western australian rail access regimencc.gov.au/images/uploads/cerawaap-001.pdf280 kilometres in the...

Certification of the

Western AustralianRail Access RegimeSubmission to the National Competition Council

May 2010

Contents

Application and Contacts........................................................................................................... 1

Background................................................................................................................................ 3

Overview of the Western Australian Third Party Access Regime for Rail................................. 7

The Western Australian Third Party Access Regime for Rail and the Competition Principles Agreement ............................................................................................................ 10

Duration of Certification ........................................................................................................... 37

Conclusion ............................................................................................................................... 38

Attachment 1............................................................................................................................ 39

Submission to the National Competition Council

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Application and Contacts

This application is made under section 44M(2) of the Trade Practices Act 1974 (Commonwealth) (TPA) and the following supporting information is submitted for the National Competition Council’s (NCC) consideration in accordance with Regulation 6B of the Trade Practices Regulations 1974 (Commonwealth).

This application seeks a recommendation from the NCC to the Commonwealth Minister that the Western Australian Third Party Access Regime for Rail (Access Regime), as legislated in the Railways (Access) Act 1998 (the Act) and codified in the Railways (Access) Code 2000 (the Code), is an effective access regime in relation to railway infrastructure, within the meaning of that term given in section 3 of the Access Code.

Applicant State This application is made on behalf of the State of Western Australia.

Responsible Minister The Responsible Minister for Western Australia concerning this application is the Hon. Colin Barnett MLA, Premier; Treasurer; Minister for State Development.

Contact Officer The contact officer for Western Australia for matters relating to this application is:

Dr David Morrison Director, Economic Reform Department of Treasury and Finance 4th Floor, Governor Stirling Tower 197 St Georges Terrace PERTH WA 6000

Tel: (08) 9278 6702

Email: [email protected]

Certification of the Western Australian Rail Access Regime

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Address for Service of Documents The responsible Minister’s address for delivery of documents, including the notification of any decision of the Commonwealth Minister or the Council, relating to this application or recommendation is:

Hon. Colin Barnett MLA Premier; Treasurer; Minister for State Development 24th Floor, Governor Stirling Tower 197 St Georges Terrace PERTH WA 6000


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Background

Rail Reform Historically, railway infrastructure and operations in Australia have been characterised by government monopolies which owned the railway infrastructure and operated the majority of rail traffic. This market structure stifled competition and tended to impede third party access.

In 1995, the Commonwealth Parliament enacted Part IIIA of the TPA, establishing a national regime in which access may be sought to a range of nationally significant infrastructure that cannot be economically duplicated, including certain rail networks, electricity grids and gas pipelines.

Following this development, the West Australian Government proceeded to develop a state based Rail Access Regime by establishing the Government Railways (Access) Act 1998. It was envisaged that this would facilitate the efficient use of, and investment in, railway facilities by establishing a contestable market for rail operators within the State.

The Government Railways (Access) Act 1998 was subsequently amended and renamed the Railways (Access) Act 1998 to more accurately reflect the circumstances in Western Australia since the sale of Westrail's freight business in December 2000.

The Government Railways (Access) Amendment Act 2000 further amended the Government Railways (Access) Act 1998 in order to establish the Office of the Rail Access Regulator to oversee, monitor and enforce compliance by the railway owners within the provisions of the Access Regime.

The development of the Code is a requirement of the Act. The Code, which is subsidiary legislation, was gazetted in September 2000. Thus, the Access Regime is made up of the Act and the Code. Both became fully effective on 1 September 2001 when the Regime commenced.

Responsibility for the administration of the Regime was transferred to the Economic Regulation Authority (ERA) effective 1 January 2004 under the Economic Regulation Authority Act 2003.


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Functions of Relevant Parties

Department of Treasury and Finance

The Microeconomic Reform division of the Department of Treasury and Finance (DTF) is responsible for the promotion of competition policy, including third party access, and hence is responsible for policy decisions that may influence the Act and Code. The DTF is also responsible for the general administrative duties associated with the Act and Code, including the process to amend the Act or Code. The DTF is the lead policy agency as the Treasurer is the Minister responsible for the Act.

Department of Transport

The Department of Transport (DoT) is the Government agency responsible for the development and implementation of transport policy in Western Australia. The DoT was responsible for the development of the Act and Code, which involved consultation with stakeholders.

Economic Regulation Authority

The ERA as the Regulator of the Access Regime, monitors and enforces compliance with the Act and the Code.

Under the Regime, the Regulator:

• makes determinations under both Part 5 and Schedule 4 of the Code;

• provides advice on request to access seekers on whether the price offered is consistent with access prices charged to the railway owner or its associates;

• maintains a public register of Access Arrangements negotiated under the Code (although the Access Arrangements themselves are not public);

• provides information that will benefit access negotiations (other than commercially confidential information), if appropriate;

• annually determines the weighted average cost of capital;

• establishes a panel of arbitrators and is responsible for selecting the arbitrator for each dispute;

• is responsible for the periodic review of the Code; and

• applies penalties for breaches of the Act.

The Code empowers the ERA to approve or determine floor and ceiling costs for rail lines, segregation arrangements, train management guidelines, train path policies, costing principles and the negotiation of access that may preclude other entities from access. However, before making these determinations the ERA must publish public notices and seek public submissions, as required by the Act.


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Rail Industry in Western Australia Prior to the privatisation of Western Australia’s rail network in December 2000, Westrail was the Government rail service provider. Westrail previously operated both passenger and rail freight services throughout the State until the sale of the freight business to Australian Western Railroad Group.

WestNet Rail

WestNet Rail (WNR) operate and maintain approximately 5100 kilometres of rail infrastructure throughout the south of WA. Following the sale of the Westrail freight business, WNR was granted a 49 year lease by the State Government to manage the Western Australian intrastate rail freight network. WNR’s responsibilities under the lease include allocating track access, train control, maintenance and capital upgrading of infrastructure, signals and communication systems and maintaining safety.

Australian Railroad Group

Australian Western Railroad (ARG), a subsidiary of Queensland Rail, is the primary (above rail) intrastate freight train operator in Western Australia. ARG carries approximately 50 million tonnes of bulk intrastate rail freight per year.

