We have completed our first inquiry into the Port of Melbourne’s compliance with the pricing order, covering the period 1 July 2016 to 30 June 2021.
Inquiry into Port of Melbourne compliance with the pricing order 2021
Inquiry started10 June 2021
Public forum15 July 2021
Drop-in sessions5 July to 5 August 2021
Submissions closed3 September 2021
Final report to Assistant Treasurer31 December 2021
Public report released28 January 2022
We have completed our inquiry
We are required by the Port Management Act 1995 (Vic) to conduct an inquiry into the Port of Melbourne’s compliance with the 2016 pricing order every five years. Our first inquiry covered the review period 1 July 2016 to 30 June 2021.
We found the Port of Melbourne was not compliant with the pricing order
We found non-compliances in the Port’s approach to:
- return on capital
- aggregate revenue requirement
- operating expenditure
- consultation with port users
- cost allocation
- prescribed service tariffs
- cost allocation
- content of its tariff compliance statements.
Our key findings on non-compliance with the pricing order
We found that the Port of Melbourne's:
- Weighted average cost of capital does not reflect that of a benchmark efficient entity with a similar degree of risk.
- Revenue requirement is overstated by around $300 million and $650 million. This means Victorian consumers may be impacted by prices that are higher than they should be in the future.
- Approach to managing its operating expenses is not consistent with that of a prudent or efficient service provider.
- Tariffs, cost allocation and content of its tariff compliance statements were not compliant.
The Port of Melbourne was compliant in some areas
We consider that the Port of Melbourne was compliant in some areas, including its estimation of the cost of debt, capital base and its approach to calculating depreciation. We also consider that Port of Melbourne's capital expenditure forecasts were prudent and efficient, and its demand forecast generally reflected a sound methodology. We also found instances where the Port of Melbourne correctly calculated its tariffs and applied its costing methodology.
The Port of Melbourne’s non-compliance was significant and sustained
We consider the cumulative nature of the Port of Melbourne's non-compliance is significant and sustained and is not in the long-term interests of Victorian consumers.
Our view is that the non-compliance is:
- significant, because it does not meet the objectives of the Port Management Act 1995 (Vic)
- sustained, because the impact on these objectives is not fleeting or transitory.
We consider the current regulatory framework does not have adequate incentives for compliance, which allows for significant and sustained non-compliance with the pricing order.
We provided our inquiry report to the Assistant Treasurer by 31 December 2021 consistent with our legislative obligations. You can read more on how the Assistant Treasurer may use our report in our Statement of Regulatory Approach (PDF).
You can read our engagement summary (PDF) to understand the consultation process for our inquiry and what matters were raised by stakeholders and the Port of Melbourne. All public submissions and letters are available under the 'resources' tab.
View our public report
The report has been published on our website at the Victorian Assistant Treasurer's request.
You can also view our media release on the public report.
Port of Melbourne and the pricing order
The Port of Melbourne services international and domestic shipping lines carrying containerised and general cargo to and from Melbourne through Port Phillip Bay.
Cargo is imported or exported via a range of port users in the supply chain, such as the shipping lines, stevedores, transport providers, freight forwarders and cargo owners.
The port charges users of prescribed services in line with the pricing order, which is made under section 49A of the Port Management Act 1995 (Vic). The pricing order sets out the requirements for the port when setting prices for prescribed services, such as:
- how to calculate prices
- the extent prices can change between years
- when the port needs to apply to us for variations.
The pricing order provides the port a reasonable opportunity to recover efficient costs for providing prescribed services such as:
- channel use
- berth or area hire
- other ancillary services.
Each year the Port of Melbourne must submit a tariff compliance statement to us, which explains how its prices for prescribed services comply with the pricing order.
Scope of our inquiry
Port user and other stakeholder consultation
Virtual public forum
Addendum: Response from Victoria International Container Terminal
During our public forum we asked representatives from Victoria International Container Terminal (VICT) if they would like to respond to comments made by other container stevedores.
Audio issues prevented all forum attendees from hearing VICT’s response. After the forum, we offered VICT the opportunity to add a statement to our website. They provided the following statement:
"Victoria International Container Terminal (VICT) purposely decided not to make a public presentation at the Port of Melbourne (PoM) inquiry relating to compliance with the pricing order as we can confirm the PoM has been compliant within the last five years. Unfortunately, our competitors hijacked the public forum to go on the offensive and divert the inquiry into their own well-orchestrated, anti-competitive attack on the Webb Dock “knuckle” project.
In response, VICT has provided the Essential Service Commission with a detailed reply regarding the Webb Dock “knuckle” project to dismiss the misleading comments that were mentioned in the public forum."
— Victoria International Container Terminal