Proposed mandatory access code for Australia's wheat export terminals

In brief

The Federal Government has released a draft mandatory port access code of conduct that would apply to all Australian bulk wheat export port terminals. If implemented, the code would replace the existing regulatory framework and the access undertakings approved by the ACCC for terminals operated by the four vertically integrated operators from 30 September 2014 onwards. The draft is open for consultation, with submissions accepted until 24 June 2014. Partner Carolyn Oddie and Senior Associate John Hedge report on the proposed code and potential implications for owners and users of Australia's wheat export terminals.

Background

Under the WEMA, vertically integrated port terminal operators with a wheat exporting business must pass an 'access test', which requires them to have an access undertaking for their port terminals approved by the ACCC.¹ As a result, terminals operated by four operators are currently subject to ACCC-approved access undertakings.

Those requirements arose from a concern about vertically integrated service providers discriminating against other bulk wheat exporters. However, the system has always been envisaged as one that might transition as the deregulation of wheat marketing continued and competition increased in both wheat marketing and the logistics supply chain.

The Productivity Commission's 2010 report² recommended the WEMA 'access test' remain until 30 September 2014, but with a transition to regulated access relying on the national access regime³ supplemented by a voluntary code of conduct for all port terminal service operators. The WEMA was amended in November 2012⁴ to allow for the abolition of the 'access test' as a condition of exporting bulk wheat on 30 September 2014, provided an approved mandatory industry code of conduct was in place.

The existing regime has been kept in the spotlight by:

• the ACCC's draft decision⁵ to approve a reduction in the regulatory obligations applied to GrainCorp's Carrington port terminal in Newcastle, principally due to the presence of competing bulk wheat export facilities at the Port of Newcastle; and
• submissions made by a number of the regulated terminal service providers in response to the Federal Government's Agricultural Competitiveness Issues Paper⁶ and comments in the media alleging that the existing regime is creating an uneven playing field by not regulating non-vertically integrated bulk wheat port facilities that were providing competition for a number of the regulated terminals.

The Code is now being proposed as a mandatory industry code that would, if approved, provide the regulatory framework for access to bulk wheat export terminals from 30 September 2014 onwards.

Application to all bulk wheat ports but only full application for 'tier one' providers

Unlike the existing framework, the Code would apply to all port terminal service providers.

However, the full Code only applies to 'tier one' port terminal service providers (that are also exporters or associated entities of an exporter). The Code will only partially apply to non-tier one terminal service providers.

The proposed minimum requirements for all port terminal service providers are obligations to:

• deal with exporters seeking to use the terminal services in good faith;
• publish on their website a daily port loading statement; and
• publish policies and procedures for managing demand for the terminal services (including in relation to the nomination and acceptance of ships to be loaded).

Exempt tier one service providers

The Code provides that a tier one service provider can apply to the ACCC for an exemption from the usual requirements for a particular port terminal facility. In making any such determination, the ACCC is to have regard to objective policy criteria to be made available on the ACCC's website. The ACCC is still developing these criteria. However, the Mandatory Port Access Code of Conduct for Grain Export Terminals Exposure Draft Consultation Paper⁷ provides a draft which indicates that the ACCC would be required to consider:

• the potential effects the capacity allocation system exemption has on upstream and downstream markets;
• the business interests of the tier one service provider;
• the public interest, including the public interest in having competition in markets;
• the interest of exporters wanting access to port terminal services; and
• the economically efficient operation of, use of, and investment in port terminal facilities.

The potential for an exemption of this type effectively seeks to preserve the flexibility that exists under the current system for the ACCC to reduce the extent of regulation required of certain terminals under the terminal operator's access undertaking (similar to the ACCC's draft decision regarding Carrington discussed above).

Requirements for tier one service providers

In addition to the minimum requirements noted above, tier one terminal service providers will also have obligations to:

• not discriminate against other exporters using the terminal (except on the basis of differences in cost);
• not engage in conduct for the purpose of preventing or hindering an exporter's access to port terminal services;
• negotiate access agreements where certain application requirements are met by an exporter and, if negotiations break down, undertake dispute resolution (ultimately ending in an arbitrated decision on the terms of access if terms cannot be agreed);
• publish standard access terms and reference prices;
• publish a port loading protocol for each terminal, including a capacity allocation system that meets specific criteria and is approved by the ACCC;
• publish expected capacity of the terminal, key performance indicators and stock information details; and
• retain relevant records for at least six years.

The next steps

The Code is currently open for consultation with submissions to the Department of Agriculture being accepted until 24 June 2014.

If, following consideration of the submissions received, the Federal Government determines to proceed with the Code it is likely to be implemented by 30 September 2014.

It will then be reviewed within two years of its operation and expire after five years unless otherwise amended.⁸