The document discusses access to essential infrastructure in Australia. It provides an overview of the national access regime, which establishes a negotiate-arbitrate model for third parties to gain access to declared infrastructure facilities. A case study on rail access in the Pilbara region of Western Australia involved extensive litigation between mining companies seeking access and infrastructure owners. The national access regime aims to promote competition while preventing unnecessary duplication of infrastructure.
Telecoms spectrum licensing - regulation of radiofrequency spectrum
National Access Regime: Analysis and Future Expectations
1. FINANCIAL INSTITUTIONS
ENERGY
INFRASTRUCTURE, MINING AND COMMODITIES
TRANSPORT
TECHNOLOGY AND INNOVATION
Analysis of the National Access Regime:
PHARMACEUTICALS AND LIFE SCIENCES
What can we expect in the future ?
Dr Martyn Taylor
Partner, Norton Rose
March 2013
2. Overview
1. The National Access Regime
2. Case study: Pilbara access dispute
Dr Martyn Taylor
Partner
3. The Productivity Commission review +61 2 9330 8056
martyn.taylor@nortonrose.com
4. What can we expect for the future?
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4. What is the policy mischief ? Essential facility Affected market
Airport Aviation
Port Shipping
Gas pipeline Gas supply
Telecom network Communications
Railway line Rail carriage
• Access to certain infrastructure may be essential to competition (e.g., access to an
airport is essential to compete as an airline).
• The cost structure of the industry may prevent a competitor duplicating the facility (e.g.,
a so-called ‘natural monopoly’)
• The owner of that infrastructure therefore controls a unique “bottleneck” or an “essential
facility” and can use that position of control to the owner’s commercial advantage:
– The owner may artificially reduce access and raise prices to increase profits.
– If the owner is competing in downstream markets, the owner may discriminate
against downstream competitors by giving them less favourable access.
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5. How does competition law address this mischief ?
• The Competition and Consumer Act 2010 (Cth) contains a generic prohibition against the
misuse of market power in section 46:
• a firm that has a substantial degree of market power
• must not take advantage of that market power
• for the purpose of harming competitors or deterring
competitive conduct
• In theory, a refusal to provide reasonable access to an
essential facility may contravene section 46….
…but, in practice, section 46 is notoriously difficult to apply.
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6. The problems with relying on section 46 alone…
1. Litigation is costly and may create a barrier to entry.
2. Litigation does not normally enable access to be
achieved quickly, even with injunctions.
3. The outcome of litigation can be indeterminate,
involving a significant risk.
4. Market definition is inherently imprecise.
5. The law in relation to ‘taking advantage’ is uncertain.
The five most recent High Court cases have each
been inconsistent in material respects.
6. Establishing ‘purpose’ normally requires inferences to
be drawn from circumstantial evidence.
7. Decisions are usually confined to a particular factual
pattern existing at a particular point in time in relation
to particular players, products and actions.
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7. Hilmer’s solution… the National Access Regime
Professor Fred Hilmer
Negotiation remains the preferred means to determine terms of access to infrastructure, but...
• If the infrastructure can be economically duplicated, the owner has an incentive to provide
reasonable access (or the access seeker will build its own facility), so negotiation should work.
• If the infrastructure cannot be economically duplicated, then a ‘bottleneck’ exists and the
absence of competition may lead the owner to impose unreasonable terms.
• In the latter scenario, rather than relying on section 46, a regime should be created to allow
access seekers to obtain access to essential national infrastructure on reasonable terms.
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8. National Access Regime is contained in Part IIIA
Part IIIA of the Competition and Consumer Act 2010 (Cth):
• The regime is intended to enable ‘access seekers’ to obtain access to essential national
infrastructure facilities on reasonable terms and prices.
• First, the infrastructure is screened to determine whether regulation should be applied.
• Second, if regulation is applied, an access seeker may request access to that
infrastructure under a negotiate-arbitrate regime. (If reasonable terms of access cannot
be negotiated, the ACCC may arbitrate those terms and issue binding determinations).
