Lease of the Port of Darwin to the Landbridge Group
The Northern Territory (NT) Government's decision to lease the Port of
Darwin for a period of 99 years, along with its decision to sell a controlling
stake in the port operator, involved a number of stages. These stages occurred
within two distinct phases. First, the decision to lease the port, rather than
sell it outright, and second, the bidding process that led to Landbridge Group
being awarded the lease and acquiring a controlling stake in the port operator
(now known as Darwin Port). This chapter provides an overview of structure and
operations of the Port of Darwin prior to the lease; the lease process
undertaken by the NT Government; and the successful Landbridge bid, including
the company's engagement with the foreign investment review framework.
The decision of the NT Government to lease parts of the Port of Darwin
to the Landbridge Group came into effect on 16 November 2015.
Prior to the NT Government's decision, the port was operated by the
Darwin Port Corporation. According to information made public by the NT
Government, the areas of the Port of Darwin that have been leased to the Landbridge
Group (Landbridge) are:
East Arm Wharf;
Darwin Marine Supply Base;
Fort Hill Wharf (which is used for cruise ships and Defence
Commercial shipping channels within the port area;
The Bulk fuel terminal, which is leased to VOPAK.
A number of areas of the port do not form part of the lease agreement,
and these will continue to be owned and operated by the NT Government. These
Stokes Hill Wharf;
Hornibrook's Wharf; and
Frances Bay Mooring Basin, including Sadgroves Creek moorings.
As a business division of the NT Government, the Darwin Port Corporation
was established under its own enabling legislation, the Darwin Port
Corporation Act (Darwin Port Act).
In accordance with the requirements of the Act, the Darwin Port Corporation
held sole responsibility for the management and operation of the port. Headed
by a Chief Executive Officer (CEO), the corporation was ultimately responsible
to the Northern Territory Parliament through the Minister for Infrastructure.
It employed 85 full-time staff.
In order to fulfil its responsibilities under the Darwin Port Act, the
corporation's activities were underpinned by a corporate governance framework
that included an Advisory Board; a Port Management Group; and a variety of
subordinate committees. The latter provided advice to the Port Management Group
and the CEO. The Advisory Board consisted of seven members, including the
corporation's CEO. The Board's members were appointed by the Minister for
Infrastructure for a period of three years. The Advisory Board also provided
advice on strategic matters referred to it by the CEO. The Board was required
to consider these matters from a largely commercial perspective, yet also had
to take into account the NT Government's wider strategic objectives, including
national and international trade development.
In addition to the Advisory Board, which was established through
legislation, the second major component of the corporation's governance
framework was the Port Management Group. Formed by the senior leadership group
of the Darwin Port Corporation, and headed by the CEO, the Port Management
Group held primary responsibility for managing the strategic direction of the
corporation. Its responsibilities included the following:
Delivery and performance monitoring of corporate objectives in
accordance with the Corporate Plan;
Strategic issues and priorities in relation to organisational
development and planning;
Determining and implementing policy in a manner that is
consistent with Government's overall transport objectives;
Monitoring budget and resource allocation within the Corporation;
The exchange of corporate knowledge and dissemination of
decisions and other information throughout the corporation.
As part of its responsibilities as the operator of the Port of Darwin,
the corporation oversaw the management and strategic expansion of port and
logistics services, including, for instance, livestock exports; dry bulk
imports and exports; container and general cargo services; offshore oil and gas
rig services; petroleum, avgas and other bulk liquids; and services for cruise
ships, naval vessels and Australian customs vessels.
Upon the commencement of the lease on 16 November 2015, the Darwin Port
Corporation, which was a wholly-owned business division of the NT Government,
was replaced by a new corporate entity, Darwin Port. This is the business name
that will represent the operations of Darwin Port Operations Pty Ltd and Darwin
Port Pilotage Pty Ltd, both of which are part of the Landbridge Group.
Although operational responsibility for the port has been transferred to
a new corporate entity, Darwin Port, there is continuity in management. At the
time of writing, the former CEO of the Darwin Port Corporation, Mr Terry
O'Connor, continues to manage the operations of the new company.
Port of Darwin lease process
According to the NT Government's submission to the NT Legislative
Assembly Port of Darwin Select Committee inquiry, the decision to lease parts
of the Port of Darwin rested on two principal factors: significant growth in
demand for the port's services – with new usage records set over the last four
years – and the need to meet future growth projections.
In evidence to the Legislative Assembly's Select Committee, the Northern
Territory's Coordinator General, Mr Garry Barnes reported that successive
Australian Governments have rejected applications, made through Infrastructure
Australia, for additional capital funding to meet the current and future
infrastructure needs of the Port of Darwin. Advice given to the NT Government
by the Federal Government was that the Port of Darwin was better suited to
privatisation than to continue operating as a Government owned facility.
The Port of Darwin Select Committee advised the NT Government that the
Port of Darwin could find itself at full operational capacity in the near
future. Given the Federal Government's decision not to fund further capital
investment in the Port, the NT Government sought urgent expert advice on the
best way to secure capital investment to increase the Port's capacity. The
expert advice sought was to consider funding options for the Port of Darwin,
given its unique features, including:
its small size, compared with other ports around Australia;
its utilisation by many different industries, such as mining and
cattle transport; and
the need for significant, and correspondingly costly,
In early 2014, the NT Government hired Flagstaff Partners, a company
that had earlier advised the Victorian Government on the Port of Melbourne
lease project. Flagstaff Partners recommended that a long term lease would be
the best option to expand and develop the Port of Darwin.
