Article by Nick McHugh and Tara Michaels
BHP Billiton (BHPB) and Rio Tinto (RIO) have each preserved their right to the exclusive use of key heavy haulage railway lines and associated infrastructure for the transporting of iron ore in the Pilbara region in Western Australia following the Australian Competition Tribunal's (ACT) 30 June 2010 decision to declare only two of the four railways owned by the two mining companies.
The four railways the subject of the ACT's decision are:
- The BHPB operated Mt Newman line (running from the south-east Pilbara to Port Hedland).
- The BHPB operated Goldsworthy line (running from the north-east Pilbara to Port Hedland).
- The Rio operated Hamersley line (running from the south-east and central Pilbara to the port at Dampier).
- The Rio operated Robe line which runs from the western Pilbara to the port at Cape Lambert.
The ACT's decision means that:
- BHPB has maintained the right of exclusive access to its Mt Newman line;
- Rio has maintained the right of exclusive access to its Hamersley line;
- BHPB will share access with third parties to its Goldsworthy line;
- Rio will share access with third parties to its Robe line.
The question whether to "declare" the subject railway lines arose for decision pursuant to the terms of Part IIIA of the Trade Practices Act 1974 (Cth) (TPA). Part IIIA was incorporated into the TPA in 1995 for the purposes of establishing a legal regime to facilitate third parties obtaining access to the services of certain essential facilities considered to be of national significance. The policy rationale for the establishment of such a regime was that access to certain facilities which have natural monopoly characteristics is required in order to promote competition and efficiency.
The procedure prescribed by Part IIIA for obtaining access to essential facilities comprises two principal steps:
- The making of an application to the National Competition Council (NCC) for a declaration of the relevant service as "essential". The NCC may then recommend to the designated minister that the service be "declared" subject to its satisfaction of the requirements in Part IIIA governing the NCC's decision to recommend the declaration of a service as "essential" (see a) - f) below);
- The private negotiation between the affected parties (or, failing that, arbitration by the ACCC or determination by the ACT) of the access arrangements including the price of access.
In recommending a service be declared, the NCC must be satisfied of all of the following six elements (see section 44G(2) of the TPA):
- that access (or increased access) to the service would promote a material increase in competition in at least one market (in Australia or elsewhere) other than the market for the service;
- that it would be uneconomical for anyone to develop another facility to provide the service;
- that the facility is of national significance having regard to
- its size;
- its importance to constitutional trade or commerce; or
- its importance to the national economy.
- that access to the service can be provided without undue risk to human health or safety;
- that access to the service is not already the subject of an effective access regime;
- that access (or increased access) to the service would not be contrary to the public interest.
The ACT decision on access to the BHPB and Rio Pilbara rail lines
The ACT's recent decision regarding access to the Pilbara rail lines arose out of separate appeals by BHPB, Rio and Fortescue Metals Group Limited (FMG) to the ACT in respect of the earlier decision by the designated minister (on the recommendation of the NCC) to declare all of the rail lines save for BHPB's Mt Newman line. (Prior to the commencement of these appeals, appeals by BHPB of decisions of the Federal Court and Full Federal Court testing the jurisdiction of the NCC to declare the services associated with the Mt Newman and Goldsworthy lines, respectively, were heard by the High Court. The High Court's decision on those appeals confirmed that those services fell within the scope of Part IIIA and therefore the jurisdiction of the NCC to make declarations in respect of access to them was enlivened.)
FMG's case before the ACT was essentially that rail is the only viable option for most junior minors in the Pilbara for the transport of iron ore and many cannot afford to make the significant capital investment required to build their own rail lines. FMG's case was challenged by Rio and BHPB which argued that their rail lines are part of an integrated mine-rail-port production system which requires absolute flexibility and that any interference with their exclusive and intensive use of the lines by third parties could cause billions of dollars of lost export revenue.
The determination of the ACT ultimately turned on three of the six criteria (set out above) which were disputed amongst the parties, namely:
- whether access would promote a material increase in competition in at least one market (see a) above);
- whether any of the rail lines had "natural monopoly characteristics" such that it would be "uneconomical" for competitors to develop new rail infrastructure (see b) above); and
- the balance between the public interest and costs of allowing access (see f) above).
In its assessment of the third criterion, the ACT found that while there was a public interest in the grant of access insofar as it would generate savings through the sharing of the existing rail infrastructure and make rail services available for additional mining projects, significant costs would accrue from the severe logistical and commercial constraints on third party access that would be required to ensure that there was no interference with BHPB and Rio's highly flexible iron ore logistics business models.
The results of the ACT's costs/benefits analysis were that the costs likely to be suffered by permitting access to BHPB's Mt Newman line and Rio's Hamersley line were so great as to outweigh any countervailing benefits to the public. On the other hand, the ACT found that the public interest in enabling third party access to the BHPB Goldsworthy and Rio Robe lines outweighed the likely associated costs. The ACT indicated that the key determinant in the public interest vs. costs balancing exercise in this case was the difference in intensity of use (including in the sense of the volume of iron ore transported) as between the four lines.
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