Cattle are loaded at Darwin Port, which was handed over to Chinese company Landbridge on a 99-year lease. (ABC News: Carl Curtain)
Southern contestants on Millionaire Hot Seat don’t typically get questions about Darwin correct.
Their knowledge of the Northern Territory is limited to crocs, fishing and oppressive heat.
And so it was in June 2017, when then-federal treasurer Scott Morrison stumbled late into the office of the NT News, the Territory’s paper of record, while a Millionaire Hot Seat question flashed on the screen in the biggest television in the office.
It was far too difficult for $500, but Mr Morrison knew the answer all too well.
“They didn’t tell us about it!” Mr Morrison shouted, throwing his arms up in frustration, as the question hung on the screen: “Which Australian city controversially leased their port to a Chinese company in 2015?”
The answer was Darwin.
But the $506 million question Australians want answered now is — why did the Northern Territory Government do it and how did they get away with it?
A sign at Darwin’s East Arm Wharf shows it is part of Chinese company Landbridge Group. (ABC News: Xavier La Canna)
Australians clearly have Darwin and the NT firmly in their minds after the episode that propelled the sleepy territory into a geopolitical brawl it had never considered nor understood.
Simone Noirot, a retired nurse from rural NSW, wanted to know (along with a lot of other people), making this is the most-asked question in the history of Curious Darwin.
It’s our story series where you ask us the questions, vote for your favourite, and we investigate.
Leasing one of Australia’s most important strategic assets
The simple reason why is “stupidity”, said Neil James, executive director of the Australia Defence Association (ADA).
It’s our biggest trading partner and the source of our greatest strategic anxiety. But do we really understand the Middle Kingdom? G’day China brings you different perspectives on China.
Academics, politicians, lawyers, national security experts, viewers of Millionaire Hot Seat, the New York Times, even the former president of United States Barack Obama have all asked — how the hell was the sun-soaked NT Government allowed to lease off one of Australia’s most important strategic assets to the Chinese without proper federal oversight?
Here’s how. For years, the NT had lobbied the Commonwealth to invest millions in developing the rinky-dink Darwin Port that was only turning over a few million dollars annually in cattle, mining and gas interests.
Successive governments believed the port held the cure to the NT’s economic maladies and that if it could be expanded and maintained, it would surely be a secret weapon in the NT’s economic resurgence — and the rest of the nation’s by extension — as Australia’s “gateway to Asia”.
But for years, the Federal Government didn’t see its potential — or at least not enough to invest in it.
In 2012, the Country Liberal Party — long viewed by itself as the “natural ruling party of the Territory” — was brought back to power after 11 years in the wilderness, and while no gauge of public opinion was taken, decided all public assets were up for grabs.
The first was the port. Expressions of interest were sought in late 2014 and early 2015, with 33 respondents signalling their interest in acquiring it.
The CLP privatised Darwin Port along with other publicly owned assets. (Supplied: NT Government)
A special selection committee was struck that would have oversight of the entire process and ultimately select the winning bidder.
That team included director of major projects Ann Tan; Tourism NT chief executive Alastair Shields, then under-treasurer Jodie Ryan, head public servant Gary Barnes, former Queensland head public servant Jon Grayson and John Watkinson, who sat on the Port Corporation’s board.
Between July and October 2015, the bids were shortlisted, referred to the Foreign Investment Review Board (FIRB) and the ACCC, and “binding contracts” eventually entered into with Landbridge Group, according to the NT Government.
‘A seriously dumb idea’: ADA
Landbridge Industry Australia is a subsidiary of Shandong Landbridge Group, which has interests in port logistics, petrochemicals, timber and real estate development in China.
It has also worked with state-owned companies like China National Petroleum Corporation, which supplies oil to Landbridge and allows it to sell fuel at retail pumps.
Its billionaire owner Ye Cheng had been named by the Chinese Government in 2013 as one of the top 10 “individuals caring about the development of national defence” and the company was later found to have extensive links to the Chinese Communist Party and the People’s Liberation Army.
In an interview in Beijing in 2016, Mr Ye said the Darwin Port investment fit the company’s strategy to expand its shipping and energy interests and served China’s foreign policy goal known as One Belt, One Road — an initiative the Australian Commonwealth has still not signed up to, citing security concerns raised by intelligence agencies.
The NT Government has refused to release the final proponents’ offers, citing commercial-in-confidence reasons.
There is much confusion over this. Sources with knowledge of the deal say Landbridge’s $506 million bid was far and away the highest offer, and that includes Adam Giles, the chief minister at the time.
But others — including some of the public servants who orchestrated the deal — say two other bids were near the same price point, but refuse to release those offers for confidentiality reasons, almost four years later.
We may never know what those bids — from Australian and European companies — were.
Either way, it doesn’t add up, Mr James said.
“If [Landbridge’s] offer was the best offer, but it introduced a major element of strategic risk for the whole country, they should have had the common sense to realise they take the second best offer or the third best offer and not have any strategic risk,” he said.
“You don’t farm out the risk to everyone in Australia over 99 years to save you some money in the early 20-teens.
“It was a seriously dumb idea by a government that really hadn’t thought through the consequences, and even if it had, was prepared to ignore the long-term costs, both financial and strategic, they were inflicting on the rest of the country.
“It was the classic example of parochial short-term thinking winning out over what is in the national interest of all Australians across the country for the long term foreseeable future.”
