Stephen Smith (Perth, Australian Labor Party, Shadow Minister for Industry, Infrastructure and Industrial Relations) Share this | Hansard source

The Trade Practices Amendment (National Access Regime) Bill 2005 follows on from the findings of the Productivity Commission’s review of the national access regime. The bill amends the Trade Practices Act 1974 to enable implementation of most of the recommendations made by the Productivity Commission in that review.

This bill is of great importance to the future of Australia’s national infrastructure needs and comes at a time of ongoing neglect of our national infrastructure by the Howard-Costello government. The bill follows call after call by industry, the states and federal Labor for the government to actively work to address our national infrastructure needs.

Since May 2001, on at least 11 separate occasions, the Reserve Bank has referred to infrastructure capacity constraints impacting negatively on our national economy. As recently as its May 2005 quarterly statement on monetary policy, the RBA warned the government that capacity constraints were stifling economic growth. Most galling in failing to address our national economic infrastructure needs was the Treasurer’s 10th budget, which ignored the fact that, when interest rates increased by 25 basis points in March 2005, capacity constraints were cited as half the reason by the Reserve Bank.

In addition to the Reserve Bank’s warnings, over the last 12 months the Australian Competition and Consumer Commission, the OECD and CEDA have all voiced their dissatisfaction with the government’s complacency in this area. Since 1997, public sector investment, including in infrastructure, slumped to around 2.2 per cent of GDP, the sixth lowest of all OECD countries. An analysis by the Business Council of Australia shows a $90 billion shortfall in Australia’s infrastructure. The BCA estimates substantive infrastructure reform could lift the level of our GDP by two per cent or $16 billion annually.

Most recently, Hugh Morgan, the past president of the BCA, summed up the collective frustration of the business community when he said:

There’s really no strategy, there’s no plan for Australia’s infrastructure needs.

The Howard-Costello government’s response over the past year or so has been to commission no fewer than eight separate ad hoc infrastructure inquiries, including the Prime Minister’s own so-called Exports and Infrastructure Taskforce. One overriding factor relating to all of these inquiries is a complex regulatory regime and a lack of coordination of national interest priorities so far as infrastructure is concerned. On 1 June 2005 the Prime Minister’s taskforce issued its formal report. Even the Prime Minister’s own handpicked Exports and Infrastructure Taskforce, led by his old mate Max Moore-Wilton—and labelled by Hugh Morgan as ‘a committee to protect Sir Humphrey’—found there were ‘underlying weaknesses’ in Australia’s export infrastructure which must be addressed to prevent further capacity constraints and bottlenecks developing in export industries.

Labor’s view is that all levels of government, particularly the Commonwealth government, need an ongoing source of independent expert advice on the extent of infrastructure problems, how to fix them and how we plan for the roads, railways, ports and communications networks of the future. Consistent with Labor’s view, and despite its shortfalls as a political fix to a policy problem, the Prime Minister’s taskforce report noted that the greatest impediment to the development of necessary infrastructure is the way in which the current economic regulatory framework is structured and administered. The taskforce called for a simplified regulatory test, suggesting that regulators base decisions on whether proposals by the infrastructure owner are reasonable in the commercial circumstances and in light of statutory objectives. This recommendation reflects the fact that the crux of the complaints made by asset owners is that regulators are overly concerned with keeping down the prices that monopoly infrastructure operators charge over the short term, leaving providers with insufficient incentives to make much-needed investment in necessary infrastructure expansion.

That background brings us to the bill. Labor’s attitude to the bill is reflected by the second reading amendment, circulated and moved in the name of Mr Fitzgibbon, the shadow assistant Treasurer, shadow minister for revenue and member for Hunter. That second reading amendment reads:

“whilst not declining to give the Bill a second reading, the House condemns the Government for:

(1)

delaying the introduction of this Bill for almost 3 years since the Productivity Commission report was released;

(2)

failing to amend Part IIIA of the Trade Practices Act to include the pricing principles in the Bill;

(3)

failing to properly indicate the relationship of this Bill to report of the infrastructure Taskforce;

(4)

failing to produce a single, clear and pro-competitive legislative framework for infrastructure regulation; and

(5)

adding to the complexities of the regime and posing further time delays by providing for a merit-based appeal against declaration arbitration outcomes”.

The second reading amendment refers to the absence of pricing principles in the bill, to be addressed by an amendment to be moved in the committee stage by the member for Hunter, which has been circulated in his name.

