In an Australian parliamentary session this week, Senator Sarah Henderson raised concerns about the Newcastle, Australia port, which is 50% owned by a Chinese state-owned company, imposing restrictions on coal exports. This has been a recurring issue that has arisen several times in recent months, in the context of a broader China-Australia trade and diplomatic dispute as well as Chinese restrictions on coal imports from Australia.
The privatization of the Port of Newcastle took place in 2014. A Reuters report from that time described the transaction as follows: "Hastings Funds Management and China Merchants Group have won a state government auction for a 98-year lease on Australia’s Port of Newcastle, the world’s biggest coal export terminal, paying a higher-than-expected A$1.75 billion ($1.6 billion)." According to the Port, the sale "received all Australia Government Foreign Investment Review Board approvals." A restructuring of the China Merchants Group ownership occurred in 2018, under which the subsidiary China Merchants Port Holdings Co. Ltd. entered into an agreement to acquire the interest from China Merchants Union (BVI) Ltd.
In recent months, in the midst of a downturn in China-Australia relations, the issue of Chinese ownership of the port has become a hot topic. A story in Sydney News Today from May said: "New revelations about the close relationship between the port of Newcastle co-owner and the Chinese Communist Party further questioned the wisdom of allowing Beijing to hold a 50 percent stake in Australia’s largest coal export facility."
One specific concern was that the Chinese government would use its influence to push the port to raise fees for exports of coal, in order to punish Australia for actions and statements that the Chinese government disapproved of. In June, Senator Abetz and 14 other members of parliament sent a letter to the Treasurer and the Prime Minister in which they called for greater regulatory oversight of the port in order to prevent such Chinese interference. They alleged that "the port has used its monopoly position in relation to Hunter coal exporters, creating uncertainty that threatens jobs and the global competitiveness of coal exports through the port." They noted that "ongoing price increases at the Port of Newcastle will impact the global competitiveness of Australian coal exports and Australia’s capacity to export coal to other countries." And they said that "[t]he 50 per cent lease of an important infrastructure asset to a company backed by Belt and Road Initiative actor for another 91 years and its monopoly position needs urgent assessment," calling on the government "to declare the Port of Newcastle a monopoly under the National Access Regime, establish arbitration mechanisms between coal producers and the port and provide assurance that any regulatory changes in relation to arbitration determinations will not be retrospective."
However, a South China Morning Post article from June noted that "[p]ort charges levied on the vessels transporting coal out of the world’s biggest coal export port make up 1 per cent of the total cost of coal to importers and do not appear to substantiate any claims ... that the half-Chinese-owned port could abuse its monopoly position and impose 'punitive costs' to hurt Australian coal exports ... ."
Senator Henderson's statement to parliament arises in this broader context. In an August 11 parliamentary session, Henderson raised the issue of a "lack of regulatory oversight at the half Chinese owned Port of Newcastle." This matters, she said, because the port "is the largest coal export terminal in the world" and "[c]oal is our second-largest export commodity, and the port accounts for 40 per cent of Australia's coal output." She also noted: "The port is also a monopoly. Hunter Valley coal producers have no alternative but to use it." As a result, she said, "[r]egulatory oversight is desperately required."
Noting the 50 percent ownership by China Merchants Group, Henderson said that "China Merchants Group's stated ambition is for the port to implement its port-park-city development model under the Belt and Road Initiative, as it has done in ports in China and globally." The lack of regulatory oversight, she argued, "means China has the capacity to increase coal export costs for punitive reasons at any time." According to Henderson, "[s]ince it was privatised, the port has used its monopoly position to increase user charges on coal exports by nearly 120 per cent," something that was of concern to the Australian Competition & Consumer Commission (ACCC) chair. She concluded: "Given the port refuses to negotiate with coal producers, it is time for the ACCC to intervene."
Despite the attention being paid to this issue by some members of parliament, the chances of Australian government intervention here may be slim. Bryan Mercurio, a professor at the Chinese University of Hong Kong Faculty of Law, described these calls for action as a "non-starter" for the time being. He noted that port charges in Australia are "notoriously high" anyway, and said that "unless there's evidence of the port increasing prices to prevent or harm exports," the government was not likely to act. He also noted that while China has closed its market to Australian coal, "other markets have taken up the excess and the port is not attempting to stop or delay those exports."
On the other hand, Mercurio said, the concerns expressed here will likely mean that investments in infrastructure or agriculture or any investment from Chinese SOEs will see "even closer scrutiny." Even if no action is taken in respect of this particular port, the concerns identified here will affect the treatment of future investment transactions of this type, he added, which may be one of the objectives of those raising them.