In Western Australia, the main freight commodities include grain, alumina, bauxite, iron ore, nickel ore, mineral sands and woodchips. Almost 95% of the freight carried by ARG in Western Australia is related to exports through the ports of Geraldton, Fremantle, Kwinana, Bunbury, Albany and Esperance.

Pacific National

Pacific National (PN) is Australia's largest private rail freight operator. In Western Australia, PN provides interstate freight train services connecting Perth to major Australian capital cities and regional centres, including links to key ports.

Public Transport Authority

The Public Transport Authority (PTA) brings together the management and delivery of public transport in Western Australia, providing metropolitan and regional passenger rail services. The rail service divisions of the PTA include:

• Transperth – the metropolitan passenger train operating division, which makes more than 6640 trips each week over 173.1 kilometres of track; and

• Transwa – operator of four regional passenger train routes (the Australind, Prospector, AvonLink and MerredinLink) providing 66 services per week. These services operate on both the PTA and WNR networks, with subsequent road coach connections to over 275 regional locations in Western Australia.


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Specialised Container Transport

Specialised Container Transport (SCT) operates a range of freight train services including an interstate freight train service between Melbourne and Perth. SCT has elected to subcontract provision of rolling stock and crew to PN under a hook and pull agreement.

Great Southern Railway

Great Southern Railway (GSR) operates a range of long distance tourist passenger trains across Australia, including the Indian Pacific passenger tourist service between Sydney and Perth.

Fortescue Metals Group Railway

The Fortescue Metals Group/The Pilbara Infrastructure (FMG/TPI) railway runs for over 280 kilometres in the Pilbara region of Western Australia, between FMG’s Cloudbreak mine and Port Hedland port. This heavy haul railway has a 40 tonne axle load design, with approximately four bulk iron ore trains per day operating over the route.

Other

There are also some tourist train operations in Western Australia, including the Hotham Valley Tourist Railway which operates steam and diesel passenger haulage services. They offer a variety of specialist tourist services throughout the year on regional lines. South Spur Rail and Midland RailCo also operate on the network, and are smaller private operators which have contracts to haul products mainly for WNR.


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Overview of the Western Australian Third Party Access Regime for Rail

The objective of the Access Regime, as specified in the Act, is to encourage the efficient use of, and investment in, railway facilities by facilitating a contestable market for rail operations.

In order to realise this, the Access Regime is based on the negotiate – arbitrate model. This model facilitates the commercial negotiation of access agreements between railway owners and access seekers, with negotiations based on regulated policies and practices established under the Act and Code. In the case of disagreement between the parties, a rigorous dispute resolution process is in place to resolve the outstanding matters.

Importantly, the Access Regime provides a safety net framework in which negotiations are able to proceed using the steps and timeframes specified in the Code. The Access Regime is not mandatory so access contracts can be established outside the Code through commercial negotiations.

The Regime ensures that businesses seeking rail access are treated fairly, and provides for disputes between the railway owner and access seeker to be resolved by arbitrators and mediators operating under the Commercial Arbitration Act 1985 (WA).

In summary, the Rail Access Regime:

• defines the rail network and infrastructure subject to the Code;

• establishes the rights and obligations of the railway users and owners of railway infrastructure in relation to third party access to the railway system;

• requires the railway owner to enter into negotiations and follow a prescribed process to establish an Access Arrangement with the access seeker;

• specifies what shall be included in an Access Arrangement – the terms of which are negotiated;

• specifies the information to be made available to access seekers;

• establishes an independent regulator, which has responsibility for making determinations on key access issues (including the instruments given under Part 5 of the Code and the Weighted Average Cost of Capital);

• provides for certain approval functions of the regulator; and

• establishes an arbitration process, to be utilised when the railway owner and access seeker cannot agree on terms.


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The Railways (Access) Act 1998 The primary matters that are governed by the Act include:

• establishment of the powers and functions of an independent Access Regulator, which is the ERA (sections 20-23);

• segregation arrangements which require the railway owner to separate its access related, below rail (non-competitive) functions from other competitive functions (section 28); and

• enforcement mechanisms, including penalties or Supreme Court injunctions against the railway owner for non-compliance with key parts of the Regime (sections 34-37).

Part 2 of the Act stipulates a requirement for a Code to be established, and provides the legal basis for enforcement of the Code. Together, the Act and the Code form the Western Australian Rail Access Regime.

Railways (Access) Code 2000 The Code is subsidiary legislation that provides a set of guidelines that dictate how the provisions of the Act are to be applied. Where the Act covers the broad policy principles of the Access Regime, the Code covers the practical implementation of the Access Regime.

The Code makes provision for railway infrastructure to be available for use by a third party through either a contract with the railway owner or a determination made through arbitration. It defines what infrastructure is accessible through third party access by outlining which parts of the network are covered by the Access Regime. Other key features of the Access Regime that are covered by the Code include:

• the methods for determining the weighted average cost of capital and floor and ceiling prices;

• the pricing principles (how costs are to be calculated);

• the negotiation process;

• the dispute resolution process;

• the information to be made available to and by access seekers;

• the Regulator’s functions including matters to be approved such as the Costing Principles, Over-payment Rules, Train Management Guidelines and Train Path Policy (or Part 5 instruments); and

• the contents of access agreements.


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Regulated Networks

The rail network and types of infrastructure subject to the Regime are defined in the Code.

As specified in Schedule 1 of the Code, the railway network covered by the Access Regime comprises about 5,000 route kilometres of track in the south-west of Western Australia, including the urban (predominately passenger) network and the non-urban freight network. This generally comprises all standard and narrow gauge track and associated infrastructure west of Kalgoorlie.

Also covered by the Regime is The Pilbara Infrastructure Pty Ltd (TPI) railway stretching 280 kilometres from Cloudbreak mine in the eastern Pilbara to Port Hedland Port.

Not included in the Regime’s coverage are the BHP-Billiton and Rio Tinto railway lines in the Pilbara and the railway line east of Kalgoorlie, which is owned by the Commonwealth Government and controlled by the Australian Rail Track Corporation.

