The National Access Regime in Part IIIA of the Competition and Consumer Act 2010 (CCA) (the Regime) provides a legal framework by which third parties can obtain access to natural monopoly infrastructure in order to compete more effectively in upstream and downstream markets.

The Regime was enacted in 1995 as part of a wave of microeconomic reform and incorporated the recommendations of the Hilmer Report on national competition policy. The future role of the Regime is now being considered by the Harper Review panel (the Panel) despite a recent lengthy and detailed review by the Productivity Commission (PC) 1 .

The government's Terms of Reference asked the Panel to consider whether the Regime was achieving its stated goals. In responding, the Panel's Draft Report focuses on three issues:

  1. whether it is in the public interest to retain the Regime, having regard to its costs and benefits;
  2. whether the PC's recommended amendments to the declaration criteria should be implemented; and
  3. whether there should be broader rights of review of access declarations and arbitrations before the Australian Competition Tribunal (ACT).

It also proposes a significant change to the institutional arrangements for access regulation more generally.

Costs and benefits of the National Access Regime

While the Panel found that the Regime appears to be achieving its original policy goals, it also observed that its role in the regulation of that bottleneck infrastructure is now more limited. The Regime was originally enacted with a focus on introducing competition into electricity, gas, rail, airports, ports and telecommunications industries, all of which tended to be characterised by national monopoly infrastructure.

However, the Panel observed that currently only two services are declared under Part IIIA, the Tasmanian railway network (declared in 2007) and the Goldsworthy iron ore railway in the Pilbara (declared in 2008). It commented that the likely reason was that much of the bottleneck infrastructure in the sectors referred to above was now being regulated by industry-specific access regimes such as the National Electricity Law, the National Gas Law and the telecommunications access regime in Part XIC of the CCA.

While it is true that few services are currently declared, services in industries such as water, airports and rail have been declared in the past. Access disputes have also been notified although, admittedly, there have not been many. What a simple focus on the number of declarations is apt to ignore is the 'incentive' effects of the Regime. It is arguably the threat of more intrusive regulation that has led to settlements and in many cases, voluntary undertakings or facility specific regimes. A recent example is the commercial settlement of a dispute over terminal access between Tiger Airways (a subsidiary of Virgin Australia) and Sydney Airport in the wake of a declaration application by Tiger.

The declaration criteria

The Panel also considered the PC's recommended changes to the declaration criteria. The PC recommended that:

  • the 'uneconomical for anyone to duplicate' criterion (criterion (b)) be amended to expressly incorporate a natural monopoly test i.e. whether the total foreseeable market demand (including demand for the service itself and any substitutes) could be met at least cost by the relevant facility. The PC also recommended that the assessment of costs include an estimate of any production costs incurred by the infrastructure service provider from coordinating multiple users of its facility; or
  • if, contrary to the PC's recommendation, the test were to remain as a 'private profitability' test, criterion (b) should be amended to exclude any consideration of whether the operator of the infrastructure service was able to duplicate the facility.2

The Draft Report expressed support for retaining the 'private profitability' test, which the High Court found to be the proper construction of criterion (b) as currently drafted 3 , but agreed that the test should be amended to clarify that 'anyone' should not include the incumbent facility owner. This appeared to be on the basis that it considered the private profitability test would likely be easier to implement than the 'natural monopoly' test proposed by the PC. However detailed reasons were not given for its view.

The Panel also agreed with the PC's recommendation that criterion (f) be amended to include a positive requirement that access be in the public interest (rather than the existing formulation which simply requires that it not be contrary to the public interest) . As a result, the Panel made the following recommendations:

The declaration criteria in Part IIA should be targeted to ensure that third-party access is only mandated where it is in the public interest. To that end:

  • criterion (a) should require that access on reasonable terms and conditions through declaration promote a material increase in competition in a dependent market;
  • criterion (b) should require that it be uneconomical for anyone (other than the service provider) to develop another facility to provide the service; and
  • criterion (f) should require that access on reasonable terms and conditions through declaration promote the public interest.

Review of access decisions by the Australian Competition Tribunal

Finally, the Panel considered whether there should be broader rights of review of access declarations and concluded that the ACT should have the power to undertake full merits reviews, including hearing directly from employees of the businesses concerned and relevant experts where that would assist. It said however, that 'suitable statutory time limits' should be maintained without explaining how this might occur.

The Panel's recommendations would likely involve a repeal or modification of the current limitations on merits review which were introduced in 2010 to speed up the declaration process. As the High Court observed in Pilbara Infrastructure 4 , these provisions have not yet been tested in practice. Query then whether it is therefore premature to amend them, particularly in circumstances where they were designed to make the process more efficient and user-friendly.

Additionally, as noted below, the Panel has recommended combining the roles of the National Competition Council (NCC) and the ACCC under the Regime in the proposed national access and pricing regulator.

A new regulator for access?

Economic regulation of bottleneck infrastructure is currently undertaken by the ACCC, the NCC and by state and territory regulators.

The ACCC regulates access and pricing of infrastructure services such as telecommunications, energy (through the Australian Energy Regulator (AER) which is a part of the ACCC) and bulk water. It also monitors pricing in other industries. In addition to the ACCC and the AER, Australia has 9 other competitionrelated regulators. The Draft Report commented that "Australia's seven water regulators serve a population 23 million, while, by comparison, the UK's single water regulator (OFWAT) serves more than 60 million people". It also noted concerns that the multiplicity of regulators had resulted in fragmented regulatory oversight and additional costs.

As a result, the Draft Report recommends the creation of a separate national access and pricing regulator to oversee all industries currently regulated by the Commonwealth. Benefits of a single national independent agency are said to include:

  • the ability for the single agency to acquire of a broad range of expertise across a range of industries;
  • a reduction in risk of capture (i.e. the agency losing its independence from the regulated industry);
  • a reduction in regulatory costs due to the removal of multiple regulators and frameworks; and
  • an increase in regulatory consistency.

Unsurprisingly, the ACCC has not been convinced. In the ACCC's initial comments on the Harper Review, ACCC Chairman Rod Sims stated that "the recommendation raises questions about the benefits of having narrowly focussed decision makers, dealing with overlap, as well as the loss of the current synergies and scale economies". 5

If the Panel's recommendation were implemented, the new regulator would assume the following functions currently undertaken by the ACCC and the NCC:

  • the exercise of powers under the Regime (including declarations);
  • functions undertaken by the AER under the National Electricity Law and the National Gas Law;
  • telecommunications access and pricing functions of the ACCC; and
  • price regulation under the Water Act 2007 (Cth).

It remains to be seen whether such a significant reform will gain the necessary political support.

Footnotes

1 See Corrs in Brief Is the Access Regime Worth Keeping? The Productivity Commission says "Yes"(19 February 2014) ( http://www. corrs.com.au/publications/corrs-in-brief/is-the-access-regime-worth-keeping-the-productivity-commission-says-yes/)
2 See Corrs in Brief Is the Access Regime Worth Keeping? The Productivity Commission says "Yes"(19 February 2014) ( http://www.corrs. com.au/publications/corrs-in-brief/is-the-access-regime-worth-keeping-the-productivity-commission-says-yes/)
3 Pilbara Infrastructure Pty Ltd and Anor v Australian Competition Tribunal and Ors (M155/2011, M156/2011 and M157/2011) [2012] HCA 36
4 Pilbara Infrastructure Pty Ltd and Anor v Australian Competition Tribunal and Ors (M155/2011, M156/2011 and M157/2011) [2012] HCA 36
5 http://www.accc.gov.au/media-release/accc-initial-comments-on-harper-review

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