If Profit Is Not the Objective, What Is?

In a key scene in Orson Welles’s classic Citizen Kane, an outraged trustee confronts Kane at a party celebrating his purchase of a newspaper. The newspaper is a bad investment, he warns: it lost a million dollars in just the last year. Far from being chastened, Kane replies: “You’re right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars next year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years.”

The message is clear: money is not Kane’s concern. Power – the power of the press – is what matters. Kane will happily sacrifice a million dollars a year to get his hands on that power.

Which brings us to the Port of Darwin.

When the Port of Darwin was sold on a 99-year lease to a Chinese-owned company, defenders claimed that it was just another business deal. If that’s the case, then, it’s an extraordinarily bad investment.

If the Chinese owner of the 99-year lease to the Port of Darwin is looking to make any money from its initial $506m infrastructure investment, it might want to get its skates on.

As far as Margin Call can tell, things aren’t looking too flash for the port’s ultimate Chinese owner, the Shandong Landbridge Group, with the port’s Australian subsidiary making $151.1m in cumulative losses over the past five operating years since taking control of the north Australian port facility in November 2015.

Landbridge Infrastructure Australia, the vehicle the Chinese created to buy the port infrastructure from the Northern Territory government, is yet to turn an annual profit, with its biggest annual loss so far of $44.5m recorded last year in the 12 months to June 30.

So, if the port is a money-pit, what possible reason could the Chinese have in owning it?

The Port of Darwin is not just any old business: it’s one of the most strategic ports in Australia. When Japan wanted to knock Australia out of WWII, Darwin was the major focus of their attacks. Ominously, China has also announced its intention to build an entire city at Daru in Papua New Guinea – less than 150 km across the shallow Torres Strait from the Australian mainland.

Analysis of the group’s PwC-audited accounts reveals Landbridge has made an annual average bottom-line loss of just over $30m. Seems a bit odd, buying an asset for more than $500m only to tolerate an annual loss. What strategic imperative could there possibly be other than profit?

The back-of-the-envelope assessment of the Chinese investment on our northern shores, which has been controversial since it was facilitated by the Tony Burgess-led Flagstaff Partners advising the NT government and waved through by the Foreign Investment Review Board in 2015, comes as Prime Minister Scott Morrison’s government embarks on a review into any security risks that may be associated with the Chinese group’s long-term lease of the port infrastructure.

The assessment is being conducted by Peter Dutton’s Department of Defence.

Maybe it should take a look at the numbers.

The Australian

The government ought to also look at the company’s proclamation that it stands ready to “actively respond to the call of the [Chinese] state, take the initiative to undertake major national strategic mechanisms” and make the world “feel the speed and strength” of China.

If – as it should – the government nationalises the port, it should knock the annual losses off any compensation it pays the Chinese.

Heck, just call it reparations for the Wuhan virus.

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