Description of the Service Western Australia requests that the National Competition Council make a recommendation to the Commonwealth Minister that the Access Regime is an effective regime under Part IIIA of the TPA in relation to access to railway infrastructure. ‘Railway infrastructure’ as defined by the Code, relates to the facilities necessary for the operation of a railway, including:

a) railway track, associated track structures, over or under track structures, supports (including supports for equipment or items associated with the use of a railway);

b) tunnels and bridges;

c) stations and platforms;

d) train control systems, signalling systems and communication systems;

e) electric traction infrastructure;

f) buildings and workshops; and

g) associated plant machinery and equipment,

but not including:

h) sidings or spur lines that are excluded by clause 3(3) or 3(4) of the Act from being railway infrastructure; and

i) rolling stock, rolling stock maintenance facilities, office buildings, housing, freight centres, terminal yards and depots.

Hence, the service facilitated by the Act and Code is the use of the infrastructure outlined in points “a” to “g” above. This is consistent with the definition of a service as given in S44B of Part IIIA of the TPA.


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The Western Australian Third Party Access Regime for Rail and the Competition Principles Agreement

The following section of the submission addresses the consistency of the Access Regime with each of the principles in clause 6 of the Competition Principles Agreement, which are relevant under section 44M of the TPA to an assessment of the effectiveness of the Access Regime under Part IIIA of the TPA.

The Act and the Code set out the framework under which third parties can negotiate access to the Railways listed in Schedule 1 of the Code.

The objective of the Regime, as per section 2A of the Act, is to establish a rail access regime that encourages the efficient use of, and investment in, railway facilities by facilitating a contestable market for rail operators.

It is submitted that the Access Regime should be certified because it:

• complies with clauses 6(2), 6(3) and 6(5) of the Competition Principles Agreement; and

• incorporates the principles set out in clause 6(4) of the Competition Principles Agreement.

Each of these matters is addressed individually in the following section.

Compliance with clause 6 of the Competition Principles Agreement

CLAUSE 6(2)

The regime to be established by Commonwealth legislation is not intended to cover a service provided by means of a facility where the State or Territory Party in whose jurisdiction the facility is situated has in place an access regime which covers the facility and conforms to the principles set out in this clause unless:

a) the Council determines that the regime is ineffective having regard to the influence of the facility beyond the jurisdictional boundary of the State or Territory; or

b) substantial difficulties arise from the facility being situated in more than one jurisdiction.

The railway networks and associated infrastructure covered by the Access Regime are identified in Schedule 1 of the Code. Appropriately, the Code only applies to routes that are situated wholly within Western Australia.


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As identified earlier in this submission, several rail operators conduct interstate operations utilising the Western Australian and interstate railways network. The Access Regime is sufficiently flexible to allow for commercial negotiations, in order to ensure that national operators will not be disadvantaged by having to operate within it. Furthermore, the Access Regime applies only to part of the interstate rail line, the section between Perth and Kalgoorlie (i.e. to the intrastate section). Separate, commercially negotiated third party access contracts are in place for the section of the interstate line East of Kalgoorlie (i.e. the WNR/ARTC wholesale agreement).

The Access Regime has previously been criticised about its divergence from the national-level access framework that is in place for the track between Kalgoorlie and the South Australian border (the Australian Rail Track Corporation (ARTC) access undertaking). As part of the Council of Australian Governments (COAG) process it was agreed that a consistent system of rail access regulation, based on the ARTC model, should be implemented for all nationally significant rail corridors, including the section of rail track between Perth and Kalgoorlie, where the benefits of such consistency exceeded the costs. Clause 3.1 of the Competition and Infrastructure Reform Agreement outlines this commitment. However, both the COAG Business Regulation and Competition Working Group (BRCWG) and the COAG Reform Council (CRC) have examined this issue recently and have determined that the ARTC model should not be applied in Western Australia until it can be demonstrated that the benefits of such an approach outweigh the costs. Furthermore, given that ARTC has described the Access Regime as “in many areas, broadly consistent with similar provisions incorporated in the … undertaking”1 it is questionable whether changing the Western Australian access regime would deliver a net benefit.

The Government will continue to work with COAG and the Australian Transport Council to asses the merits of adopting a national regime, which may or may not be modelled on the ARTC access undertaking.

Summary

The infrastructure covered by the Access Regime does not extend beyond the jurisdictional boundary of Western Australia, nor is it subject to any other regime. Therefore, the principles of clause 6(2) are satisfied by the Access Regime.

1 ARTC, 2005 Submission to the Economic Regulation Authority review of the Railways (Access) Code 2000


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CLAUSE 6(3)

For a State or Territory access regime to conform to the principles set out in this clause, it should:

a) apply to services provided by means of significant infrastructure facilities where:

(i) it would not be economically feasible to duplicate the facility;

(ii) access to the service is necessary in order to permit effective competition in a downstream or upstream market; and

(iii) the safe use of the facility by the person seeking access can be ensured at an economically feasible cost and, if there is a safety requirement, appropriate regulatory arrangements exist; and

b) reasonably incorporate each of the principles referred to in subclause (4)

Clause 6(3) sets out the types of infrastructure services, which if covered by a State or Territory access regime that incorporates the principles in clause 6(4), cannot be declared under Part IIIA of the TPA. In particular, subclause 6(3)(a) states that an effective access regime should primarily cover services provided by infrastructure facilities which would not be economically feasible to duplicate.

Services Covered by the Access Regime

Section 3 of the Access Code defines the railway infrastructure covered by the Access Regime. “Railway infrastructure” as defined by the Code means the facilities necessary for the operation of a railway, including:

a) railway track, associated track structures, over or under track structures, supports (including supports for equipment or items associated with the use of a railway);

b) tunnels and bridges;

c) stations and platforms;

d) train control systems, signalling systems and communication systems;

e) electric traction infrastructure;

f) buildings and workshops; and

g) associated plant machinery and equipment,

but not including:

h) sidings or spur lines that are excluded by clause 3(3) or 3(4) of the Act from being railway infrastructure; and

i) rolling stock, rolling stock maintenance facilities, office buildings, housing, freight centres, terminal yards and depots.


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It is understood that for an access regime to be certified as effective, in addition to providing the definition of the generic services that it applies to, it must also nominate specific services.

Schedule 1 of the Access Code nominates the routes to which the Code applies. When an Access Agreement is entered into for particular routes, the Code requires the railway owner to submit the agreement to the ERA as soon as is practicable.