The lease of Darwin’s port was slammed as “parochial short-term thinking”. (Supplied: Pexels)
What are those risks?
The Americans, who use Darwin as a strategic pivot location for thousands of marines each year, are on the record stating their concerns around the potential for Chinese operatives to spy on American and Australian navy ships.
But Mr James said there were other risks, including China’s operations in the South China Sea and how Australia’s strategic power to respond has been put at risk through the lease of the port.
“There’s a lot wrong with the Darwin harbour, but it’s the best of a bad lot across northern Australia, so over the next 99 years, if we want to build a big naval base somewhere … it’s probably going to be in Darwin,” Mr James said.
“But by leasing the commercial port in Darwin, even though it is well down the harbour, to someone who runs the risk of being a potential adversary over the next 99 years, it’s the equivalent of leasing the Port to the Japanese in 1938.
“When you look at a largely unknowable strategic future, it’s actually shackled Australia’s ability to adequately defend itself, and the tragedy is it was done unnecessarily.”
NT Government defends deal
Jodie Ryan, who sat on the selection panel that chose Landbridge and was later promoted to the role of head public servant after the Gunner Labor Government’s 2016 election victory, said the long-term risks of leasing the port to a Chinese-owned company were “considered as part of the assessment” and that “substantial due diligence was undertaken and involved independent financial and legal advisers”.
“If Landbridge are no longer able to run the port it returns to NT government control,” she said.
But this may not be entirely accurate, according to experts.
The NT Government says the port would revert to its control if Landbridge could no longer run it. (Supplied: Unsplash)
Lawyers familiar with the contract have told the ABC it has loopholes, including no such clause that would see it revert back to NT government control if Landbridge were to go bankrupt.
The issue was raised in 2017, when reports surfaced that Landbridge was trying to use the port as collateral for a loan, given its failing cash revenues.
When Mr Morrison was treasurer, his office stopped answering emailed questions about the contract and invitations to show where precisely it states any Australian body can take control back.
Mr James said he had other concerns about the claims that the port would revert back to the NT government control.
“This is an alarmingly simplistic argument,” he said.
“In a serious crisis, the last thing you would want to do is escalate it by taking the port back by the private lessee, if the private lessee is from a country that is very likely to be causing the strategic crisis in the first place.
“The easiest way to avoid this problem is to not do the lease in the first place.”
How did the deal go down?
A couple of questions have been raised over how the deal was executed.
The NT hired “boutique” Melbourne financial firm Flagstaff Partners to help choose the winning bidder, and ended up paying about $13 million out of $27 million total in fees charged to taxpayers to broker the deal.
Flagstaff managing partner David Potaznik was hired shortly after the deal was finalised by Landbridge Group to sell a 20 per cent stake that needed to remain in Australian hands.
So, the man who helped lease the port to Landbridge then went to work for Landbridge, and was involved in selling the 20 per cent stake, which the new NT Government ended up taking over in 2017 for no cost.
Mr Potaznik claimed to the Australian Financial Review in 2016 that he had not spoken to Landbridge officials about working for them until “well after the lease transaction was completed”.
A 20 per cent stake in the port had to remain in Australian hands as part of the deal. (Supplied: Unsplash)
The NT government never commented on the move.
Instead of using one of the multinational advisers like KPMG or Price Waterhouse Coopers for a project of this significance, the NT government hired a tiny Darwin-based firm called Merit Partners.
Their report was contained to five pages and found nothing worth mentioning of impropriety during the selection process.
How did it get through FIRB and Defence?
A 2016 Senate committee revealed that while the Foreign Investment Review Board had been contacted to look at the deal, it ultimately didn’t formally investigate because, at the time, there was an exemption from scrutiny of a deal like this because it involved a private company and a state or territory government.
The committee called for greater transparency in the decision-making process and for more details to be publicly disclosed, and its report stated the NT Government failed to answer key questions around the details of the port deal to the committee’s satisfaction.
The rules were ultimately changed to not let this happen again.
HMAS Maitland returns to Darwin after taking part in Exercise Milan 2008. (Supplied: Department of Defence)
FIRB chairman Brian Wilson told the committee he had become aware of the deal in late 2014 and asked for a response from Defence and intelligence agencies a few times in 2015, but was repeatedly told that Defence had no issue with the deal.
It was also later revealed that the Defence officials were only middle management, and that senior figures and the Minister of Defence only learned of the deal hours before the NT government announced it publicly.
“It was an inexcusable stuff-up by the federal government and various departments, but that doesn’t excuse the NT government making this parochial, stupid decision in the first place,” Mr James said.
“You can’t mortgage the strategic security of 25 million — and in the future more Australians — just to make a quick buck for a local political problem you have at the time, and then lie about it, and lie about it consistently in your supposed defence of it.
“You may well find that future generations of Australians reading Australian history books will have the most scathing judgments about the idiocy of the decision-making.
“It’s quite possible many decades in the future if there is a serious war, where this becomes a serious problem for us, people will wonder whether the decision wasn’t just a stupid one, but whether the people doing it hadn’t looked seriously at the concept and laws surrounding treachery.”
Back in mid-December, when the current Labor Government was trying to explain how the NT was in the middle of a full-blown financial crisis that sees it borrowing $4 million a day to keep operating, Jodie Ryan was asked in a briefing what happened to the $506 million the NT received for the port.
She said it was put into general revenue and spent. It’s long gone, with less than 96 years left.
While you’re here … are you feeling curious?