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AustraliaNational Access Regime

Productivity Commission Inquiry into the National Access Regime

External linkInquiry home page
(including public submissions)

Access - airportExternal linkTerms of reference

External linkIssues paper

External linkSubmissions
(47 initial submissions; 29 post-draft submissions)

External linkDraft report (released 28 May 2013)

External linkFinal Report sent to Government on 25 October 2013
Released 11 February 2014

 

Terms of reference

Assistant Treasurer, David Bradbury, set out the following terms of reference on 25 October 2012

"In reporting on the Regime and the CIRA, the Commission is to:

  1. examine the rationale, role and objectives of the Regime, and Australia's overall framework of access regulation, and comment on:
    1. the full range of economic costs and benefits of infrastructure regulation, including contributions to economic growth and productivity
    2. the operation of the Regime relative to other access regimes, including its consistency with those regimes and the effectiveness of the certification process
    3. the roles of the National Competition Council, the Australian Competition and Consumer Commission and the Australian Competition Tribunal in the administration of the Regime, and the Minister as decision maker, and the relationship between the institutions.
  2. assess the performance of the Regime in meeting its rationale and objectives, including:
    1. the effectiveness of enhancements made to the Regime and the regulatory reforms agreed under COAG's National Reform Agenda
    2. how the Regime has been variously applied by decision makers, but not so as to constitute a review or reconsideration of particular decisions.
  3. report on whether the implementation of the Regime adequately ensures that its economic efficiency objectives are met, including:
    1. whether the criteria for declaration strike an appropriate balance between promoting efficient investment in infrastructure and ensuring its efficient operation and use
    2. whether the criteria for declaration are sufficiently well drafted in the legislation to ensure that its objectives will be met.
  4. provide advice on ways to improve processes and decisions for facilitating third party access to essential infrastructure, including in relation to:
    1. promoting best-practice regulatory principles, such as those pertaining to regulatory certainty, transparency, accountability and effectiveness
    2. measures to improve flexibility and reduce complexity, costs and time for all parties
    3. options to ensure that, as far as possible, efficient investments in infrastructure are achieved
    4. 'greenfield' infrastructure projects and private sector infrastructure provision.
  5. review the effectiveness of the reforms outlined in the CIRA, and the actions and reforms undertaken by governments in giving effect to the CIRA.
  6. comment on other relevant policy measures, including any non-legislative approaches, which would help ensure effective and responsive delivery of infrastructure services over both the short and long term."

 

Issues Paper

An Issues Paper was released by the Productivity Commission in November 2012. It is 39 pages long and sets out the terms of and background to the inquiry. It then discusses and identifies questions relating to the reasons for having an access regime and its operation in practice, costs and benefits, institutions and processes and the future role that should be played by the regime.

It notes that in conducting the inquiry the Commission

'will take account of the welfare of the community as a whole. While the interests of infrastructure service providers and access seekers will be an important consideration, the Commission will also take account of wider impacts, including the effects on Australian consumers, other businesses, and the broader Australian community.'

 

Draft Report

A draft report was released 28 May 2013. Final Report sent to Government on 25 October 2013 and released in February 2013.

 

Final Report

The Final Report was sent to the Government on 25 October.

It was released to the public on 11 February 2014. The report runs to 362 pages. Importantly, it recommended that the access regime should be retained. Other important recommendations include:

  • Recommendation 8.1: 'The Australian Government should amend paragraphs 44G(2)(a) and 44H(4)(a) of the Competition and Consumer Act 2010 (Cwlth) such that criterion (a) becomes a comparison of competition with and without access on reasonable terms and conditions through declaration.'
  • Recommendation 8.2: 'The Australian Government should amend paragraphs 44G(2)(b) and 44H(4)(b) of the Competition and Consumer Act 2010 (Cwlth) such that criterion (b) is satisfied where total foreseeable market demand over the declaration period could be met at least cost by the facility. Total market demand should include the demand for the service under application as well as the demand for any substitute services provided by facilities serving that market. The assessment of costs under criterion (b) should include an estimate of any production costs incurred by the infrastructure service provider from coordinating multiple users of its facility.'
  • Recommendation 8.3: 'If criterion (b) continues to be applied as a private profitability test, the Australian Government should amend the definition of ‘anyone’ in paragraphs 44G(2)(b) and 44H(4)(b) of the Competition and Consumer Act 2010 (Cwlth) to exclude the incumbent service provider.'

