Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

The Trade Practices Amendment (National Access Regime) Bill 2006 changes the regime under which a service provider can obtain access to an infrastructure facility. The purpose of the bill is to seek to ensure access to infrastructure where elements of natural monopoly exist to enhance competition and restrain monopoly behaviour while encouraging investment in infrastructure. The Productivity Commission reviewed the regime some four years ago and this bill is the government’s second response to the Productivity Commission’s recommendations. I say second response because the government has already indicated its support for the Productivity Commission’s recommendations. However, we have learnt from this government that ‘there’s many a slip ’twixt the cup and the lip’, to quote Shakespeare, and this is exactly what has happened in the most significant element of the bill—the pricing principles for evaluating a declaration of access under part IIIA.

However, before looking at this question and other aspects of the bill, I want to outline Labor’s vision for reform of this crucial section of the Trade Practices Act. The perennial dilemma for a nation governed by a federal system is that there are competing interests between different spheres of government. The horns of the Australian dilemma are that on one hand the economy is truly national in structure and targeted at international competitiveness, but on the other the core business of the states is in regulated sectors of the economy. The result is that, while the un-derlying economic reality favours a national regulatory system for all but intrastate commerce and trade, the political economy of the federation tends to encourage the states to set up their own regulatory structures.

The obvious success of the Hilmer reforms is that they gave birth to the idea of a truly national competition policy. The less obvious failure is that in practice this goal has proved to be elusive. Rather than creating a unified regulatory structure, the Hilmer reforms have spawned a legion of 22 regulators at different levels of government and in different sectors. Market access regulation has become an entangled web held hostage not just to federal-state tensions but to internal disputes at state level over ministerial responsibility. This was seen most clearly in the creation of the national energy regulator, which was created as a compromise to ensure that state energy ministers might not be held hostage to the decisions of state treasurers. The original Hilmer vision was that state price market and access regulators for nationally significant natural monopoly infrastructure would evolve into a national regulatory regime.

The national access regime has three components under part IIIA of the Trade Practices Act. Under the current regime, the Treasurer, any responsible state or territory minister or any other party can apply to the National Competition Council to have a monopoly facility declared essential. The National Competition Council then makes a recommendation to the responsible minister, and the applicant has a right to appeal the minister’s decision in the Australian Competition Tribunal. Once declared, access arrangements, including price, can be negotiated between the facility owner and those seeking access, and the arrangement is registered with the ACCC. If the parties cannot agree, the ACCC arbitrates. The result of the arbitration can be reviewed by the tribunal, and the tribunal’s decision can be appealed in the Federal Court. Alternatively, the owner of a monopoly facility may set out the terms of access for any party wishing to gain access. This undertaking is then registered with the ACCC.

A major, outstanding issue relates to clause 6 of the competition principles agreement. Clause 6 states that the Commonwealth’s access regime is not intended to apply to essential facilities in a state or territory where a conforming state access regime is in place unless the National Competition Council determines the scheme is ineffective. The state regimes were expected to eventually make themselves subject to the declaration regime in part IIIA. This has happened very rarely. Certification of state market arrangements has also rarely been used because these regimes do not meet the minimum standards of the TPA. What has happened is that the states have set up their own regimes that often entrench the natural monopolies. I note that some state regulators fiercely contest this, and it is true that some regimes are reasonable.

Still, the result is clear—the original dream of a national market access regime has failed miserably. Prospective market entrants simply are not prepared to take on the legal power of state governments. The current arrangements are a mere formal compliance with the Hilmer vision enshrined in the competition principles agreement under COAG that Labor Prime Minister Paul Keating created. The spirit of the Hilmer program remains a distant dream.

This story remains largely untold. There is a lack of appreciation in the policy community that proponents or financiers of major infrastructure projects have to deal with a number of regulators and regulatory regimes. The national access regime is a case in point. There are state regulators, industry regulators, the National Competition Council and potentially also the ACCC to deal with. It is not just an issue of unnecessary compliance burden through regulatory duplication; there is also the issue of inconsistent regulatory frameworks and the concomitant disincentive to invest in the face of heightened risk of regulatory failure.

