Martin Ferguson (Batman, Australian Labor Party, Shadow Minister for Primary Industries, Resources, Forestry and Tourism) Share this | Hansard source

I rise this morning to address changes to the Trade Practices Amendment (National Access Regime) Bill 2005, which I believe are exceptionally important. The national access regime has considerable implications for Australia’s export performance. I am dismayed, because of the importance of this bill, by the short list of government speakers. Clearly, by their failure to address this bill, they have made a clear statement about their personal views about the importance of infrastructure in Australia.

I also suggest to the House that this bill is exceptionally important to my shadow ministry portfolios given the recent events involving BHP Billiton’s Mount Newman railway line and Fortescue Metals Group. However, I will firstly address more generally the purpose and impact of this national regime, commonly referred to as part IIIA of the Trade Practices Act. Obviously this is a complex, controversial and sensitive area of economic regulation. It covers infrastructure assets worth more than $50 billion and it is exceptionally important to Australia’s export performance, especially given the huge economic growth that is currently occurring in China. I would also suggest that it is exceptionally important because of the potential for huge economic growth in India, which Australia also wants to latch onto for the purposes of its own economic prosperity.

The national access regulation is still in its infancy in Australia. Access regulation attempts to address concerns about barriers to competition through essential infrastructure services with natural monopoly characteristics, and this requires government attention—that is, where it is not economically viable to duplicate the service, we have to work out a way of guaranteeing access for the purpose of maximising our export potential as a nation. Without such regulation, service providers might deny access to their services or charge monopoly prices to access them, which would be costly for the community and a disadvantage to Australia as a nation.

The introduction of an access regime arose out of an agreement by the Commonwealth and states in 1995 following the Hilmer report into national competition policy in 1993. The Productivity Commission concluded that the retention of an access regime to provide businesses with an avenue to negotiate access to such services on reasonable terms and conditions is warranted. It is in Australia’s national interest. Given the scale and importance of infrastructure investment, there are clear benefits from improving the effectiveness of this regime. The commission has described the focus of the regime as that of infrastructure services which are considered essential input to services provided in other upstream or downstream markets and which involve a natural monopoly technology. This means that it would be unlikely to be profitable or efficient for more than one firm to provide the service.

Outside the generic national access regime there are a host of industry regimes, many of which are governed by state and territory legislation. Business may access infrastructure through an undertaking by the service provider or a service can be declared by the National Competition Council. Undertakings by the service provider are registered through the Australian Competition and Consumer Commission. The NCC also assesses whether existing regimes are effective or not, and that assessment is exceptionally important. A service may be declared according to several criteria. These include: firstly, that access would promote competition in another market; secondly, that it would be uneconomic to develop a duplicate service; thirdly, the service is nationally significant; and, fourthly, the service is not already covered by an effective access regime—all very important criteria.

Under the national regime, the National Competition Council is responsible for assessing which services should be declared—that is exceptionally important. The final responsibility for the declaration of a service lies with the state premiers or the Commonwealth Treasurer. We, therefore, require cooperation between the Commonwealth, state and territory governments to make this system work in Australia’s best interests.

The Australian Competition and Consumer Commission then arbitrates on disputes over declared services. The regime—and I stress this—is not and cannot be a substitute for proper commercial negotiations in good faith. Its role is to facilitate and provide incentives for negotiation between service providers and those seeking access to the service. One of the important issues in access regulation is the potential it has to impact on private sector investment in infrastructure. It is therefore critical—and this is a challenge to the government with respect to some matters currently before the Treasurer—that such regulation does not act as a disincentive to investment. This concern is heightened at a time of national debate on deficiencies in Australia’s infrastructure. A number of members of the House have made contributions on that very issue during this debate.

I also stress that, in assessing infrastructure, the requirement of governments—be they state, territory or the Commonwealth of any political persuasion—is to make the right infrastructure decisions to determine what we need at a given point in time, rather than to willy-nilly select projects on the basis of how they might suit our own political agendas. That fault has lain with both sides of the House from time to time. We have to learn from our past mistakes, because some of our current infrastructure backlogs are related to our making political mistakes rather than our using appropriate criteria to select the right infrastructure that has to be prioritised.

