Perhaps hoping to emulate Tigerair’s 2014 success in obtaining greater leverage in commercial negotiations, Glencore lodged an application with the National Competition Council (NCC) for declaration of channel shipping services at the Port of Newcastle in May 2015. While that application was unsuccessful, infrastructure owners will be waiting with interest for the outcome of a recent appeal.
Glencore’s application followed the new lessor (a joint venture comprising Hastings Funds Management and the China Merchants Group) reportedly increasing navigation charges at the Port of Newcastle by a significant amount.
If a service is “declared” the ACCC has the power to compel access or set the terms and conditions of supply. The NCC’s draft recommendation was that the services not be declared on the basis that “criterion (a)”, one of the mandatory criteria, was not satisfied. Criterion (a) is that access (or increased access) would promote a material increase in competition in a market other than the market for the service.
On 8 January 2016, the Minister (following the NCC’s final recommendation), likewise determined that the Applicant had failed to satisfy criterion (a). The Minister stated:
The terms of access to the service provided by the Port is not a material factor in whether dependent markets will remain workably competitive in future, given that:
- All of the recognised dependent markets are at least workably competitive at present;
- Navigation charges are a negligible component of the cost faced by coal producers and will likely remain so in the future;
- The level of uncertainty coal producers face regarding navigation charges is minimal compared to other uncertainties that they already manage as part of doing business;
- The Port is heavily reliant on coal exports for its revenue and has contractual obligations to improve productivity and efficiency at the Port to keep it a major seaborne gateway, so it does not have an incentive to diminish the long-term output of the Hunter Valley coal industry; and
- There are no material concerns of vertical integration that would lead the Port to favour any participants in dependent markets.
Dissatisfied with the outcome, Glencore applied for a review of the Minister’s decision by the Australian Competition Tribunal (Tribunal), which is largely limited to a review of the material before the Minister.
Glencore’s application to the Tribunal was heard in the week commencing 3 May 2016. As expected, the parties’ arguments focussed on the proper construction of criterion (a); although the Port also argued that the Minister had erred in not deciding that declaration was contrary to the public interest (criterion (f)).
If the Federal Court decision in Sydney Airport / Virgin Blue is strictly applied by the Tribunal it will simply make a comparison is made between access to the shipping channel and no access. As some, including the Productivity Commission and the Harper Review, have suggested, this sets the bar quite low for declaration.
Not surprisingly, this was the construction advocated by Glencore. Interestingly, the NCC, which also participated in the proceedings, sought to argue that the decision by the Federal Court in the Fortescue case, which occurred after Sydney Airport, impliedly changed the construction of criterion (a) based on its view that criterion (f) effectively required a balancing of the benefits of the current level of access provided and access on reasonable terms and conditions. Whether this is accepted by the Tribunal, remains to be seen.
In any event, the decision will have significant importance for infrastructure owners, particularly ports. Endorsement of the approach taken in Sydney Airport is likely to give impetus to access seekers looking to Part IIIA to strengthen their negotiating positions. Indeed, Virgin Blue itself was sufficiently concerned to make a submission to the NCC on the point during the later stages of the declaration review.