Stewart McArthur (Corangamite, Liberal Party) Share this | Hansard source

I refer to the previous speaker, the member for Wills, and make the observation that his discussion revolved around the infrastructure of airports which historically were publicly owned and moved to the private sector. My discussion will revolve around private sector investment, where investors place their money at risk in the Pilbara region, and the quite major impact this bill will have, depending on the outcome.

However, I am very pleased to contribute to the important debate on the Trade Practices Amendment (National Access Regime) Bill 2005. The Howard government is acting to improve the workings of the national access regime arrangements instituted in part IIIA of the Trade Practices Act 1974 to provide investors and access seekers with greater confidence and certainty over the regulatory environment and to encourage investment in infrastructure. The national access regime is a complex regulatory mechanism, as most members would be aware. The challenge for government is to protect the property rights of businesses to ensure private enterprise has the incentive to invest in infrastructure while enhancing national productivity and wealth creation.

The provisions for a national access regime are intended to assist the private sector in maximising utilisation of essential publicly owned infrastructure and supporting competition. The national access regime is not intended to strengthen opportunities for a socialist state to interfere in private business affairs. In this regard governments have a responsibility to carefully consider the powers proposed to be delegated to regulators and to curb those to allow wherever possible for businesses—asset providers and access seekers—to negotiate the use of facilities on a commercial basis. This simple position is that the national access regime was proposed to allow private enterprise to compete against state government owned and regulated monopoly services. Prior to the national competition policy reforms of the 1990s, these state owned services—water, power and transport—were generally inefficient and held back Australian industry, retarded economic growth, distorted investment and hamstrung our export industries—agriculture, resource and manufacturing—making vibrant Australian business and industry less competitive in the international market.

The national access regime was not meant to undermine private businesses which had invested in privately owned and operated infrastructure. Private infrastructure owners should expect to be able to determine access arrangements commercially without undue interference from government and on a basis that is suitable to them. To illustrate this point with a contemporary example, I cite the case between Fortescue Metals Group Ltd and BHP Billiton. In this case Fortescue, a private company, is seeking legal access to the private railway infrastructure of another private company, BHP Billiton, at the company’s Mount Newman railway system located in the Pilbara region. Fortescue Metals Group has applied to the National Competition Council to have the BHP railway infrastructure declared under the Trade Practices Act and the NCC’s draft recommendations released in November 2004 supported declaration.

Declaration of the private rail infrastructure would not necessarily mean that Fortescue Metals Group, or another smaller company, would automatically gain access to the railway but it would provide ‘a legally enforceable right to negotiate access to the Mount Newman rail line’. I quote again:

A decision to declare the Mt Newman service will not automatically result in FMG gaining access.

A decision by the Minister to declare the Mt Newman service will entitle FMG to seek access either through an agreement negotiated with BHP Billiton or, in the absence of an agreement, through arbitration by the Australian Competition and Consumer Commission (ACCC). The ACCC has the power to impose access terms ...

The source of these quotes is an NCC media release, ‘draft recommendation’, 4 November 2005.

An agreement could be negotiated with BHP Billiton or, failing that, access could be arbitrated by the Australian Consumer and Competition Commission, which could impose conditions on BHP Billiton over the use of its own private infrastructure. Such an outcome would undermine the confidence in private investment. That is the key argument that I put forward in this contribution.

This bill introduces amendments to part IIIA as the government’s response to the recommendations of the Productivity Commission’s inquiry report Review of the National Access Regime, September 2001. The bill’s provisions are consistent with the findings of the Prime Minister’s Exports and Infrastructure Taskforce, which reported in May 2005. The taskforce made important findings in relation to the national access regime. The national access regime was established coming out of the national competition policy reforms recommended by the report of the Hilmer committee on national competition policy. The Hilmer report discussed the impact on national competitiveness and on business access to, and investment in, ‘essential services’ that represent ‘essential facilities’ for businesses. The report stated:

... the term ‘natural monopoly’, electricity transmission grid, telecommunication networks, rail tracks, major pipelines, ports and airports are often given as examples. Some facilities ... occupy strategic positions in an industry, and are thus ‘essential facilities’ in the sense that access to the facility is required if a business is to be able to compete effectively ...

The source of that quote is the report by the Independent Committee of Inquiry into national competition policy from 1993.

The matter of access to such facilities includes not only the matter of obtaining access to the ‘essential facility’ but also the pricing and conditions attached to the access. The Commonwealth and state and territory governments considered the Hilmer report and agreed to implement the national competition policy package of reforms. The national access regime was an important element of these reforms, allowing third parties to seek access, on reasonable terms and conditions, to the services of essential infrastructure facilities. Principles for a national access regime were established under clause 6 of the Competition Principles Agreement between the Commonwealth, states and territories, and the legislative framework was established, as I mentioned earlier, under part IIIA of the Trade Practices Act 1974.