Significance

While the economic significance of the covered routes and line sections varies, overall the rail network is a significant State infrastructure facility.

The Kalgoorlie to Perth line carries all interstate rail freight and accounts for a high proportion of Western Australia’s interstate trade. Rail freight also plays a significant role for the transportation of exported and imported freight to and from Western Australia’s ports, which is of particular importance in those regions that support significant mineral projects. For example, the FMG/TPI railway will carry 55 million tonnes per annum of iron ore by December 2010, which is a significant contribution to the State’s export industry.

Not Economically Feasible to Duplicate

The NCC has consistently found that the appropriate test to determine whether this criterion is met is a social (national benefit) test that focuses on identifying whether a facility exhibits natural monopoly characteristics. Traditionally, railways have been considered to exhibit these characteristics due to the large costs of construction and demand risk and as such, there are strong grounds to suggest that the routes identified in Schedule 1 of the Code possess natural monopoly characteristics. In general, railway networks are not economically feasible to duplicate.

Permits Effective Competition

Access to the prescribed rail services will promote competition by altering industry structure and changing market conduct and performance. Access would be expected to place additional pressure on incumbents to provide the best services possible in the rail transport market.

Access to rail line services is essential to the delivery of downstream services such as rail freight and the delivery of goods to markets. Access to services provided by railway infrastructure covered by the Code will result in improved competition within the market for rail freight. Increased competition is likely to be reflected in lower prices and improved quality of services.

Safe Use can be Ensured

Safety considerations are dealt with in the Access Regime through the Code being subject to the Rail Safety Act 1998, which the State is currently in the process of replacing with the Rail Safety Bill 2009. The implementation of the Rail Safety Bill 2009 is consistent with the State’s commitments under the National Partnership Agreement to Deliver a Seamless National Economy.


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Under the Code, an operator seeking access is required to demonstrate that they have the capacity to gain accreditation under the enacted Rail Safety Act 1998. Accreditation under the Rail Safety Act 1998 can only be granted once the applicant has satisfied the Rail Safety Authority that:

a) the applicant is or is to be a rail infrastructure manager or rolling stock operator in relation to the railway operations for which accreditation is sought;

b) the applicant has the competence and capacity to manage risks to safety associated with the railway operations for which accreditation is sought;

c) the applicant -

− has the competence and capacity to implement the proposed safety management system;

− has the financial capacity, or has public risk insurance arrangements, to meet reasonable potential accident liabilities arising from the railway operations;

d) the applicant has met the consultation requirements of this Act in relation to the applicant’s safety management system; and

e) the applicant has complied with the requirements prescribed, if any, for the purposes of this section.

It is important to note that, under the Code, a third party access seeker is not required to be safety accredited when seeking access. Likewise, an applicant for safety accreditation does not have to demonstrate that it already has an access agreement in place.

Summary

The Access Regime applies to services provided by means of significant railway infrastructure, which would not be economically feasible to duplicate, and to which access is necessary in order to permit effective competition.

The Code also contains appropriate regulatory arrangements to ensure the safe use of network infrastructure facilities by parties seeking access at reasonable economic cost.

CLAUSE 6(4)(A)-(C)

A State or Territory access regime should incorporate the following principles:

a) Wherever possible third party access to a service provided by means of a facility should be on the basis of terms and conditions agreed between the owner of the facility and the person seeking access.

b) Where such agreement cannot be reached, governments should establish a right for persons to negotiate access to a service provided by means of a facility.

c) Any right to negotiate access should provide for an enforcement process.


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These three clauses are considered together as they establish a framework under which access negotiations should be handled in an effective access regime.

The Access Code is primarily intended to apply as a safety net in circumstances where an alternative to commercial negotiations between third party access seekers and the owner/operator of the railway is required. In this context, it is emphasised that the Access Regime in no way precludes parties from negotiating commercial arrangements that suit their particular needs and circumstances.

Right of Negotiation outside the Code

In accordance with subclause 6(4)(a) of the Competition Principles Agreement, the Code encourages third party access to be achieved through commercial negotiation. This is accomplished through section 4A of the Code, which recognises the freedom of parties to negotiate agreements outside the Code. Section 4A sets out that:

Parties have option to negotiate agreements outside this Code

1) To avoid doubt it is declared to be the case that —

a) the parties concerned may choose whether negotiations for an agreement for access are carried on under this Code or otherwise; and

b) if the parties choose to negotiate an agreement for access otherwise than under this Code, nothing in this Code applies to or in relation to the negotiations or any resulting agreement; and

c) in particular, without limiting paragraph (b), a Part 5 instrument, as defined in section 40(3), is not to be taken into account in determining the rights, powers, duties and remedies of parties to negotiations carried on or an agreement made otherwise than under this Code, except to the extent that the parties concerned agree otherwise.

Parties are free to negotiate the access contract including price, service standards and insurance, outside the parameters of the Code, with the only exceptions being that the safety conditions, train management guidelines and train path policy provisions of the Code must be adhered to.

Negotiations under the Code

Part 3, Divisions 1 and 2 of the Code outline the provisions relating to the duty to negotiate and the negotiation process when parties are intending to develop an Access Agreement under the Code. Part 3 Division 1 of the Code outlines when the duty to negotiate arises for the railway owner, a requirement for the railway owner to negotiate in good faith and the initial requirements on the access seeker (evidence of financial ability and an outline of the proposed operations). Part 3 Division 2 outlines the general procedural provisions guiding the negotiation process as well as the duties of the railway owner and the matters that must be covered. The Code does not prescribe exactly how negotiations are to be conducted or the specific terms and conditions to be included in an Access Agreement, the parties are responsible for negotiating these commercially, with reference to the dispute resolution process where necessary.


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The Access Agreement

The Access Agreement constitutes the framework under which a service provider must provide access to the infrastructure to (prospective) users, in the event that the parties are unable to negotiate an access contract. The Access Agreement will include a description of the services required by a particular user and the terms and conditions on which that access will be provided. The contents of an Access Agreement are intended to ensure that prospective users have certainty about the terms and conditions, including negotiated prices, which would apply to access to the covered infrastructure.

