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Focus: Access regulation application sinks at the Newcastle shipping channel

29 January 2016

In brief: The acting Federal Treasurer has made a determination under Australia's national access regime to not declare access to the Newcastle shipping channel. The decision is a reminder of the limits of the national access regime in challenging the pricing of infrastructure owners. Partner John Hedge (view CV) and Lawyer Jessica Rusten consider the implications for the future application of the national access regime to other infrastructure facilities in light of this decision.

How does it affect you?

  • For coal producers using the Port of Newcastle, it is apparent that the national access regime is unlikely to provide an avenue for challenging the pricing for use of the shipping channel services in the foreseeable future.
  • The decision will provide greater comfort regarding the risks of future regulation of infrastructure monopoly assets to:
    • governments seeking to privatise natural monopoly infrastructure assets in the absence of regulation;
    • bidders for those assets; and
    • other owners or developers of unregulated monopoly infrastructure.
  •  Both of these outcomes could be reversed subject to a successful appeal to the Australian Competition Tribunal or future legislative changes amending the access regime.

The context

The decision occurred in the context of the new owner of the facility, following privatisation, implementing price increases for use of the shipping channel. This triggered an attempt to seek declaration by a coal producer.

These proceedings were somewhat novel as they sought declaration principally to enliven the Australian Competition and Consumer Commission's powers to arbitrate access disputes (including in relation to price) regarding a declared service as a way to challenge the price increases. This differed from most previous declaration applications under the national access regime, where applicants were seeking to overcome refusals to provide access to a monopoly infrastructure asset.

Prices rises alone are insufficient – the need to promote competition

An infrastructure service can only be declared under the national access regime if each of five mandatory declaration criteria are satisfied.1

For this decision, the key issue was whether 'criterion (a)', that 'access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service', would be satisfied.

All other access criterion (specifically, the channel being uneconomic to duplicate and of national significance, the service not already being subject to a certified effective access regime, and access to the service not being contrary to the public interest)2 were found to be satisfied by both the acting Treasurer and the National Competition Council (the NCC).

The acting Treasurer (consistent with the NCC's recommendation) was not satisfied that any anticipated improvement in access (resulting from 'reasonable prices' subsequent to declaration) would produce a material increase in competition in at least one other market (compared to the likely state of the market without declaration). That conclusion was principally based on the cost of the services representing only a small component of the overall cost of production and sales price for coal. As such, even substantial increases in charges were not considered to have material consequences on decisions that would impact on competition in any affected market (such as whether to close or develop a coal mine).

Each of the related markets were found to be workably competitive. While evidence was provided in respect of the alleged material impact that the increased charges would have on the financing of coal projects in the Hunter Valley, the acting Treasurer and the NCC rejected that there was a separate market for the financing of coal projects in the Hunter Valley (as distinct from broader Australian or international financing markets).

Key lessons

The key lesson is that the national access regime is designed to overcome bottlenecks or foreclosure strategies made possible by monopoly infrastructure, not provide an avenue for price regulation of all monopoly infrastructure. Consequently, it will not always provide a solution for alleged excessive or monopoly pricing.

The recommendation of the NCC (which is entirely consistent with the decision made by the acting Treasurer) made it clear that Part IIIA of the Competition and Consumer Act 2010 (Cth) will not assist in circumstances where price increases in one market merely transfer income or value from one party in a supply chain to another without materially impacting competition in another market.

Theoretically, there will always be a point at which price increases for an infrastructure service would reach a magnitude where they would be sufficiently material to impact on competition in upstream or downstream markets – but that will be difficult to establish in advance of that point actually being reached.

it is worth noting that the Federal Government's response to the recommendations of the Productivity Commission would not alter the outcome of this decision, as although a particular interpretation of criterion (a) was recommended, that interpretation is consistent with that applied by the acting Treasurer and the NCC.3

Of course, the decision will not make all monopoly infrastructure immune from future access regulation as:

  • criterion (a) in the national access regime is more likely to be satisfied where there is vertical integration involved (so there is likely to be a clearer impact on an upstream or downstream market); and
  • access regulation can also be implemented by state and territory legislation, or conditions of contracts or approvals with government, which do not necessarily require meeting equivalent criteria.
Footnotes
  1. Section 44H(4) Competition and Consumer Act 2010 (Cth).
  2. Section 44H(4)(b), (c), (e) and (f) Competition and Consumer Act 2010 (Cth).
  3. Government Response to the Productivity Commission and Competition Policy Review Recommendations on the National Access Regime (2015).

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