Review of Queensland Ports Management Structure

Transcription

1 Review of Queensland Ports Management Structure September 2008 Queensland the Smart State

2 Queensland Ports Network - Current Management Arrangements Current Management Arrangements Based on 6 Port Authorities Thursday Island Skardon River Weipa Quintell Beach Current Management Structure Cairns Ports Limited Port of Townsville Limited Mackay Ports Limited Gladstone Ports Corporation Limited Ports Corporation of Queensland Limited Port of Brisbane Corporation Limited Cape Flattery Cooktown Burketown Karumba Cairns Mourilyan Lucinda Townsville Abbot Point Mackay Hay Point Rockhampton Gladstone Bundaberg Maryborough Brisbane Pitney Bowes MapInfo Australia Pty Ltd (2007) The State of Queensland Department of Natural Resources and Water (2007). State Digital Road Network (SDRN) provided with permission of Pitney Bowes MapInfo Australia Pty Ltd (2007). State Digital Cadastre Database (DCDB) provided with permission of Department of Natural Resources and Water (2007). While every care is taken to ensure the accuracy of this data no representations or warranties about its accuracy, reliability, completeness or suitability for any particular purpose and disclaims all responsibility and all liability (including without limitation, liability in negligence) for all expenses, losses, damages (including indirect or consequential damage) and costs which you might incur as a result of the data being inaccurate or incomplete in any way and for any reason. Data must not be used for direct marketing or be used in breach of privacy laws. Information is for display purposes only and no responsibility is taken for data accuracy. Produced by Rail, Ports and Freight division

3 Queensland Ports Network - Proposed Port Network Management Structure Three new authorities (1) Mourilyan and all ports north (excluding Weipa) (2) ports of Hay Point, Mackay, Abbot Point and Weipa (3) Townsville and Lucinda Thursday Island Skardon River Weipa Quintell Beach Proposed Management Structure - Option E Far North Queensland Ports Corporation Port of Townsville Limited North Queensland Bulk Ports Corporation North Qld Bulk Ports Corporation (Subsidiary) Gladstone Ports Corporation Port of Brisbane Corporation Limited Burketown Far North Queensland Ports Corporation Headquarters Karumba Port of Townsville Limited Headquarters Cape Flattery Cooktown Cairns Mourilyan Lucinda Townsville Abbot Point North Queensland Bulk Ports Corporation Principal Office (by 2013) Mackay Hay Point Rockhampton Gladstone Bundaberg Maryborough Brisbane Pitney Bowes MapInfo Australia Pty Ltd (2007) The State of Queensland Department of Natural Resources and Water (2007). State Digital Road Network (SDRN) provided with permission of Pitney Bowes MapInfo Australia Pty Ltd (2007). State Digital Cadastre Database (DCDB) provided with permission of Department of Natural Resources and Water (2007). While every care is taken to ensure the accuracy of this data no representations or warranties about its accuracy, reliability, completeness or suitability for any particular purpose and disclaims all responsibility and all liability (including without limitation, liability in negligence) for all expenses, losses, damages (including indirect or consequential damage) and costs which you might incur as a result of the data being inaccurate or incomplete in any way and for any reason. Data must not be used for direct marketing or be used in breach of privacy laws. Information is for display purposes only and no responsibility is taken for data accuracy. Produced by Rail, Ports and Freight division

