0:00 Welcome and introduction
Satish Bojan, Commissioner, Essential Services Commission: Good morning, ladies and gentlemen, and welcome to this virtual hearing. As I’m sure you’ll understand, this public hearing regarding the Essential Services Commission’s Port of Melbourne Market and Rent Inquiry is being conducted as a virtual hearing, or webinar, or a Zoom meeting, whatever you’d like to call it, because of Victoria’s current state of emergency and COVID-19 circumstances.
My name is Satish Bojan, and I’m one of the Commissioners of the Essential Services Commission. The commission has asked me to chair this public forum.
Ladies and gentlemen, please bear with us. As Chris has already mentioned in relation to the internet connections, there are some bandwidth issues. We would really appreciate it if, whilst you’re involved in the meeting, you could leave the microphone on mute to take care of any background noises, or to avoid any background noises, and also if you’d be good enough please, to leave your camera off until you’re speaking or actively participating in the meeting, just to save some bandwidth, as we have some internet issues for the meeting as well.
This public forum is a requirement under Part 5 of Victoria’s Essential Services Commission Act. It provides another opportunity for us to engage with stakeholders.
Let me just recap the engagement so far, which shows that we received submissions to our scope and process paper in October 2019. There were drop-in sessions with tenants in November 2019. We had meetings with tenants, the Port Lessee and the Port of Melbourne in the period November 2019 to February 2020. As you would know, we issued our interim report on the 20th of March 2020 and called for further submissions. And here we are today at this public hearing. Ladies and gentlemen, even after today’s public forum is completed, there is an opportunity for further engagement with us. You will probably recall that submissions to our interim report are due on the 16th of April 2020, and we will still welcome feedback in person if that’s what you would prefer. The best way to set this up is to contact us by email on transport@esc.vic.gov.au. I’ll repeat that request again later on.
Ladies and gentlemen, as I indicated at the beginning, this is a public forum. As such, please be aware that this public forum is being recorded so that others may have access to it and view it later. This means the recording may be placed on the commission’s website in the future. For the benefit of those who have just joined us, welcome. Please forgive me for repeating the logistics, but to cut down on background noise and save the bandwidth of the internet stream, I ask that you put your microphone on mute and turn off the camera function unless you’re actively participating in the meeting. You can then unmute the microphone and turn on your camera when you’re invited to speak or ask a question. Most of you will know that the mute function and camera should be in the menu at the bottom of your screen.
Ladies and gentlemen, as this public forum is scheduled to run from 10am until 12 noon, please note that even on a virtual meeting, there should be ample time for everyone who wants to participate to do so. You should also know, especially those who have joined us recently, that although I have been asked to chair this forum by the commission, Mr Chris Baxter, who is the commission’s project manager for this inquiry, is the IT host for the meeting. So, Chris will also play a facilitation role in this forum when we get to the point of your participation in this form, that’s because he has access to the details of all the participants at this hearing today.
We will proceed as follows. First, I will invite Mr Chris Baxter, who as I said, is our project manager for this inquiry, to provide an overview of the commission’s interim report. Secondly, I will invite Mr Michael Black, who is the Head of Regulation at the Port of Melbourne, to provide the Port of Melbourne’s perspective on this inquiry. If you’ve already joined us, sincere greetings and welcome on behalf of the commission, Mr Black.
Thirdly, we get to everyone else’s participation in the hearing and forum today. That will be done in two parts, and both of them will be facilitated by Chris. The first part is to provide the opportunity to anyone who wants to provide feedback by way of making an oral statement or comment. The second part, also facilitated by Chris Baxter, is to provide an opportunity for anyone who wants to ask questions to enable them to do so. Chris will repeat all of that when we get to the relevant time.
Can I just emphasise this for the first part: if you want to make a statement or comment, can you please let Chris know by activating the “raise your hand” function in the participant section of the meeting? As the host of this meeting, Chris will then work through all the people that have put their hands up and invite them to unmute their microphone in an orderly fashion, and to turn on their cameras and to make their statement or comment.
