The Productivity Commission has commenced its much-anticipated review of the National Access Regime by publishing an Issues Paper. The Issues Paper asks for responses to over 80 questions about the role and operation of the current regime, many of which are fundamental. The Commission’s final report comes at a critical time for infrastructure policy in Australia and is likely to influence the design and operation of access regulation over the next decade or more.
An opportunity for owners, investors and users of infrastructure to influence policy reform
- The recommendations that the Commission adopts in response to its current Inquiry are likely to shape amendments over coming years to the National Access Regime in Part IIIA of the Competition and Consumer Act (the Act) as well as influence the principles and approaches adopted under other sectoral regimes (e.g. rail, telecommunications, gas, water, electricity, ports and airports).
- The Inquiry invites stakeholder input in the form of written submissions and public hearings. The Issues Paper poses over 80 important questions about the current and future operation, structure and role of Part IIIA as well as its interaction with other access regimes. Responses are due by 8 February 2013.
The Commission process provides infrastructure owners, operators, financiers and users an opportunity to contribute to policy development at a critical time. Part IIIA faces something of an ‘identity crisis’ resulting from a number of challenges, including:
- The question of whether the original vision for Part IIIA, twenty years ago, as a general access regime to apply across industries remains relevant given the State-based and other access regimes that have subsequently emerged and which are customised for particular industries.
- The more recent success of alternative access arrangements which are contractual in nature and which have been used to facilitate Greenfield investment in ports, railways and, more recently, water infrastructure.
- In a post-privatised and liberalised economy, Part IIIA needs to be able to respond to contemporary economic challenges, such as how to ensure regulated infrastructure is expanded in a timely and efficient way to remove capacity constraints and bottlenecks.
- There continues to be controversy about the two stage process under Part IIIA, which involves both a Ministerial ‘declaration’ (and any subsequent appeals from this decision) before the terms of access are then agreed or arbitrated by the ACCC as part of a later, second stage. The recent High Court decision in the 8-year Pilbara Infrastructure case (see our earlier update here: highlights a number of important issues and concerns with the process and thresholds governing the existing declaration process and statutory criteria.
- A copy of the Issues Paper can be found here. The Commission’s timetable is summarised below.
The Inquiry’s broad scope
On 30 November 2012, the Commission released the Issues Paper for its inquiry into the National Access Regime (Pt IIIA of the Competition and Consumer Act 2010 (Cth) (CCA) and clause 6 of the Competition Principles Agreement) (Inquiry).
When Part IIIA of the CCA was introduced in the mid 1990s, the framework provided for periodic reviews of its performance by the Commission. This is the second such review, with the first undertaken in 2001.
The Inquiry’s terms of reference were released by the Assistant Treasurer David Bradbury on the 25 October 2012 and provide a very broad scope for the Inquiry. The Issues Paper responds to the wide terms of reference by posing over 80 separate questions.
The questions address both specific issues about the interpretation and performance of the current regime as well as others that go to the underlying policy rationale for Part IIIA including whether it needs to be retained at all or should be replaced with alternative policy options.
The Inquiry is timely as Part IIIA faces an identity crisis
The Inquiry comes nearly twenty years after the idea of a single National Access Regime was first proposed in the report of the Independent Committee of Inquiry (or “Hilmer Committee”) in 1993. Based on the work of the Hilmer Committee, Part IIIA was introduced in 1995.
However, since that time there have been a number of developments in the approach to access regulation both inside and outside of the Part IIIA framework which provide important context for the Inquiry.
Most access regimes have been tailored for specific industries – meaning that the original vision of Part IIIA as a single national access framework is being questioned.
Since the introduction of Part IIIA, bespoke access arrangements have been developed for a number of industries. These include the telecommunications access regime in Part XIC of the CCA (introduced in 1997); and national frameworks for electricity and gas regulation, which were initially developed as access codes and later developed into laws which have been adopted by the majority of state legislatures. In some cases, access regimes for particular facilities have been developed after a decision had been made to declare the services under Part IIIA (for example in relation to the services provided by Sydney’s sewerage network).
All of the sector-specific regimes that have emerged over the past two decades have been designed differently, to accommodate the particular characteristics of the industries they apply to. For example:
- while some regimes have relied on a “negotiate/arbitrate” model, others have tended more towards a “propose/respond” or consider/determine model (i.e. models in which a regulator considers proposed access terms and either accepts this or otherwise makes a determination on the terms that are to apply) – in the case of telecommunications, the ‘negotiate/arbitrate’ approach was scrapped in 2010 and replaced with up front determinations by the ACCC;
- some access regimes incorporate a role for a separate rule-making body, whose role it is to establish the rules that are to be applied by the regulator in determining the terms of access; and
- some access regimes provide scope for merits review of regulatory decisions, while other regimes do not.
Each regime continues to evolve and adapt to changing industry circumstances. For example a number of reforms were made to the telecommunications access regime in 2010, including to move away from the negotiate/arbitrate model which had previously applied, and to remove rights to merits review. Various reforms to the electricity framework are currently being debated, including possible augmentation of merits review rights and further amendments to pricing rules (some changes to the rules have already been made).
The ongoing development of sector-specific regimes has meant that Part IIIA has taken on more of a “residual” role, applying only to those industries and services that fall outside the scope of bespoke sector-specific regulation. Partly for this reason, Part IIIA has been used on relatively limited basis. As sector-specific regimes continue to develop, it seems likely that Part IIIA’s residual role will become more limited.
The development of bespoke access regimes for specific industries also raises questions about the utility of a “one-size-fits-all” access regime. As noted above, the various access regimes that have been developed have a range of different design features, some of which depart significantly from the design of the Part IIIA access regime.
Many access frameworks for Greenfield projects are becoming ‘contractualised’ and less reliant on formal regulation
As well as statutory regimes, over recent years there has also been a growing number of commercial frameworks used to facilitate investment and access by multiple parties – these have been used, for example, to support expansion of coal terminals in Queensland and New South Wales as well as Greenfield railway infrastructure in Queensland. Contractual approaches have also been explored by State Governments for infrastructure such as dams and pipeline projects.
Practical experience with the declaration process highlights a need to revisit the Part IIIA structure and process
As well as questions about the policy foundations for Part IIIA, experience since the last Commission review in 2001 have identified a range of further issues with the way it currently operates.
The most significant recent development is the High Court’s decision in the long running Pilbara Infrastructure1 case, involving an attempt by Fortescue Metals Group to access the iron ore rail infrastructure of Rio Tinto in the Pilbara.
Key issues that have emerged since the last set of amendments, particularly from the Pilbara Infrastructure case, include:
- In relation to the promotion of competition criterion (criterion (a)), would a reduction in access charges towards competitive levels in itself be sufficient to amount to the promotion of a material increase in competition in a related market?
- In relation to the economic duplication criterion (criterion (b)), should the test be, as the High Court has held, one of whether it is privately profitable to develop another facility to provide the service, or should the test look to whether the facility is a natural monopoly or assess the net social benefit from any duplication of the facility?
- Further, if the test in criterion (b) is to be one of private profitability, should declaration be refused merely because it would be privately profitable for the incumbent owner of the facility to develop another facility (regardless of whether the incumbent has any plans to actually develop another facility)?
- Should access regulation (and in particular the role of any ‘public interest’ test) be primarily an economic or political question?
- Which entity should make decisions about access and what does this mean for how, and on what basis, any declaration decision ought to be able to be challenged?
- What process improvements may need to be made in order to deliver an outcome under Part IIIA that is timely and which does not result in a degree of delay, complexity and cost that undermines the regime’s effectiveness?
The Commission's timetable
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