4 2008 Review of Queensland Port Network Structure Objective This is an interim report to note progress with the Review of the Queensland Port Network Structure. The interim report's primary purpose is to: (1) outline the review process to date; (2) provide comment on and analysis of the key issues; (3) note a range of implementation issues; and (4) subject to shareholding minister s endorsement, request approval of a preferred option for detailed consideration and further consultation with industry stakeholders leading to a final recommendation on the preferred network management model to Government. Summary of options canvassed and the preferred options for consideration Option A Townsville North Option B Cairns Option C 3 Port Corporation Option D Functional Port Model E Regional Port Model Total number of Port Authorities Summary description 4 One authority to manage all ports from Townsville north and one authority to manage Hay Point, Mackay and Abbot Point. Within each grouping a subsidiary management approach. 4 One authority to manage all ports from Mourilyan north. One authority to manage Hay Point, Mackay, Abbot Point, Townsville and Lucinda. Within each grouping a subsidiary management approach. 3 (6) All ports from Hay Point north to be managed by a single corporation through 4 port authority subsidiaries of (1) Hay Point and Mackay (2) Abbot Point, Weipa and Karumba (3) Townsville and Lucinda and (4) Cairns and all others. A subsidiary management approach to apply. 4 Ports to be grouped by function through separate GOCs. The major coal and bauxite ports to be grouped together as Hay Point, Mackay, Abbot Point and Weipa. The other port authority to manage the remaining ports. 5 Three new port authorities (1) Mourilyan and all ports north except for Weipa (2) Townsville and Lucinda and (3) ports of Weipa, Hay Point, Mackay and Abbot Point. Preferred No No Next Preferred No Yes

5 As noted in the Terms of Reference, the current role and responsibilities of the Port of Brisbane Corporation Limited and the Gladstone Ports Corporation Limited remain unaltered with the exception that the port management role for the port of Maryborough is to be transferred to the Port of Brisbane Corporation Limited. Option E provides the potential for tangible reform and efficiency gain as well as positioning the network should the Government wish to progress the reform agenda to a further stage of reform. This additional reform agenda is largely reflected in the proposed framework as outlined in Option C. The project team is recommending that Option E be the preferred model for final analysis and consultation with key groups prior to a final recommendation being presented to Government. Option C is suggested as the next preferred position subject to approval. Current port network management framework The port network in Queensland consists of 15 trading ports, two community ports and three smaller ports located from Brisbane in the south east to Burketown in the north-west. Six port authorities administer these ports. The ports of Mackay, Townsville and Cairns are each managed by a single port authority. The port of Gladstone and port of Rockhampton (known as Port Alma) are managed by the Gladstone Ports Corporation. The port of Bundaberg and the port of Brisbane are both under the port management authority of the Port of Brisbane Corporation Limited. The Ports Corporation of Queensland Limited administers the remaining ports. The trading ports administered by Ports Corporation of Queensland Limited tend to be single commodity bulk ports with highly specialised, sophisticated and mechanised operations catering for commodities such as coal from central Queensland, sugar from North Queensland and bauxite from Weipa. At the moment the port authorities in both Cairns and Mackay also own and manage their respective airports. However the Government is currently undertaking an exercise to divest these assets. Queensland s port authorities principally operate under the provisions of the Government Owned Corporations Act 1993 (GOC Act), the Transport Infrastructure Act 1994 (TIA Act) and the Financial Administration and Audit Act This legislative regime enables the Queensland government to retain ownership of the port authorities through the shareholding Ministers (the Treasurer and the Minister for Transport, Trade, Employment and Industrial Relations), and to set overall strategic direction. Each port authority has a Board of Directors and that reports to shareholding Ministers. Section 275 of the TIA Act stipulates the functions of a port authority which include: to establish, manage, and operate effective and efficient port facilities and services in its port; to make land available for port facilities and operations; to provide or arrange for ancillary services;

