Regulating Transport Infrastructure in Australia

Transcription

1 2008/SOM3/EC/SEM/008 Agenda Item: 2 Regulating Transport Infrastructure in Australia Submitted by: Australia Seminar on Best Practices in Regulation and Promotion of Efficiency in Transport Infrastructure Facilities Lima, Peru August 2008

2 Regulating transport infrastructure in Australia Australian Treasury August 2008 This paper provides an overview of Australia s recent experience in the regulation of transport infrastructure. It covers a range of regulatory and structural issues covering Australia s airports, ports, road and rail infrastructure sectors. It is provided for the 2008 APEC Seminar on Best Practice Transport Regulation.

3 Introduction Efficient infrastructure is fundamental to Australia s long term productivity and economic performance. Over the last 15 years, infrastructure industries in Australia have undergone substantial transformation as part of a wider process of microeconomic reform. Infrastructure policy in Australia has broadly shifted away from government provision of almost all nationally significant infrastructure assets and towards facilitating competitive markets where competing public and private suppliers can efficiently provide infrastructure services. In the transport sector, reforms to promote competition and more open markets have included deregulating the domestic aviation market, privatising major airports, structurally separating key rail lines and developing a national rail network and establishing commercial frameworks for port facilities. While these reforms have yielded real benefits to the Australian economy, there are further opportunities for regulatory reform across the transport sector which offer the prospect of substantial efficiency gains. Many of these opportunities relate to achieving greater national consistency for transport infrastructure regulation and more cost reflective pricing for infrastructure services. In this regard, initiatives to harmonise rail safety regulation across different Australian States 1 and introduce more direct incremental road pricing for heavy vehicles are currently being undertaken. These developments, along with key sectoral reform measures to date, are discussed in more detail below. The Australian Government is also currently developing a new integrated National Transport Plan that ensures Australia s road, rail, air and sea transport systems operate as an integrated network. Among a range of initiatives, this will comprise an expanded road pricing reform program and measures to tackle urban congestion. The policy will be underpinned by a number of guiding principles (see Appendix A) which include encouraging competitive national transport markets (supported by nationally consistent regulation), efficient infrastructure pricing, appropriate private sector involvement in transport provision, and equitable access for users. Broader economic reform in Australia The recent strength of Australia s economic performance represents a marked turnaround from a lengthy period of relatively poor performance during the 1970s and 1980s (Banks, 2008). This period was characterised by slowing output growth, high inflation and unemployment rates, and a productivity growth rate that was 1 Under Australia s federal structure, there are three levels of government Federal, State and Territory, and local government. 2

4 Australia s transport infrastructure regulation consistently low by international standards. While external developments contributed to this deteriorating performance, high trade barriers and various regulatory and institutional restrictions on competition in the domestic market led to significant inefficiencies across the economy. Recognising these substantial policy-related inhibitors on growth, Australian governments embarked on a program of trade liberalisation and other structural reforms. This essentially commenced with a lowering of barriers to foreign competition in goods and financial markets in the 1980s (including floating the Australian dollar in 1983). However, as this program gathered pace, it also became apparent that aspects of Australia s wider competition policy framework were impeding economic performance and constraining the scope to create national markets for infrastructure and other services. In terms of infrastructure and transport, this led to additional reform measures from the late 1980s including partial deregulation and restructuring of airlines, coastal shipping, telecommunications and the waterfront. National Competition Policy In 1995, Australian governments agreed to a landmark new National Competition Policy (NCP), with an aim to achieve efficient provision of goods and services through reforms designed to promote competition within markets and competitive neutrality across markets. NCP was based on an explicit recognition that competitive markets will generally serve the interests of consumers and the wider community, by providing strong incentives for suppliers to operate efficiently, be price competitive and innovate. Under NCP, Australian governments agreed to implement competitive neutrality principles, ensuring public and private companies operated on a level regulatory playing field, and to structurally reform public monopolies. NCP also committed governments, where appropriate, to corporatise and consider unbundling integrated publicly owned infrastructure monopolies into natural monopoly networks and competing infrastructure facilities and service providers prior to privatisation. Government business enterprises also became subject to the competition provisions of the Trade Practices Act These reforms allowed private firms to compete in many previously government-dominated infrastructure markets like electricity, rail and telecommunications (see Box 1). The Productivity Commission (2005) estimated these reforms permanently increased Australia s GDP by 2.5 per cent (which equates to an increase in household income of around A$7,000 per annum). The Commission also found NCP and related structural 3