That in turn takes me to the role of the Productivity Commission. I note that the Productivity Commission has come up with several proposals intended to ensure that regulation in this area does not deter private sector investment in essential services. Many of those proposals have been taken up by the government under these new amendments. These include but are not limited to: firstly, inserting an objects clause and pricing principles to guide regulators and industry—which is pretty fundamental; secondly, ensuring that access is only mandated where it promotes a substantial increase in competition—obviously, that has to be a driving force in determining these matters; and, thirdly, improving the administrative efficiency and transparency of the regulatory regime.

The opposition supports the Productivity Commission’s recommendations for the inclusion of a threshold to ensure that the regime is only applied in cases involving projects of national significance. Let us concentrate on the big issues that really have a major impact on our export performance. The commission has accordingly recommended that access declarations be granted only where the expected increase in competition in an upstream or downstream market is not trivial under criteria to promote competition.

The opposition would also support new arbitration and appeal procedures, including information disclosure requirements for both the access provider and those seeking access. Under current legislation, there is no guidance on prices for those negotiating infrastructure access with service providers. This has concerned the opposition because we have a belief that it may lead to significant uncertainty for investors. We all acknowledge the importance of certainty in attracting and facilitating private sector investment in Australia. Therefore, declaring pricing principles to regulation would have given the Treasurer the capacity to amend or withdraw them. Opening up discretion over prices in sensitive negotiations over valuable infrastructure is unlikely to foster transparency in a fraught area of economic regulation. Enshrining the principles in this bill provides the appropriate certainty for long-term investment in projects which carry significant commercial risk.

I underline the importance of this. We live in a global market and, given the importance of the resource sector at the moment, we have enough difficulties with the shortage of skilled labour in Australia being a barrier to investment to require us to go out of our way to get this system of regulation right. We have to guarantee that we have a framework in Australia that attracts investment. Once you lose investment, it is very hard to get it back over time. The resource sector is a very competitive sector, with a range of new opportunities opening up throughout the world in important areas such as iron ore.

I take the House to the Senate Economics Legislation Committee. The issues I have raised today were in evidence presented to the Senate committee of inquiry on the Trade Practices Amendment (National Access Regime) Bill 2005, which the opposition called for. In response to these concerns, the government has now caved in and agreed to more amendments to its own bill so that these pricing principles will now be included in the legislation. The opposition welcomes the introduction of pricing principles because they are about giving greater certainty to companies investing in infrastructure services.

The opposition has circulated an amendment to the pricing principles, in the name of the member for Hunter, which is different from that of the government. While the government considers regulatory risk as part of the pricing principles, the opposition believes this concept is not sufficiently precise to warrant inclusion in the formal pricing principles per se. That is important, because the question of investor certainty raised by the issue of pricing goes to the heart of the dilemma posed by this type of economic regulation.

In that context there is currently a very good example in the mining industry which illustrates the complexities of this regime and our requirement to not only get the legislation right on this occasion but also start making some important decisions about increased investment export opportunities in Australia in the foreseeable future.

I turn to the Fortescue Metals Group, which has sought and finally obtained a draft declaration from the National Competition Council to access BHP Billiton’s Mount Newman railway in north-west Australia, which is a highly efficient integrated operation. Interestingly, this is only the second application of its kind. I recall a similar application which was challenged in the Federal Court. It involved a request by Robe River to gain access to Hamersley’s iron ore rail operation. The court on that occasion found in favour of Hamersley on the basis that the rail line was part of the company’s production process; therefore, third parties should not have a right of access.

History will show that Robe River filed an appeal. But the matter was settled in 2000 before the appeal commenced because of other commercial outcomes, which effectively meant that Robe River became part of a larger mining operation and the question of access and the difficulties surrounding access disappeared. So the issue of a third party getting access to a railway line, which the Federal Court has so far determined to be a production process, remains very much open to debate to this day.

Having said that, access to infrastructure is a critical part of encouraging competition. We require competition in Australia. It is a highly competitive world in the resource sector. We have to make sure that we have a variety of operators out there doing the best they can for the purposes of selling our resource at the best possible price. We also have to balance the need to ensure that both competition and private sector infrastructure are made as easy as possible because it is a very difficult question.

BHP Billiton argues that it is already facing uncertainty, given the current case involving Fortescue. I think it is stating the obvious to say that at the moment Australia is living off a major resources boom. You have only to look at the trade figures and consider the performance of, for example, Queensland and Western Australia and the size of the state coffers with respect to the impact of the resource sector at this point.