6 to keep appropriate levels of safety, security and provide services incidental to the operation of the port. The primary role of port authorities is to undertake the functions as set out in the TIA and to adopt a strategic management role for port planning and development within a framework set by the State government under the provisions of the GOC Act. The Government s expectation (as set out in the GOC Act) is that the port corporations undertake prudent investment in developing their business and provide appropriate commercial returns to shareholders. In port GOCs paid $75.4 million in dividends to shareholders. As at 30 June 2007 the combined total asset base of all Queensland port corporations was $4.90 billion comprising land, buildings, channels, plant and equipment and capital works in progress. The 2007/08 capital budget for ports is estimated at $558.1 million driven primarily by major expansions at the ports of Abbot Point and Gladstone. The current network of declared ports does not represent the total set of the State s centers of marine and port activity. The make-up of the current network is largely historically based with many important areas, such as Port Douglas and Shute Harbour, not within the defined port network and nominally outside the scope of this project. Review process The Terms of Reference for the review were endorsed by shareholding Ministers in May 2008 and set out the criteria which were used to evaluate alternative management structures. The project team identified that the review had the potential to create significant change in the management of the State s port network and therefore carried significant risk to be identified and managed as part of the process. Given the tight timelines for the review consultation is being undertaken in two stages with targeted interest groups only. These include the current port authorities, local councils and key industry bodies in the impacted areas. The approved approach was: Stage 1 - Senior members of the project team undertake face-to-face meetings with targeted stakeholders (including union representatives) and request submissions. Stage 2 - Once shareholding Ministers endorse the short listed preferred management options, further consultation to be undertaken with port authorities and targeted stakeholders. Stage 1 of the consultation has been completed. The groups being consulted were provided with a copy of the Terms of Reference prior to the consultation interview and were encouraged to provide written comment against each of the criteria subsequent to the interview. The project team evaluated each option/suggestion against the Terms of Reference criteria in developing a shortlist of viable options for Steering Committee and shareholding Ministers' consideration. The operational strength and financial viability of the resultant options was considered prior to finalising the list of realistic options.

7 Key issues from consultation The Terms of Reference noted a number of major issues on which the review team would focus. During consultation, the following comments are representative of the general comments against each major issue 1. The varying needs of the State for seaport gateways to service trade and supply chains serving markets from those with a local focus to those of international importance. All stakeholders recognized the diverse range of markets being serviced by the seaport network. Whilst the principal emphasis was on the export / import gateways there is a heightened awareness (particularly in Cairns) of the seaports' role in servicing the needs of the communities and industries on Cape York and in the Gulf of Carpentaria. In addition there was an overall appreciation of the significant role that the ports play in facilitating trade and achieving regional / State development objectives. In general there was a view that the port network was providing the expected contribution and commitment. The different strategic and tactical approaches needed to successfully manage a large bulk port as opposed to a general cargo port were raised by a number of stakeholders as an example of where a single model would not fit the State s diverse port network. Some issues were raised as to why some marine centres were declared as "ports" and other marine centres not declared. Stakeholders in Cairns and Mackay noted the need for greater regulatory oversight of the marine tourism precincts such as Port Douglas and Shute Harbour. This issue would be more appropriately considered on a statewide basis as part of a separate review. 2. All options for port management structures will need to (1) meet financial, governance and accountability requirements of the GOC Act, (2) cover the port authority functions as outlined in the TIA Act, and (3) provide future certainty for port authority operations and their staff. There was clear majority support for a port network operating under the commercial framework of the GOC Act. Overall this commercial framework was seen as providing the necessary business discipline and performance focus required of the port authorities. Port users did not raise any immediate issues with the port authorities and their implementation of the provisions of the TIA Act. There was no comment as to whether there was potential conflict between the port authority's commercial imperatives and their regulatory responsibilities. From a human resource management perspective port authority officials noted their concern at the potential impacts that the airport sale process and seaport management review could have on their staff. The need to provide certainty to staff in terms of a future management strategy within the anticipated timeframe of this review was highlighted on a number of occasions. This position was also promoted by the unions who saw this review as part of the reform process underway in QR and with strong linkages to the airport sale process.