For the second part, if you want to participate today by asking a question, you have two options. Either you can use the “raise your hand” function, and Chris will work through in an orderly way all those who have raised their hands to ask a question and invite them to unmute their microphone, turn on their camera and ask their question. Alternatively, if you want your question and identity to be anonymous, people can ask questions using the chat function on Zoom. Then, only Chris Baxter as the host, will be able to see your identity, and he will read out the question from the chat function for the benefit of the forum and direct it to the right person.
Now I’ll pause for a little while to enable anyone who isn’t clear on what’s about to happen, or if anyone has any other questions relevant to the hearing before it commences, to unmute and ask those questions. Chris, if you could facilitate the order of questions if there’s more than one, that would be great.
Chris Baxter, Project Manager: Thanks, Satish. I haven’t got any questions yet. I’ll give it a minute and then go from there. It looks like everyone’s happy at this stage. Of course, they’re free to ask questions and make statements when we get to that section as well. Alright, I can say there’s no questions here at this stage, Satish.
Satish: Thank you, Chris. Ladies and gentlemen, in that case, we will begin, and I would like to invite Chris Baxter, who is the project manager for this inquiry, to provide an overview of the interim report issued by the commission on the 20th of March 2020. Over to you, Chris.
9:36 Overview of the interim report and consultation
Chris: Thank you, Satish. Today, I’m going to cover three things. Firstly, I’ll outline the consultation that we’ve conducted with stakeholders during our inquiry so far. Then I’ll explain the importance of the confidential information which we’ve obtained and how this has shaped the timing and delivery of our interim report. Then I’ll run through the key points of the interim report itself.
Back in October 2019, we released our scope and process paper and we received 12 submissions. Most of those were from port tenants. We received a couple of public submissions from peak bodies or industry groups, and we also received a public submission from the Port of Melbourne itself. Most of the submissions that we received were commercially sensitive and confidential. The ones that were public are on the commission’s website. We’ve also held some drop-in sessions with tenants in November and December 2019, and we’ve met several times with the Port Lessee and the Port of Melbourne. We’ve done that from November 2019 to February of this year. We collected quite a wide range of views, and the interim report provides a snapshot of the views that we’ve heard in our consultation so far.
11:27 Confidential information
Chris: One of the main questions we have to answer in our inquiry is whether the Port of Melbourne has the power to set and review land rents. We also have to consider the processes that the Port of Melbourne uses to set and review rents and the Port of Melbourne’s compliance with those processes. As we’ve discovered during our inquiry, there are several key documents which have some bearing on the extent to which the Port of Melbourne may or may not have power. These documents also refer to the processes used to set and review rents.
The main document of relevance for our inquiry is a document called the Port Concession Deed, which contractually governs the relationship between the Port of Melbourne and the State, administered by the Port Lessee. Although only a small number of clauses in the Port Concession Deed are relevant to the setting and reviewing of rents, these documents are highly relevant and important to the questions of power and process. The important thing is that these documents are also confidential.
As part of our inquiry, we used our compulsory information-gathering powers under Section 37 of the Essential Services Commission Act to obtain the relevant clauses of these documents from the Port of Melbourne and the Port Lessee. We also used our compulsory information-gathering powers to obtain confidential primary documents, which include things like details of tenants’ leases, the rents and associated payments that are paid, and correspondence between the Port of Melbourne and a sample of tenants.
That information we’ve gathered is confidential, so we’re holding it confidential, but we’re using it as part of our inquiry. The point I want to make about the confidential information that we’ve obtained is that it has shaped and changed the timelines of our inquiry. It’s also meant we were not able to provide a draft report as we originally planned. The original plan was to have a draft report out in February, providing a full set of findings for feedback and review. However, because of the confidential information we’ve obtained, we haven’t been able to do that. Rather, we’ve compiled an interim report which presents our preliminary views to date and outlines the range of stakeholder views we’ve heard so far.
14:12 The commission’s interim view
Chris: That leads us to the third thing I want to cover, which is the interim report itself. The first point I want to make is that the views we express in the interim report are our interim or preliminary views. We have not reached a final position or made a final conclusion on any of the issues of our inquiry. In relation to the first main question of our inquiry, which is whether the Port of Melbourne has power in setting and reviewing land rents, our interim view is that, yes, it does have power.