More details to follow.

 

Government response

The Government's media release (from the Hon Bruce Billson MP) accompanying release of the report (on 11 February 2014) is reproduced below - notably, it indicates the Government will not respond until the outcomes of the 2014 'root and branch' are known.

Productivity Commission’s final report on National Access Regime released

The Federal Government today released the final report of the Productivity Commission’s inquiry into the National Access Regime (‘the Regime’).

The Regime is a regulatory framework that provides an avenue for firms to access essential infrastructure services owned and operated by others, when commercial negotiations are unsuccessful.

Since its introduction in 1995, the National Access Regime has influenced the way access negotiations occur across the economy, including in rail, airports, port terminal and grain handling facilities at ports.

The Productivity Commission’s review of the Regime followed a recommendation of a 2001 report for a further review to occur five years after the report’s amendments were implemented.

In addition, the Productivity Commission’s review was also required by clause 8.1 of the 2006 Council of Australian Government’s (COAG) Competition and Infrastructure Reform Agreement (CIRA) which called for a five year review of a number of the agreement’s operation and terms.

The Final Report’s key finding is that the access regime is working effectively and should be retained.

The Productivity Commission has made a number of important recommendations to refine the regime to ensure it continues to perform its important role of facilitating access to nationally significant infrastructure.

The Regime, by facilitating access to nationally significant infrastructure, promotes competition in markets that are dependent on the infrastructure being available.

The Prime Minister and myself announced a ‘root and branch’ review of competition law on 3 December 2013.

The ‘root and branch’ review will look at all aspects of competition law and policy, including the Regime.

The Government will respond to the Productivity Commission’s report following the outcomes of the root and branch review.

 

Submissions

Submissions were due by 8 February. 47 initial submissions and 29 post-draft submissions were received. They are available here. They include the following; in relation to some, I have summarised the key points made in each submission.

Initial submissions

Links are to files on Productivity Commission website. Submissions listed in order received.

National Competition Council (PDF) | National Competition Council (Word)
This early submission of the NCC sets out its views on the 'timeliness of the declaration process' (it considers the current timeline commercially realistic), the interpretation of declaration criteria and impact of the High Court's Pilbara decision (it considers the High Court's construction of criterion (b) to be unsatisfactory because it allows for wasteful duplication of societal resources (p8) and thinks it should be amended; it is, however, comfortable with the High Court's findings on criterion (f) (public interest)) and the nature of the declaration decision and consequences for review (in particular, the NCC's view that judicial review is preferable to full or limited merits review of declaration decisions). The NCC also notes that it believes the 'power to make a decision ... appropriately rests with a politically accountable minister acting on (but not bound to follow) independent expert advice' (p 9). The NCC submission also usefully includes a list of declaration applications made since Part IIIA was enacted and a summary of each declaration decision. See submission 2 by the NCC, below.
Board of Airline Representatives of Australia (PDF)
BARA's submission is (not surprisingly) focussed on the international airline industry. In this context it considers 'Part IIIA currently serves little useful purpose' and is 'now being used to address issues outside its intended purpose'. It does not consider that Part IIIA offers much if anything to address issues of moderating pricing behaviour of Airport Operators and facilitating emergence of effective competition between jet fuel suppliers and instead argues that a new basis is required for addressing 'issues that arise with the provision and pricing of infrastructure across industries from time to time. BARA proposes that an ‘Infrastructure Forum’ should be established, where infrastructure issues can be submitted and assessed and appropriate policy recommendations developed for consideration by the Australian Government'. The submission goes on to address concerns about unacceptable pricing behaviour by Airport Operators and concerns over jet fuel supply to international airlines at Sydney Airport, the limits of Part IIIA in dealing with these concerns and the proposed alternative mentioned above.
Australian Airports Association (PDF)
The AAA 39 page submission (not surprisingly) argues that there is 'no need for, or justifiable case that can be made in support of, any amendment to the National Access Regime to facilitate or require any enhanced access to any Australian airport to which the Regime is potentially capable of applying'. However, it does identify two issues of concern with the current regime. First, any changes are carefully drafted to avoid 'risk of regulatory overreach or error that might inhibit the capacity of airport operators to raise the funds necessary for continued and essential investment in Australia's future airport infrastructure ...' (p 2) and second, that 'steps be now taken to minimise the risk that future administrative or judicial interpretations might undermine the policy intent of the current law and water down the necessary threshold pre-conditions for declaration.' (p3 and further from p 38). In particular, AAA urges the PC to consider development of guidelines as to what 'material' increase in competition means for purposes of s 44G to avoid risk of 'repetition of the earlier experience of regulatory over-reach'.
Association of Mining and Exploration Companies (PDF)
After noting concern about the limited time given for submissions and it's timing over the Christmas period (something all to common in competition policy reviews), AMEC notes that 'the mechanisms by which small emerging miners may more efficiently and effectively access common user infrastructure ... are complex and do not appear to be meeting a "third party use" objective', citing Pilbara as an example of the inefficiency of the current regime. It also considers that the Terms of Reference for the inquiry do not go far enough and that 'broader strategic issues' should have been included. In this context the submission notes that 'many remote regional resource projects and their assets are "stranded" as they are uneconomical due to the lack of, or access to appropriate infrastructure.' AMEC proposes the development of a 'National Infrastructure plan' with 'specific attention to regional areas supporting the resources sector ...'.
BusinessSA (PDF) | BusinessSA (Word)
In its brief submission BusinessSA notes that it 'supports the key themes that underpin the National Access Regime', but also 'supports the principle that the government should not intervene in regulating access unless the problem is significant and market forces alone would not deliver a desirable outcome'. BusinessSA 'broadly supports the current criteria' for declaration of facilities under Part IIIA'. It also takes the view that the National Access Regime should remain 'truly national' and 'not exclude regional infrastructure due to the national significant criterion'.
Jemena Limited (PDF)
'Jemena owns and operates the principal gas network in NSW' and ins involved in gas distribution and transmission in other states. It notes that its main experience is with industry-specific and jurisdictional access regimes rather than the National Access Regime, but addresses questions posed in the Issues Paper where it has a view. It considers there is a 'continuing role for a legal structure to cater for those cases where negotiations are unsuccessful', provided regimes are able to 'accommodate changing circumstances'.