Schedule 3 of the Access Code sets out the provisions that an Access Agreement must address for it to be approved by the Regulator.

An Access Agreement must have provisions for:

1) The period for which access is provided and arrangements for renewals.

2) The routes, including the railway infrastructure, to which access is provided.

3) The services to be provided by the operator.

4) The allocation of train paths that have ceased to be used by the operator.

5) Prices and charges.

6) Route control and management.

7) Train control, operations and consultation procedures.

8) Other services to be provided by the railway owner.

9) Certification of the operator’s staff and contractors —

a) as being competent to carry out functions in rail operations; and

b) to ensure compliance with the railway owner’s safety standards under the Rail Safety Act 1998.

10) The standards and other requirements to be met in respect of rolling stock.

11) Performance standards to be met by the railway owner and the operator.

12) The powers of the railway owner in relation to —

a) the inspection of;

b) the obtaining of information about; and

c) the testing of, the operator’s rolling stock and other equipment.

13) Emergencies and service interruptions.

14) Environmental standards.


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15) Indemnities and insurances.

16) Variation and termination of the agreement.

17) Breaches and defaults arising from the agreement.

18) Determination of liability arising from incidents.

19) The resolution of disputes arising in the carrying out of the agreement.

20) Investigations and inquiries.

21) Confidentiality requirements or restrictions on the use or dissemination of information.

22) Assignment of rights and obligations.

23) Security for the payment of amounts becoming payable under the agreement.

The Code requires the infrastructure owner to submit any completed Access Agreement to the ERA for registration as soon as is practicable.

Independence and Transparency of the Regulatory Process

Part 3 of the Act outlines the Regulator’s functions and powers, including the monitoring and enforcement of the Access Regime. Clause 20(1) of the Act states that:

The Regulator –

a) is responsible for monitoring and enforcing compliance by railway owners with this Act and Code; and

b) also has the functions given by particular provisions of this Act and Code.

In order to perform these duties, the Act also affords the Regulator with powers to obtain information (section 21), to inspect records (including books and documents) and of entry (section 22), whilst also prohibiting any person from hindering or obstructing the Regulator exercising these powers (section 22B). Prescribed penalties are contained in Part 3 of the Act for circumstances where hindrance or obstruction of these powers occurs. Confidentiality provisions are also contained under section 23 of the Act, which protect the confidentiality of any information provided to the Regulator in carrying out its powers and functions.

The independence of the regulatory process is guaranteed by the fact that the regulatory powers are within an independent statutory body, the ERA. Independence is guaranteed by clause 28(1) of the Economic Regulation Authority Act 2003, which states that:

…the Authority is independent of direction or control by the State or any Minister or officer of the State in the performance of the Authority’s functions.

Likewise, separation of the ERA from facility owners, current users and access seekers is guaranteed by the requirement, under clause 30(1) of the Economic Regulation Authority Act 2003, for members of the ERA to disclose any conflict of interest. Furthermore, the NCC has previously recognised the ERA as being sufficiently resourced and vested with appropriate powers under the Code to undertake its duties in an impartial and objective manner.


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Further contributing to the robustness of this process is the mandate that all proposals for access are to be recorded and maintained in a register by the railway owner. Clause 12(2) of the Code provides for the details and dates that must be recorded in the register, whilst clause 12(3) of the Code specifies that the register must be available in both written and electronic form.

Mechanisms to Address Information Asymmetries

A potential access seeker that is interested in making a proposal in regards to a particular route may request the railway owner provide it with information that is prescribed in section 7 of the Code. Such information includes an initial indication of:

• the current available capacity of the route;

• the price that the entity might pay for access; and

• the terms, conditions and obligations that the railway owner would want included in any Access Agreement.

The railway owner is also required to provide the access seeker with technical information regarding any aspect of the railway infrastructure that affects the design of rolling stock.

Furthermore, section 9 of the Code sets out that once an access proposal is received by the railway owner they must provide the access seeker with:

• the floor and ceiling prices for the proposed access;

• the cost of each route section on which those prices have been calculated; and

• a copy of the costing principles that are in effect, within seven days of receipt of the access proposal.

Part 5 Instruments

Part 5 of the Code requires that railway owners submit separate subsidiary instruments to be approved by the ERA. These instruments include Train Management Guidelines (TMG), the Statements of Policy (Train Path Policy), the Costing Principles and the Overpayment Rules, which form part of the framework for any access negotiations for the particular route or railway they relate to.

Train Management Guidelines

Section 43 of the Code requires that the railway owner develops and submits TMG to the ERA for approval. The TMG is a set of principles, rules and practices which apply to the management of train services.


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Train Path Policy

Section 44 of the Code requires the railway owner to make a statement of policy related to the allocation of train paths and provision of access to train paths that have ceased to be used. This must be submitted to the ERA for approval. This process is designed to ensure that the allocation of train paths is undertaken in a way that is safe and ensures fairness of treatment between operators.

Costing Principles

Another mechanism of the Access Regime, which has been designed to address information and market power asymmetry, is the requirement under section 46 of the Code for railway owner’s costing principles to be approved by the ERA. The railway owner must submit to the ERA for approval the costing principles that are to be applied and followed in the determination of costs (and the keeping of financial records relating to the determination of costs).

These costing principles are used to determine floor and ceiling prices. Schedule 4 clauses 7 and 8 of the Code outline the floor and ceiling price tests, the results of which form the floor and ceiling price band that guides access negotiations. The floor price test ensures that the minimum cost a third party must pay for access is equivalent to the incremental costs resulting from its operations on the particular route and the use of particular infrastructure. On the other hand, the ceiling price test ensures that the maximum cost a third party could pay for access is equivalent to the total costs attributable to the particular route and infrastructure. This process is designed to ensure that parties negotiate prices within a reasonable range.

Over-payment Rules

Section 47 of the Code requires railway owners to submit over-payment rules to the ERA for approval. Over-payment Rules apply where breaches of the ceiling revenue test occur on part of the railway infrastructure that could not be reasonably avoided. They provide a mechanism that allows the ERA to calculate the excess revenue and reimburse access seekers/operators.

Enforcement Mechanisms

Part 5 of the Act provides for matters in relation to enforcement of the Access Code. As such, enforcement procedures, including penalties, are prescribed in this part of the Act.