8 3. The ability of each Government owned corporation port entity, operating on a fully commercial basis, to sustain an appropriate capital structure targeting an investment grade credit rating. As noted above during the consultation process there was support for the port network operating within a commercially focused framework. There were no examples presented to show where a commercially viable trade or development opportunity has been blocked by the commercial operations and objectives of a port authority. There was also an acknowledgement that critical mass and scope of operations of an individual port authority contributed to the maintenance of a sound financial position. Queensland Sugar was mildly critical of the need for the port system to work on a commercial return. 4. The need for port authority structures that have the critical mass, and strong regional presence to successfully manage emerging commercial, operational and accountability requirements. There was general recognition that changes in supply chain management and the logistics industry had adversely impacted on some port authorities in that they were not able to achieve the necessary critical mass to satisfactorily address compliance and good governance requirements. Opinion was spilt as to whether the maintenance of a sustainable port network required a regional management framework or could be achieved through other models. Some industry groups were of the view that the "Ports Corporation" model provided the best outcomes in terms of efficiency and effectiveness as long as there was the necessary local competent management in place to address issues of a current and operational nature. 5. Regional issues including a review of whether the Government owned corporations model is appropriate in all circumstances (for example the "community port" model) AND 6. How best to manage existing network "legacy" assets. These two issues were considered together given their common financial interest. It has already been noted that in general stakeholders commented that the Government owned corporations model is seen as providing the necessary discipline and governance to ensure the best port management outcomes. However there was recognition that some port assets (eg Quintell Beach) would struggle to achieve a full commercial return. In those cases a Community Service Obligation was suggested as an option for funding rather than direct management by Government or through a budget funded statutory authority.

9 In addition there was a view that the issue of legacy assets should be fully reviewed and a decision made as to how to best manage these issues into the future. An argument was raised that some legacy issues could be managed under a "good corporate citizen" approach in that most companies managed a portfolio of assets some of which were not fully commercial but contributed to the building of community support and understanding. There was also some different views as to what constituted a legacy asset and whether those assets should be seen as part of the overall asset portfolio or if they should be identified and managed on an exception basis. 7. How best to develop large scale port developments such as the Abbot Point and Townsville port expansions. There was a majority view that developments within the Northern Economic Triangle would impact on both Abbot Point and Townsville and that both ports could be facing substantive capital expansions. Abbot Point was generally seen as the probable location for facilities to service new industries or major new trades. The future of Townsville was seen as primarily servicing existing customers or in handling niche cargoes which could be accommodated within the existing port or in a limited expansion outside of the existing breakwaters. An argument had been previously raised that the ports of Townsville and Abbot Point would engage in non-productive competition and gaming if not under a single port authority. Whilst stakeholders acknowledged the potential for this to occur there was a view that given the State ownership interests involved that this would not be a major issue. Several industry people noted that the future of the port of Townsville was strongly tied to the capacity of the Mt Isa rail line. 8. The impact of the current demand for coal exports on the supply chain and the best approach to manage the corresponding port investment and the best ways to ensure integration between port and rail infrastructure and services. There was general support for a more co-operative consultative and planning framework in managing the coal supply chain. A single owner vertical integrated approach as has developed in the iron ore supply chains of the Pilbara region was not seen as practicable in Queensland given the mature nature and multi-user composition of the industry. Most users preferred a commercially negotiated outcome for access and pricing to a regulated approach which limited options for innovation and changed circumstances. The project team explored with the relevant stakeholders the risks associated with coal companies double dipping on rail and port capacity by putting in bids on two systems (eg future capacity at Abbot Point versus new capacity at DBCT). Again stakeholders acknowledged the issue however suggested that this gaming behaviour was a natural outcome of a very competitive business environment. 9. The different approaches required to managing large bulk commodity ports to the management approach required for ports servicing a more general cargo base. There was a consensus view that different cargoes and different scales of operations called for variations in the port management model.

