On 25 October 2012, the Federal Government announced a Productivity Commission (PC) inquiry into the effectiveness of the national access regime (Regime). Under the Regime, third parties may seek regulated access to certain services provided by nationally significant infrastructure. On 28 May 2013, the PC released its draft report (Draft Report). The Regime has been subject to extensive criticism as a result of the cost and delay involved in Fortescue’s ultimately unsuccessful attempt to gain access to iron-ore railways owned by BHP Billiton and Rio Tinto in the Pilbara.
In a measured response to the many disparate submissions, the Draft Report is generally supportive of the current Regime. The PC recommends modifications and clarifications to key provisions rather than wholesale reform or repeal, reflecting its approach of “[confining] proposed changes to the Regime to where it considers the greatest gains can be made.”
While the PC’s recommendations don’t clearly favour either infrastructure owners or access seekers, the Draft Report represents a victory for those who would like to see a generic access regime retained with some targeted changes to better reflect the intentions of the microeconomic reform policies underlying it.
The PC has invited further written submissions in response to the Draft Report, which are due by 5 July 2013. The PC will then hold public hearings in Perth, Brisbane, Sydney and Melbourne over the course of July, before providing a final report to the Federal Government in October 2013.
In relation to the framework for declaration of services (the first stage in obtaining regulated access), the Draft Report recommends that various ‘declaration criteria’ be amended. In particular, the PC recommends that:
- The ‘promotion of competition’ criterion (criterion (a)) should be amended so that it involves an assessment of whether accessthroughdeclaration and on reasonable terms and conditions (rather than access itself, which may already be available by other means) would promote a material increase in competition in upstream or downstream markets. This arguably better reflects the original intentions of the drafters and the intentions of the Regime as a whole.
- The ‘uneconomical for anyone to duplicate’ criterion (criterion (b)) should be amended to expressly incorporate a ‘natural monopoly test’, which would involve an assessment of whether total market demand (including demand for the service itself and any substitutes) could be met at least cost by the relevant facility. In this respect, the PC departs from the High Court’s recent decision concerning the Regime’s applicability to rail infrastructure in the Pilbara, in which the Court adopted an arguably more restrictive ‘private profitability’ test (i.e. a consideration of whether anyone could profitably duplicate the relevant facility). However it recommends that ‘costs’ in this context should include co-ordination costs imposed on the facility owner (for example, additional maintenance and scheduling costs) as a result of having to accommodate multiple users.
- If, contrary to its recommendation, criterion (b) continues to be applied as a ‘private profitability’ test, the PC recommends that the definition of ‘anyone’ should exclude the facility owner. This prevents the existing facility owner resisting declaration on the basis that it could profitably duplicate the facility (even if nobody else could).
- The ‘public interest’ criterion (criterion (f)) should be broadened so that it requires affirmative consideration of whether declaration would promote the public interest (criterion (f) is currently expressed in the negative). In assessing the public interest, it recommends that regard be had to effects (both positive and negative) on investment as well as administrative and compliance costs. Query, however, whether this creates a degree of overlap with some of the other criteria and the arbitral functions of the Australian Competition and Consumer Commission (ACCC) in the event that a service is declared.
The current declaration process involves a number of steps and institutions. While the National Competition Council (NCC) and the relevant Minister are the key decision makers, review powers are vested in the Australian Competition Tribunal (Tribunal) and the Federal and High Courts. In some cases, such as the Pilbara rail case, the declaration process (including judicial review) took what many would consider to be unacceptably long time to complete.
Notwithstanding concerns around timing – often expressed in submissions to the PC’s inquiry – the PC recommends that the current process be retained. This largely reflects the fact that amendments made to the Regime in 2010 to impose time limits on the NCC’s decision making and to limit the review powers of the Tribunal, and aspects of the High Court’s decision in the Pilbara rail case, have not yet been tested. Not unreasonably, the PC considers that these changes should be given time to work before further change occurs.
However it does recommend one change. Under the current Regime, if the Minister does not publish a declaration decision within 60 days, he or she is deemed not to have declared the relevant service (even where the NCC has recommended declaration). To improve the transparency of decision making and to leave open the possibility of a judicial review of published reasons, the PC recommends that the deeming mechanism be modified so that the Minister is instead taken to have followed the NCC’s recommendation.
EXTENSIONS AND EXPANSIONS OF DECLARED INFRASTRUCTURE
The ACCC is responsible for arbitrating access disputes arising between declared service providers and access seekers. Arguably, there is some uncertainty as to whether the ACCC can, in making a determination in relation to an access dispute, require a facility owner to expand the capacity of the existing facility (rather than geographically extend it, which is clearly contemplated by the Regime).
To improve investment and regulatory certainty, the PC recommends that the Regime be amended so that capacity expansions are explicitly permitted. In doing so, the PC aligns itself with the current practice of the Tribunal.
While some may be disappointed that the Draft Report lacks any recommendations for fundamental reform of the Regime, such as proposals to weigh the Regime in favour of access seekers or to speed up the declaration process, it must be read in the context of calls from others for the repeal of the Regime in its entirety. The Draft Report represents a measured response to the submissions, which focuses on necessary change and recognises that the broader impacts of the Regime should not be measured by the problems with the Pilbara rail case alone.
Finally, while the Draft Report is a good guide to the PC’s thinking and the likely direction of future reform, it is only a step along the way. The PC will issue its final report in October 2013 and substantive legislative amendments arising from that report may not appear in the short or even medium term. The drafting of any amendments will be critical to ensuring that the PC’s underlying rationale is promoted. As the Pilbara rail case demonstrates, the courts are sometimes unpredictable and may not interpret ambiguous provisions in the way assumed by regulators or business.
Partner Thomas Jones was assisted by Senior Associate Alistair Newton and Lawyer William Daymond.