Our interim view is that while there are some market constraints, legislative constraints and contractual constraints on the Port of Melbourne’s power, they appear to be weak or limited. For example, in relation to market constraints, most tenants appear to have a limited ability to credibly threaten to switch to land outside the port. While the Port Concession Deed may provide some potential constraint on the Port of Melbourne’s power, we found that its efficacy is reduced because its provisions are unknown to tenants, creating an asymmetry of information in negotiations.
In relation to the second main question of our inquiry, which is whether the Port of Melbourne has exercised its power in a way that causes material detriment to the long-term interests of Victorian consumers, we do not have a view at this stage. We have outlined the views we’ve heard from tenants and the Port of Melbourne. I’ll let our representative from the Port of Melbourne, Michael Black, speak to those views in a minute.
16:08 Concerns from tenants about rent setting practices
Chris: In relation to tenants’ views, we note concerns with rent levels. Tenants told us that the Port of Melbourne was not providing the basis for its rental valuation, and tenants also noted concerns with the use of ratchet clauses. Port of Melbourne tenants also noted the Port of Melbourne’s use of term sheets. They didn’t like the way they were used. Tenants reported that the Port of Melbourne was able to control the negotiation timelines. They also noted the use of management fees, and some tenants raised concerns with the applicability of the Retail Leases Act.
I stress that this is just a very brief summary of tenants’ views that we’ve received so far, and they are not our views. We make no conclusion on the validity of these views at this stage of our inquiry. We are working through the primary documents to test the basis of these views. We’ve also consulted with the Port of Melbourne, but of course, we’ll give the Port of Melbourne a chance to test the basis of these views as well. Once we’ve done that, we will then report our findings on whether there has been any material detriment or not in our final report. That’s a quick summary of the three things I wanted to cover today. With that, I’ll hand back to Satish who will briefly introduce our next speaker which is Michael Black.
17:55 Port of Melbourne’s perspective
Satish: Ladies and gentlemen, we are indeed pleased and delighted at the commission level to have Mr Michael Black, who is the Head of Regulation at the Port of Melbourne, join us and participate in this meeting. Michael has two possible roles. The first is to provide the Port of Melbourne’s perspective on the inquiry, which he’s about to do. Chris will invite him to do that in a moment. I should also mention that Michael has indicated that he may be able to answer some questions that people may have. That’s really a bonus, and I emphasise that because the Port of Melbourne and its representative, Mr Michael Black, are under absolutely no obligation or constraint in terms of answering any questions put to him at this public hearing. He chooses to do so, and he’s indicated that he’s able to do so and we certainly welcome that. However, I do want to emphasise to everybody participating that Michael is under absolutely no obligation to answer any questions put to him at this forum. With that, Michael, may I hand over to Chris to invite you to join us now and present the Port of Melbourne’s perspective on the inquiry?
Michael Black, Head of Regulation, Port of Melbourne: Thank you, Commissioner. Thank you, Chris. Thank you, everyone, for your time today. We welcome the review, and as Chris mentioned, we have been cooperating with the ESC to provide data on the processes for establishing market rents, including rental agreements and outcomes. This is the information that was requested by the ESC in the Section 37 notice referred to in the interim report.
We note the findings of the interim report, and those interim findings include that the Port of Melbourne has power in the market setting and reviewing rents, and that the ESC is still investigating to what extent, if any, the Port of Melbourne’s market power has caused detriment to Victorian consumers. We note that these are interim views, although we do have some concerns that some of the findings in the report seem to indicate findings on the effectiveness of the constraints on market power, which are described as weak or minimal, before those constraints have been fully assessed.
However, as Chris mentioned, the ESC hasn’t formed any views on these and will continue to review the primary documents that we’ve provided and mentioned previously. One area where we noted that the interim report didn’t consider certain aspects of the regulatory framework is really around that there is an existing regulatory framework in place, and access to determination of rents by an independent valuer. We feel those are important aspects of the existing regulatory framework which potentially act as constraints. In particular, the existing regulatory framework includes the credible threat of regulatory intervention under the Port Management Act, which is the process that we’re going through now. This is a process for the ESC to review the market outcomes and to make determinations.