10 However port authorities noted that different management models were already currently required to be used across commodities and operations within the existing port management framework. No authority raised a concern that it would be unable to adapt to changed management arrangements. 10. Ongoing regional economic development including the potential for a growth in seaport services from within the Northern Economic Triangle. There was a general belief that the port authority's role in facilitating and encouraging trade added substantial value to the State and regional economies including promotion of the Northern Economic Triangle concept. There was no firm view that this needed to be managed and coordinated from a regional base or from a capital city base. Most stakeholders acknowledged that for many industries the key commercial and logistic managers were based in Brisbane. 11. The impact of growth in container trade movements in Queensland, particularly south east Queensland. All stakeholders were of the view that Brisbane would continue to be the centre of container movements for the State. Shipping practices had changed to allow for transport of containers to Brisbane by road or rail to take advantage of the competition between liner companies and global direct to destination routing available from those services. Future developments may see niche container trades developing (eg the import of nickel into Townsville) but not to the extent that would materially impact existing patterns. 12. The current commercial, environmental, operational and safety / security regulatory environments. As previously commented compliance and governance requirements were identified by all port authorities as a growing challenge. The extent of this task and the complex regulatory environment within which the ports are required to operate was not always fully appreciated by user groups and other industry stakeholders. 13. Competition issues in downstream and upstream markets. Competition issues in the seaport sector were fully addressed in the Review of Current Port Competition and Regulation in Queensland which was finalised in December Some stakeholders referred to this report in their discussions however no substantive issues which require further follow-up by the project team were raised. Any Trade Practices Act issues will be formally pursued when the model is finally determined. 14. The potential to encourage private sector investment in port infrastructure and service. No stakeholders proposed the sale of port assets or infrastructure. All seemed to accept the State's role as core infrastructure owner (channels and port environs) with port facilities and services being provided by the private sector or on a fully commercial common user basis through the port authority. The concept of more innovative financing arrangements between the Government and industry was seen as a valid way to provide capital intensive and long term port infrastructure.

11 15. How best to achieve the necessary economies of scale in operations and services; AND 16. State-wide and regional trade and supply chain issues. In a general sense a more extensive regional management approach to managing the port network was seen as providing the basis on which to establish the necessary economies of scale. Having the necessary critical mass was also seen to provide the required influence in ensuring that logistics linkages are in place to meet the supply chain needs of the port users. 17. Potential perceived and real conflict between a port authority role and an infrastructure ownership / operator role. This issue was not addressed by any of the stakeholders. The 2007 Review of Current Port Competition and Regulation in Queensland specifically raised this matter yet no submissions which saw the issue raised as one requiring corrective action were received during that review. Strategic analysis and port management options Numerous port management models ranging from an increased number of port authorities to a single port authority for all of the State's ports have been proposed. The review team s aim is the implementation of a sustainable port management model which meets the outcomes detailed in the Terms of Reference within a managed process and reasonable timeframe. Taking into account the results of the consultation process, the review team has developed a number of models which it believes could satisfy this aim. As noted in the Terms of Reference, the review focuses on options for the management of the port network from the Port of Hay Point northwards. This specifically excludes the ports managed by the Port of Brisbane Corporation Limited and Gladstone Ports Corporation Limited. These two port authorities are both strong financially and operationally and have been the subject of the most recent changes to administrative structures in Queensland with the inclusion of Rockhampton with Gladstone and Bundaberg with Brisbane. This has led to a continuation of operations at these ports and stable management profiles. These amalgamations have proved successful. The current review is a continuation of the previous reviews of management options. In addition given the scale and diversity of potential developments in both the ports of Gladstone and Rockhampton any proposal to change the management framework within the Gladstone Ports Corporation could result in unintended delays to project planning and analysis. In all models, the Port of Brisbane Corporation Limited assumes responsibility for the Port of Maryborough, rather than the Brisbane Based Ports Corporation of Queensland which principally has regionally focused barge and commercial passenger traffic. The review team believes that Port of Brisbane Corporation Limited will be in the best position to provide appropriate management of this local port area.

