Australia: Significant competition changes proposed to the National Access Regime

The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 will make three key changes to the National Access Regime.

The Competition and Consumer Amendment (Competition Policy Review) Bill 2017 represents the Commonwealth Government's second stage of implementing the reforms recommended by the Competition Policy Review chaired by Professor Ian Harper.

While much of the focus has been on amendments proposed to the competition provisions in Part IV of the Competition and Consumer Act 2010 (Cth) (CCA), the Bill will also make some significant changes to the operation of the National Access Regime. In doing so, the Bill will also implement the earlier recommendations of the Productivity Commission's 2013 Inquiry into the National Access Regime.

Key changes are to:

  • amend and clarify the declaration criteria that must be satisfied in order for a service to become declared;
  • deem a Minister's decision (on declaration) to be the same as the recommendation of the National Competition Council (NCC) if the Minister fails to make a decision within the 60 day time limit; and
  • amend and clarify the scope of an access determination (made by the ACCC) to "extend" a facility.

Declaration criteria

For a service to be declared under Part IIIA of the CCA the declaration criteria must be satisfied. This involves the declaration applicant first applying to the National Competition Council (NCC) for a recommendation to declare the relevant service/s. Upon the NCC making its recommendation to the designated Minister, he/she must then decide whether the declaration criteria have been satisfied. If the Minister finds that the criteria have been satisfied, then he/she must decide to declare the relevant service/s.

The Bill proposes to amend the declaration criteria as set out below.

Declaration criterion (a)

Current form: That access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service

Amended form: That access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service

Declaration criterion (b)

Current form: That it would be uneconomical for anyone to develop another facility to provide the service

Amended form: That the facility that is used (or will be used) to provide the service could meet the total foreseeable demand in the market:

  • over the period for which the service would be declared; and
  • at the least cost compared to any 2 or more facilities (which could include the first-mentioned facility

Declaration criterion (c)

Current form: That the facility is of national significance, having regard to the size of the facility, the importance of the facility to constitutional trade or commerce, or the importance of the facility to the national economy

Amended form: No change

Declaration criterion (e)

Current form: That access to the service is not already the subject of an "effective access regime"

Amended form: To be omitted from the declaration criteria but included as a pre-requisite for an applicant applying for the declaration of a service - that is, the service must not be the subject of an effective access regime at the time of the application

Declaration criterion (f)

Current form: That access (or increased access) to the service would not be contrary to the public interest

Amended form: That access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of the service would promote the public interest

Each of these declaration criteria have been considered in a number of cases heard before the Australian Competition Tribunal and the Federal and High Court. The effect of the proposed amendments will be to over-turn the current judicial interpretation as it applies to each of criteria (a) and (b).

Criterion (a) - promotion of competition

There has been much debate about whether you assess if:

  • access compared with no access; or
  • access on reasonable terms and conditions,

would promote competition.

These amendments resolve that debate.

This criterion was recently considered by the Tribunal in the Port of Newcastle case. An appeal from the Tribunal's decision was heard by the Full Federal Court in late November 2016. The judgment from that Court is expected in the near future.

In that case, the Tribunal held that criterion (a) does not involve an assessment of the future state of competition of the dependent market (without any right or ability to use the service) by reference to any pre-existing usage of the service. That is, consideration of the phrase "access (or increased access)" precludes the comparison with whatever usage or access the service provider does or will provide voluntarily or with the terms on which the service provider provides voluntarily such usage or access. This approach was considered by the Tribunal to be in accordance with an earlier decision of the Federal Court in Sydney Airport Corporation Ltd v Australian Competition Tribunal (2006) 155 FCR 124.

Leaving aside what the Full Federal Court might ultimately decide in the Port of Newcastle case, the effect of the amendments proposed to criterion (a) will be to require the decision maker to undertake a comparison of the existing state of competition against the state of competition where access, through declaration, is granted on reasonable terms and conditions. Under this test, criterion (a) would be not satisfied where there is already effective competition in dependent markets - in effect reversing the outcome of the Tribunal's decision.