Our initial view is that this process provides a significant constraint. As the ESC notes, the interim report provides a further opportunity to engage with stakeholders and receive feedback. We look forward to participating in that consultation process. As Chris noted, there have been some changes to the timeframe of the review. I think the scope and process paper indicated that there would be a draft report in January, and obviously that’s been extended a bit since then. I understand that a lot of information has come through and the ESC is still working through it. Given that we now have just a few weeks for submissions on the interim report, which are due on the 16th of April, followed by a final order to the Minister on the 30th of April, we’ve got some concern about the amount of time there for the ESC to fully consider the information provided, submissions to the interim report and make their findings.
We also note that the Port Management Act is silent on what processes might occur after the final report to the Minister on the 3rd of April. It’s not clear whether there’s any scope for stakeholders to comment on any findings the ESC might make regarding the effectiveness of constraints or whether any material detriment has occurred. The Port of Melbourne would prefer that the process for the inquiry be robust and transparent, and that should take precedence over reporting timeframes. If the ESC does have any views or comments on whether there’s flexibility in those timeframes, that’s something we’d appreciate. Thank you, Chris. That’s all from me today.
24:47 Response from Chair
Satish: Thank you very much, Michael. Nice to see you, and welcome to the meeting. In terms of the timing issues, I don’t think there is, unfortunately, much opportunity to shift the timing aspect of it. One thing I would say on behalf of the commission is that, as you’ve already highlighted in your presentation, to the extent that the Port of Melbourne has concerns about constraints or issues relating to power, we would urge the Port of Melbourne to provide as detailed a submission as it can possibly provide to address those issues from its perspective.
In terms of why it doesn’t believe why it is constrained or has market power in the circumstances, what constraints there are, and the effectiveness of those constraints. We would certainly urge you to do that in a robust way, to the extent that’s possible from the Port of Melbourne. Ladies and gentlemen, we now move to the third part of the session, which is statements and comments from those of you participating in the meeting or hearing, followed by questions and answers. I’ll hand over to Chris to facilitate that before coming back to wrap things up. Let me emphasise once again that questions can certainly be put to Michael and the Port of Melbourne, but Michael is under no obligation to answer any of those questions at this hearing. I’ll leave that to Michael’s discretion as to whether he chooses to do so or not. Chris, over to you.
26:40 Inviting statements and comments from participants and questions and answers
Chris: Thank you, Satish. Before we start this part of the meeting, I just wanted to remind you that this is a public forum which is being recorded. This means that any statement or comment you make, or question that you ask, will be included in the recording. However, we do have a chat function on the side. If you want to ask a question but don’t want your identity to be seen, or you want to make it anonymous, you can send me a question using the chat function. I can then read that question out without identifying you and put it to the appropriate person.
The next part is to take statements or comments from the floor. Please note that if you want to make a written public or confidential statement, you also have the option of submitting it to our email address, transport@esc.vic.gov.au. If you want to make a statement or comment in person now, please use the “raise your hand” function for public statements, or the chat function for anonymous statements. I’ll read those out.
We haven’t seen any raised hands so far, and it doesn’t look like we’ve got any comments or statements in the chat function. If I don’t get anything very soon, I’ll move on to the questions and answers part. You’re free to make a statement or comment as part of that as well. We’d just reserved this section so we could have a separate part for statements or comments.
We don’t appear to have any raised hands at this stage.
I’ll move on to questions and answers. If you want to ask a public question that everyone can see, please raise your hand. When directed, unmute yourself and ask your question. It would also be nice, if you feel comfortable, to show your video. If you don’t want to ask a public question, you can use the chat function on Zoom, and I’ll ask that question.
It looks like I have a question here from the chat function. The question is: “Please advise what constraints prevent extensions of the timeframe, in addition to the Port of Melbourne concern about the timeframe between the 16th of April and the deadline for the submission and final report on the 30th of April. Everyone was busy with COVID-19, so additional time would be useful to provide comment on the interim report.”
Satish has already made a comment in relation to the timeframes, but it might help if I ask Marcus to provide his views. Marcus is the director of transport and the director of this project.