12 A regional approach to managing the port network is seen as having inherent advantages. However an issue across all the regional based models is the grouping of ports. There are some natural groupings (such as the bulk ports of Hay Point and Abbot Point) however issues arise in placing the regional ports of Mackay, Townsville and Cairns. It is essential in achieving the ongoing viability and potential efficiencies to the State from an enhanced seaport management framework that the full incorporation of these ports into new management structures occur. The concern in relation to the potential counter productive competition between Abbot Point and Townsville is not seen to be an issue requiring a specific change. Ports in Queensland do not "compete" for cargoes rather cargo / shipping interests choose their export / import gateways based on a complex set of criteria taking account of a number of infrastructure, economic and logistics issues. However the positive outcome for the State in ensuring the coordinated and complementary development of the ports of Abbot Point and Townsville (and associated rail and road links) is an important factor in considering the options. The review team has not yet fully assessed the impact of the alternative models on the staffing levels and other operational issues of the current port authorities. It would appear, however, from an initial preliminary assessment that there may be some staff who could be excess to operational requirements, after the sale of the Cairns and Mackay airports. The assessment is that employment impacts should be able to be managed under existing enterprise agreement and employment policy arrangements of the relevant ports. Unions are keenly watching developments to assess potential impacts. It can be anticipated that the unions will have a tighter focus on staffing and transitional issues during the next stage of consultation. It has always been intended that staff impacts be carefully managed with a clear commitment to close consultation with unions. All port authorities noted that they are currently meeting their statutory and regulatory requirements. However in a similar manner to other industry sectors the pressures of compliance are requiring a more focused approach and better use of existing resources. The review team is of the opinion that the pressure on resources was particularly evident in discussions with Mackay Ports. None of the regionally based models raised as possible port network management frameworks present competition issues. However if fully developed the "commodity" approach (Option D and possibly C) would need to be the subject of a detailed review to assess any trade practices issues. The traditional regional rivalry between Cairns and Townsville was raised during discussions and needs to be factored into the consideration of the preferred models. The review team believes that there would be substantial opposition to the concept of a region combining both the ports of Cairns and Townsville with the administration centre being in either Cairns or Townsville (Option A).

13 Of the five models, the review team favors Option E as warranting shortlisting for final detailed consideration and second round consultation with key stakeholders. Option C is the next preferred option. It is considered that Option E provides the greatest focus on regional development as well as providing maximum flexibility in managing demand, potential to optimize management of change over time, and better asset utilisation and therefore profitability. It is also considered to most effectively meet the criteria set out in the Terms of Reference. For Option E, Brisbane provides the most realistic location for a significant administrative office to assist in managing the State's major bulk port facilities as customers, engineering services, staffing and logistics companies are all located in Brisbane. However in this model there is the full understanding of the need to develop and maintain a strong Mackay / Abbot Point regional management framework. Option E - Preferred Model The approach taken for the redistribution of Ports Corporation of Queensland Limited assets between Cairns Ports and Port of Townsville Limited is a simple process however there are a number of issues that will require further research. The redistribution of assets in GOCs is possible under clause 188 of the GOC Act. Under the proposal, a North Queensland Bulk Ports Corporation Limited would assume responsibility for the ports of Abbot Point, Hay Point, and Weipa from Ports Corporation of Queensland Limited and Mackay Ports Limited would become part of the North Queensland Bulk Ports Corporation Limited as per the Port of Bundaberg and Port of Brisbane Corporation Limited model. The Chair of the Mackay Port Authority would also serve on the Board of the North Queensland Bulk Ports Corporation Limited. A principal office would be established in the Mackay area within the next five years. A Far North Queensland Ports Corporation Limited would assume responsibility for Cairns Ports and the remaining Ports Corporation of Queensland Limited ports other than Lucinda and Weipa. These ports would become part of the asset base of Far North Queensland Ports Corporation Limited and managed by it. The assets of Lucinda would become part of Port of Townsville s asset base. To manage the process, an Implementation Team would be established within the Departments of Treasury and Transport. This team would have the responsibility, in conjunction with the port authorities, for providing due diligence and transaction execution to ensure that the appropriate processes are followed and that the approved model is implemented by 1 July 2009.