Throughout 2014, further reports were prepared for the NT Government by
independent consultants, including Deloitte Access Economics; GHD;
Environmental Resource Management; and Price Waterhouse Coopers. The expert
reports examined those sectors likely to drive future economic growth in the
NT, such as the Oil and Gas sector, along with the key commercial, financial,
accounting, tax, environmental and engineering issues raised by the lease or
privatisation of the port. Minter Ellison acted as the NT Government's legal
advisor for the lease transaction.
In addition to consulting with a range of external experts on the scope
and shape of a potential privatisation of the port, the NT Government also
appointed a Port of Darwin Project Steering Committee, whose primary
responsibility was to examine ways in which a public/private partnership might
facilitate the development of the port's infrastructure.
In January 2015, the NT Government launched an exploratory process to
gauge the level of national and international private sector interest in the
Port of Darwin. Thirty-three private investors, including Landbridge,
registered their interest in leasing the port.
In February 2015, the NT Legislative Assembly unanimously agreed to
appoint a Port of Darwin Select Committee. The committee held two public
hearings (31 March and 1 April 2015) where a range of public and private sector
stakeholders, including Patrick Stevedoring and the Maritime Union of Australia
gave evidence. The Select Committee's report was tabled in April 2015.
In the course of its inquiry, the select committee explored a number of potential
lease models, in order to examine the benefits and pitfalls of private
investment in the Port of Darwin. Its final report included 18 separate
recommendations, including, most importantly:
that a component of the lease be kept in the control of an
Australian entity; and
that the Government consult with FIRB and the Department of
Defence in relation to the strategic and security risks that a potential
international investor might present.
Landbridge Industry Australia Pty Ltd is a subsidiary of the Shandong
Landbridge Group, which has substantial interests in port logistics,
petrochemicals, timber trading and processing, and real estate development
businesses. The company engages in petrochemical products' processing, sale,
storage, importing, transportation, and other services, and has further
interests in petrochemical refining, warehousing and logistics, oils sale, port
transportation, and international trade. It also engages in the wholesale and
retail business of gasoline, diesel, kerosene, and other oil products.
Additionally, it provides property development, property management, and
construction services, while also having an involvement in ocean shipping
supply, trade, and hotel services. Shandong Landbridge Group is a private
company owned by two Chinese national shareholders. It was founded in 2001 and
is based in Rizhao, China.
In its submission to the committee, as well as in evidence at the
committee's hearing on 15 December 2015, Landbridge Infrastructure Australia
provided an overview of its interactions with FIRB.
After initially expressing its interest in a lease over the Port of
Darwin in December 2014, Landbridge first met with FIRB on 19 June 2015, in
order to indicate its interest in submitting a bid for the port lease.
Landbridge observes that, in late June 2015, it submitted a notification
to FIRB in relation to both the port lease and the purchase of shares in the
port operator. According to Landbridge, this 'dual' notification was provided
because the granting of the lease and the purchase of shares in the port
operator would be treated differently under the provisions of the Foreign
Acquisitions and Takeovers Act 1975 (the Act).
On 8 July 2015, Landbridge submitted its initial FIRB application, in
which it noted that it was still unclear whether the port manager would be an
exempt corporation from the need to gain approval. Therefore, it enclosed a
notice under section 26 of the Act for the acquisition of shares. Landbridge
further clarified that:
At this stage in the transaction, the bid price had not been
allocated between the lease and the shares. This is because the allocation
depended on the specific assets to be leased and the value of the shares in the
Port Manager. Landbridge did not have the required information about the Port
Manager to allow it to form a view on the allocation of value at this time.
According to Landbridge's evidence, it was contacted by FIRB on 11 September
2015. FIRB informed the company that it was in the process of seeking
confirmation from the NT Government about the allocation of the bid price.
According to Landbridge:
What price the Northern Territory Government allocated to the
share component of the transaction would guide whether or not the share
transaction required FIRB approval. Landbridge was not involved in discussions
with FIRB and the Northern Territory Government about the allocation of value
for the shares. The Northern Territory Government informed the Committee at the
hearing that the value of the transaction was verified by the Auditor-General
of the Northern Territory Government, and that this information was provided to
On 15 September 2015, FIRB contacted Landbridge to inform the company
that a 99-year lease of the Port of Darwin and the purchase of shares in the
port operator would be exempt under Section 12A(7)(a) of the Act.
Section12A(7)(a) of the Act exempts assets owned by State, Territory or local
governments from its provisions.
Section 12A(7)(a) has been removed from the Act, but remains in force
under the Foreign Acquisitions and Takeovers Regulation 2015. State, Territory
and local government assets continue to be exempt from FIRB scrutiny, except in
cases where the purchase is being made by a foreign government.
On 13 October 2015, the Hon. Adam Giles MLA, Chief Minister of the NT,
announced that the Landbridge Group was successful in its bid for a 99-year
lease over the Port of Darwin. The NT Government selected Landbridge as its
private sector partner after a competitive bidding process, which included
final and binding bids from a number of Australian and international companies.
The total price of the lease package, which also includes a controlling
stake in the port operator, now known as Darwin Port, came to $506 million. The
lease commenced on 16 November 2015 and will expire on 15 November 2114.
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