Criterion (b) - uneconomical to duplicate

Criterion (b) was most recently considered by the High Court in Pilbara Infrastructure Pty Ltd v Australian Competition Tribunal (2012) 246 CLR 379. These amendments deviate from the findings in that case and specify a natural monopoly test which is quite specifically defined.

Prior to the Pilbara case, a natural monopoly test was applied as the test for satisfying criterion (b). That test required consideration of whether the facility in question could provide society's reasonably foreseeable demand for the relevant service at least cost than any combination of two or more facilities. However, this approach was rejected by the Federal Court and the High Court which held that the word "uneconomical" meant "unprofitable". Hence, criterion (b) requires the decision-maker to be satisfied that there is not anyone for whom it would be profitable to develop another facility.

As can be seen above, the amendments proposed to criterion (b) are directed towards replacing the current "private profitability" test with a "natural monopoly" test, thereby reinstating the previous position.

In determining whether a facility could meet the total foreseeable market demand "over the period for which the service would be declared" the NCC and Minister are not limited to only consider the declaration period sought by the applicant. The NCC is to recommend and the Minister decide the appropriate period of the service declaration.

Assessment of costs

The Bill does not specify which costs are relevant to determining whether a facility can meet the total foreseeable market demand at least cost. However, where total foreseeable market demand can be met by the existing facility, they will include:

  • the costs of changes and any extensions to the facility to allow third party access;
  • the costs of coordinating multiple users of the facility;
  • opportunity costs arising from having multiple users of the facility such as the costs of lost production or of being allocated less service capacity as a result of the facility servicing other users.

Where total foreseeable market demand can be met by the existing facility and a new facility, then the costs which may be considered for the purposes of criterion (b) could include:

  • land acquisition costs;
  • construction and maintenance costs of the new facility; and
  • costs of supporting infrastructure for the new facility.

However, other costs, such as administrative and compliance costs incurred by the service provider following declaration will be considered under criterion (d) (public interest criterion) (as such costs would not be incurred if access was provided without the declaration).

The ramifications of amending the declaration criteria in Part IIIA is unlikely to be limited to the National Access Regime. The same criteria appear as the relevant coverage criteria under the National Gas Law (NGL). The recent report of Dr Michael Vertigan into the effectiveness of the current coverage test under the NGL concluded that a market power test should not be adopted, and that the current coverage criteria should remain unchanged. Any future changes that are made to the coverage criteria under the NGL will be more likely to replicate the amendments proposed by the Bill to the declaration criteria.

Deeming of Ministerial decision

Currently, if the designated Minister fails to make a decision within 60 days of receiving the recommendation of the NCC, his/her decision is deemed to be one not declaring the relevant service/s.

The Bill will amend the CCA by providing that a failure by the designated Minister to make a decision within 60 days of receiving the NCC's recommendation will be deemed to be a decision by the Minister to adopt the NCC's recommendation and to declare or not declare the relevant service/s as the case may be. This amendment seeks to ensure that the designated Minister makes a decision on the application within the 60 day timeframe.

Access determinations to "extend" a facility

Under Part IIIA of the CCA, once a service has been declared, the ACCC may act as the arbitrator of an access dispute between a service provider and an access seeker that is referred to it.

The ACCC has the power to make a binding access determination, which may set the terms and conditions of access, including the price to be paid by an access seeker for access to the declared service. The ACCC may also make a determination which requires a service provider to extend the facility providing the service.

The Bill will amend the CCA to clarify that the ACCC can make an access determination which requires a service provider to expand the capacity as well as the geographical reach of its facility. However, the existing safeguards included in the CCA which provide that an access determination made by the ACCC must not require the service provider to bear some or all of the costs of any expanding the capacity or geographical reach of its facility will remain.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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