Economic Analyses of the Port of Melbourne

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Economic Analyses of the Port of Melbourne Economic Analyses of the Port of Melbourne A report by PricewaterhouseCoopers for the Department of Treasury and Finance and the Department of Infrastructure Foreword The Departments of Treasury and Finance and Infrastructure commissioned PricewaterhouseCoopers to undertake a study to investigate and assess the economic contribution to the Victorian and Australian economies of the Port of Melbourne, and industries directly related to the Port. The study presents the findings of PricewaterhouseCoopers’ analysis and details the effects of a number of scenarios, particularly the economic benefits accruing from the proposed Port Phillip Bay Channel Deepening Project. The study conforms to the methodological framework adopted by the Commonwealth Bureau of Transport and Regional Economics to value the activities of Australian maritime ports. Part 1 of the study publishes the “base case” analysis and modelling, undertaken using conservative data and economic assumptions. The study draws upon economic modelling undertaken by Monash University’s Centre of Policy Studies. In particular, the modelling reports the differences in the long term economic impacts of either proceeding or not proceeding with key port infrastructure, specifically the Channel Deepening Project. Part 2 is a supplementary study that reports the outcome of sensitivity analysis which considers a broader range of data and economic assumptions, and captures the benefits accruing from port infrastructure developments in addition to the Channel Deepening Project. The study also reports on the aggregate findings of a series of case studies of eleven key business customers of the Port of Melbourne. The study describes in general terms the relationship between the businesses and the Port, and identifies the separate contribution of these businesses to the Victorian and Australian economies. The findings of the study, and the independently prepared modelling, have been released to the Port of Melbourne Corporation for inclusion into the Corporation’s modelling of the benefits and costs of the Channel Deepening Project in the project’s Supplementary Environmental Effects Statement. Overall, the study reports the economic benefits that arise from proposed public and private infrastructure projects that together seek to improve the operational efficiency of the Port of Melbourne in the medium to long term. March 2007 i Contents Part 1 Executive Summary 3 Contents 11 1 Introduction 15 2 Background 19 3 Trade and Shipping Projections 33 4 Current economic impact of the port: input-output analysis 41 5 Economic impact of infrastructure projects 51 6 Other economic studies of ports 59 7 Socio-economic analysis 67 8 Conclusions 81 Appendix A CoPS Modelling 87 Appendix B Glossary 105 Appendix C Stakeholders consulted 107 Appendix D Geographic distribution of indicative economic benefits of the Port of Melbourne 109 Appendix E Port Phillip Bay shipping channels 117 Appendix F Port of Melbourne: port precinct 119 Appendix G Minister’s Statement on SEES 121 Part 2 Contents 133 1 Introduction 135 2 Sensitivity Analysis 137 3 Importance of the Port of Melbourne to business 143 Appendix A Terms of Reference 149 Appendix B Shipping scenarios (from the base case Port of Melbourne economic impact report) 153 Appendix C Value of the Port of Melbourne 157 Appendix D References for case studies 159 ii The Economic Impact of the Port of Melbourne PART 1 A report for the Department of Treasury and Finance Liability limited by a scheme approved under Professional Standards Legislation THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY Executive Summary This Study has been undertaken to assess the economic contribution of the Port of Melbourne to the Victorian and Australian economies. In addition, the Study has considered the economic impacts of the port on different regions of Victoria and the likely economic effects of the Channel Deepening Project. It is important to note upfront that PwC has deliberately taken a very conservative approach to valuing all of these factors. We have taken quite a restricted view of the assets, projects and expenditures that will contribute to economic outcomes. While this approach is likely to understate outcomes, we believe that it is important to err on the side of caution. The modelling by PwC and Monash University has found substantial economic benefits arising from the Port of Melbourne and the proposed Channel Deepening Project The Port of Melbourne is the most important port in Victoria and one of the largest in Australia. Different figures for the value of trade through the Port exist: According to the ABS it handled around $53 billion of trade in 2004-05 ($35 billion of imports and around $18 billion of exports)1; while the Port of Melbourne Corporation (PoMC) provides a higher figure of $75 billion of trade2. It is the nation’s largest container port, accounting for 38% of Australia’s container trade.3 In addition, the Port of