5 reforms significantly reduced the cost of infrastructure services, particularly for business users of telecommunications, electricity and land transport services. Box 1 Australian National Competition Policy In 1995, the Australian, State and Territory governments committed to a wide-ranging National Competition Policy (NCP). Specifically, NCP provided for: an extension of the Trade Practices Act 1974 to previously excluded businesses; governance and structural reforms to government businesses to make them more commercially focussed and expose them to competitive pressure; regulatory arrangements to secure third-party access to essential infrastructure services; and a process for reviewing, amending and rescinding, where appropriate, a wide range of legislation which restricted competition (this included a requirement to undertake a public interest test on all anti-competitive regulation). Sector-specific reforms Electricity: Various structural, governance, regulatory and pricing reforms to introduce greater competition into electricity generation and retailing and to establish a National Electricity Market in the eastern states. Gas: A similar suite of reforms to facilitate more competitive supply arrangements and to promote greater competition at the retail level. Road transport: Implementation of heavy vehicle charges and a uniform approach to regulating heavy vehicles to improve the efficiency of the road freight sector, enhance road safety and reduce the transactions costs of regulation. Water: Various reforms to achieve a more efficient and sustainable water sector including institutional, pricing and investment measures, and the implementation of arrangements that allow for the permanent trading of water allocations. Further reform initiatives Building on the earlier NCP reform program, Australian governments agreed in 2007 on a new reform agenda to improve the productive capacity of the economy and deliver better services to the community. A key focus of this new agenda is on modernising Australia s federal system and ensuring a seamless national economy. Blurred roles and responsibilities between levels of government, as well as duplication and overlap, have been costly aspects of 4

6 Australia s transport infrastructure regulation Australia s federal system. This had led to inefficient arrangements across a range of sectors including health, education and infrastructure. The new agenda will ensure the efficient provision of adequate infrastructure, including through better coordination of infrastructure planning and investment across the nation, and by implementing a simpler and more consistent national approach to the economic regulation of significant infrastructure. The Productivity Commission (2006) estimated that full implementation of key competition and regulatory reform components of the new agenda could increase Australia s GDP by nearly 2 per cent (around A$17 billion in dollars). This includes significant potential gains from productivity and efficiency improvements in road and rail freight services and a reduction in regulatory compliance costs. Airport infrastructure Australia s major airports are privately owned and operated. While there is no explicit price regulation applying to airports, prices for airport services are subject to formal monitoring by Australia s national competition regulator (see Box 2). Privatisation of airports In 1997, the Australian Government commenced the privatisation of airports then operated by the Australian Government owned, Federal Airports Corporation. These included Australia s major international airports at Sydney, Melbourne, Brisbane and Perth. As part of the privatisation process, price regulations were introduced at all capital city and some regional airports to address concerns about potential abuse of market power. This regulation involved price caps whereby the price of most aeronautical services could only increase by inflation less an efficiency dividend (CPI - X). Regulatory framework Following a review of airport pricing in 2002, the system of price caps at major airports was replaced with price and quality of service monitoring. At that time, the Government noted that a light-handed regulatory approach would allow greater scope for airports to price, invest and operate efficiently, thereby providing better outcomes for passengers and airlines. Airport monitoring is undertaken by the Australian Consumer and Competition Commission (ACCC) (see Appendix B). The ACCC produces an annual report 2 on Australia s major airports that examines among 2 Reports available at 5

7 other things airport profitability, return on assets, charges for aeronautical and nonaeronautical services and customer satisfaction. A further review of price regulation of airport services was conducted by the Productivity Commission in In 2007, the Government broadly endorsed the Commission s recommendations and agreed to continue price monitoring arrangements at major airports until 2013 (at which time the arrangments will again be reviewed). Various enhancements to the regime were also agreed, including a mechanism whereby airports may be asked to show cause why their conduct should not be subject to more detailed scrutiny. Access regulation Australia s national access regime, Part IIIA of the Trade Practices Act, provides an avenue for resolving commercial disputes between airlines and airport operators. Part IIIA allows third parties to seek access to services of certain nationally significant infrastructure facilities, on reasonable terms and conditions, where commercial negotiations fail (see Appendix C). To date there have only been a small number of cases where Part IIIA has been invoked to resolve an access dispute at a major airport. Box 2: Airport infrastructure Regulatory framework: Private ownership of major airports. Regulatory tools: No explicit price regulation. However, prices for airport services are subject to formal monitoring by the ACCC. Recourse to Part IIIA of the Trade Practices Act in the event of access disputes. Australia s experience: Price monitoring at major Australian airports has been generally effective in addressing market power concerns while encouraging investment to meet growing demand for airport services