This has occurred under the Howard government. It accords with a generic theme of the Howard government being a high-cost government for business. It is open to Labor to highlight that the government has, albeit unintentionally, presided over a rather frightening increase in the compliance burden on business. This has become a central tenet of the Business Council of Australia’s approach.

The key focus should be unifying the competition policy architecture. In this regard there are two important issues. The first relates to the diffuse roles of the national regulators—the ACCC, the Australian Competition Tribunal and the National Competition Council. The second relates to the state based price and access regulators, including sectoral specific arrangements. In relation to both areas the fundamental question to be asked is: ‘What scope exists to both harmonise and rationalise the regulatory framework?’ The primary policy goal is simple: to reduce the compliance burden. But there is also the ostensibly subsidiary but philosophically significant goal of seeking to ensure that all these arrangements are structured to combat social exclusion in a coordinated way. This bill fails to capture the true vision, Labor’s vision, of a unified competition policy infrastructure.

The bill changes the existing regime in the following ways: it includes a new objects clause that decision makers will need to have regard to; pricing principles embodied in part IIIA of the Trade Practices Act are to be determined by the Commonwealth minister; the threshold for the application of the regime is raised to include only projects of national significance; new arbitration arrangements and appeal procedures are provided for; it restricts access to the federal legislative regime to where no effective state access regime exists; it provides immunity from the regime where a government service is provided by competitive tendering; and it includes new target time limits, procedures for consultation and reporting of decisions.

A new objects clause is inserted into part IIIA to provide for greater certainty for infrastructure owners, access seekers, investors and other interested parties. The bill also requires decision makers under part IIIA to have regard to the objects clause when making their respective decisions. This is intended to promote consistency and provide guidance in relation to each decision maker’s approach, thereby enhancing regulatory accountability. This is a positive development that Labor supports. But the objects clause could hardly be described as bringing a hard edge to the legislation. This interpretive provision could have included much stronger pro-competitive language. There is no mention of restraint on monopoly behaviour, for example. I will return to a discussion of the pricing principles after dealing with other elements of the bill.

Firstly, the threshold for the application of the regime is raised to include only projects of national significance. The government has agreed to amend the ‘promote competition’ declaration criteria contained in section 44G(2)(a) to ensure that access declarations are only granted when the expected increase in competition in an upstream or downstream market is not trivial. Labor supports this. Secondly, regarding the new arbitration arrangements and appeal procedures, the bill provides that the commission will be given the discretion to conduct multilateral hearings in arbitrations following notification to the parties to the dispute and, consistent with the provisions of the telecommunications access regime in part XIC of the Trade Practices Act, the commission will also be given the discretion to grant interim arbitration determinations.

The arbitration provisions will be amended to make it explicit that, when arbitrating a dispute, the commission can require a service provider to permit interconnection to its facility by an access seeker. Consistent with the appeal rights applicable to other access routes provided under part IIIA, this bill establishes rights to merit review by the Australian Competition Tribunal in relation to decisions made by the commission about access undertakings and access codes.

The Productivity Commission also recommended that the arbitration provisions of part IIIA should be amended to provide for two-sided information disclosure requirements involving both the access provider and the access seeker. The access seeker should be required to provide sufficient information, including technical and commercial requirements, to enable the access provider to respond to the request for access. The provider of the declared service should be required to provide sufficient information to an access seeker to facilitate effective negotiation on the terms and conditions of access. This should include information on the availability of the service, including any reasons why the service is not available on the conditions sought by the access seeker; an offer of the terms and conditions of access to the service; and sufficient information, such as the costs of operating the facility and providing the service, to enable the access seeker to make a reasonable judgement on the basis of which the terms and conditions of access were determined. This information should be provided within 28 days of the access seeker submitting its request for access to the service provider.

This was not accepted by the government, which deemed that such information requirements were impractical. Rather than applying a generic regime, they preferred an industry-specific regime. The government’s rejection of this key Productivity Commission finding, recommendation 8.1, is highly questionable. Prima facie, the Productivity Commission’s recommendation is pro-competitive and feasible. Labor calls on the government to reconsider this aspect of the bill.