Melbourne is the key international port for imports to, and exports from, Tasmania. This includes international exports and imports, as well as goods moving from and to mainland Australia. A range of different analytical tools have been used to meet the aims of the Study. These have included: • modelling the current economic impacts of the Port of Melbourne on Victoria and Australia, using an input-output model based on the Bureau of Transport and Regional Economics framework for valuing the activities of ports; • modelling the differences in the long term impacts on the Victorian and Australia economies of proceeding and not proceeding with key port infrastructure investments. This was undertaken by the Centre of Policy Studies (CoPS) at Monash University using TERM (The Enormous Regional Model); • using the results of our input-output model, extrapolating some indicative economic impacts for different regions of Victoria; and • based on research and an extensive consultation process, developing a qualitative assessment of the impacts of the port on key sectors of the economy. This assessment has considered both the current impacts on industry and the economy of the port’s activities, as well as the implications of proceeding or not proceeding with proposed infrastructure investments. 1 Australian Bureau of Statistics, March 2006 2 http://www.portofmelbourne.com.au/business/economiccont.asp 3 Port of Melbourne Corporation, Annual Report 2004/05, p. 25 Port of Melbourne Economic Contribution Study 3 Executive Summary The Channel Deepening Project (CDP) involves dredging defined sections of the shipping channels in the Yarra River and Port Phillip Bay. Dredging involves the physical removal of channel materials and is focused on sections close to the entrance of Port Phillip Bay and the entrance to the Port of Melbourne. The rationale for the CDP is that, because of insufficient depth of parts of the shipping channels, some container ships enter and leave Melbourne under capacity. This means that ships are operating at sub-optimal capacity, which results in higher costs per unit of goods shipped and, consequently, higher prices for those goods. The PoMC estimates that around 25% of ships visiting the port are affected by draught restrictions. In addition, draught restrictions mean that some larger ships are currently unable to visit the port. Total economic value of the Port of Melbourne Activity at the Port of Melbourne generated a total economic impact of $2.501 billion in output in 2004-05. Value added to Australia equalled $1.1 billion and port activities supported 13,748 FTEs. The results of this analysis are summarised in table ES.1. Please note that, while the TERM model has not differentiated between the economic impacts for Victoria and for Australia, most of the impacts would accrue to Victoria. Table ES.1: Total economic value of the Port of Melbourne, 2004-05 Direct Indirect Total Effects Effects Effects Output ($ million) 1,338 1,163 2,501 Value Added ($ million) 596 545 1,140 Employment (FTEs) 7,563 6,185 13,748 There were 3,411 ship visits to the port in 2004-05 by commercial vessels. The results of this analysis indicate that, on average, each ship call at the Port of Melbourne resulted in the following impact on the economy: • $733,128 of output; • $334,332 of value added; and • four full time jobs for one year. Port of Melbourne Economic Contribution Study 4 Executive Summary Measuring the economic impact of Infrastructure Projects Over the next 22 years, the CDP will generate $1.7 billion in economic benefits to Australia, 80% of which would accrue to Victoria. In particular, some of the key impacts of the CDP are: • an overall national gain from the CDP in discounted net present value (NPV) terms of $1.7 billion; • an increase in employment compared to the base case of the CDP not proceeding; • positive effects on aggregate consumption and, in the long run, on investment; • additional investment in regional Victoria from 2009. The CDP would provide economic benefits to Melbourne from the beginning of the project (assumed start in 2006); • an overlap of the construction and operational phases of the CDP. The capital cost of the CDP peaks in 2009 when investment amounts to $316 million; and • savings in shipping costs associated with larger ships being able to access the Port of Melbourne would commence in 2009. The initial savings will be approximately $43 million per annum which will steadily rise over succeeding years to $87 million in 2015, and $582 million by 2035. For the period 2005-2035, the estimated net welfare benefit of the CDP is $2.2 billion. Geographic distribution of effects The outcomes of the analysis of the overall impacts of the Port and the CDP were further translated to the effects on particular parts of Victoria. The following tables provide a picture of how the benefits from the Port of Melbourne are distributed at the local, regional, State and national levels. The indicative employment impacts of port related activities are outlined in Table ES.2.
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