8 Australia s transport infrastructure regulation Port infrastructure As a large island continent, Australia is highly dependent on shipping for its international trade linkages. Shipping also plays an important role in the Australian domestic freight task, especially in terms of transporting bulk commodities over long distances. This dependence places particular strategic importance on Australia s port infrastructure. Market environment Most ports are owned by State and Territory governments and operated on a commercial basis by State-owned corporations or port authorities (see Box 3). Some ports (for example, in South Australia) have been privatised. Competition in the provision of port services has increased, mainly through the competitive tendering and franchising to private operators of activities such as stevedoring, pilotage, mooring, general maintenance and ship cleaning. At present, only one port in Queensland and all ports in South Australia are subject to State-based access regulation. At other ports, access issues are resolved through commercial negotiations between relevant parties. Parties unable to negotiate satisfactory access to ports or port facilities may seek access under the Commonwealth Government s National Access Regime (Part IIIA of the Trade Practices Act). Some States have also introduced third party access regimes covering shipping berths, channels and port infrastructure. Further investment and reform Strong economic growth in Australia, supported by robust demand for Australian commodities, has emphasised the need to continue to improve the efficiency and use of Australia s ports. In particular, localised bottlenecks at Australia s major east coast coal ports over the last few years highlighted the need for investments in port capacity and better planning across the supply chain. Major investments are beginning to come on line to increase the capacity of Australia s major coal supply networks, including in port loading capacity. In 2006, Australian governments committed to undertake reviews of port regulation and competition. The reviews focus on the economic regulation of ports and port authority handling and storage facility operations to ensure that regulation conforms with agreed access, planning and competition principles. Most of these reviews have been completed and are currently being considered by governments prior to release. 7

9 Box 3: Port infrastructure Regulatory framework: Most ports are State government owned, with privately owned bulk commodity ports. Predominantly State based regulations covering access and planning issues. Regulatory tools: Recourse to Part IIIA of the Trade Practices Act may be available if commercial negotiations fail. Australia s experience: Most ports corporatised, with operation on a commercial basis. Road infrastructure As in most countries, road infrastructure in Australia is almost entirely provided by government. The Commonwealth Government provides States with direct funding for road investment, with funding focused towards inter-regional connections known as the national road network. The Commonwealth also collects revenue from road users through an excise tax levied on fuel. There is some private road infrastructure in major Australian cities. To date, these investments have comprised key arterial linkages and orbital road connections which are operated on a commercial basis using direct road charging. Road regulation Under Australia s federal system, each State and Territory is responsible for road transport regulation, with the Commonwealth Government having no direct responsibilities in this area (see Box 4). This has led to inefficient variation in road regulation across jurisdictions, in areas such as heavy vehicle operating, safety and licensing conditions. As part of a broader reform agenda (see above), Australian governments have agreed to bring national consistency across key areas of road transport regulation, including to vehicle registration and driver licensing requirements. Road pricing reform Governments have also identified, as a priority, reform of road user charging arrangements to facilitate more efficient use of road infrastructure through cost reflective pricing. The current agenda includes a phased reform program to improve the efficiency of road pricing and investment. This involves: early action to ensure cost recovery from heavy vehicles in the short term using cost reflective pricing arrangements; 8

10 Australia s transport infrastructure regulation investigation of options for more direct charging of heavy vehicles (for example, massdistance-location pricing); and enhanced decision making frameworks for the allocation of project funding. Box 4: Road infrastructure Regulatory framework: State based road regulation. National consistency of regulation across jurisdictions is a priority reform area. Regulatory tools: Access to roads is regulated primarily through State-based driver licensing and vehicle registration. Australia s experience: Some significant regulatory harmonisation has been achieved. Improving road pricing arrangements represents an ongoing reform challenge. Rail infrastructure Australia s rail network comprises a mix of rail gauges and both government and private ownership. Following significant structural reform over the last 15 years, the network is vertically separated into below track management and above track operators. An exception is Queensland Rail, which remains a vertically integrated rail company wholly owned by the Queensland Government. Rail access charges are typically set by negotiation between the track owners and rail operators, or under a relevant access regime which stipulates the methods by which third parties can gain access to rail track. Establishment of the Australian Rail Track Corporation The Australian Rail Track Corporation 4 (ARTC) was formed in 1997 to operate and manage Australia s standard gauge interstate rail network that connects all mainland capital cities (see Appendix D). Access to the ARTC network is governed by an access undertaking approved by the Australian Competition and Consumer Commission (ACCC) under Part IIIA of the Trade Practices Act. The ACCC is currently in the process of approving a new access undertaking for the ARTC. Further regulatory reform Differences in rail safety regulation between States have led to compliance difficulties and additional costs for interstate train operators. In 2006, Australian governments agreed to improve the efficiency and productivity of the rail freight industry through harmonising rail safety regulation and by developing a strategy for efficient pricing of 4 The ARTC is a corporation wholly owned by the Australian Government. 9

