This briefing note identifies some of the potential issues in the proposed privatisation of the Port of Newcastle in New South Wales, Australia.

1. Privatisation of Port Newcastle, Australia
Introduction
In June 2013, the State Government of New South Wales (NSW Government) announced as part
of its state budget plans that it would privatise the Port of Newcastle (Port Newcastle). Port
Newcastle is the economic and trade centre for the resource rich Hunter Valley and for much of the
north and northwest of New South Wales.
Port Newcastle is the world’s largest coal export port and Australia’s third largest port by total
throughput in mass tonnes. Australia is the world’s largest coal exporter and Port Newcastle is
responsible for some 70% of Australia’s total coal exports. During the 2011/12 financial year, Port
Newcastle achieved an annual coal export volume of some 121.9 million tonnes. Port Newcastle
also currently handles grain, alumina, fuel, mineral concentrate, fertiliser and steel, although coal
exports represent around 95% of the total port throughput in mass tonnes.
Political context
The privatisation of Port Newcastle was announced as part of the NSW Government’s 2013-2014
state budget. The privatisation of Port Newcastle is the next part of the Liberal-National coalition
State Government’s multi-million dollar privatisation programme in New South Wales. It follows the
successful privatisations of Port Botany and Port Kembla in April 2013.
As with many previous NSW privatisations, the privatisation of the Port is controversial and has
generated significant media comment. Half of the sale proceeds are intended to be allocated to a
range of infrastructure projects for the city of Newcastle, potentially including a light rail project.
Timetable
As at June 2013, the proposed transaction timetable has not yet been announced. The first public
step is expected to involve the release of a Request for Expressions of Interest by the NSW
Government. No Information Memorandum has yet been released.
The NSW Government will commission a scoping study before the transaction process begins. A
financial adviser has yet to be appointed. Morgan Stanley was previously appointed as financial
advisor for the Port Botany and Port Kembla privatisations.
Briefing
June 2013

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Transaction Structure and Sale Price
Port Newcastle is currently operated by Newcastle Port Corporation (NPC), a State-owned statutory corporation
and a major land owner in the port. The privatisation is most likely to follow the privatisation structures recently
applied to similar infrastructure privatisations in NSW and throughout Australia.
In relation to the Port Botany and Port Kembla privatisations in 2013, the NSW Government enacted implementing
legislation in the form of the Ports Assets (Authorised Transactions) Act 2012. It is likely that this legislation will
now be extended to apply to Port Newcastle as well. If this legislation were applied, the relevant State assets to be
privatised would be transferred by the NSW Government into to the Port Assets Ministerial Holding Corporation
(PAMHC), a State entity established by that Act to hold NSW port assets to be leased to the private sector.
It is expected that a Project Company would then be created to enter into a 99 year lease with PAMHC. The lease
will provide for the lease of the port, associated port land and other port assets. Freehold title would remain with
PAMHC. Some employees of NPC would transfer to the new Project Company, supported by various Government
commitments intended to preserve employee entitlements. The NSW Government would retain step-in rights and
would have the ability to terminate the lease if the Project Company is in breach of key obligations.
The lease may be bundled with a concession agreement giving the Project Company the right to operate and
receive the economic benefit of the relevant Port Newcastle assets, but imposing a range of performance
obligations. Existing key contracts would likely be assigned from NPC to the Project Company.
The privatisation would subsequently occur via the sale of 100 per cent of the shares in the Project Company by
the NSW Government to an investor consortium. In this manner, investors will most likely be offered a pre-
packaged deal without any involvement in the negotiation of the 99 year lease. The likely transaction structure is
illustrated in the following diagram:
The NSW Government is budgeting to receive at least $700 million from the sale of the shares in the Project
Company. This budgeted figure appears conservative. The privatisations of Port Botany and Port Kembla by the
NSW Government achieved sale revenue of $5.07 billion which the NSW Government indicated was some 25
times the annual earnings from those ports. The budgeted sales revenue for those privatisations was $3 billion.
Investor
Consortium
Project
Company
NSW State
Government
Port Assets
Ministerial
Holding Co
Third Party
Contracts
99 Year Lease
State ownership
and concession
Assignment of
contracts to Project
Company
Assigned
contracts
Transfer of shares
Payment for shares
100% of shares in
Project Company
Newcastle
Port
Corporation

