victorian taxpayers.

Frank Beaufort, the President of the Australian Peak Shippers Association, the designated peak shippers body, stated ‘that the dredging would bring no benefits to exporters.  It would only boost the profits for some international shipping companies (The Age, February 21, 2005).

I am of the opinion that the PoMC must provide an explanation as to why they are advocating economic benefits based on cost reductions in the S-EES when in fact the PoMC has stated that charges will be actually increased to pay for channel deepening and to provide a commercial return on assets.

As the PoMC is a public authority, one would expect that the statements made by the PoMC in its response to the Essential Services Commission were accurate and could be relied upon. 

The Channel Deepening Project (CDP) is probably the only Victorian project where the prime beneficiaries are non-residents, that is international shipping companies.

There is no proven methodology on which to establish and calculate, particularly over the 25-year period of the project, the proportion of the benefits that will flow from international shipping companies to importers and exporters and ultimately to Victorian consumers.

Furthermore, the international shipping industry does not have to comply with the Australian Competition Policy and there is a range of registered anti-competitive agreements amongst carriers.

Would the PoMC please provide an explanation as to why they are advocating economic benefits based on cost reductions in the S-EES when in fact the PoMC has stated that charges will be actually increased to pay for channel deepening and to provide a commercial return on assets.

The key issue that must be considered by the Panel is the extent to which savings by shipping lines will be passed on to importers and exporters.

The PoMC’s economic assessment which is based on the claim that international shipping companies will pass on the vast majority of cost savings (95 per cent in EES) derived by them from channel deepening is without foundation, lacks economic credibility and is in my opinion nothing more than wishful thinking.

I specifically refer you to the PoMC’s Response to the Essential Services Ports Regulation Review Issues Paper dated 28 January 2004.  The Panel would be well advised to thoroughly examine this document that is on the “Public Record” and to make the necessary comparisons with the statements made by the PoMC in the EES and S-EES.

How can these statements be reconciled with the PoMC’s claim that the economic benefits will flow through to Victorian importers and exporters and ultimately to Victorian consumers?

I would also draw your attention to the fact that the Australian Competition and Consumer Commission is also of the opinion that shipping liner profitability is a private benefit that accrues to the benefit of shareholders of shipping lines.

International shipping companies are not in business for the purpose of passing on the vast majority of cost savings to Victorians.  Profits will be maximised for the benefit of their shareholders.

In addition, the S-EES process is obviously irreversibly flawed when the proponent is advocating economic benefits based on cost reductions when in fact the proponent is clearly intending to increase charges to pay for the CDP and to provide a commercial return on assets.

The now well publicised and significantly overstated benefits of this project are in fact calculated and projected on theoretical figures.

In its report, the EES Panel stated that it “considers it is extremely difficult to consider the economic case for the Project in isolation from the funding”.  The Panel also acknowledges and states that “distributions of costs and benefits will clearly change depending on the funding model used (particularly if a significant user pays element were to be introduced) and hence understandings of the broader concept of community benefit may be adjusted”.

In fact, no proper economic assessment has been made of this project as the assessment does not include:

1. Project funding
2. Additional charges to cover the PoMC’s costs of the project and the PoMC’s required commercial return on assets
3. Precise details as to whom will pay the charges
4. Losses that will be incurred by land and water based businesses, and their employees, that will be affected by the project – including both revenue and capital losses on closure of business enterprises.

Surely, the State Government and the PoMC have an obligation and a responsibility to establish the “real” economic impact of the project on the Victorian economy.

The attached submission to the EES forms part of my submission to the S-EES, as although the value of benefits and costs has altered in the S-EES, the economic principles on which the experts acting for the proponent have based their opinion are unaltered.

I also reserve my right to be heard and advise that I wish to question the Economic experts acting for the PoMC.


Gary J Howard
Dromana

Please acknowledge the receipt of this submission.

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