On the issue of the object of the regime it notes the 'objective should remain focused on economically efficient access as a means to fostering competition in dependent markets', observing that it is 'generally held that multiple objectives create tensions that economic regulators are poorly equipped to resolve and that distributional issues and externalities'. On the issue of certification it considers that certification is useful in that it avoids 'forum shopping' and provides incentives for different jurisdictional and industry regimes to satisfy the certification criteria.

On the issue of pricing principles and ACCC determinations Jemena observes that these principles 'provide an essential protection of provides of declared services', without which owners of infrastructure and potential investors might 'curtail investment' or adopt strategies that would minimise the risk of a declaration. The level of return 'should be commensurate with the efficient financing costs of a benchmark efficient entity with a similar degree of risk to that of the service provider'.

On the question of efficient investment in infrastructure Jemena observes that 'the threat of declaration/coverage and all that it entails provides a real incentive to negotiate in good faith. Where gas infrastructure is subject to access regulation, it is more the case that efficient investment has occurred despite rather than because of regulation'. Despite that, Jemena reiterates that it sees a continuing role for an access regime 'for a number of reasons including as a necessary fallback for the access seeker if negotiations are unsuccessful'.

On the role of review bodies and the issue of merits review Jemena notes that merits review is an important component of Part IIIA. It observes that given the significant rights at stake 'it is critical that correct decisions are made' ad there have been a number of instances in which 'merits review has resulted in the correction of errors' that may 'have been beyond the scope of judicial review'. Relying on the Financial Investors Group it notes the possibility of merits review is important to investor confidence.
Dominic L'Huillier (PDF)
Dominic is an economist and economic regulator. The lengthy submission first sets out a number of 'key messages' about access regulation generally. He includes a glossary and overview of basic terms like markets, competition etc and some history behind the regime ('Hilmer's rationale for access regulation'). He notes that the 'rationale for any regulation is to influence and/or change behaviour' and that access regulation is aimed to change the behaviour of a monopolist by 'ensuring that they negotiate with third parties'. His view on the rationale and objectives of access regulation is set out from pages 14-16. There is no specific recommendation.

Part 3 of the submission (from p 16) addresses the issue of whether there is still a need for the National Access Regime and states that the PC should consider the costs and benefits of the current regime - he then sets out some of these (or at least what he thinks the PC should look at further to make this assessment). He thinks one of the biggest benefits of Part IIA has been 'that it has spurred the development of State based access regimes ...' He sets out some of the features of the current access regime that 'work well' along with some reform options. The reform options include that merits or limited merits review should be removed. Various others proposals are put forward.