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9. Stage 1 - Declaration
Screening process for determining whether
infrastructure should be regulated:
• Any person may apply to the National
Competition Council (NCC) and request the
‘declaration’ of a service provided via a facility.
• The NCC will engage in a public consultation
process to determine whether or not certain
statutory criteria are met.
• If the statutory criteria are met, the NCC must
recommend to the relevant Minister in favour
of regulation via ‘declaration’.
• The NCC must prepare a report to the relevant
Minister which sets out that recommendation.
• The Minister has limited discretion and must
declare the service if the criteria are met.
• The Minister’s decision is subject to appeal,
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10. Facility Service Declared?
What can be declared ? Jet fuel line at Airport fuel No
airport supply
Various Rail carriage Yes
railway lines services
A service provided by means of a facility…
Dam and Water storage No
pipelines and carriage
What is a “facility”? Sewage Sewage Yes
reticulation carriage
• Case law: “a physical asset (or set of Runways at Use if airport Yes
assets) essential for service provision” airport runways
Electricity Electricity Withdrawn
network carriage
Airport freight Airport cargo Yes
aprons services
Gas network Gas carriage Withdrawn
services
Computer Payroll No
system service
Cane tram Carriage via No
network tram
Space at Space for No
airport cargo terminal
Rail cargo Rail No
facilities marshalling
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11. The five criteria for declaration
NCC must consider whether:
• Access will promote competition
in at least one other market
• Uneconomical to replicate the
facility
• Facility is of national significance
• Access is not already subject to
an effective access regime
• Access is not contrary to the
public interest
National Access Regime only applies
in limited circumstances, including that
the infrastructure must be nationally
significant and access must promote
competition
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12. Example – access to a natural gas pipeline
Upstream markets Downstream markets
Gas exploration Gas supply
Exploration Reticulation
tenements network
Non-gas markets
Gas production supplied by users
of gas
Inputs into gas Inputs into gas
production
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supply
13. Ministerial decision
• The National Competition Council makes a recommendation to
the relevant Minister.
• The Minister must decide whether or not to declare the service.
• The High Court has held that the Minister has no residual
discretion not to declare the service if the declaration criteria are
met (i.e., the Minister must declare the service if the declaration
criteria are met).
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14. What has been declared to date ?
Railway services:
• Use of rail tracks and associated infrastructure on certain
segments of the Tasmanian rail network.
• Goldsworthy Railway track access service in Pilbara region.
Airport services:
• The use of runways, taxiways, parking aprons and other
associated facilities (airside services) at Sydney Airport.
• Use of freight aprons and hard stands to load and unload
international aircraft at Sydney International Airport and
Melbourne International Airport.
Wastewater services:
• Transportation of sewage and connection of new sewers in
various locations in Sydney.
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15. Voluntary access undertakings prevent declaration
• Access providers may voluntarily
submit an “access undertaking” to the
ACCC, before a service is declared.
• An access undertaking sets out the
terms (including price) on which access
will be provided (i.e., an offer to supply
the service on pre-determined terms).
• If the undertaking is accepted by the
ACCC, the service cannot be declared.
• Access undertakings do provide a means to obtain regulatory certainty.
• For example, NBN Co has submitted a 30 year access undertaking to provide investment
certainty for its deployment of the $35 billion National Broadband Network (albeit under the
analogous telecoms access regime in Part XIC of the Competition and Consumer Act).
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16. Effective access regimes also prevent declaration
• State and Territory governments
may create bespoke access
regimes for infrastructure services
provided in their regions.
• The relevant Government can then
apply to National Competition
Council (NCC) to have the regime
certified as “effective”.
• The NCC recommends to the
Federal Treasurer.
• If the access regime is certified as
“effective” by the Treasurer, the
services cannot be declared under
the National Access Regime.
