Presumably the report will be borne in mind by policymakers involved in the 'root & branch' review of competition policy announced last year and noted here.
The report notes that
The Regime is a regulatory framework that provides an avenue for firms to access certain ‘essential’ infrastructure services owned and operated by others, when commercial negotiations on access are unsuccessful. The Regime is intended to promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets.
The Regime was introduced in 1995 as a key part of the National Competition Policy (NCP), which brought in broad-ranging reforms to enhance productivity and growth in the Australian economy. The regulatory provisions of the Regime are contained in Part IIIA of the CCA and clause 6 of the CPA, which was signed by the Commonwealth and States and Territories in April 1995 to underpin the NCP.
In 2001, the Commission conducted an inquiry into the operation of the Regime. The Commission supported continuation of the Regime and made a number of recommendations to improve its operation — including in relation to clarifying the Regime’s objectives and scope, encouraging efficient infrastructure investment, strengthening incentives for commercial negotiation, and improving the certainty and transparency of regulatory processes. The Australian Government supported most of the Commission’s proposed measures and a number of operational reforms to Part IIIA have since been introduced.
The Council of Australian Governments (COAG) agreed on a new National Reform Agenda in February 2006. As part of that Agenda, COAG signed the CIRA to provide for a simpler and more consistent national system of economic regulation for nationally-significant infrastructure, including for ports, railways and other key infrastructure. The CIRA included some specific reforms to improve the operation of the Regime, building on the Commission’s 2001 recommendations. Clause 8.1 of the CIRA provides that once it has operated for five years, the Parties will review its operation and terms.In reporting on the Regime and the CIRA the Commission was to -
1. examine the rationale, role and objectives of the Regime, and Australia’s overall framework of access regulation, and comment on: (a) the full range of economic costs and benefits of infrastructure regulation, including contributions to economic growth and productivity; (b) the operation of the Regime relative to other access regimes, including its consistency with those regimes and the effectiveness of the certification process; and (c) the roles of the National Competition Council, the Australian Competition and Consumer Commission and the Australian Competition Tribunal in the administration of the Regime, and the Minister as decision maker, and the relationship between the institutions;
2. assess the performance of the Regime in meeting its rationale and objectives, including: (a) the effectiveness of enhancements made to the Regime and the regulatory reforms agreed under COAG’s National Reform Agenda; and (b) how the Regime has been variously applied by decision makers, but not so as to constitute a review or reconsideration of particular decisions;
3. report on whether the implementation of the Regime adequately ensures that its economic efficiency objectives are met, including: (a) whether the criteria for declaration strike an appropriate balance between promoting efficient investment in infrastructure and ensuring its efficient operation and use; (b) whether the criteria for declaration are sufficiently well drafted in the legislation to ensure that its objectives will be met;
4. provide advice on ways to improve processes and decisions for facilitating third party access to essential infrastructure, including in relation to: (a) promoting best-practice regulatory principles, such as those pertaining to regulatory certainty, transparency, accountability and effectiveness; (b) measures to improve flexibility and reduce complexity, costs and time for all parties; (c) options to ensure that, as far as possible, efficient investments in infrastructure are achieved; and (d) ‘greenfield’ infrastructure projects and private sector infrastructure provision;
5. review the effectiveness of the reforms outlined in the CIRA, and the actions and reforms undertaken by governments in giving effect to the CIRA; and 6. comment on other relevant policy measures, including any non-legislative approaches, which would help ensure effective and responsive delivery of infrastructure services over both the short and long term.The Commission's key recommendations are -
Maintenance of the regime
The National Access Regime should be retained.
- Access regulation can address an enduring lack of effective competition, due to natural monopoly, in markets for infrastructure services where access is required for third parties to compete effectively in dependent markets. This is the only economic problem access regulation should address.
- The scope of the Regime should be confined to ensure its use is limited to the exceptional cases where the benefits arising from increased competition in dependent markets are likely to outweigh the costs of regulated third party access to infrastructure services. Proposed changes to the declaration criteria seek to achieve this outcome.
- Robust institutional arrangements, including an avenue to limited merits review, should ensure that access regulation is judiciously applied.
Market intervention
When considering whether to regulate access to infrastructure services in the future, governments should seek to demonstrate that there is a lack of effective competition in the market for the service that is best addressed by access regulation. An assessment of the net benefits should determine whether access regulation is most appropriately applied at the facility or industry level.
- Facility based arrangements impose net costs if they are incorrectly applied, and provide incentives for lobbying. Such arrangements should be limited to where there is a clear net benefit from tailoring access regimes for a specific facility.
- Further industry specific regimes should apply only where there is sufficient similarity between infrastructure services within the industry and where the industry has features that justify different regulatory treatment from that offered by the generic National Access Regime.
- Caution should be exercised before mandatory undertakings are implemented in the future. Where mandatory undertakings are used, they should be subject to upfront and ongoing assessment to ensure they are used to target the economic problem. Safeguards for the provider and other existing users of the service should be consistent with those for declared services.
ACCC Determinations
There is an economic rationale for the Australian Competition and Consumer Commission's (ACCC's) power to direct infrastructure extensions in an access determination but, due to the practical difficulties of directing extensions, it is likely that the benefits of using the power would rarely outweigh the costs.
- Part IIIA should be amended to confirm that the ACCC's legislative power to direct extensions also encompasses capacity expansions. This will ensure that the safeguards set out in the legislation will also apply to directed expansions.
- Following a public consultation process, the ACCC should develop guidelines outlining how it would exercise its legislative power to direct extensions such that it would be expected to generate net benefits to the community. The preparation of the guidelines should include an analysis of the workability and adequacy of the provision to direct extensions and its safeguards.
- The safeguards should not be construed such that a service provider could be required to pay the upfront costs of the directed extension or capacity expansion.