Marcus Crudden, Director of Transport, Essential Services Commission: I think the constraints are that there is legislation which says the review must be done within six months. We will explore the extent and perhaps indicate to the Minister that it might be slightly late, but I guess there are timeframes set out. We’re clearly dearly with exceptional and unforeseen circumstances here. There have also been some delays with the amount of information that has come through in either confidential submissions or in material obtained through the Section 37 notices. I think we should say that we have actually reviewed a lot of that material, so that work is progressing. If people wish to request extensions to the written submission deadline, they should contact us directly to indicate that they want that. We are also doing work in parallel with this process to try and keep things moving along. I think Michael also raised a question that there’s nothing specified about what government will do after receiving a final report. There may be opportunities during that process for people to make submissions direct to the government about their views on any final findings of ours.
Chris: Thanks, Marcus. Does anyone have any other questions they’d like to ask, either publicly or anonymously using the chat function? I haven’t seen any raised hands. That’s fine as well. I’ll give it another minute, and then I’ll hand over to Satish.
34:14 Closing remarks and submission deadlines
Satish: If there are no further questions, ladies and gentlemen, on behalf of the commission, I would like to thank everyone for joining and participating in this public forum.
Let me end by reminding you of the next steps. Submissions to our interim report are due by the 16th of April 2020. As Marcus has indicated, if you’d like an extension, please contact us directly. If you want to provide feedback in person, please contact us directly by email in the first instance at transport@esc.vic.gov.au. Our final report is scheduled to be delivered to the Assistant Treasurer by the 30th of April 2020, for legislative reasons, as Marcus has indicated. We will see what requests are coming through for an extension of time and the reasoning behind that and see what can be done. For Michael, and for the Port of Melbourne’s benefit, as well as everybody else’s, after the Assistant Treasurer has made the final report publicly available, we will also place it on our website. As Marcus said, people will have the opportunity to read the final report once it is made public and make submissions directly to government in terms of findings we’ve made and/or any recommendations we’ve included in that report. There is that further opportunity, of course, and the commission doesn’t seek to take that away from anyone, nor should it.
Ladies and gentlemen, the commission hopes all of you and your families stay safe and healthy and get through this difficult time caused by COVID-19 as quickly as possible. Thank you for joining us in this public hearing.
36:46 Question about information needed
Chris: Thank you, Satish. We did have one other question, or someone raised their hand. I can’t see who it was, but did you want to take it now?
Satish: If the question is still there, we can take it now.
Participant, John: I was just checking to see whether or not you were actually seeing raised hands, and you are, so that’s good. I was wondering, Chris, whether it would be useful for the team to explain what kind of information would be helpful for the team in terms of the next stage of the process and when you’re looking for further information.
Chris: I might hand that one over to Craig Madden, who is our Senior Regulatory Manager at the ESC in transport and has also been working on this project, to give us a rundown in relation to that question.
Satish: Chris, can I make a preliminary comment on that question as well? From the commission’s perspective, it would be very helpful, as I indicated to Michael on behalf of the Port of Melbourne, for us to receive the most robust submissions we can possibly get from the Port of Melbourne regarding the constraints on the Port of Melbourne and the effectiveness of those constraints on the Port of Melbourne in terms of its market power and the use of any power it may have.
On the flip side, from the commission’s perspective, it would be very helpful for us to receive as detailed a set of submissions as possible from the tenants side of the equation about in terms of those same issues about perceptions of market power, or use of market power, or the effectiveness of constraints, and the processes they’ve engaged in, in terms of the rent-setting. You may already have done that, but for those of you who haven’t done so and do have a view, can I reiterate that the commission would be very pleased to receive those submissions as robustly as you can make them, and as factually and in as much detail as you can provide. There may be some emotion involved, and we don’t seek to take that away from that. However, as factual and objective a set of submissions that you may be able to make would be sincerely and greatly appreciated.