3. Credentials
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Preliminary issues
A number of issues are raised by the proposed privatisation, including:
• the extent to which regulatory clearances may be required by bidders;
• the extent to which NSW regulation of port charges will be maintained;
• the extent of any Commonwealth regulation of port charges; and
• insufficient diversification risk associated with the heavy weighting of Port Newcastle to coal export.
Regulatory clearances for bidders
Key regulatory clearances required by bidders may include foreign investment approvals and competition
clearances. Foreign investment approvals are straightforward and rarely withheld, but are a necessary formality.
Competition clearances may be important if one of the consortium parties has existing port operations in Australia,
is a potential or actual user of Port Newcastle, or has a relevant ownership association with any such person.
The Australian Competition and Consumer Commission (ACCC) may be concerned if the acquisition of shares in
the Project Company could result in a substantial lessening of competition in any market in Australia. Concerns
could arise, for example, if one of the consortium parties was a potential or actual acquirer of services at the port. In
such circumstances, the ACCC may be concerned at the potential for a vertically integrated port controller to
discriminate in favour of its own downstream port operations.
However, the inclusion of a Port Newcastle user or associate in a bidding consortium is not necessarily fatal to any
ACCC clearance. The ACCC’s reaction would turn on the circumstances of the case. The Port Newcastle user or
associate could have an immaterial shareholding or role that gave it no practical influence. It may also be possible
to provide a voluntary undertaking to the ACCC to seek to address any competition concerns. For example, an
undertaking could be provided that competitors to the relevant Port Newcastle user or associate would be given
access to the Port Newcastle on a non-discriminatory basis.
If competition issues were identified, the strategy and timing for any approach to the ACCC would need to be
carefully considered. Generally, the ACCC is not willing to provide clearance without undertaking public market
inquiries. If confidentiality issues precluded inquiries prior to bid submission, the bid may need to be made
conditional on any ACCC clearance.
As far as we are aware, no parties bidding for the Port Botany and Port Kembla assets considered it necessary to
seek informal clearance from the ACCC for their respective proposed acquisitions.
State-based regulation of port charges
Based on the experience with Port Botany and Port Kembla, the NSW Government will wish to retain price
oversight powers and monitor prices charged at Port Newcastle by the private sector lessee. Consistent with
principles adopted by the Council of Australian Governments, commercial outcomes will be promoted where
markets are competitive, but price monitoring will be implemented where regulatory oversight is required.
Historically, under the Ports and Maritime Administration Act 1995 (NSW) (PMAA), the NPC (as major land owner
and operator of Port Newcastle) was required to obtain NSW Ministerial approval to set certain port charges. The
regulated charges included navigation services, pilotage, port cargo access, site occupation and wharfage. The