He also discusses advantages and disadvantages of ex-post and ex-ante access regimes and the differences between access undertakings and declarations, arguing that the undertaking avenue for access 'has been more successful in facilitating access and promoting competition' than the declaration path'.
Rio Tinto (PDF) | Rio Tinto (Word )
Attachment 1: Robert Willig Statement (PDF) 
Attachment 2: Robert Willig Reply (PDF)
Attachment 3: Joseph Kalt Statement (PDF)
Not surprisingly Rio Tinto's submission pays particular attention to criterion (b), arguing that the private profitability test implements sound economic principles, is consistent with objectives, comparatively simple and practical to apply and should be retained - in particular, should not be replaced by the social benefit test (or a natural monopoly variant). Rio Tinto also argues for the retention of merits review.

Rio Tinto also argues that the Act 'should be amended to include an “efficiency override” in relation to vertically integrated export-dedicated facilities, which can be achieved by giving the relevant Minister power to exempt from Part IIIA services provided by key export facilities on national interest grounds.'

National Competition Council (PDF) (second submission)
The NCC's second submission addresses some more specific issues raised in the Issues Paper. It first explores the background to Part IIIA and the impact on Part IIIA on investment, nothing that the number of applications made is a limited indicator of the effectiveness of the regime and that it believes 'the potential for declaration remains a significant incentive for commercial parties to arrive at access terms and conditions without direct regulatory intervention.' The NCC also 'cautions against placing too much weight on arguments that access regulation ... discourages efficient investment ...', noting that it is not aware of any evidence on that issue.

It also reiterates what it said in its first submission, that it considers time frames are commercially realistic, with most criticism stemming from the unusual and protracted nature of two high profile cases (in particular Pilbara), which both predate the 2010 reforms.

In relation to reviews of Ministerial decisions the NCC notes that there have been very few reviews of declaration decisions. It does not consider merits review appropriate given decisions are akin to policy determinations and concludes it would be 'preferable to rely on judicial review'.

The NCC also expresses the view that s 46 is not an effective alternative to the Access regime and that 'given the limited scope of the regime and the safeguard provisions it is no more the case today than in 2001 that the nature and significance of these costs exceed the benefits of enhanced competition in dependent markets and the avoidance of the costs of inefficient or unnecessary duplication of infrastructure.'

The Council re-iterates its concerns about the High Court's interpretation of criterion (b), suggesting that it 'gives rise to an inappropriate policy outcome' and that the 'CCA should be amended to remedy the deficiencies resulting from that construction' and suggests the following drafting: '(b) That it would be economically inefficient for another facility to be developed to provide the service because one facility (including an expanded facility) can provide the reasonably foreseeable demand for the service at a lower total cost than two or more facilities.' (page 17).

The NCC also suggests that it would be 'desirable for legislative amendment to criteria (a) and (f) to clarify the nature of the test intended by the word 'access' (including in the phrase 'increased access').' (p 18) In relation to criterion (f) the NCC accepts the High Court's judgment that there is no residual discretion not to declare a service where declaration criteria are met and does not believe any amendment should be made to criterion (f) to alter this position. In relation to criterion (e) (state or territory regimes) the Council sees merit in removing this criterion and 'instead forming a separate threshold limitation on the ability of parties to make an application for declaration'. The Council also suggests removing the 'size' determinant in criterion (c), arguing that a facility cannot be considered nationally significant just because it is big. In relation to criterion (a) (significance of dependent markets), the NCC notes concerns but 'considers that there is minimal risk that a service would be declared where the only promotion of competition is a trivial market' and that in such a situation criterion (f) would be unlikely to be satisfied.

The NCC expresses concern about calls to bypass declaration through direct regulation of particular services or deeming services to be declared (p 16) . It also expresses the view that a 'more prescriptive level of access regulation consequent on declaration' would be desirable, reducing 'need for multiple and repetitive access arbitrations and thus [reducing] regulatory costs'. (p 18)

On the issue of ineligibility periods the NCC notes that currently ineligibility decisions must be for 20 years, but that greater flexibility (allowing parties to propose different time periods) should be permitted.

In relation to deemed declaration decisions, the NCC argues the deeming should follow the Council's recommendation.