The bill remains timely—if not overdue, given the fact that it was introduced last year and sat on the Notice Paper for a considerable time. It is timely that a bill addressing infrastructure access issues is being considered at the present time. The government might pretend that it is timely, but it is also massively overdue. Our current national infrastructure difficulties could well have been averted had the government not been complacent and acted much earlier to provide certainty to investors and to access seekers.

The bill before us is the government’s formal response to the Productivity Commission’s review, which had its genesis 10 years ago when Labor was in government. Many will recall the Hilmer committee’s report on national competition policy which made a number of recommendations on a national approach to competition policy, the outcome of which in 1995 was agreement by the states and territories to implement national competition policy. The fundamental premise of national competition policy was increasing competition throughout the economy in order to build economic capacity and more effective national economic performance.

The national access regime was included as part of the 1995 national competition policy. There are two aspects to the national access regime, one of which is dealt with in the bill today. The first is clause 6 of the 1995 competition principles agreement which was negotiated between the federal, state and territory governments. That agreement set out the principles for assessing third party access to nationally significant infrastructure. The second is the legislative framework found in part IIIA of the Trade Practices Act 1974, which seeks to ensure that infrastructure with natural monopoly characteristics does not become a barrier to competition. Under part IIIA of the act, access to nationally significant infrastructure can be made available to businesses in situations where duplicating it would not be economically feasible or, in other words, where it would be an inefficient use of capital and where commercial negotiation has failed to see agreement on access arrangements.

There are three ways in which an access seeker can currently gain access to such natural monopoly infrastructure. Firstly, they can do so by applying to the National Competition Council to have the service declared—a mechanism that establishes a right to negotiate terms and conditions of access with the service provider. In the event that negotiations fail, declaration also gives an access seeker the right to seek binding arbitration by the ACCC. Secondly, they can do so by seeking access through an ‘effective’ access regime, meaning that it satisfies certain agreed criteria. Thirdly, they can do so by seeking access under the provisions of an access undertaking from the service provider which has been approved by the ACCC.

In October 2000, the government commissioned the Productivity Commission to undertake a review of that regime. That report was delivered on 28 September 2001 but not released until 17 September 2002, together with the government’s interim response. But it was not until February 2004—over 2½ years from the delivery of the review—that the government finally responded to the Productivity Commission’s findings. The delay from September 2001 to February 2004 on a matter of such fundamental importance to our national economic efficiency, productivity and international competitiveness is obviously unacceptable.

To compound that delay, it has taken nearly two years following the government’s formal response for the legislation to finally be dealt with by the House. It is five years since the commissioning of the original Productivity Commission review into national access and four years after the Productivity Commission delivered its report to the federal government, and only now do we see the legislation formally being debated in the House. That is five long years of uncertainty for third party access seekers to nationally significant infrastructure—five long years that have seen hurt done to the Australian economy.

The government’s overdue response contains a number of changes to the national access regime that Labor supports. Two recommendations are worth mentioning today because they go to the heart of building a competitive environment that also guarantees certainty for consumers and investors alike. The first is the introduction of a new public policy objects clause. The objects clause is intended to promote the economically efficient operation of, use of and investment in infrastructure so as to effect competition in both upstream and downstream markets and, importantly, to ‘provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry’. Labor supports this approach. It is a sensible measure because it provides guidance on the intent and purpose of part IIIA of the act.

The second relates to pricing principles contained within the legislation. In its 2002 report, the Productivity Commission recommended that pricing principles ‘with specific application to arbitration for declared services, assessments of undertakings and evaluations of whether existing access regimes are effective should be included in part IIIA of the Trade Practices Act’. In its formal response to the Productivity Commission’s report, the government in 2004 agreed that statutory pricing principles should be established in relation to part IIIA to provide guidance for pricing decisions. I support the government’s logic that such an approach would contribute to consistent and transparent regulatory outcomes over time as well as provide commercial certainty for both investors and access seekers. Accordingly, the government’s formal response stated that it would include specific pricing principles in part IIIA, including that regulated access prices should:

(i)

be set so as to generate expected revenue for a regulated service or services that is at least sufficient to meet the efficient costs of providing access to the regulated service or services; and

(ii)

include a return on investment commensurate with the regulatory and commercial risks involved.

As well, the government agreed that any access price structures should:

(i)

allow multi-part pricing and price discrimination when it aids efficiency; and

(ii)

not allow a vertically integrated access provider to set terms and conditions that discriminate in favour of its downstream operations, except to the extent that the cost of providing access to other operators is higher.