11 rail freight infrastructure. There was also a commitment to enhance the consistency of access regimes for significant rail infrastructure. Box 5: Rail infrastructure Regulatory framework: Australia s rail network is mostly structurally separated into above and below rail elements. Current focus is national harmonisation of access and safety regulations. Regulatory tools: Access to the national interstate network facilitated through an undertaking under Part IIIA of the Trade Practices Act. There are also Statebased access regimes and safety regulations. Australia s experience: Although reforms are in progress, achieving national consistency in rail regulation is an ongoing priority. 10

12 Australia s transport infrastructure regulation Appendix A Transport policy principles (endorsed by the Australian Transport Council) Australia s transport policy framework is underpinned by the following guiding principles: Infrastructure pricing Sending the appropriate signals to influence supply and demand for infrastructure. Competitive markets Establishing competitive markets wherever possible to minimise the need for regulation. Private sector Involve the private sector, where it is efficient to do so, in delivering outcomes. National regulation A national perspective should be adopted where regulation is required. National markets Encourage national markets where possible. Customer Customer-focussed. Equitable access for all users. 11

13 Appendix B Australian Competition and Consumer Commission The Australian Competition and Consumer Commission (ACCC) is an independent statutory authority formed in 1995 to administer, among other things, the Trade Practices Act The ACCC promotes competition and fair trade in the market place to benefit consumers, business and the community. It also regulates national infrastructure industries. The ACCC s primary responsibility is to ensure that individuals and businesses comply with the Commonwealth's competition, fair trading and consumer protection laws. The ACCC is the only national agency dealing generally with competition matters (although there are a number of competition regulators at the State and Territory level) and the only agency with responsibility for enforcing the Trade Practices Act and the State and Territory application legislation. As well as providing education and information services, the ACCC recommends dispute resolution when possible as an alternative to litigation, can authorise some anti-competitive conduct (if it results in a net benefit to the community), and takes legal action to resolve disputes when necessary. 12

14 Australia s transport infrastructure regulation Appendix C Australia s National Access Regime Rationale and objective of Part IIIA The National Access Regime under Part IIIA of the Trade Practices Act 1974 is a key component of Australia s regulatory framework promoting the development of competitive markets. Established in 1995 as part of Australia s National Competition Policy (a broad ranging program of competition and structural reform), the Regime supports the negotiation of access between the owners of significant infrastructure facilities and access seekers. It allows third parties to seek access to certain essential infrastructure services, on reasonable terms and conditions, where commercial negotiations on access have failed. Its application as a national access regime is intended to encourage a consistent approach to access regulation across industries. The basic rationale for access regulation, including the National Access Regime, is that the owners of major infrastructure facilities often have substantial market power that can be exploited. This market power can be exercised, for instance, through charging excessive (monopoly) prices to users, or by unreasonably denying access to the facilities. In this respect, the Independent Committee of Inquiry into National Competition Policy noted: Where the owner of the essential facility is vertically integrated with potentially competitive activities in upstream or downstream markets as is commonly the case with traditional public monopolies such as telecommunications, electricity and rail the potential to charge monopoly prices may be combined with an incentive to inhibit competitors access to the facility. For example, a business that owned an electricity transmission grid and was also participating in the electricity generation market could restrict access to the grid to prevent or limit competition in the generation market. Even the prospect of such behaviour may be sufficient to deter entry to, or limit rigorous competition in, markets that are dependent on access to an essential facility. (Independent Committee of Inquiry into Competition Policy in Australia 1993, p. 241) Importantly, such behaviour can lead to significant economic inefficiencies, effectively constraining the benefits from increased competition from being achieved elsewhere in the economy most directly, in those markets that depend on the infrastructure. The National Access Regime is designed to overcome such issues. As noted above, it gives parties a legislative right to negotiate access to bottleneck infrastructure facilities, on reasonable terms, and seeks to ensure that incentives to develop and maintain such facilities are not compromised. In a broad sense, it seeks to maximise the overall 13