Ports access
Electricity networks (SA)
(WA) Water Access
Dalrymple Bay (NSW)
Rail access Queensland Rail
Coal Terminal Rail access
(SA) Network
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20. How does the ACCC arbitrate a dispute?
• ACCC expects parties to attempt
to resolve the dispute before
seeking arbitration.
• ACCC will seek to identify the
fundamental issues in dispute (i.e.,
not just price, may be particular
issues in the pricing methodology).
• ACCC may sequence issues in the
dispute to encourage commercial
settlement (e.g., resolve pricing
methodology, before price).
• ACCC may seek to facilitate
commercial negotiation and
settlement where practicable.
• Otherwise, the ACCC applies the
statutory criteria…
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21. What has been arbitrated by the ACCC to date?
• Only one arbitration under Part IIIA has been conducted to conclusion.
• Services Sydney sought access to Sydney Water’s sewage reticulation network.
• 8 month arbitration process, preceded by some 8 years of negotiations for access.
• Once pricing methodology was determined, parties commercially agreed prices.
• The only other arbitration under Part IIIA was commercially settled.
• Virgin Blue disputed the price of access to Sydney Airport,
alleging a ‘per passenger’ pricing methodology was
discriminatory vis a vis ‘maximum take off weight’.
• Qantas joined the dispute as a party.
• Sydney Airport settled the dispute by agreeing to continue
with a ‘maximum take off weight’ pricing methodology.
• But 182 arbitrations under the telecoms access regime in Part XIC !!
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23. The protagonists…
• Fortescue Mining Group (FMG) has the largest holding of
mining tenements in the Pilbara region, rich in iron ore.
• FMG wished to develop a substantial iron ore deposit,
known as ‘Cloud Break’, via several open pit mines.
• The iron ore to be extracted had a value of some $20
billion, assuming the iron ore could be transported to Port
Hedland (or another port) for export to China.
• Rather than spending $2.5 billion constructing its own railway, FMG sought access
to parts of the existing private railways of BHP Billiton (BHP) and Rio Tinto (Rio).
• Once it was clear that neither BHP nor Rio would provide access, FMG applied to
the NCC for parts of four private railways in the Pilbara region to be declared:
• Hammersley & Robe, as used by Rio Tinto to connect to Port Dampier
• Goldsworthy & Mt Newman, as used by BHP to connect to Port Hedland
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24. The importance of rail access to Fortescue
PORT HEDLAND
• [ ]
PORT DAMPIER
• [ ]
CLOUD
BREAK
MINE
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26. Round 1… the initial jurisdictional skirmish
• In Part IIIA, a ‘service’ is defined to exclude
the use of a production process.
• BHP claimed that its railways were part of a
fully integrated ‘mine-to-port’ production
process in the Pilbara.
• BHP claimed that the NCC did not have
jurisdiction to make a recommendation as the
‘service’ would involve the use of BHP’s
production process.
• The NCC determined it had jurisdiction, leading to a series of appeals through the courts
to the High Court level.
• The High Court held that FMG was seeking to use a facility that was used by BHP for its
production process (i.e., the rail track). FMG was not seeking to use BHP’s production
process itself (i.e., the rolling stock on that rail track).
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27. Round 2… challenging the Minister’s declaration
• The NCC recommended to the Commonwealth Treasurer that the Goldsworthy,
Hamersley, Robe and Mt Newman lines should all be declared.
• The Treasurer declared rail access to each of the Goldsworthy, Hamersley and Robe
railway lines for 20 years. He did not make a decision for the Mt Newman line within the
prescribed period, so that railway was deemed not declared.
• All three parties appealed the Minister’s decision to the Australian Competition Tribunal,
which conducted a de novo hearing and replaced the Minister’s decision with its own:
Railway Minister’s decision Appellant Tribunal decision
Goldsworthy 20 year declaration BHP 20 year declaration
Hammersley 20 year declaration Rio Not declared
Robe 20 year declaration Rio 10 year declaration
Mt Newman Deemed not declared Fortescue Not declared
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28. Round 3… back to the Full Federal Court
• Fortescue and Rio both appealed to the Full Federal Court.