Given that this was the government’s formal response to the Productivity Commission’s recommendations, it would not have been unreasonable to see these principles somewhere in the legislation. The government had, after all, gone so far as to draft the appropriate principles with the specific reference that:

The Government agrees to include the following pricing principles in Part IIIA.

However, an initial review of the legislation revealed that any such pricing principles were to be excluded from the body of the legislation and included only in the regulations, to be specified by the Treasurer. This would have been a significant watering down of the previous position taken by the government. The government’s decision to move pricing principles into regulations was done without any adequate explanation, even with the benefit of a Senate inquiry.

This was a point neatly put in the public hearings of the Senate Economics Legislation Committee on 11 August, when the Energy Network Association said:

We think it could potentially have a chilling effect on new infrastructure development because … you—

an investor—

may make a different sort of risk-reward assessment investment decision on the basis of whether or not these pricing principles are within ministerial determination or the statute.

It is extraordinary that at the first opportunity the government had to demonstrate that it was actually capable of doing something to rectify our national infrastructure problems—after eight infrastructure inquiries as well as numerous bodies calling for urgent work by government to alleviate our national infrastructure difficulties—it stumbled on the detail with a flawed policy implementation.

Not including the pricing principles in part IIIA could have had two adverse consequences. Firstly, it would have diminished the certainty that investors and access seekers have been seeking for both existing infrastructure and future infrastructure investment. Secondly, part IIIA acts as a model access regime for industry specific access regimes. Removing pricing principles from part IIIA would have promoted greater divergence across industry specific access regimes rather than a consistent, certain national approach. This runs directly counter to the intent of the objects clause itself.

Regardless of the contents of any pricing principles, leaving them as a matter for the discretion of the Treasurer of the day is poor policy. It will not foster the certainty and transparency that pricing principles enshrined in legislation would do. It will not achieve the certainty needed to ensure that commercial operators invest in our nationally significant infrastructure into the future. It would have meant that investors and potential investors in infrastructure subject to part IIIA of the Trade Practices Act would have had no idea what pricing rules might apply, other than the fact that they would be beholden to whatever pricing principles the Treasurer decides to promulgate following their investment. As such, the pricing principle regulations may have turned out to be somewhat different from investor expectations and may well have undermined the basis of that investment decision.

Labor is glad to see that the government has finally seen the sense of enshrining the pricing principles into the body of the legislation rather than allowing it to be determined through ministerial determination. Labor believes that the guiding principles for the pricing of access charges for nationally significant infrastructure must underpin the certainty investors and users both need. It is only by enshrining these principles in the legislation that the level of certainty investors and users both need can be guaranteed over time. It is certainty for investors and users alike that will underpin future investment and growth in our nationally significant infrastructure, one of the fundamental underpinnings of our future economic productive capacity.

That is why Labor believes that regulated access prices should (1) be set so as to generate expected revenue for a regulated service or services that is sufficient to meet the efficient costs of providing access to the regulated service or services, and (2) include a return on investment commensurate with the commercial risks involved. That is also why Labor believes that the access price structures should, firstly, allow multi-part pricing and price discrimination when it aids efficiency; secondly, not allow a vertically integrated access provider to set terms and conditions that discriminate in favour of its downstream operations, except to the extent that the cost of providing access to other operators is higher; and, thirdly, provide incentives to reduce costs or otherwise improve productivity. Labor does not believe that the government has gone far enough to ensure a competitive environment for infrastructure development in our nation, and that is why Labor will move its own amendment to the pricing principles to further ensure a robust, competitive environment for infrastructure development. That is reflected by the committee stage amendment circulated in the name of my colleague the member for Hunter.

Australia needs to simplify the provision of nationally significant infrastructure if we are to take Australia to the next level of productivity improvement. This government has failed dismally to take Australia to that next level. The government has failed to invest in our future national prosperity, instead complacently taking five long years to get us to this point and have the content and detail worked out correctly. Current and future investors require both timely and certain outcomes to make the right investment decisions and they require an environment that encourages further investment. Australia’s economic and productivity performance depends on certainty—both regulatory certainty and legislative certainty. While Labor supports this bill for the greater economic good of our nation, we take exception to the flawed implementation of this legislation. We call on the government to support Labor’s amendment to ensure an appropriately competitive environment of certainty for infrastructure investment and development. I commend the second reading amendment and the detailed committee stage amendment circulated in the name of the member for Hunter to the House.

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