15 productive capacity of the economy through promoting enhanced market competition and by avoiding the wasteful duplication of infrastructure facilities. Three access routes The National Access Regime (Part IIIA) provides three distinct access routes. Having a service declared Declaration of a service gives the access seeker the right to negotiate with the service provider, with provision for arbitration if those negotiations are unsuccessful. To be declared, a service must satisfy a number of criteria, including that: access would promote a material increase in competition in another market; it would be uneconomic to develop another facility to provide the service; the facility is nationally significant; and the cost of service is not already covered by an effective access regime. Seeking access through an effective industry-specific regime Part IIIA provides for the certification of an existing access regime as effective. The criteria for certification (which are similar to those for declaration) are set out in a separate agreement (Clause 6 of the Competition Principles Agreement). A service covered by a certified regime cannot be declared. Seeking access under the provisions of an access undertaking Part IIIA allows service providers to submit a voluntary access undertaking to the Australian Competition and Consumer Commission (ACCC) for approval. An undertaking, which sets out the terms and conditions under which access to the service will be provided, can apply to either existing or proposed infrastructure. A service covered by an undertaking cannot be declared. A variety of Commonwealth Government bodies are responsible for administering different aspects of the National Access Regime. Further information on how the Regime operates and its institutional arrangements can be found on the National Competition Council s website ( 14

16 Australia s transport infrastructure regulation Appendix D ARTC rail network 15

17 References Australian Transport Council 2008, Joint Communiqué, 2 May 2008, Canberra. Banks, G 2008, Riding the Third Wave: some challenges in national reform, Productivity Commission, Melbourne, 27 March. COAG (Council of Australian Governments) 2006, Council of Australian Governments Meeting, 10 February 2006 Communiqué, Canberra. Independent Committee of Inquiry into Competition Policy in Australia (Hilmer Committee) 1993, National Competition Policy: Report by the Independent Committee of Inquiry into National Competition Policy, Canberra. McInerney, L, Nadarajah, C and Perkins, F 2007, Australia s infrastructure policy and the COAG National Reform Agenda, Economic Roundup, Summer 2007, pp Productivity Commission 2005, Review of National Competition Policy Reforms, Report no. 33, Canberra. Productivity Commission 2006, Potential benefits of the National Reform Agenda, Report to the Council of Australian Governments, Canberra. 16

18 Why regulate transport infrastructure? HK Holdaway Australian Treasury 15 & 16 August 2008 APEC seminar Outline Attempt to answer the question But with some heavy disclaimers: Even if regulation is warranted in this sector, it needs careful consideration Badly designed regulation produces worse outcomes than not regulating at all Some Australian examples 1

19 Transport infrastructure plays a pivotal role in achieving economic performance and quality of life Economically efficient outcomes are essential Good enough reason to regulate?? 2

20 Public policy principle Governments should not intervene unless there is a clear market failure that can be effectively addressed Market failures Natural monopolies Public goods Externalities Information failures Broad definition of these market failures encompass social objectives Characteristics of transport infrastructure markets Markets alone may not always produce economically efficient outcomes Transport infrastructure often has natural monopoly characteristics Can lead to higher prices and poor services Public goods: Difficult to control access Can be undersupplied if governments do not subsidise or directly provide Externalities & Information failures: Difficult to efficiently price Can be over-used or inappropriately used 3

21 Objectives of regulation To address market failures Natural monopoly Efficiency (price regulation, third party access) Externalities & information failures Social (airport curfews) Environment (fuel efficiency standards) Safety (speed limits, air safety requirements) Benefits of regulation Benefits of regulation can be significant Can improve the well being of citizens Attractive, tangible off-budget response by Government 4

22 Costs of regulation Regulation is not free Key regulatory costs and risks include: Compliance and administration costs Impediments to investment Distortions leading to unintended outcomes Substitution effects by altering relative prices Complex and unintended interactions with other regulations Difficult to get regulated prices right Issues with regulatory capture Getting it right APEC EC s good practice guide clearly define the problem justify government action consider a range of policy options weigh costs and benefits of regulation consult with interested parties consider enforcement and incentives for compliance review regulation 5

23 Airports Some Aussie examples Privatised in the late 90s Regulated prices (CPI-efficiency div basis) Shift to light handed price monitoring framework in 2002 Generally effective in addressing market power while encouraging capacity investments Further review in 2006 price monitoring continued with various enhancements To be reviewed again in 2013 Some Aussie examples Third party access regime Under Part IIIA of the Trade Practices Act Allows businesses to seek access to essential infrastructure services eg railways, ports, electricity networks Seeks to ensure essential facilities do not create bottlenecks and reduce competition Involves public interest test 6

24 Some Aussie examples How not to do it rail regulation Multiple rail gauges Fragmented safety and economic regulation distorts efficient choice of modes Reforms now underway to harmonise regulatory framework Conclusions Regulation should be aimed at addressing market failures and facilitating well functioning markets Regulation of transport infrastructure can be useful but needs careful consideration including robust cost/benefit analysis to ensure overall net benefit to the community 7

25 Thank you! 8