Where negotiations fail and an agreement cannot be met between two parties a dispute mechanism has been established in Part 3, Division 3 of the Code. This section of the Code outlines the arbitration model including:

• the grounds to support arbitration;

• the process involved in appointing an arbitrator;

• the procedure for arbitration to follow;

• matters to be taken into account by the arbitrator;

• involvement of the Regulator in arbitration;


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• determination of the dispute;

• compliance with the determination; and

• termination of arbitration.

Summary

For the above reasons, the Access Regime satisfies the requirements of clauses 6(4)(a) to (c) of the Competition Principles Agreement.

CLAUSE 6(4)(D)

Any right to negotiate access should include a date after which the right would lapse unless reviewed and subsequently extended; however, existing contractual rights and obligations should not be automatically revoked.

The intent of clause 6(4)(d) is to provide for a periodic review of the need for access regulation to apply to a particular service.

Review of Access Code

Under section 12 of the Act there is a requirement for the Regulator to conduct a review of the Code after the first three years following its commencement and there-after every five years. The purpose of these reviews is to assess the suitability of the provisions of the Code to give effect to the Competition Principles Agreement in respect of railways to which the Code applies. As part of conducting these reviews, the Regulator must issue notice for public submissions on the effectiveness of the Code. The Regulator must also prepare a report based on the review and provide this to the relevant Minister.

If the outcome of the review is a recommendation for amendment or replacement of the Code, section 10 of the Act requires the Minister to call for public comment on these proposals. The Minister must take into account all of the submissions made in accordance with the notice before amending or replacing the Code, which has the status of subsidiary legislation within the meaning of the Interpretation Act 1984.

Section 7 of the Act states that the Code does not affect existing agreements. That is, the Code does not affect the terms and conditions, or the operation, of an agreement for the use of railway infrastructure made with a railway owner before the commencement of the Code. Furthermore, section 38 of the Code states that Access Agreements are not affected by amendments to the Code after the Access Agreement has been made.


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Summary

The Access Regime achieves the same policy objective as clause 6(4)(d) and consequently satisfies the requirement of clause 6(3)(b) that it “incorporate the principles” of clause 6(4).

CLAUSE 6(4)(E)

The owner of a facility that is used to provide a service should use all reasonable endeavours to accommodate the requirements of persons seeking access.

The Access Regime contains a number of provisions that ensure that the principle of clause 6(4)(e) is satisfied.

Reasonable Endeavours to Provide Access

Section 13 of the Code imposes an obligation on the railway owner to negotiate in good faith. It states that:

Where a proposal is made by an entity the railway owner must negotiate in good faith with the entity with a view to the railway owner and the entity making an access agreement in respect of the route.

Section 16 of the Code goes further in specifying the responsibility for a service provider to:

• use all reasonable endeavours to avoid unnecessary delays;

• not unfairly discriminate between one proponent and another; and

• not unfairly discriminate between the proposed rail operations of a proponent and the rail operations of the railway owner including the allocation of train paths, the management of train control and operating standards.

Prohibitions on Hindering or Preventing Access

Section 34A of the Act contains a prohibition on conduct that prevents or hinders access. The prohibition intends to constrain any attempt by a railway owner to refuse to accept an application for access. Furthermore, the Act also prohibits those who have access under an Access Agreement to engage in conduct aimed at hindering or preventing access by another party.

The breach of this provision will incur the penalty of $100,000, in addition to a daily penalty of $20,000.


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Summary

The above elements of the Access Regime explicitly incorporate the principles of clause 6(4)(e), and so constitute an effective regime in this respect.

CLAUSE 6(4)(F)

Access to a service for persons seeking access need not be on exactly the same terms and conditions.

This clause is an acknowledgement that, consistent with the principles of commercial negotiation encapsulated in clause 6 of the Competition Principles Agreement, an effective access regime may have as one of its outcomes different terms and conditions of access for different users.

The Access Regime provides flexibility for parties to negotiate the specific terms and conditions under which they access railway infrastructure. As mentioned previously in this submission, the terms and conditions of third party access to infrastructure that has been negotiated under the Code will be outlined in an Access Agreement. This agreement must be registered by the Regulator. The Access Agreement must, as a minimum, include the elements that are set out in Schedule 3 of the Code. However, approval of an Access Agreement does not limit the flexibility of parities to negotiate terms and conditions of access to suit their circumstances.

Section 37 of the Code clearly states that an Access Agreement, so long as it complies with the Code, does not need to contain the same provisions as another Access Agreement. This clearly removes any doubt that Access Agreements may be provided on different terms and conditions to different access seekers.

While clause 13(a) of Schedule 4 of the Code does stipulate that there should be consistency in the application of pricing principles, it does recognise that in some cases there may be a price differential for access to the same infrastructure. This differential will reflect the difference in cost or risks associated with the provision of the access. This enables prices to be varied to suit the particular proponent’s service needs.

Specifically, clause 13(c) of Schedule 4 of the Code requires that prices should reflect as far as reasonably practicable:

(i) the standard of the infrastructure concerned and the operations proposed to be carried out by the proponent;

(ii) the relevant market conditions; and

(iii) any other identified preference of the proponent.

Further, subclause 16(1)(a) of the Code obligates the railway owner to meet the requirements of an access seeker in the negotiation of an Access Agreement when that access seeker has complied with the Code.


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Summary

The Access Regime complies with clause 6(4)(f) because it awards access seekers the right to negotiate contractual terms and conditions that suit their individual needs and does not obligate the service provider to offer access on the same terms and conditions.

CLAUSE 6(4)(G)

Where the owner and a person seeking access cannot agree on terms and conditions for access to the service, they should be required to appoint and fund an independent body to resolve the dispute, if they have not already done so.

Under clause 6(4)(g) an effective access regime must contain a mechanism to ensure parties to a dispute have recourse to an independent dispute resolution process.

Part 3, Division 3 of the Code deals with the arbitration of access disputes. Section 25 of the Code sets out the specific circumstances in which a dispute is taken to exist. These include:

a) the railway owner has refused to negotiate on an access proposal;

b) the railway owner’s dissatisfaction that the access seeker has appropriate managerial and financial ability and that they can operate within the capacity of the specified route; or

c) the access seeker and railway owner have entered into negotiations on the proposal but

(iv) have not reached agreement on the provisions to be contained in the Access Agreement before the termination date of the negotiation period; or

(v) have jointly made a determination in writing that negotiations have broken down.