Railway Minister’s Appellant Tribunal Appellant FFC Appellant
decision decision decision
Goldsworthy 20 year BHP 20 year
declaration declaration
Hammersley 20 year Rio Not declared Fortescue Not declared Fortescue
declaration
Robe 20 year Rio 10 year Rio Not declared Fortescue
declaration declaration
Mt Newman Deemed not Fortescue Not declared
declared
• The Full Federal Court determined that the two Rio railways subject to appeal (i.e.,
Hammersley and Robe) should not be declared.
• Fortescue then further appealed to the High Court…
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29. Round 4… and back to the High Court
• The High Court surprised everyone by holding that the Tribunal had exceeded its
statutory powers by conducting a de novo hearing. Accordingly, the High Court remitted
the matter back to the Tribunal for a re-hearing…
Other key conclusions:
• ‘Uneconomical to duplicate’ is construed to mean that ‘there is not anyone for whom it
would be profitable to develop another facility’ (i.e., a ‘private profitability test’).
• The Tribunal should not lightly depart from the Minister’s conclusion as to whether
access would be in the public interest.
• If the declaration criteria are satisfied, the Minister has no residual discretion and must
declare the service.
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30. The Tribunal’s reconsideration
• FMG and Rio’s applications were remitted
to the Tribunal. Railway Final result
Goldsworthy (BHP) 20 year declaration
• The Tribunal re-decided these applications
in December 2012 and published its Hammersley (Rio) Not declared
decision in February 2013.
Robe (Rio) Not declared
• The Tribunal indicated it had no power to
Mt Newman (BHP) Not declared
seek further information in order to apply
the ‘private profitability’ test, given it was
limited to the material before the Minister.
• Accordingly, the Tribunal determined that Private profitability test:
there was not sufficient material before it to
establish that it would be uneconomical for Applicant for declaration must establish
anyone to develop an alternative facility to that it is not privately profitable for
provide the relevant services. anyone to develop an alternative facility
to provide the service.
• On these grounds, it set aside the
Minister’s declarations in respect of the
Robe and Hamersley lines on the basis that
criterion (b) had not been satisfied.
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31. A huge waste of time and money?
• It has taken some 9 years to resolve the declaration stage
of access, including two High Court decisions.
• Fortescue ultimately decided to spend $2.5 billion and
constructed its own private railway line.
• The Tribunal’s de novo re-hearing of the Minister’s decision
was, in effect, disregarded, notwithstanding…
• The hearing occupied 42 sitting days.
• The parties filed 130 affidavits from 73 witnesses. Expert witnesses included
bankers, computer simulation experts, economists, engineers, environmental
scientists, geologists, metallurgists, quantity surveyors, rail modellers and train
schedulers, among others.
• This material took up approximately 70 large lever arch files.
• The transcript of the hearing runs for over 3300 pages.
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32. Implications of the High Court’s decision
1. Private profitability test – the decision raises the threshold
for declaration. There must be no-one who can profitably
duplicate the facility.
2. Practical, commercial test – the courts prefer a more
practical and commercial approach. An analysis of
investment considerations will be important in future access
matters.
3. No residual discretion – the Minister is required to declare
the service if the declaration criteria are met.
4. The role of the Tribunal – when reviewing the Minister’s
decision, the Tribunal is not permitted to receive additional
evidence.
5. Public interest – the Tribunal should be slow to depart from
the Minister’s decision in relation to public interest factors.
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34. Terms of reference David Bradbury, MP
Assistant Treasurer
1. Examine the rationale, role and objectives of the Regime,
and Australia's overall framework of access regulation.
2. Assess the performance of the Regime in meeting its
rationale and objectives.