On the issue of safeguards in Division 3 of Part IIIA, while noting the small number of access disputes in the past, the NCC identifies two areas of possible concern. The first relates to the operation of 44W(1)(a) relating to an existing users priority and the second relates to arrangements for the facility providing a declared service to be extended to meet the needs of access seekers - the submission discusses this in some detail, concluding s 44W could be improved but the s 44V(2) dealing with facility expansion is workable in practice.

To address uncertainty surrounding the Council's role in the Tribunal the NCC suggests that it be given a 'statutory role before the Tribunal, and to the extent possible, the courts'. It also suggests that 'criteria of certification of state or territory regimes should be rationalised'.

Michael Smart (PDF)
Michael Smart is the consulting director of an economic consulting firm. This submission focusses on the 'production process exemption' in s 44B(f) of Part IIIA. He submits the wording of this subsection is unclear and provides insufficient guidance or certainty. He notes that assessing 'tradeoff between transaction costs and competition =-driven allocative efficiency gains necessarily involves case-by-case examination of economic evidence' and suggests ways to streamline this analysis.
Origin Energy Limited (PDF)
Co-operative Bulk Handling Limited (PDF) 
GDF SUEZ Australian Energy (PDF)
Australian Pipeline Industry Association (PDF)
Asciano Limited (PDF)
Australian Competition and Consumer Commission (ACCC) (PDF)
Sydney Water Corporation (PDF)
Michael Cunningham (PDF)
Xstrata Coal Limited (PDF) 
Australian Rail Track Corporation (PDF - large file - 8.5 MB) 
Australian Energy Market Commission (PDF)
South Australian Freight Council (PDF) 
Institute of Public Affairs (PDF) | Institute of Public Affairs (Word)
Federal Chamber of Automotive Industries (PDF)
Water Services Association of Australia (PDF )
Minerals Council of Australia (PDF)
Brisbane Airport Corporation (PDF)
Qantas Airways Limited (PDF)
BHP Billiton (PDF)
Peabody Energy (PDF)
RBB Economics (PDF)
Law Council of Australia (PDF)
Bob Baxt (PDF) | Bob Baxt (Word)
Attachment (PDF) | Attachment (Word)
Treasury (PDF)
APA Group (PDF) | Attachment (PDF)
Business Council of Australia (PDF)
Department of Infrastructure and Transport (PDF)
Queensland Competition Authority (PDF)
Letter (PDF) 
Virgin Australia Airlines (PDF)
Professor Allan Fels AO (PDF)
Office of the National Infrastructure Coordinator (PDF) 
Queensland Treasury and Trade (PDF)
Australian Competition and Consumer Commission (PDF)
Anglo American Metallurgical Coal Pty Ltd (PDF) | Anglo American Metallurgical Coal Pty Ltd (Word)
Gilbert and Tobin (PDF)
Department of Resources, Energy and Tourism (PDF) 
Co-operative Bulk Handling Limited (PDF)


Post-draft submissions

Links are to the Productivity Commission website

National Competition Council (PDF)
Board of Airline Representatives of Australia Inc (PDF) | Board of Airline Representatives of Australia Inc (Word)
Anglo American Metallurgical Coal Pty Ltd (PDF)
Energy Users Association of Australia (PDF)
Australian Pipeline Industry Association (PDF)
Bob Baxt (PDF) | Bob Baxt (Word)
Attachment (PDF) | Attachment (Word)
Association of Mining Exploration Companies (PDF)
Rio Tinto (PDF) | Rio Tinto (Word)
Mike Smart (PDF)
Queensland Competition Authority (PDF - 121.4 KB) 
Letter (PDF)
Australian Competition Consumer Commission (PDF)
Chamber of Commerce and Industry of WA (PDF) 
APA Group (PDF) 
Australian Airports Association (PDF)
Asciano (PDF)
Victorian Department of State Development, Business and Innovation (PDF) | (Word)
Glencore (PDF)
BHP Billiton (PDF)
Qantas Airways Limited (PDF)
Brockman Mining Australia (PDF)
Law Council of Australia (PDF )
Business Council of Australia (PDF)
Gilbert and Tobin (PDF)
Queensland Government (PDF)
Aurizon (PDF)
Rio Tinto (PDF) | Rio Tinto (Word)
Minerals Council of Australia (PDF)
Australian Energy Market Commission (PDF)
COAG Reform Council (PDF)

 

 

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