The bill amends the Trade Practices Act to explicitly prevent the commission from accepting an access undertaking or access code where a decision is in force that a state or territory access regime is an effective access regime. This removes the incentive for industry gaming through forum shopping, and Labor supports this. The bill introduces a mechanism to enable the commission to grant immunity from declaration for services to be delivered by government-sponsored infrastructure where the construction and the operation of the facility is to be awarded through a competitive tendering process. Again, Labor supports this.

The bill applies a number of non-binding target time limits to various decisions under part IIIA and introduces legislative provisions for public input on declaration and certification applications, and proposed access undertakings. The bill places additional obligations on ministers, the council and the commission to publish reasons for their decisions or recommendations. As the government’s key adviser on the regime, the council will be required to report annually on the operation and effects of the regime, including on specific matters identified in the bill.

Then we come to the vexed question of pricing principles. In its formal response to the Productivity Commission report Review of the national access regime, the government agreed that statutory pricing principles should be established in relation to part IIIA in order to provide guidance for pricing decisions and to contribute to consistent and transparent regulatory outcomes over time, as well as certainty for investors and access seekers. However, the bill did not enshrine the principles in legislation. It is proposed that these pricing principles are to be determined by the Treasurer and specified in regulation. The Australian Competition and Consumer Commission will be required to take into account these principles when making a final determination on an access dispute and when assessing a proposed new or varied access undertaking or access code.

Relegating the pricing principles to a regulation is a significant watering down of the previous position taken by the government. According to industry sources, Treasury appears to be seeking greater flexibility on the setting of the principles. Labor sought to have this bill and the issue of the pricing principles considered by the Senate committee, which has now reported. The outcome of the inquiry was unanimous support of organisations making submissions for the pricing principles to be in the legislation. This is a major development. The infrastructure sector has told the government its preferred model, as enshrined in the bill, is deficient. So strong was the argument by the sector that all senators on the committee—government, opposition and minor parties—agreed and recommended that the pricing principles be in the act. The government has been criticised by the infrastructure sector and its own senators, which is a highly embarrassing setback for the government.

The decision to not include the pricing principles in part IIIA would involve consequences. Firstly, it greatly diminishes the principle of certainty that the industry has been seeking for both existing and future infrastructure investment. Secondly, because part IIIA effectively acts as a model access regime for industry-specific access regimes, removing the pricing principles from part IIIA permits greater divergence across industry-specific access regimes, rather than a consistent approach. Making the pricing principles a matter for ministerial discretion is poor policy. It does not foster regulatory transparency and opens the government to the possibility of capture by the sector. It is open for Labor to consider amending the bill in the Senate to include the pricing principles, so it is pleasing that the government has seen the merit in Labor’s proposals to put in the pricing principles. The government should have first sided with Labor and the Productivity Commission, but in the end reason prevailed.

Labor had its own form of pricing principles that was moved in the House of Representatives. This involved the notion that regulatory risk was seen as an element of commercial risk rather than as a separate category. Labor still holds this position but will not seek to delay the passage of the bill by insisting on its amendment. After all this, government took four years to respond to the Productivity Commission recommendations and it has taken 14 months for the bill to get to this point in the parliamentary process, which is hardly a strong sign of commitment by the government to trade practices reform. But it is not surprising. This government’s record on trade practices reform is a bit of a blank page. Where is the bill for criminal sanctions for cartels, which is so urgently needed? Where are the promised changes to section 46 of the Trade Practices Act? Then there is the government’s flawed Dawson bill, which still hangs in abeyance. While not declining to give the bill a second reading, I move the second reading amendment standing in my name:

At the end of the motion, add “but the Senate condemns the Government for:

          (a)   delaying the introduction of this bill for almost 3 years since the Productivity Commission report was released;

          (b)   failing to amend Part IIIA of the Trade Practices Act 1974 to include the pricing principles in the bill;

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

          (d)   failing to advance meaningful reform of the Trade Practices Act 1974”.