Interestingly, BHP has foreshadowed a tripling of its iron ore exports in response to the massive demand for raw materials from China. That requires significant planning, because we are about meeting a large increase in production, and the capacity required to service it must be in place. Also, as I have indicated, it is important not just for our states and territories but for the national economy that we get this right. The extracted minerals are not the only item in demand because of this growth in export potential. What is critical to our competitive edge in this area is technology and infrastructure because it is about getting the ore to port for the purposes of shipping it overseas. The technological demands of minerals prospecting and processing are rising. One of the untold stories with respect to that is that mining services are now worth $2.3 billion a year in exports to Australia. It is not just about exporting raw products and in some instances downstream processing with respect to the aluminium industry. We as a nation are actually improving our performance, and appropriately so, on the export of mining services, and I encourage the industry to do more on this front.

We also have high hopes for streamlining mining processes and cutting costs, as evidenced, for example, by Rio Tinto’s HIsmelt technology—an example of where Australia’s future competitive strengths lie and on which we as a nation depend. Therefore, technologically efficient processes are vital to our export success. Currently, we have highly efficient export activities benefiting the private sector, investors, government and the general community. Access to infrastructure therefore must be available, but it is a question of how you handle that access. More than $2 billion was spent by BHP Billiton on its Mount Newman railway. About $100 million is spent annually maintaining what is the most advanced heavy haulage railway in the world. It is a state-of-the-art system, with sensors detecting the track’s integrity and monitoring the heat of ball bearings and the general efficiency of its operation. There is a careful sequencing of the automatic carriages so that they arrive in time for processing ahead of their loading onto the ship. If it goes wrong, it is expensive. Every breakdown costs $2 million. A derailment lasting 48 hours costs $50 million. We are not talking about small bickies.

Currently, 110 million tonnes a year of iron ore are being hauled. This will be expanded to 129 million tonnes during 2007. Given the technological investment and maintenance costs, BHP do not want third party trains being operated on their railway. But they are appropriately open to negotiating the carriage of Fortescue’s iron ore in BHP carriages—for example, an agreement on haulage that protects their seamless operations. BHP also argue that the relevant part of the Trade Practices Act, under which third parties gain access—part IIIA—was designed to promote the domestic market, not exports. This is apparently underlined by the Prime Minister’s infrastructure task force.

I am not in favour of the National Competition Council’s ruling. I think it endangers a massive investment by BHP. Having said that, I believe it is in BHP’s commercial interest to resolve this matter. Therefore, I have called for an arbitration mechanism outside the ACCC to get the parties to the table.

Haulage should be determined at an appropriate commercial price. This means it is the responsibility of the Treasurer to get it right and work out how he puts in place a process requiring BHP to negotiate in good faith to guarantee Fortescue haulage opportunities. If those negotiations fail, there have to be opportunities under part IIIA of the Trade Practices Act to try and work out how it is resolved with a third party. Alternatively, there may be an option under the state regime. But firstly the Treasurer should be saying in very blunt terms, ‘We recognise and respect your right, Fortescue, to seek haulage access.’ Then there should be a requirement for commercial negotiations between BHP Billiton and interested parties. If those do not succeed, we put in place arbitration proceedings with defined time lines.

This is not dissimilar to what has occurred on other rail tracks in Australia, such as with the Australian Rail Track Corporation. In this case, the government still owns the track, but everything above the track is up for negotiation in terms of access. It is a process to determine haulage rates based on competition and fair commercial outcomes. It is also important to keep in mind that resource developments often involve a large gap between a stated proposal to mine and eventual exports. Certainty is required. Sometimes we have seen so-called potential miners play a game for the purpose of putting pressure on a competitor to buy them out at an inflated price. The opposition does not support those games.

Fortescue has clearly said publicly that it is committed to export. It is therefore entitled to haulage access. Ultimately, there is a requirement for Fortescue and BHP Billiton to negotiate expeditiously and in good faith a commercial outcome. This means there has to be a commitment to bring the mine on sooner rather than later. Pressure needs to be applied to all parties to resolve this issue in Australia’s best interests. But however this matter is resolved—because it must be resolved—it is critical that highly efficient export operations are not jeopardised. The bottom line is that Australia must emerge from this resource boom with a proper process of competition in terms of the infrastructure in place. We cannot make the mistakes of the 1970s yet again, when we last came out of a resource boom. Therefore, the last thing we should be doing is endangering world renowned, seamless export operations. I raise these issues and commend the bill to the House. (Time expired)

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