The announcement in last week’s NSW state budget of the privatisation of Port Botany will bring renewed focus on the future of the Port of Melbourne.

Following the sale of the Port of Brisbane late last year, the Port of Melbourne will be the last of the major eastern seaboard container ports to remain in government hands.

As Australia’s largest containerised port, the Port of Melbourne ought be an attractive proposition for potential owners, all the more so given the enormous forecast growth in trade and shipping movements expected in coming decades ( estimated to quadruple in the next 25 years).

The Queensland Government sold the Port of Brisbane for $2.1bn in November last year, with the winning consortium promising to provide a further $200m in infrastructure works.

Industry analysts suggest the sale or granting of a long term concession for the Port of Melbourne could realise proceeds of at least $2.4bn for the state of Victoria.

Such proceeds could be very timely indeed for a new Baillieu Government which has clearly stated a new policy preference supporting alternatives to the further expansion of the Port of Melbourne.

In February this year the Baillieu Government announced a feasibility study into relocating the export and import of cars to Victoria’s second largest port, the Port of Geelong.

And in the following month, the Minister for Ports Denis Napthine, announced the Government’s intention to develop Hastings as Victoria’s newest container port, to ‘generate more competition and economic flow on benefits for all of Victoria’.

The Government has already taken its first steps down this path by legislating to overturn the previous Brumby Government’s decision to combine responsibility of the two ports (Melbourne and Hastings) in one entity, by decoupling management of Hastings from the Port of Melbourne Corporation.

Forecast capital requirements for the upgrade of Hastings is at least $10bn over the next ten years, the vast bulk of that required for road and rail freight route upgrades.

In the short term, the Victorian Government could meet increasing ship freight demand by extending Melbourne’s Webb Dock, as called for by Shipping Australia and other industry players. The extra capacity could either be utilised by the existing two operators, or through the often-mooted introduction of a third operator.

Expanded capacity at the Port of Melbourne would, in theory, fatten it up for sale and bring the Government higher proceeds.

However such a move may fly in the face of Government objectives of curtailing longer term growth at the Port of Melbourne and sharing a greater portion of the freight load with Hastings and to a lesser extent the Port of Geelong.

How a privately owned Port of Melbourne, and a publicly owned Port of Hastings, could co-exist harmoniously would seem problematic.

The sale of Melbourne may help fund the development of Hastings, but every container movement transferred to Hastings from Melbourne through government policy or regulation will either lessen the attractiveness and proceeds from a sale of the Melbourne Port, or lead to expensive compensation claims down the track against the Government.

In this context any potential purchaser of the Port of Melbourne would seek to mitigate revenue risks through a contract setting out compensatory provisions for material adverse effects brought about by the Victorian Government’s actions (Transurban has these types of protections against Government imposition on traffic demand for its Citylink asset).

Such measures would inevitably complicate and slow down any sale process, as well as have some impact, good or bad, on the sale price.

Landside issues further complicate the picture at the Port of Melbourne – particularly land use pressures (the proposed E –gate redevelopment is just one example) and town and transport planning agendas.

Clearly proceeds from the potential sale of the Port of Melbourne won’t be cheaply bought.

All of this may make for a policy and political challenge beyond the capacity or interest of the new Victorian Government at this early stage of its life.

It’s worth remembering that even the reformist Kennett Government, which privatised the Port of Portland, baulked at the thought of privatising the Port of Melbourne.