1 February 2002

Decision of Freight Australia's Application for Declaration of Rail Network Services

I have decided to accept the National Competition Council's (NCC's) recommendation not to declare the rail network services provided by Freight Australia which were the subject of an application for declaration received by the NCC on 1 May, 2001.
The Trade Practices Act 1974 (section 44H) provides that I (as the designated Minister) may declare a service of an infrastructure facility such as a rail network only if I am satisfied of all six matters specified under subsection 44H(4).
The NCC found that Freight Australia's application fails to satisfy the essential matter specified under subsection 44H(4)(a). I am satisfied that the NCC's conclusions in relation to subsection 44H(4)(a) and their consequent recommendation not to declare are soundly based.

My statement of reasons and the NCC's recommendation are available on the NCC's website (www.ncc.gov.au).

1 February 2002

Contact: Georgia-Kate Schubert, Senator Campbell's office, 02 6277 3955 or 0419 265234
http://parlsec.treasurer.gov.au
Michelle Groves, NCC, 03 9285 7476
www.ncc.gov.au

STATEMENT OF DECISION AND REASONS CONCERNING THE APPLICATION FOR DECLARATION OF RAIL NETWORK SERVICES PROVIDED BY FREIGHT AUSTRALIA

I, Senator the Hon Ian Campbell,
Parliamentary Secretary to the Treasurer, and
the designated Minister for the purposes of Part IIIA of the Trade Practices Act 1974,
make the following Decision in relation to the
application for declaration of rail network services provided by Freight Australia

 

DECISION

On 1 May, 2001, the National Competition Council (NCC) received an application from Freight Victoria Limited, trading as Freight Australia, for declaration of the services provided by the rail network it leases from the Victorian Government. The network extends through country Victoria and into southern New South Wales and is used for the purposes of transporting freight and passengers.

The NCC's Final Recommendation concerning the above mentioned application was received by the Ministerial Office on 7 December, 2001.

The Trade Practices Act 1974 (section 44H) provides that, on receiving a declaration recommendation from the NCC, I (as the designated Minister) must either declare the service or decide not to declare it.

In deciding whether to declare a service or not, I must consider, among other things, whether it would be economical for anyone to develop another facility that could provide part of the service (subsection 44H(2)). I cannot declare a service, however, unless I am satisfied of all six matters specified under subsection 44H(4).

The services under application comprise point to point rail line services provided by the use of the facilities under lease to Freight Australia. The interconnection of these rail lines provides the potential for access seekers to aggregate complementary rail line services in any viable and technically feasible configuration. This adds the dimension of a network service to the point to point rail line services.

Following consideration of the recommendation by the NCC, I am not satisfied that access (to the rail network services provided by Freight Australia and described above) pursuant to a declaration under the national regime would promote competition in at least one market; therefore, I cannot declare those services, and I decide accordingly.

RELEVANT PRINCIPLES

I cannot declare a service unless I am satisfied of all the following six matters:

(a) that access (or increased access) to the service would promote competition in at least one market (whether or not in Australia), other than the market for the service;

(b) that it would be uneconomical for anyone to develop another facility to provide the service;

(c) that the facility is of national significance, having regard to:

i) the size of the facility; or
ii) the importance of the facility to constitutional trade or commerce; or
iii) the importance of the facility to the national economy;

(d) that access to the service can be provided without undue risk to human health or safety;

(e) that access to the service is not already the subject of an effective access regime;

(f) that access (or increased access) to the service would not be contrary to the public interest.

Further, as mentioned above, section 44H(2) requires me to consider "whether it would be economical for anyone to develop another facility that could provide part of the service."

REASONS

The first essential requirement, specified in subsection 44H(4)(a), is: that access (or increased access) to the service would promote competition in at least one market (whether or not in Australia), other than the market for the service.

In the absence of a declaration under the national access regime, access to the subject rail network services will be provided by the Victorian access regime. Given the existence of the Victorian access regime, the key test is whether the access that would be provided by a declaration under the national regime would promote competition as compared with the situation where there was no declaration (such that access would be provided by the Victorian access regime).

The NCC found that Freight Australia's application fails to satisfy this essential requirement. The NCC reported: "the national regime is unlikely to constrain Freight Australia's market power more effectively than the Victorian regime. Therefore [the NCC] is not satisfied that declaration of the network services under application will improve the environment for competition in a related market, specifically the bulk freight transport market [ie, in the related market in which competition might have been promoted]."
The bulk freight transport market is the sole related market in which competition might have been promoted, given that the non-bulk-freight transport markets are already competitive. Freight Australia's ability to exercise market power in the passenger and general (non-bulk) freight transport markets is constrained by the competition provided by road transport.