14 The Implementation Team would address the industrial relations, legal, statutory and transactional issues with respect to the series of regulations and asset transfers to implement the approved option. It is anticipated that the Implementation Team would also engage the services of an accounting firm to assist the port authorities to: provide a due diligence with respect to asset valuations to ensure the appropriate base going forward; undertake pricing reviews for Cairns and Mackay to ensure appropriate pricing is in place (having regard to the requirements of the QCA and the capacity of clients); and undertake reasonability reviews on expense levels. The outcome of these reviews will provide a solid financial base for the new entities. Advantages and Challenges of this Model The high level model proposed is focused on delivering the preferred option in the most effective manner possible, with particular regard to reporting requirements, transparency, scale economies and minimising costs. The preferred model has a number of advantages, the most significant of which is that it is a minimum cost/ minimum disruption model for the short to medium term. However, this model would also position the port management structure for further effective reforms in the longer term. Specific advantages include: considerably simpler and less invasive than the next preferred option (no totally new or interim entities involved). retention of current management at key regional ports. minimum disruption to the running of the ports. no major changes to the management structures or operational systems of the port authorities per se, although changes to the composition of the boards will occur. minimum legislation changes required. minimum industrial relations impacts. Challenges faced with implementing this model include the following: ensuring the new management teams have appropriate skills in line with their new responsibilities. developing appropriate strategies for managing GOCs to achieve investment grade ratings (particularly post the Cairns and Mackay airport sales), or otherwise support noncommercial activities. tight timelines for implementation. The transfer of assets from Ports Corporation of Queensland Limited to Port of Townsville and Far North Queensland Ports Corporation Limited and the inclusion of Mackay Ports as a separate port entity within the North Queensland Bulk Ports Corporation provides for improvement in financial position of the resulting entities.

15 North Queensland Bulk Ports Corporation is the strongest of the entities created, and would be able to maintain an investment grade credit rating. With the inclusion of Mackay and the redistribution of smaller port assets in North Queensland, the entity would continue to maintain strong cash flow, predominantly through Abbot Point. Appropriate pricing structures and asset valuations will be required to ensure the independent viability of the Mackay Ports entity. Port of Townsville with the addition of Lucinda will maintain an investment grade credit rating. The port faces challenges with respect to the encroachment of the city on the port limits and a significant restructure and capital investment program would be required to enable further trade growth. Appropriate pricing structures and asset valuations will be necessary to ensure the independent viability of this group, with these reforms already underway. Far North Queensland Ports Corporation Limited will assume responsibility for a portfolio of ports presently managed from Brisbane by Ports Corporation of Queensland. The management of legacy assets will require a strong management team in Cairns and may require direct financing arrangements. The proposed scale will provide Far North Queensland Ports Corporation Limited with advantages. Projected cash flow is still considered reasonable however under its existing structure the entity will have limited borrowing capacity. It is proposed that the new Far North Queensland Ports Corporation will not carry any substantial debt. Far North Queensland Ports Corporation Limited and the Implementation Team will also be required to undertake a full asset valuation and pricing review. Next steps As noted earlier in this paper, more detailed analysis of the preferred options will be undertaken following endorsement of the approach presented in this interim report. In addition targeted consultation will be undertaken on the preferred option to assess industry views and identify implementation issues. The project team will work closely with officers from the Department of Employment and Industrial Relations in working with unions to resolve any issues created by the proposed model, and the GOC CEO Committee.

