Summary

  • The Productivity Commission (PC) released a draft report in its inquiry into the National Access Regime (Regime) on 28 May 2013 (Draft Report). The deadline for submissions on the Draft Report is 5 July 2013 and the PC will be holding public hearings in Perth (16 July), Brisbane (23 July), Sydney (25 July) and Melbourne (29 July) before publishing a final report in October 2013.
  • The Draft Report recommends retaining the Regime, including retaining the involvement of the Minister (usually the Federal Treasurer), which has been the subject of some criticism. But the Draft Report does suggest a number of changes which, if implemented, could significantly affect infrastructure owners / operators and access seekers.
  • Some of the recommendations will be welcomed by access seekers because they are likely to make it easier to have services brought within the Regime by having them ‘declared’. For example, the Draft Report recommends that declaration criterion (b) should be amended to focus on a natural monopoly test, rather than the privately profitable test recently endorsed by the High Court (Our previous article). The Draft Report also recommends that the Regime should be amended to make it clear that infrastructure owners can be required to expand the capacity of their facilities as well as extend the geographic reach of their facilities.
  • Other recommendations will be welcomed by infrastructure owners because they are likely to make it harder to have services declared. For example, the Draft Report recommends that criterion (a) should be amended to focus on whether ‘declaration’ would promote competition, rather than on whether ‘access’ would promote competition. The Draft Report also recommends that criterion (f) should be amended to focus on whether declaration would ‘promote’ the public interest, rather than that access would ‘not be contrary to’ the public interest. 

Background

The Regime is contained in Part IIIA of the Competition and Consumer Act 2010 (Act) and clause 6 of the Competition Principles Agreement 1995. The Regime establishes a mechanism for third parties to gain access to significant infrastructure, including by applying to the National Competition Council (NCC) to have services ‘declared’ by the relevant Minister (usually the Federal Treasurer). If services are declared, parties who cannot agree on the terms of access can refer the matter to binding arbitration by the Australian Competition and Consumer Commission (ACCC).

The Regime came into force in 1995, following a comprehensive review and report by the Hilmer Committee. The PC conducted a review of the Regime in 2001 and various changes were made such as inserting an objects clause into Part IIIA. The current review is being conducted to satisfy obligations in the Competition and Infrastructure Reform Agreement, agreed between the States and Commonwealth government in 2006.

Something for the access seekers – making declaration more likely

In deciding whether to declare services, the Minister must be satisfied of all of the relevant criteria. One of criteria is that it would be uneconomical for anyone to develop another facility to provide the service (criterion (b)).

A number of tests have been applied to criterion (b) over the years, including a natural monopoly test and a net social benefit test. The current test is a privately profitable test (i.e. could anyone profitably develop another facility to provide the service), which was endorsed by the High Court last year in relation to access to railways in the Pilbara.

The Draft Report recommends that the relevant test should be a natural monopoly test which considers whether the total market demand for the relevant service could be met at least cost by the facility.

This is a significant recommendation and one which is likely to attract considerable interest as the review progresses.

Something else for the access seekers – confirming the expansion power

The Act provides that the ACCC, in arbitrating an access dispute, has the power to require an infrastructure owner to ‘extend’ its facility. There have been doubts about whether this allows the ACCC to require an infrastructure owner to ‘expand’ its facility, although the Australian Competition Tribunal in the Pilbara rail access matter in 2010 considered that the ACCC did have the power to require an expansion.

The Draft Report recommends amending the Regime to clarify that the ACCC can require capacity ‘expansions’ as well as geographic extensions.

The PC recognises that the expansion power can be controversial and is seeking views on whether the current restrictions and safeguards in the Act are sufficient to protect the interests of relevant stakeholders.

The PC also recommends that the ACCC publish guidelines on how it would exercise the expansion power. Such clarification would be welcomed. Expansions can give rise to a number of complex issues, including precisely how an expansion will be funded and what happens if subsequent users benefit from the expansion (e.g. how much should subsequent users pay given that they benefit from an expansion funded by the original user and how much, if anything, should the original funder receive by way of a rebate or discount on its access tariffs).

Something for the owners – making declaration less likely (competition test)

One of the declaration criteria is that the Minister must be satisfied that access (or increased access) would promote a material increase in competition in at least one market other than the market for the service being considered (criterion (a)).

The Full Federal Court set out the relevant test in its decision on Virgin Blue’s application for declaration of certain services provided by Sydney Airport (2006). This test was slightly different to the approach that had been adopted previously and required a comparison between the level of competition with declaration and without declaration, rather than (as previously) a comparison of the status quo (which may already involve access being granted, as it was to Virgin Blue) with the future state of competition with declaration. The Full Federal Court’s approach lowered the threshold for situations where access was already being provided.

The Draft Report recommends amending the Regime to return to the previous approach of comparing the status quo with the future with access (or increased access) on reasonable terms and conditions through declaration.

Something else for owners – making declaration less likely (public interest test)

Another declaration criteria requires the Minister to be satisfied that access (or increased access) would not be contrary to the public interest (criterion (f)).

The Draft Report recommends amending this criterion to require that the Minister must be positively satisfied that declaration would promote the public interest, rather than the lower threshold that access is ‘not contrary’ to the public interest. The Draft Report also recommends that this criteria should have regard to efficiency aspects not covered by the other criteria, such as investment in infrastructure markets and dependent markets, as well as compliance and administrative costs.

Other significant recommendations

  • Another declaration criteria is that the relevant services are not already covered by a regime that has been certified as ‘effective’ by the Minister. The Draft Report recommends that this should become a threshold issue considered before applying the criteria. This would save the time and cost involved in considering all of the other criteria when, if a service is covered by an effective regime, it could not be certified (i.e. all of the criteria cannot be satisfied). The Draft Report also recommends introducing a formal system for revoking certification where the regime has changed substantially since certification.
  • Currently, if a Minister fails to make a decision on declaration within the required 60 day time period, the Minister is deemed to have decided not to declare the service. The Draft Report recommends amending the Regime so that, if the Minister fails to make a decision, the Minister is deemed to have accepted the NCC’s recommendation and adopted the reasons given by the NCC. This will provide greater certainty for parties considering whether to challenge a deemed decision because there will always be reasons for the deemed decision (as opposed to the current situation where, if a Minister fails to make a decision, there are no reasons upon which to base a challenge).