In relation to the decisive issue of promotion of competition, the NCC also reported: "While the omissions of the Victorian regime (competitive neutrality issues, information provision and interface with related services not covered by the regime) are significant, the national regime contains no provisions that deal specifically with these issues."

In other words, on important issues relating to promotion of competition, the current Victorian access regime is not inferior to the national access regime.

Similarly, the Victorian regime contains provisions to assist negotiations not specifically included in the national regime, including:

  • the development of guidelines by the Victorian Office of the Regulator-General (the ORG) to determine the package and content of information available to access seekers on application;
  • the development of guidelines by the ORG on the business and financial information to be kept and the manner in which it should be maintained to allow the ORG to make its determinations; and
  • short negotiation timeframes after which disputes can be formally resolved.

The NCC considers that both the Australian Competition and Consumer Commission (ACCC) and the ORG are independent regulators/arbitrators with considerable experience and can be seen as having similar broad discretionary arbitration and independent regulatory records. (The ACCC is the national regime's appointed arbitrator while the ORG fulfils the same role in the Victorian regime. In addition, the ORG undertakes limited regulatory activities.) Therefore, with respect to independent regulators / arbitrators, the Victorian access regime is not inferior to the national access regime.

  • I agree with the NCC's conclusions in relation to subsection 44H(4)(a) and therefore I am not satisfied that the application complies with the essential declaration requirement specified in that subsection.

CONSIDERATION OF OTHER CRITERIA

Subsection 44H(4)(b) specifies that I cannot declare a service unless I am satisfied that it would be uneconomical for anyone to develop another facility to provide the service.

  • I am satisfied that it would be uneconomic (from the perspective of society as a whole) to develop a new track network to provide the service under application by Freight Australia. It would be uneconomic due to the ample capacity of the existing network and the estimated network replacement cost of $4 billion, based on an estimated railway construction cost of $1 million per kilometre multiplied by 4,000 kilometres of track.
    • Therefore, I am satisfied that the application complies with subsection 44H(4)(b).

As mentioned above, subsection 44H(2) requires me to consider whether it would be economical for anyone to develop another facility that could provide part of the service.

  • I have considered this matter and agree with the NCC's view that the combination of rail lines that forms the network under application would allow potential access seekers to offer services as can only be offered by a network, and that these same services could not be provided by single rail lines.
    • Essentially, given that is uneconomical to develop a new rail network, and only a rail network could provide even part of a rail network service, then it is also uneconomical to develop a facility to provide part of the service under application.
    • Therefore, I consider that the application complies with subsection 44H(2).

Subsection 44H(4)(c) requires that the facility be of national significance.

  • The facility would seem to be of national significance due to the central role the network plays in transporting the products of Victoria and other states.
    • Accordingly, I am satisfied that the application complies with subsection 44H(4)(c).

Subsection 44H(4)(d) requires that access to the service can be provided without undue risk to human health or safety.

  • I agree with the NCC's view that access would not undermine the level of safety established by current regulations.
    • Therefore, I am satisfied that the application complies with subsection 44H(4)(d).

Subsection 44H(4)(e) requires that access to the service is not already the subject of an effective access regime.

  • As noted above, the current Victorian access regime is no less able to promote competition than the national access regime. However, I agree with the NCC's view that the current Victorian access regime fails to satisfy all the relevant criteria in clauses 6(2)-(4) of the Competition Principles Agreement and is therefore not an effective regime for the purposes of Part IIIA of the TPA.
    • Given that this means there is no effective regime covering the services under application, I am satisfied that the application complies with subsection 44H(4)(e).

Subsection 44H(4)(f) requires that "access (or increased access) to the service would not be contrary to the public interest."

  • The NCC did not consider it necessary to "independently consider" subsection 44H(4)(f) because the application failed to comply with subsection 44H(4)(a).
    • However, although the failure of the application to comply with subsection 44H(4)(a) may not automatically cause it to fail to comply with subsection 44H(4)(f), given the existence of another access regime that is not inferior, there may be risk that the access provided under a declaration would be contrary to the public interest.

Subsection 44F(3) allows the NCC to recommend to me that the service not be declared if it thinks that the application was not made in good faith. However, the NCC considered that there were no substantive good faith issues with regard to the application.