Inquiry into Port of Melbourne compliance with the pricing order 2021

We have completed our inquiry

We are required by the Port Management Act 1995 (Vic) to conduct an inquiry into the Port of Melbourne’s compliance with the 2016 pricing order every five years. Our first inquiry covered the review period 1 July 2016 to 30 June 2021.

Our key findings on non-compliance with the pricing order

We found that the Port of Melbourne's:

• Weighted average cost of capital does not reflect that of a benchmark efficient entity with a similar degree of risk.
• Revenue requirement is overstated by around $300 million and $650 million. This means Victorian consumers may be impacted by prices that are higher than they should be in the future.
• Approach to managing its operating expenses is not consistent with that of a prudent or efficient service provider.
• Tariffs, cost allocation and content of its tariff compliance statements were not compliant.

The Port of Melbourne was compliant in some areas

We consider that the Port of Melbourne was compliant in some areas, including its estimation of the cost of debt, capital base and its approach to calculating depreciation. We also consider that Port of Melbourne's capital expenditure forecasts were prudent and efficient, and its demand forecast generally reflected a sound methodology. We also found instances where the Port of Melbourne correctly calculated its tariffs and applied its costing methodology.

The Port of Melbourne’s non-compliance was significant and sustained

We consider the cumulative nature of the Port of Melbourne's non-compliance is significant and sustained and is not in the long-term interests of Victorian consumers.

Our view is that the non-compliance is:

• significant, because it does not meet the objectives of the Port Management Act 1995 (Vic)
• sustained, because the impact on these objectives is not fleeting or transitory.

We consider the current regulatory framework does not have adequate incentives for compliance, which allows for significant and sustained non-compliance with the pricing order.

We provided our inquiry report to the Assistant Treasurer by 31 December 2021 consistent with our legislative obligations. You can read more on how the Assistant Treasurer may use our report in our Statement of Regulatory Approach. 

You can read our engagement summary to understand the consultation process for our inquiry and what matters were raised by stakeholders and the Port of Melbourne. All public submissions and letters are available under the 'resources' tab.