Part of the motivation
3. Report on whether the implementation of the Regime for the review was the
adequately ensures that its economic efficiency objectives significant time and
are met. expense involved in
the application of the
4. Provide advice on ways to improve processes and National Access
decisions for facilitating third party access to essential Regime, as
infrastructure. evidenced by the
Pilbara proceedings.
5. Review the effectiveness of the reforms outlined in CIRA,
and the actions and reforms undertaken by governments in
giving effect to CIRA.
6. Comment on other relevant policy measures which would
help ensure effective and responsive delivery of
infrastructure services.
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35. Key issues under consideration Patricia Scott
Commissioner
• Do we still need a National Access Regime and, if so, what should be its
future role ?
• Is the scope of the Regime commensurate with the policy mischief ?
• Should the declaration criteria be amended or refined ?
• Should the private profitability test remain, or should it be replaced by a
net social benefit or a natural monopoly test ?
• How can the certification process for State-based access regimes be
improved ?
• How should the arbitration regime be improved to enable the timely
resolution of disputes ?
• How should the National Access Regime be amended or refined to assist
its effective application ?
• Are the current institutions, such as the NCC and Tribunal, appropriate ?
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36. Submissions to date (36)
ACCC’s view: NCC’s view:
• Retain Part IIIA. The High Court’s guidance • Retain Part IIIA. Net social benefit test,
on the Tribunal’s role corrects many issues. not private profitability.
• Net social benefit test, not private profitability. • Tribunal’s role is superfluous.
Law Council’s view: Treasury’s view
• Retain Part IIIA. Clarify the declaration • Retail Part IIIA. Net social benefit test,
criteria. The public interest test should be not private profitability
more objective and less political.
• The High Court’s guidance assists, but there
are too many institutional decision-makers.
Business Council’s view:
• Retain Part IIIA, but reduce the investment
risks and high transaction costs.
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37. Timeframe for recommendations to Government
Time frame Deliverable
October 2012 Terms of Reference released by
Government
November 2012 Issues Paper released by Productivity
Commission
February 2013 Public submissions due to Productivity
Commission
May 2013 Draft report released by Productivity
Commission
July 2013 Public hearings before Productivity
Commission
October 2013 Report to Government by Productivity
Commission
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38. Most likely outcomes and recommendations
• Part IIIA will be retained. It serves an important role.
• The Part IIIA process may be streamlined, possibly by
consolidating institutions – such as the NCC and Tribunal.
• The private profitability test may be replaced by a net social benefit
test or similar.
• The objectives of the National Access Regime may be tweaked.
• The public benefit test may contain more objective criteria.
• Refinements may be made to the arbitration regime to reflect the
experience from telecoms access disputes.
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40. What is likely to occur within 5 years ?
• Likely to see further development of State-based access regimes,
particularly in relation to critical infrastructure such as ports and rail.
• National Access Regime may be applied more frequently, once it has
been refined and streamlined. However, this will only occur if the private
profitability test is replaced with a net social benefit test.
• Extensive litigation in the nature of the Pilbara proceedings is unlikely to
be repeated. However, Part IIIA issues are likely to continue to be litigated
given the significant sums of money at stake.
• Key infrastructure to watch:
airports water supply
ports sewage
railways electronic systems
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41. Hilmer revisited – national competition policy
Interesting thought: August 2013 will be the 20th anniversary of the Hilmer
Report. Perhaps we should have another Inquiry into National Competition Policy
in Australia, essentially to update the Hilmer recommendations ?
• Refining the competition policy settings for Australia in the 21st
century and continuing the current momentum.
• Progressing the competition reform agenda of the Council of
Australian Governments (COAG).
• Building on current Government policy initiatives towards less
regulation and more effective ‘best practice’ regulation.
• Harmonising state-based sectoral access regimes.
• Identifying specific sectors deserving of access regimes.
• Undertaking a general stock take on competition law – and
perhaps pruning some anachronistic aspects.
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43. Our international practice
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