Dear Mr Lennon by lindayy


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									11 September 2007

Scott Lennon
Darling Park Tower
PO Box 2650
Sydney NSW 1171

Dear Mr Lennon


Cement Australia is Australia’s largest supplier of cement and cementitious products. Major
production facilities are located at Railton in Tasmania, Kandos in NSW, Gladstone and Bulwer
Island in Queensland. In NSW, Cement Australia operates terminals at Glebe island,
Newcastle, and through its joint venture ASMS, a granulate export requirement in Port Kembla.

The cement industry is characterised by high capital costs and long life assets. Cement is a
relatively low value commodity product with approximately 18% of the product cost attributable
to transport. Cement Australia handles approximately 3 million tonnes of product through
Australian ports each year. The provision of adequate port infrastructure and efficient Port
operations is critical to Cement Australia and the industry as a whole.
Cement Australia supports the principles of open competition within markets and the
efficiencies that a low regulated market brings to the overall economy. Port facilities and
infrastructure, however, display natural monopoly characteristics. There are high barriers to
entry including high fixed costs and a decision by governments in most jurisdictions to keep port
assets in public hands. Additionally, corporatisation has placed requirements on port authority
boards to earn corporate rates of return
The overall effect of these structures stifle investment and economic development because
project proponents are required to fully or substantially fund a commercial return on assets.
This results in early movers paying costs for future users of the infrastructure. At the same time
users don’t have the long term security and access rights afforded by ownership.

Consideration should be given to allowing private ownership of port infrastructure, giving users
security of tenure and future utilisation. These are important factors in developing import and
export industries essential to the ongoing development of the Australian economy.
Should governments require public ownership of infrastructure assets, then targeted economic
regulation is required to reduce the barriers for new and expanding port users. Such economic
regulation should reflect the use of assets over longer term, rather than requiring individual
projects to fund 100% of a required asset. Such commercial requirements on port authorities
substantially stifle investment. Consideration should be given to economic regulation that
recognises the strategic value of port assets over the long term, requiring individual proponents
to fund only their portion of the required assets.

A conflict of interest also exists between berth asset owners (usually port authorities) and berth
users. Berth owners wish to maximise berth utilisation, however berth users seek access to
berths at any time. Although it is recognised that optimal berth utilisation is somewhere in
between, users are currently unable to ascertain where this optimal point occurs. Under high
utilisation conditions users incur substantial demurrage costs and interruption to business, while
berth providers experience cost reductions through increased asset utilisation. Users have little
option to change location and with few alternatives available. There is therefore little or no
financial incentive for asset providers to increase asset capacity until berth utilisation is at a
maximum. Economic regulation should be considered to remove the incentives for port
authorities to maximise berth utilisation at the expense of port and berth users.

Cement Australia supports minimum economic regulation by governments unless required by
the monopolistic characteristics of a market or government strategic policies. Stevedoring
services for bulk handling is generally not capital intensive and governments should ensure that
new entrants are not discouraged to enter or operate port facilities. Governments should
encourage new and innovative companies with safe and efficient operations and modern work
practices to allow market competition and provide efficient outcomes.

Thank you for the opportunity to make this submission. Should you require any further
information please do not hesitate to contact me on 07 3335 3012.

Yours sincerely,

Peter Klose

Strategic Manager, Major Projects

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