The Commercial Arbitration Act 1985 applies to any arbitration of access disputes related to the Access Regime, subject to specific provisions of the Code. The application of section 27 of the Commercial Arbitration Act 1985 to a dispute allows for mediation to occur prior to proceeding to arbitration.

Parties have Recourse to Arbitration

In practice, parties to a dispute are free to jointly agree on a mediation or private arbitration process. Under the dispute resolution process contained in the Access Regime, and where a party has requested in writing to the ERA to have an access dispute referred to arbitration, the ERA must appoint an Arbitrator and refer the dispute to that Arbitrator for arbitration.


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Appointment of Arbitrator

Clause 26(2) of the Code stipulates that once a matter has been referred to the ERA for arbitration, the ERA must appoint an Arbitrator who is listed on a panel established under section 24 of the Code. Those persons listed on the panel can only be amended on the recommendation of the Chairman of the Western Australian Chapter of the Institute of Arbitrators, an independent non-government body. Such recommendations are to be made at the request of the ERA. The ERA may not be included on this panel.

Independence of Arbitrator

The establishment of a panel of Arbitrators that excludes the Regulator safeguards the independence of the Arbitrator. The Regulator may approve or omit persons from this panel on the recommendation of the Chairman of the Western Australian Chapter of the Institute of Arbitrators.

The Arbitrators must act in accordance with the Commercial Arbitration Act 1985, but can not be directed by, or report to, either the ERA or any Minister. For a specific dispute the ERA will appoint an Arbitrator from the panel on the basis of specialist knowledge pertaining to the matters under dispute. The ERA is to have no further involvement in the arbitration process unless a question is referred to them by the Arbitrator. Part III of the Commercial Arbitration Act 1985 prescribes the conduct of arbitration proceedings.

Funding Arrangements

In order to ensure that the Arbitrator has sufficient resources to fulfil its duties, section 34 of the Commercial Arbitration Act 1985 requires that the costs of arbitration (including the fees and costs of the Arbitrator) are to be determined at the discretion of the Arbitrator.

Allowing the Arbitrator to determine the allocation of costs provides an incentive for the parties to negotiate in good faith and in accordance with the Access Code.

Constraints on the Arbitrator

Section 14 of the Commercial Arbitration Act 1985 provides for the Arbitrator to conduct proceedings in such a manner as the arbitrator sees fit, subject to the provisions of the Commercial Arbitration Act and any existing arbitration agreement.

Sections 29 to 33 of the Code sets out the types of determinations that the Arbitrator may make and the matters that must be taken into account when arriving at this determination, including subclauses 6(4)(i), (j) and (l) of the Competition Principles Agreement. The Arbitrator must give effect to the Act, the Code and matters determined by the Regulator and must not make a determination that is inconsistent with the Rail Safety Act 1998 (or, in future, the succeeding Rail Safety Bill 2009).

Other than those listed above there are no other constraints placed on the Arbitrator by either the Act or the Code. Subclause 29(1)(c) of the Code specifically states that the Arbitrator may take into account any other matter that they consider to be relevant.


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Summary

The Access Regime achieves the objectives of clause 6(4)(g) of the Competition Principles Agreement by providing for a fully independent dispute resolution process.

CLAUSE 6(4)(H)

The decisions of the dispute resolution body should bind the parties; however, rights of appeal under existing legislative provisions should be preserved.

Under clause 6(4)(h), an effective access regime should have enforcement arrangements in place to ensure an arbitrator’s decision is binding, while also preserving rights of appeal under existing legislative provisions.

Binding Dispute Resolution

Section 31 of the Code states that when an Arbitrator issues a written determination, that determination is to be taken to be an award, with the term “award” having the meaning given to it under the Commercial Arbitration Act 1985. Section 28 of the Commercial Arbitration Act 1985 states that the award shall be final and binding between the parties to the agreement.

Section 34 of the Code enforces this by stating that the railway owner must, subject to Part V of the Commercial Arbitration Act 1985, give effect to a determination. However, clause 34(2) of the Code states that:

Except as provided by subsection (5), the other party to an arbitration is not required to give effect to a determination if, within 14 days after the day on which it is notified of the determination, it elects not to do so.

The election referred to in this clause must be made in writing and provided to the Arbitrator and the railway owner. This provision is designed to ensure that third parties will not be required to give effect to determinations where it is not economic for them to do so.

Enforcement

As mentioned previously, the Arbitrator’s determination is to be treated as an award under the Commercial Arbitration Act 1985. Section 33 of the Commercial Arbitration Act 1985 stipulates that an award made under an arbitration determination may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court.

Right of Appeal

Clause 34(5) of the Code specifies that an appeal may not apply to any provision of a determination that consists of a direction to, or an award of, costs allocated under section 34 of the Commercial Arbitration Act 1985.


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Pursuant to section 38 of the Commercial Arbitration Act 1985, parties have the right to bring proceedings for judicial review of determinations under both the Act and Code, including decisions made by the Arbitrator. The appeals body is the Supreme Court of Western Australia. The Supreme Court of Western Australia has jurisdiction to hear an application in accordance with the Supreme Court Act 1935. Ultimately, an aggrieved party can make an application to seek a review of the Supreme Court’s decision in the High Court of Australia.

Public Access to Arbitration Determinations

Clause 39(2) states that when a determination is made by the Arbitrator the railway owner must give a copy of the determination to the Regulator as soon as practicable. The Regulator is to register the determination and list the names of parties involved, the associated railway to which it relates, the date on which the determination was entered and its duration. The Regulator is also required to make the register available for any person during office hours.

Whilst the Code does not expressly require the public release of the Arbitrator’s determination, nothing in the Code precludes such determinations becoming publicly available. In the event that a determination was to be made public, confidentiality provisions as outlined in section 31 of the Act would apply in relation to the disclosure of information.

Summary

The Access Regime meets the policy intent of clause 6(4)(h) of the Competition Principles Agreement by providing a binding dispute resolution mechanism and preserving existing rights of appeal.

