Glencore's Newcastle success opens the channel for further access regulation

In brief

Glencore has succeeded in its bid to have the access to the Newcastle shipping channel declared under Australia's national access regime. The Australian Competition Tribunal's decision reversed the acting Treasurer's decision and has settled (for now) the uncertainty about the interpretation of the critical 'promotion of competition' criterion for declaration. Partner John Hedge and Lawyer Jessica Rusten consider the implications of this decision for the future application of access regimes to other infrastructure facilities.

The context

The decision occurred in the context of the new owner of the facility, following privatisation, implementing price increases for use of the shipping channel. The price rises were significant (between 40 to 60 per cent for some vessel types). Although access was being provided to coal producers, Glencore sought declaration under the national access regime principally to enliven the Australian Competition and Consumer Commission's powers to arbitrate access disputes regarding a declared service (including in relation to price) as a way to challenge the price increases.

An infrastructure service can only be declared under the national access regime if each of five mandatory declaration criteria are satisfied.¹ As we previously reported, the acting Treasurer had refused declaration on the basis of not being satisfied that 'access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service' (known as criterion (a)).

All other access criterion were found to be satisfied.²

The Australian Competition Tribunal's role was to conduct a merits review of the acting Treasurer's decision,³ with two criteria being in issue – whether access would result in a material promotion of competition and whether access was not contrary to the public interest.

Interpreting the 'promotion of competition' criterion

The Tribunal determined that criterion (a) was satisfied because, adopting the reasoning of the Full Federal Court in Sydney Airport Corporation v Australian Competition Tribunal⁴, whether access would promote a material increase in competition is assessed by comparing:

• the future state of competition in the dependent market with a right or ability to use service; and
• the future state of competition in the dependent market without any right or ability or with a restricted right or ability to use the service.

In other words, the criterion was interpreted as requiring a comparison of the relevant markets assuming future regulated access to the channel versus the same markets with no access to the channel (even if access was being provided, as it was in these proceedings, and in the Sydney Airport proceedings).

Once that interpretation was adopted, it was clear that criterion (a) would be satisfied as, where no access to the shipping channel was provided, the Hunter Valley coal export market would in effect cease to operate (such that access would necessarily materially promote competition in that market and other dependent markets).

That interpretation is in stark contrast to that adopted by the acting Treasurer and National Competition Council which considered the appropriate test was a comparison of access post-regulation with the existing level of access being provided (and led to a finding that declaration should be refused as access was being provided and the price rises were not sufficiently large, in the context of the whole of coal supply chain costs, to be found to have material consequences for competition in the dependent markets).

Consideration of the 'not contrary to the public interest' criterion

The channel owner argued that the Minister should not have been satisfied that access was not contrary to the public interest, particularly given the existing state-based price monitoring regulatory regime and contractual arrangements with the state.

However, the Tribunal noted the High Court's comments in Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal⁵ that the Tribunal should:

• not lightly depart from a Ministerial decision on whether access was not contrary to the public interest; and
• avoiding doing so on the basis of a balancing of costs and benefits except in the clearest of cases.

In this context, the Tribunal indicated that the price monitoring regime was not an effective substitute for access regulation and it was not convinced that any public detriment had been demonstrated. Similarly, while it was acknowledged the channel owner may be subject to costs of a future access dispute, those costs were described as not being of overall significance.

Key lessons

The key lesson is that the national access regime has now re-emerged as an avenue for challenging excessive or monopoly pricing for bottleneck or natural monopoly infrastructure even where:

• there has been no refusal of access; and
• the price rises themselves were not sufficiently large to be found to have material consequences on decisions that would impact on competition in any affected market.

That will clearly have consequences for future privatisations of monopoly infrastructure, where the prospects of future regulation will be an important issue for governments, bidders, and users of the relevant infrastructure. It may in fact lead to states having a greater incentive to have future privatisation occur in connection with regulation under a certified state-based access regime.

The interpretations adopted are also relevant to the future prospects of regulation of gas pipelines as the 'coverage criteria' in the National Gas mirror those in the national access regime. Similarly, it may also impact infrastructure which may be subject to other state based regimes which utilise the same criteria.⁶ 

Where to from here?

This is unlikely to be the last word on criterion (a). Most immediately, the shipping channel owner may seek a judicial review of the Tribunal's interpretation of the criterion (a).

Even if that does not occur, the Federal Government's response to the recommendations of the Productivity Commission inquiry concerning the national access regime and the Harper Review, included a 'clarification' of the operation of criterion (a),⁷ which would appear to be inconsistent with this decision and revert criterion (a) back to a test of comparing regulated access to the extent of access actually being provided.

It will be interesting to see how this decision impacts on the Australian Competition and Consumer Commission's push for reforms to widen the scope of regulation under Part IIIA and the National Gas Laws. The ACCC's concerns about the scope of regulation (as ventilated in the recent East Coast Gas Market Inquiry report) largely relate to the perceived shortcomings of criterion (a), which this outcome arguably addresses.

Allens' Competition team will keep you updated as these proceedings and legislative reforms develop.