The state government could have to pay NSW Ports more than $700 million in compensation over the next 40 years if Port of Newcastle goes ahead with a container terminal, according to modelling seen by the Newcastle Herald.
NSW Parliament last week passed legislation which will extinguish financial penalties on Port of Newcastle developing a rival container terminal to Port Botany and Port Kembla if it makes a one-off compensation payment to the government.
The legislation gives the port the option of asking the treasurer to appoint an independent expert to determine what the fair market price for the 98-year Newcastle port lease would have been if the restrictions on container trade were not in the original privatisation agreement.
The penalty provisions would disappear when Port of Newcastle paid the state the difference between the new valuation and the $1.75 billion it paid in 2014.
Port of Newcastle chief executive officer Craig Carmody told the Newcastle Herald last week that the port would build the terminal "as long as the independent assessment does not come back with an astronomical figure".
He said a top-up payment of $1 billion would make the terminal unviable.
The Labor opposition tried unsuccessfully to move amendments in the upper house which would have introduced a public interest test into the decision whether to scrap the Newcastle penalties.
The amendments also would have required the treasurer to take into account whether the state would have to compensate NSW Ports, which operates Botany and Kembla.
Shadow treasurer Daniel Mookhey repeatedly called on the government in Parliament to reveal how much compensation taxpayers would have to hand NSW Ports for removing the restrictions and whether it would exceed Newcastle's top-up payment.
He said the compensation provisions to NSW Ports over the 50-year life of the deeds could amount to billions of dollars and questioned if the government had done modelling on the potential costs.
The legislation passed last week does not seek to evaluate the potential compensation to NSW Ports but strives only to assess what Port of Newcastle should have paid for the lease in 2014 without the penalties in place.
Under its 2013 privatisation deal for Botany and Kembla, the government must compensate NSW Ports for container movements in Newcastle beyond an annual cap, which now stands at about 50,000 and is growing at 6 per cent a year.
The compensation arrangement lasts until 2063, when the cap would be about 552,000 containers a year.
The modelling of the state's liability to NSW Ports relies on estimates of how much a Newcastle container terminal will exceed the cap and when it will do so.
The modelling assumes Port of Newcastle will start moving 350,000 containers a year by 2031, which is the port's stated minimum break-even figure, and will not hit the cap before then.
It assumes the port's annual container movements will grow by 3.5 per cent, which corresponds with the rate used in AlphaBeta Advisors' report for Port for Newcastle on the economic impact of a container terminal.
The model also assumes the government must compensate NSW Ports at a rate of $90 per container handled in Newcastle above the cap, rising at an inflation rate of 2.5 per cent.
The net present value model includes a discount rate of 5 per cent to express the government's potential liability to NSW Ports in today's dollars at $733 million.
Mr Mookhey said on Friday that the public needed to see the deeds between the state and port two operators "so we can fact-check everyone's claims, especially as the government has no modelling they're prepared to publish".
"It's the state government's responsibility to unpick this bad deal," he said.
"The Hunter shouldn't have to pick up the tab."
NSW Ports paid $5.07 billion to lease Botany and Kembla for 99 years.
The secret Newcastle container cap was designed to pump up the Botany lease price by protecting the lessee from competition.
The government in turn sought to recover the cost of any liability to NSW Ports by including reimbursement provisions in the Newcastle lease deal.