4. Privatisation of Port Newcastle, Australia
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unregulated charges included charges for such matters as rail access, ship utilities, port security, and ancillary
services. In this manner, most of the key port charges were regulated.
As part of the Port Botany and Port Kembla privatisations, the PMAA was amended to implement a price monitoring
regime for the key NSW ports, including Port Newcastle. The new regime applies to both port corporations and
private lessees. As part of the amendments, the requirement for Ministerial consent for certain charges was
removed, hence the Minister now retains direct price setting powers only for the port cargo access charge. A new
port infrastructure charge was also permitted to be levied in order to fund investment in port infrastructure projects.
Under the new regime, the private lessee will need to give notice of any proposed changes to service charges and
provide the rationale for how the increase is calculated and why the increase is needed. The port lessee will also
need to provide an annual report of charges to the NSW Minister. The NSW Minister will have the power to require
information to be supplied to the NSW Government relating to port charges. If necessary, the NSW Minister would
have the ability to refer any inappropriate pricing behaviour by the port lessee to the NSW Government’s
independent pricing watchdog, the Independent Pricing and Regulatory Tribunal (IPART).
The Minister also has the ability under the PMAA to promulgate regulations to promote the economically efficient
operation of, use of and investment in land-based port facilities and port-related supply chain facilities, including
Port Newcastle. However, the Minister must not use those regulations to regulate the fixing or collection of port
charges at Port Newcastle.
Commonwealth-based regulation of port charges
It remains open for any third party to seek declaration by the Commonwealth Treasurer of aspects of Port
Newcastle operations under the national infrastructure access regime in Part IIIA of the Competition and Consumer
Act 2010 (Cth). Given Newcastle Port is of national significance, the key issue would be whether increased access
would increase competition in at least one market. This may be relatively straightforward to establish in some
circumstances.
If declaration occurred, the relevant terms and conditions of access (including pricing) could become subject to
ACCC arbitration. Essentially, if a dispute over prices occurred, the access seeker could seek a binding
determination from the ACCC. In this matter, port charges would become subject to regulation by the ACCC.
As yet, Part IIIA has not been applied to port assets in Australia. In general, Part IIIA has been rarely applied and
has been accompanied by significant delays and extensive litigation where it has been applied. However, the
Productivity Commission has recently released a draft report that recommends the streamlining of aspects of Part
IIIA. Moreover, recent amendments to Part IIIA may make it easier to apply in practice than has historically been
the case.
To avoid the application of Part IIIA, it is possible for the NSW Government to develop a State-based access
regime and then seek to have this formally “certified”. Two examples of such an approach in relation to ports in
Australia include the Dalrymple Bay Coal Terminal in Queensland, and the South Australian Ports Access regime.
Both regimes provide for oversight by the relevant State regulator. However, development of a regime for Port
Newcastle and subsequent certification may take significant time, hence this approach was not adopted by the
NSW Government in the context of the privatisation of Port Botany and Port Kembla.

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Diversification and expansion of Port Newcastle
Coal is currently by far the Port Newcastle’s largest trade commodity, representing around 95% of the total port
throughput in mass tonnes. NPC currently works with all of the coal producers and service providers through the
Hunter Valley Coal Chain Co-ordinator to plan and co-ordinate the transport of coal from mine to ship. The Hunter
Valley ‘coal chain’ is recognised as the largest coal export operation in the world. The chain consists of some 35
coal mines owned by 13 coal producers. The coal is loaded onto trains at more than 27 points and is hauled for
distances of up to 380 kilometres to three port coal export terminals located at Port Newcastle.
An important consideration for all potential investors will be the coal sector’s outlook and to a significant extent
China’s economic forecast (the primary destination of the coal exported from Port Newcastle). The current
economic climate has seen stalling demand and falling global coal prices. Potential investors may also wish to
investigate the growth, expansion and diversification of the port’s current trade output.
Contacts
For more information on this project, please contact:
Adrian Ahern
Global Chairman / Partner
Norton Rose Fulbright Australia
+61 2 9330 8216
adrian.ahern@nortonrosefulbright.com
Vincent Dwyer
Australian Head of Corporate / Partner
Norton Rose Fulbright Australia
+61 2 9330 8238
vincent.dwyer@nortonrosefulbright.com
Dr Martyn Taylor
Partner / Author of this Briefing
Norton Rose Fulbright Australia
+61 2 9330 8056
martyn.taylor@nortonrosefulbright.com
Nigel Deed
Senior Associate / Author of this Briefing
Norton Rose Fulbright Australia
+61 2 9330 8915
nigel.deed@nortonrosefulbright.com