03 Jun 2016

Infrastructure: third party access to bottleneck facilities made easier

BY Paul Burton, Michael Corrigan

The Tribunal's decision opens the door for the potential future declaration of services provided by other bottleneck facilities which offer no enforceable access rights, including other Australian ports or rail infrastructure.  

Access seekers' ability to seek the declaration of services provided by means of "bottleneck" infrastructure facilities has been made considerably easier, following a decision of the Australian Competition Tribunal.

The Tribunal, in Application by Glencore Coal Pty Ltd [2016] ACompT 6, overturned the previous decision of the Acting Treasurer to not declare the shipping channel service at the Port of Newcastle.

While the Tribunal's decision will give greater hope to access seekers such as Glencore Coal Pty Ltd, this hope may be short-lived as the Commonwealth has previously indicated its intentions to amend the National Access Regime to narrow these rights, including the provisions considered by the Tribunal in this case.

Privatisation of Port of Newcastle

In May 2014 the New South Wales State Government entered into a long-term lease of the assets of the Port of Newcastle, including the shipping channels.  Port of Newcastle Operations Pty Limited (PNO) assumed responsibility for the functions at the Port that were previously performed by the Port Authority of New South Wales. PNO's ability to charge users for use of the Port's shipping channels was not made subject to any controls (under the Ports and Maritime Administration Act 1995 NSW or otherwise).

Application for declaration      

On 13 May 2015, following a significant increase in port charges after PNO's acquisition of the Port, Glencore applied for the declaration of the shipping channel service at the Port of Newcastle under Part IIIA of the Competition and Consumer Act 2010 (Cth)[1] as a means of seeking to limit future increases in port charges.

PNO had from 1 January 2015 instituted price increases and changes to the charging regime; an average 40% price increase was imposed on the users of the shipping channels and the price for the most common vessel type using the shipping channels increased by 60%.  Before the Tribunal, Glencore also argued the potential for future price increases was inevitable.

NCC recommendation

On 2 November 2015 the National Competition Council (NCC) recommended that the port service not be declared. This was because the NCC was not satisfied that declaration of the port would promote a material increase in competition in an upstream or downstream market (criterion (a)). In short this was because even a large increase in port charges would only make a very small difference to coal prices in the downstream markets for export coal.  The Acting Treasurer, as the designated Minister, agreed and on 8 January 2016 decided not to declare the shipping channel service.

What did the Tribunal decide?

The Tribunal did agree with the Minister's factual findings that the charges imposed by PNO, including any potential future increase in those charges, would only constitute a very small component of the overall cost of delivered coal.  Therefore, removing the uncertainty about port access charges (through declaration) would not be likely to promote a material increase in competition in a dependent market. 

However, crucially, the Tribunal disagreed with the Minister's approach on how criterion (a) should be interpreted and applied.  The Tribunal concluded that the consideration of criterion (a) was, in this case, "quite straightforward".  In the case of Glencore's application, the Tribunal held that:

"the Service providing access to the shipping lanes is a natural monopoly and PNO exerts monopoly power; the Service is a necessary input for effective competition in the dependent coal export market as there is no practical and realistically commercial alternative; so access to the Service is essential to compete in the coal export market. In the circumstances … s 44H(4)(a) must have been satisfied."

The Tribunal held that criterion (a) does not involve an assessment of the future state of competition of the dependent market (without any right or ability to use the service) by reference to any pre-existing usage of the service. That is, consideration of the phrase "access (or increased access)" precludes the comparison with whatever usage or access the service provider does or will provide voluntarily or with the terms on which the service provider provides voluntarily such usage or access.

This means that the Minister is not required to consider what (if any) access is already provided to access seekers.  This approach, according to the Tribunal, is consistent with the approach previously set out by the Federal Court in Sydney Airport Corporation Ltd v Australian Competition Tribunal (2006) 155 FCR 124.

What are the implications of the Tribunal's decision?

The Tribunal's decision opens the door for the potential future declaration of services provided by other bottleneck facilities which offer no enforceable access rights, including other Australian ports or rail infrastructure. 

The decision effectively lowers the bar for access seekers if they can show that having enforceable rights of access to the relevant service will promote a material increase in competition in a dependent market compared to not having any enforceable access rights. 

So far as bottleneck infrastructure services are concerned (which port services typically are) they will quite easily meet this test, irrespective of whether the service provider already provides access to access seekers.    

However, in the long term, this decision may not have as significant an effect, for two reasons.

First, it is likely that PNO will appeal the Tribunal's decision to the Federal Court, the outcome of which is not necessarily predictable. 

Second, the Commonwealth Government has already announced its intentions to amend criterion (a) in accordance with the recommendation made by the Productivity Commission in its October 2013 Report into the National Access Regime. That amendment, if made, would require that an applicant (for declaration) must demonstrate that access to the service on reasonable terms and conditions through declaration (rather than access per se) would promote a material increase in competition in a dependent market.  

This would involve a comparison of the existing state of competition against the state of competition where access is granted on reasonable terms and conditions.  Under this test, criterion (a) would be not satisfied where there is already effective competition in dependent markets ‒ in effect reversing the outcome of the Tribunal's decision in this case. 

[1]The relevant service was described as comprising "the provision of the right to access and use the shipping channels (including berths next to the wharves as part of the channels) at the Port, by virtue of which vessels may enter a Port precinct and load and unload at relevant terminals located within the Port precinct, and then depart the Port precinct".Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.