39:46 Guidance on submissions from tenants and the Port of Melbourne
Craig Madden, Senior Regulatory Manager, Essential Services Commission: Thank you, Chris, for the question. As Satish has just indicated, certainly robust submissions will help us. To be specific, to go the question, from a tenant’s perspective, what would be really useful for the commission to understand is what have been the actual detriment to tenants. We’ve seen through the information that tenants have provided us, both in written submissions and in our one-on-one interactions with them, what some of those detriments are in a general sense.
What would be really helpful is if tenants turn their mind to whether any actions resulting from negotiations for higher rents, or the way the Port has gone about negotiating with tenants, could then be enunciated and developed to us in a sense that would describe: “this is how it really impacted our business, this is how it impacted our supply chain, this is how it affected our customers, and this is how we weren’t able or were able to deal with our customers as a result of how they were or weren’t able to deal with their customers as a result of our inability to strike a deal with the Port to agree on a rent within a certain timeframe” if that was the case for that pertained to that particular tenant. That goes to our need to determine whether there was material detriment that affected the long-term interests of consumers. That’s consumers in the sense of consumers of goods and services in the economy, but also consumers in the upstream of that, which includes tenants and tenant’s customers. From the Port of Melbourne’s side, it would be really useful if the Port could look at the contentions that tenants have made and some of the initial views that the ESC has made, and comment on those. In particular, providing us with evidence, facts, data, whatever it may be that either corroborates certain points of view or dispel what the Port might consider to be myths in the information already provided, or clear up any misunderstandings.
We do know from the primary documents that we have got from the Port of Melbourne and from tenants that there has been some miscommunication between both sides. We understand that this is a normal course of business. If the commission, in writing its interim report, has only hindered that process, and rather than clearing up matters has, in the view of the Port or the tenant, made it even more confusing, then it would be really good if everyone could point to where that is the case and help us clearly understand the situation. Please keep that in mind. For the Port, as Michael has said, it will be important to talk about the timelines between now and when the final inquiry report is delivered to the Assistant Treasurer at the end of April, or sometime after that if that ends up being the case. We are really conscious of the tight timelines here and that we’re in the world of now dealing with things electronically, as we’re doing in this forum, because of coronavirus. We understand the pressures that everyone is under. We’ll make every attempt to give people the chance to respond in the manner and the timeline that suits them, but we do need to get our inquiry report finalised to the Minister by the legislative timelines.
As Marcus said, we are continuing to work through all the information to hand, so we’re able to keep working while we’re waiting for further submissions to come in. When we get those, if we need to circle back with tenants or the Port we will do so. We’re happy to take anyone’s views at any time over the next couple of weeks, so please feel free to do so. We’re happy to take phone calls, emails, anything that suits, from tenants, stakeholders and the Port, we’re happy to do so. I hope that helps. It’s key information and facts that will help with the inquiry. Assertions will require us to go back and see whether we can corroborate them, because they are just assertions. We won’t be able to give a report to the Assistant Treasurer that just talks about assertions. If you can help us corroborate or dispel any myths, that is the most important thing. I hope that helps. I’m happy to take any further questions from the floor or to help clear up anything that was said. Thanks, Chris.
Chris: Thank you, Craig. If there’s no other questions, the only other thing is a little housekeeping thing to point out about the forum itself. After today’s event, we want to get some feedback on how you thought the public forum went and how it ran, given that it’s online and is new territory for us. We want feedback on how these events are running so that we can improve them for future events, because it’s likely we might have a few more of these sorts of events at the commission going forward. We’ll send you a SurveyMonkey link to get some quick feedback on this event. That’s about it from me. If Mr Satish has anything else he wants to add—
In that case, I’d also like to reiterate what Satish has said in terms of thanking you for coming and thanking you for attending and joining us. Again, if you want to make a submission to our interim report, make a statement, or add anything else, please contact us. The best way to do that is by email at transport@esc.vic.gov.au.
Satish: Thank you again. I was just trying to work out, given that we had terminated a little bit early before John came on with that very helpful suggestion about giving a bit more advice, let me just say to people that we’ll try and put this, especially the end bit in terms of the advice about what else you can provide us, onto the website for the benefit of those that may have disconnected earlier. Let me just say to people that we’ll try to put this on the website, especially the final section about what else you can provide us, so that those who disconnected earlier will be able to get that advice as well.
Updated