So the philosophical question is: who has a right of access to infrastructure facilities in Australia where it is not practical or economical to duplicate the infrastructure? That is the key question I wish to address. We see these questions on the debate on Telstra with regard to who should own the Telstra network and who, under regulation, should have access to that infrastructure. There are debates concerning who owns the port facilities—the member for Wills alluded to that—and who has access to these services; who owns the free-to-air television spectrum and who has access to purchase the licences; ownership of electricity networks and the cost of accessing these networks for energy retailers; and who owns the road network and who should contribute to road maintenance and upgrade. The answer to these questions is becoming more difficult with the changing ownership arrangements following corporatisation and privatisation of what were originally government owned facilities and services and because of private-public partnerships. The national access regime has been reviewed many times since the introduction of national competition policy.

I was pleased to be a member of the House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform inquiry into the role of rail in the national transport network. The committee reported in July 1998 and the report was entitled Tracking Australia. This was a very good report which considered the effectiveness of the national access regime as it applied to utilisation of Australia’s rail infrastructure. The committee was asked to consider Rio Tinto’s iron ore rail operations for its wholly owned subsidiary, Hamersley Iron, in the Pilbara. The case is different in the Pilbara because, unlike the eastern seaboard, where we are talking about rail infrastructure built by Australian taxpayers, Rio Tinto’s rail network is independently owned and operated and has been purpose-built to support its own operations and paid for by their own shareholders. Rio Tinto explained the difference in the circumstances in its 1998 submission to the Productivity Commission’s inquiry into progress in rail reform:

Privately owned rail systems in the west were designed from the start to be fully integrated into the production systems of which they are part. This is a pattern of development quite different to that experienced earlier in the eastern States, where State governments played the major role in providing ‘common carrier^’ infrastructure services across the region and it was not open to the coal companies to develop their own rail systems. In designing policy to enhance community welfare, it is vital that these differences be recognised. Failure to do so risks very substantial damage. The reform process, as it has been experienced to date, has impacted very differently on the privately owned systems in the west and the State-owned monopolies in the east. Both sets of impacts need to be carefully considered in assessing the progress of reform and recommending measures to enhance the flow of benefits.

The committee considered the potential disruption to Rio Tinto’s highly integrated operations through third party access to the mine to port rail haulage operations and the risk to private investment in the development of infrastructure facilities. The fundamental question is: who has the right to determine access to privately owned and constructed infrastructure facilities such as the Rio Tinto iron ore rail? On this matter, the Tracking Australia report makes the following comment in paragraph 4.54:

The committee recognises the potential national benefits of granting third party access to privately owned infrastructure of economic significance, such as the Pilbara iron ore railways. However, it also recognises the enormous difficulties in providing for that access without interfering with the property rights and/or material interests of the infrastructure owner. The committee considers that, in general, the benefits to costs ratio of providing for third party access to rail infrastructure, private or public, is unlikely to be positive where that rail infrastructure forms part of a highly utilised, integrated production process (such as mining or milling).

I personally observed these operations and support that recommendation very strongly. In a briefing to parliamentarians last year, Rio Tinto argued that the company’s ability to respond to market opportunities for increased demand from China is directly related to the single user nature of its privately owned rail infrastructure. Rio Tinto’s export capacity will have expanded by 75 million tonnes per annum between 2002 and 2006, ‘adding $3.75 billion to Australia’s export earnings’. Rio Tinto have also argued:

Allowing third party access to the Pilbara infrastructure will inevitably mean that the inefficiencies of the east coast multi-user facilities will be transported to the Pilbara.

This is a sobering argument. The Productivity Commission was asked to review the national access regime and reported in September 2001, which report I mentioned earlier. The government’s response to this report underpins the amendments in this bill.

Dr Alan Moran, from the Institute of Public Affairs, made an important submission to the Productivity Commission inquiry in December 2000, and it is worth mentioning in this debate. The submission addresses the question of access to private infrastructure. It is a fairly long quote, but it should be on the public record. The IPA wrote:

Ostensibly, the Hilmer Report itself did not differentiate between private and publicly provided essential facilities. It was however aware of the harm that could be visited on private property rights generally by regulatory seizure of some of those rights. Hence ... the report understood the deleterious investment implications of regulation. Indeed, the authors said they were, ‘conscious of the need to carefully limit the circumstances in which one business is required by law to make its facilities available to another’ (p.250). The Hilmer Report returned many times to emphasise the need to avoid undermining property rights and, hence, investment incentives, (e.g. p. 256, 258). Hilmer added ‘While it is difficult to define precisely the nature of the facilities and industries likely to meet these requirements, a frequent feature is the traditional involvement of government in these industries, either as owner or extensive regulator.’

In reality the impetus for the Hilmer report was to redress the competitive restraining effects of state government owned or controlled monopolies. In Australia in the early 1990s the only “essential facilities” were those businesses which enjoyed government support or protection from competition.