16 2008 Review of Queensland Port Network Structure TERMS OF REFERENCE Background A review of the management structure for the State's seaport network is being undertaken in parallel with the sale process for the Cairns International Airport and the Mackay Airport. The aim of the review is to ensure that the seaport network is able to meet the development, supply chain and trading needs of the State on a value adding and sustainable basis. The seaport network is managed by a system of port authorities which operate within the requirements of an administrative system with the principal legislation being the Government Owned Corporations Act 1993 and the Transport Infrastructure Act Context This review is looking at options for the management of the network and is not specifically focused on the discrete roles or functions of individual port authorities. The principal focus of this review is on the management of the port network from the Port of Hay Point northwards. The review is based on the premise that the State will maintain overall ownership of the State's port network whilst actively encouraging private sector investment in port infrastructure and services. Seaport network The outcomes expected by the State from the seaport network are: The facilitation of existing trade and future trade potential to assist in maximising economic growth, regional development and value to the State; and To maintain a strong business approach and appropriate commercial returns which also provide for a financially sustainable and operationally safe and secure seaport network. The optimal management framework for the seaport network will ensure the following strategic and tactical issues are achieved: to operate as an effective participant in the supply chain; to operate as a sustainable and commercially focused business entity; to ensure an active port management approach which is environmentally responsible, provides a sound operational response to the port authority functions as detailed in the Transport Infrastructure Act 1994, ensures a safe and secure port operating environment and is responsive to Government, industry and community needs and perceptions;

17 to maximise utilisation of port assets and infrastructure through (where appropriate) encouraging equitable multi-user access to port authority owned infrastructure and services; to actively pursue new trade opportunities; to respond in a timely manner to market signals for investment in new or expanded infrastructure; to manage issues associated with maintaining adequate land/sea interface of their trade catchment areas; and to operate within the business plan approved by Government taking account of the need to maximise trade throughput within a commercially responsive framework. Objectives of review The Government is seeking to consider management options for the seaport network that will best position it to deliver on the outcomes and objectives outlined above. Major issues The review will give consideration to: the varying needs of the State for seaport gateways to service trade and supply chains serving markets from those with a local focus to those of international importance; all options for port management structures will need to (1) meet financial, governance and accountability requirements of the Government Owned Corporations Act 1993, (2) cover the port authority functions as outlined in the Transport Infrastructure Act 1994, and (3) provide future certainty for port authority operations and their staff; the ability of each Government Owned Corporation port entity, operating on a fully commercial basis, to sustain an appropriate capital structure targeting an investment grade credit rating; the need for port authority structures that have the critical mass, and strong regional presence to successfully manage emerging commercial, operational and accountability requirements; regional issues including a review of whether the government owned corporations model is appropriate in all circumstances (for example the "community port" model); how best to manage existing network "legacy" assets; how best to develop large scale port developments such as the Abbot Point and Townsville port expansions; the impact of the current demand for coal exports on the supply chain and the best approach to manage the corresponding port investment and the best ways to ensure integration between port and rail infrastructure and services; the different approaches required to managing large bulk commodity ports to the management approach required for ports servicing a more general cargo base; ongoing regional economic development including the potential for a growth in seaport services from within the northern economic triangle; the impact of growth in container trade movements in Queensland, particularly south east Queensland; the current commercial, environmental, operational and safety / security regulatory environments; competition issues in downstream and upstream markets; the potential to encourage private sector investment in port infrastructure and services; how best to achieve the necessary economies of scale in operations and services; state-wide and regional trade and supply chain issues;

18 potential perceived and real conflict between a port authority role and an infrastructure ownership / operator role. Timing A proposed timetable is outlined below: Date Objective 16 May 2008 Seek ministerial approval for review and methodology 26 May 2008 Commence consultation 20 June 2008 Identify short listed options for Chief Executive Officer Committee consideration 27 June 2008 Provide short listed options for shareholding Ministers consideration and seek direction with respect to wider consultation process 11 July 2008 Finalise broader consultation August 2008 Government consideration of final report August to Implementation of preferred option(s). December 2008 Consultation There will be extensive consultation with the port Government Owned Corporations in developing the full range of options for consideration. Subject to shareholding Ministers consideration a further round of consultation with a limited range of stakeholders will occur in relation to the identified short list of options. In addition to relevant government departments, external stakeholders may include: relevant industry bodies (Shipping Australia, Queensland Resources Council, Queensland Confederation of Industry); regional development organisations; Queensland Competition Authority; unions; and local authority interests

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