Ports such as Fremantle and Oakajee are vital, yet problematic, for the state’s development.
THERE are strong similarities between the traditional port towns of Geraldton and Fremantle and yet the state government has very different strategies for expansion.
Both ports have changed in their historical usage and are reaching their acknowledged physical capacity due to geographical and urban constraints.
The answer to this challenge, in each case, is to give private consortia the right to build and run a new port at sites identified by long-term planning about 25 kilometres away from the existing harbours.
Both have been mired in controversy due to protracted negotiations and accusations of a lack of transparency.
And while the conservative government led by Premier Colin Barnett inherited both these projects when it won office in 2008, the state appears to have taken a very different approach to these developments.
For instance, Mr Barnett has backed the private development at Oakajee to the north of Geraldton, which he views as one of the most important infrastructure projects of his government.
While the premier has argued for some time that the investment mix in the Oakajee consortium should most likely change, he remains adamant that it will be built and the state won’t be paying for it.
“What we’ve got to do is align the partners better and bring in some of the major balance sheets and major financial resources,” Mr Barnett said.
“I suspect you’ll see some reorganisation of the shareholding or partnerships within Oakajee Port and Rail over the coming weeks.”
To the south, though, the state appears to be far less inclined to involve a private port developer at Kwinana, even though it was an earlier conservative government that signed a deal with the James Point consortium that includes building magnate Len Buckeridge as a shareholder.
Last week, Transport Minister Troy Buswell outlined the future for Fremantle’s harbour, based on recommendations contained in a secret report, opting to push for increased capacity at Fremantle’s Swan River mouth, effectively snubbing James Point.
Mr Buswell wants Fremantle to nearly double its key container operations by investing in land-based logistical services such as rail lines and intermodal infrastructure at Kewdale before Kwinana’s ability to handle this type of trade comes on stream.
With James Point believing it has a contract and prepared to invest $400 million in the first stage, bulk commodity element of its port, Mr Buswell is bracing himself for legal action after handing the concept of developing Kwinana to the WA Planning Commission to reconsider, potentially adding years to the process.
Based on a report provided by the Fremantle Port Optimal Planning Group, Mr Buswell believes he has nearly 10 years before Fremantle will reach capacity and container traffic will have to go to Kwinana. Significant state investment, therefore, has been earmarked in the hope that land-based logistics can extend the existing port to at least 1 million containers, beyond the level some in the industry believe is possible.
There is also the problem of a substantial increase in road traffic, even if the rail target of 30 per cent of containers is reached. Despite a $40-$45 subsidy for containers transported by rail, that form of transport represents just 11 per cent of containers travelling into or out of the port.
It is not known how the state’s member for Fremantle, Adele Carles, views the WA government plan or what, if any, influence her closeness to Mr Buswell has had.
Oakajee, like Kwinana, is hoped to meet future demand as the nearby township port reaches capacity.
At the moment, Geraldton handles trade of about 9 million tonnes per annum. Significant upgrades are set to stretch that capacity significantly. Notably, the land-based ore-handling infrastructure and harbour layout are viewed as the key bottleneck.
Gindalbie Metals is one local player planning to relieve this by spending $225 million to add 16mtpa of capacity to the existing port for its Karara project.
There is little doubt that other operations could also be significantly improved. Despite this, there is no talk of tweaking Geraldton to its limit for another decade while restarting the planning process for Oakajee.
Instead, the state has fully backed the private Oakajee project, one which has publicy sought to build a 45mtpa facility even though some prospective users question the merit of building such big capacity in the first instance, let alone the bill estimated to be $4 billion at its cheapest.
Even with that private development running into headwinds, as delays have created speculation that its key players either can’t or won’t fund the project, there has been no talk of the state going beyond its minimal commitment.
The latest bad news is that one of the key customers of the port, Sinosteel, has put its $2 billion Weld Range project on ice until uncertainties around the Oakajee development have been resolved.
With its share price under assault, Murchison Metals, effectively a 50 per cent owner in the port development, sought a trading halt last week while it sought to explain the situation.
Murchison said a port feasibility study was due to be received this week. It said a big issue affecting the project’s viability was a lack of agreement with customers on the way users of the port and rail infrastructure would be charged.
Murchison also confirmed that finding its proportion of the infrastructure funding was a challenge and that it was in discussions with other parties about investing in Oakajee, including Chinese interests.
That is a major admission, which appears to confirm speculation in the market for more than six months that Chinese-backed miners, who are among the foundation customers, wanted to see a change to the Oakajee consortium equity structure, which is 50 per cent held by Japan’s Mitsubishi.
Why there is any difference in the state’s port strategies is unclear.
Perhaps it lies in the financial implications for the state with regard to mineral exports.
The royalties on iron ore mean there is a financial imperative for the state that Oakajee becomes operational no matter what the funding mechanism. WA takes a healthy 7.5 cents in every dollar of revenue from iron ore exported from the state.
In comparison, Fremantle has far less traffic in commodities that earn royalties. Instead, it must earn income from general freight operations.
The development of a port at Kwinana, especially with container capability, would provide competition for Fremantle and most likely make it less profitable. Even though the state government acknowledges that Fremantle’s growth in container capacity is constrained by logistical challenges, it doesn’t want Kwinana’s container facilities developed for some time.
Given current container traffic is about 560,000 containers and the government believes Fremantle’s capacity lies somewhere between 1 million and 1.4 million containers – which it anticipates hitting between 2020 and 2025 if a moderate level of historic growth is maintained – it could be a decade or more before new facilities at Kwinana are on offer.
“From a state point of view to deliver the best return on our investment, our sunk investment in the port, we need to encourage it to continue to grow to that optimum,” Mr Buswell said.
Of course, much of that investment is well and truly sunk.
Fremantle’s importance to the state has waned since the 1960s as the Pilbara iron ore exporting hubs of Dampier and Port Hedland took economic precedence over the south’s agriculture, and Perth Airport became the major migrant gateway.
Fremantle remains important as the state’s key general cargo and container port, servicing the biggest population centre, but its future is limited due to capacity constraints in the heavily urbanised area and increasing need for modern land-based transport infrastructure.
Kwinana is certainly different from Oakajee in some respects, because the latter site is a greenfields development. Kwinana may be Perth’s industrial heartland but it comes with certain constraints in terms of road and rail infrastructure, residential development and even existing industrial users, whose operations may conflict with a port offering a broad range of services.
Mr Buswell makes the point that whether the state elected to expand Fremantle or develop at Kwinana, expensive new road and rail links will be required.
Of course, choosing to expand the existing harbour as a container centre simply delays that expense because, as Mr Buswell revealed, container traffic into Perth is expected to be around 6 million units, somewhere between four and six times Fremantle’s peak capacity based on government projections – a level some believe is optimistic.
Perhaps then, it is here that is the real difference between these two port developments.
At Oakajee, Mr Barnett states that the government has a commercial interest in the outcome because, although it is a minor player in terms of funding, it will own the completed project.
Ultimately, the state retains control of Oakajee, allowing private development to build and operate it simply because of the massive cost of the project.
At Kwinana, by contrast, James Point would build, own and operate the port – including freehold over the reclaimed land. Perhaps that is a fundamental difference for a state government that likes to control the key levels of state development.