This is an important element to recognise when considering the extent to which the national access regime should impact on private infrastructure.

More recently, the impact of the national access regime on Australia’s exports and infrastructure was considered by the Prime Minister’s Exports and Infrastructure Taskforce, which reported in May 2005 and which the member for Wills referred to in his speech. The taskforce was chaired by Dr Brian Fisher and its members were Max Moore-Wilton and Henry Ergas. It was a high-powered taskforce with intellectual depth and considerable experience in this area. The taskforce addressed the conflict that exists under the national access regime between the objective of promoting competition and the need for government to step out of the way of successful Australian businesses operating on the highly competitive international market. It said:

... Australia has a strong interest in the efficiency of export oriented infrastructure. However, it is important to remember that export industries operate in competitive world markets. Producers have little ability to increase price above the competitive level, as they are largely price takers ...

As a farmer, I agree with that entirely. It also said:

... the view of the taskforce is that regulation should be sparingly applied to infrastructure used by export industries.

It also said:

... third party access to a vertically integrated, tightly managed, logistics chain may promote competition, but undermine the efficiency with which that chain is operated and managed.

Currently, there is no clear mechanism allowing an ‘efficiency override’—

and I emphasise that comment—

for applications for declaration of export related facilities under Part IIIA or its associated regimes. Part IIIA lacks any authorisation mechanism, based on efficiency, that could be used to limit the scope of access. While there is a public benefit limb to the Part IIIA tests, its phrasing significantly narrows its impact. Finally, while there is an exemption provided for ‘production processes’, that term is not defined, nor is any guidance given as to the purpose and scope of the exemption.

Even if efficiency considerations were not explicitly included in Part IIIA, the taskforce believes it would be desirable to clarify the ‘production process’ exemption. More specifically, it should be made clear that the purpose of the exemption is to prevent the imposing of third party access in vertically integrated, tightly managed, logistics chains, especially those related to our export industries. This would minimise the risk that access regimes would disrupt and undermine the very areas of the economy that have performed best in the management of export related infrastructure.

That is from the May 2005 publication Australia’s export infrastructure: report to the Prime Minister by the Exports and Infrastructure Taskforce. I note that Rio Tinto, which I mentioned earlier, have strongly endorsed the implementation of the taskforce’s ‘efficiency override’ consideration into part IIIA of the Trade Practices Act. The taskforce also reported:

In our view, there should be a presumption that issues associated with export oriented infrastructure will be resolved by commercial negotiation between the infrastructure provider and users. We accept that this will often be imperfect, but it is still likely to be preferable to intrusive regulation.

Again I support that point of view. The infrastructure taskforce recommended the Council of Australian Governments simplify and streamline the regulatory process applying to export oriented infrastructure by:

... providing a presumption that issues to do with export oriented infrastructure will be resolved by commercial negotiation between the infrastructure provider and users.

I welcome the taskforce report. The infrastructure taskforce and the IPA have reflected my own views on the application of the national access regime. I apologise to members of the House for the technical nature of this bill and the explanation, but it is a very complex legal argument which does reflect a final decision in the case of BHP, Rio Tinto and those companies that have made investments of shareholders’ money in infrastructure.

The national access regime is important to allow competition to state government regulated services, to maximise the utilisation of and investment in infrastructure to support the economic prosperity of the country. By introducing the ‘efficiency override’ provision, as recommended by the Prime Minister’s infrastructure taskforce, regulators would consider the individual circumstances of each case and, where private infrastructure assets were in question, the competition objective would be offset by the need to support the efficiency of successful existing operations, such as Rio Tinto Iron Ore at Hamersley Iron in the Pilbara.

I commend the bill. I have some sympathy with the amendment put forward by the opposition and some of the points of view that I have read in the press. It is a complex issue. It is one that I have looked at quite carefully in terms of the railway access. If we have the current railway arrangements for freight in Australia where access regimes are being negotiated quite equitably on the one hand and where private sector investment in the north-west has made absolutely huge investments in rolling stock and railway track on the other hand, those investments should be protected and not overridden by some very fine legal interpretation of part IIIA of the access regime. It would be my hope that these amendments in the bill would clarify some of these very technical arguments and that investors in future could be assured that their billions of dollars of investment into infrastructure projects would not be at risk by legal interpretations of the act, both in spirit and in the legal content.

I commend the general debate on competition policy. I think both governments have done an excellent job in promoting the competition concept. I think it is part of Australia’s current prosperity that we have taken away the bottlenecks of those non-competitive activities of state governments in the last 15 years so Australia is at the forefront of those infrastructure activities which are generally undertaken by state governments and local councils in other countries. I think we lead the world. I hope that this bill will lead the world in providing clear, absolute guidelines that will protect private investors so that they can invest with confidence in the future because of these considerations. I commend the bill to the House.

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