CLAUSE 6(4)(I)

In deciding on the terms and conditions for access, the dispute resolution body should take into account:

(i) the owner’s legitimate business interests and investment in the facility;

(ii) the costs to the owner of providing access, including any costs of extending the facility but not costs associated with losses arising from increased competition in upstream or downstream markets;

(iii) the economic value to the owner of any additional investment that the person seeking access or the owner has agreed to undertake;

(iv) the interests of all persons holding contracts for use of the facility;

(v) firm and binding contractual obligations of the owner or other persons (or both) already using the facility;

(vi) the operational and technical requirements necessary for the safe and reliable operation of the facility;

(vii) the economically efficient operation of the facility; and

(viii) the benefit to the public from having competitive markets.


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Clause 6(4)(i) requires that the arbitrator decide on terms and conditions of access by taking into account and balancing the criteria outlined in subclauses (i) to (viii). An effective access regime may also require a dispute resolution body to take into account other matters that are not inconsistent with clause 6(4)(i).

Subclause 29(1)(b) of the Code specifies that the arbitrator must take into account all matters set out in clause 6(4)(i) of the Competition Principles Agreement when hearing and determining a dispute.

Summary

The Access Regime incorporates the principles of clause 6(4)(i) of the Competition Principles Agreement.

CLAUSE 6(4)(J)

The owner may be required to extend, or to permit extension of, the facility that is used to provide a service if necessary but this would be subject to:

(i) such extension being technically and economically feasible and consistent with the safe and reliable operation of the facility;

(ii) the owner’s legitimate business interests in the facility being protected; and

(iii) the terms of access for the third party taking into account the costs borne by the parties for the extension and the economic benefits to the parties resulting from the extension.

Consistent with clause 6(4)(j), under an effective access regime the owner of railway infrastructure may be required to extend, or permit extension of, the infrastructure in order to meet the needs of the access seeker.

All elements of clause 6(4)(j) of the Competition Principles Agreement are contained in subclause 29(1)(b) of the Code as matters that the Arbitrator is obliged to take into account when making a determination regarding an access dispute.

Clause 33(4) of the Code specifies that a determination must not require the railway owner to extend or expand a route or associated railway infrastructure unless the arbitrator determines that the access seeker has the necessary financial resources associated with the expansion for which they are liable.


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Summary

In light of the above, the Access Regime satisfies clause 6(4)(j) of the Competition Principles Agreement.

CLAUSE 6(4)(K)

If there has been a material change in circumstances, the parties should be able to apply for a revocation or modification of the Access Arrangement which was made at the conclusion of the dispute resolution process.

An access regime may satisfy clause 6(4)(k) where the parties can identify for themselves, during the course of commercial negotiations, what the threshold is for a “material change in circumstances” and can insert in their agreed access contracts those events that would trigger modification of the agreement.

Under subclause 17(1)(a) of the Code, in negotiating an Access Agreement, the infrastructure owner and access seeker must ensure that provisions are made for matters specified in Schedule 3 of the Code. Schedule 3 includes provisions for defining the situations in which an Access Agreement may be varied or terminated.

If the ERA considers that there has been a material change in the circumstances that existed when costs were approved or determined, there are provisions in place to re-determine these costs. In such circumstances, Schedule 4, clause 12 of the Code awards the ERA the power to carry out a review or make a fresh determination of costs.

Summary

Given the above, the Access Regime achieved the policy objectives of clause 6(4)(k) of the Competition Principles Agreement.

CLAUSE 6(4)(L)

The dispute resolution body should only impede the existing right of a person to use a facility where the dispute resolution body has considered whether there is a case for compensation of that person and, if appropriate, determined such compensation.

Under clause 6(4)(l), a dispute resolution body may impede the existing right of a person to use a facility only where compensation issues have been considered and, where appropriate, addressed.

Subclause 29(1)(b) of the Code specifies that the arbitrator must take into account all matters set out in clause 6(4)(l) of the Competition Principles Agreement when hearing and arriving at a determination for a dispute.


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Summary

Accordingly, the Access Regime is consistent with clause 6(4)(l).

CLAUSE 6(4)(M)

The owner or user of a service shall not engage in conduct for the purpose of hindering access to that service by another person.

Clause 6(4)(m) requires that an effective access regime prohibit conduct for the purpose of hindering access.

Service Provider to Use Reasonable Endeavours to Provide Access

The infrastructure owner is required to use all reasonable endeavours to provide access. Section 16 of the Code sets out that:

c) In the negotiation of access agreements the railway owner must use all reasonable endeavours -

(i) to avoid all unnecessary delays;

(ii) to meet the requirements of a proponent who has complied, and whose proposal complies, with the Code; and

d) must not unfairly discriminate between one proponent and another.

Prohibitions on Hindering or Preventing Access

Further, the Access Regime explicitly incorporates the principles of clause 6(4)(m) in section 34A of the Act. This section states that:

1) The railway owner in relation to a part of the railway network to which the Code applies must not engage in conduct aimed at hindering or preventing –

a) Access by any person to that part of the railways network for the purpose of carrying on rail operations to which the Code applies;

b) The making of access agreements or any particular agreement in respect of that part of the railways network; or

c) The access to which a person is entitled under an access agreement or a determination made by way of arbitration.

2) A person who has access under an Access Agreement must not engage in conduct aimed at hindering or preventing access by another person to any part of the railways network to which the code applies.


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Enforcement

Failing to comply with the provisions of the Railways Access Act 1998 relating to the prohibitions on hindering or preventing access attracts a penalty of $100,000 in addition to a daily penalty of $20,000. This is detailed in clause 34A(3) of the Act.

Competitive Neutrality

Competitive neutrality provisions are another instrument used by the Access Regime to ensure that the infrastructure owner does not discriminate against access seekers. This is achieved through the Part 5 Instruments of the Code. Part 5 of the Code requires that railway owners submit separate subsidiary instruments to be approved by the Authority. These instruments apply to access tariffs, the allocation of train paths, the management of train paths, the management of train control, costing principals and overpayment rules.

Summary

The Access Regime satisfies the requirements of clause 6(4)(m) by comprehensively restricting parties’ ability to prevent or hinder access.

CLAUSE 6(4)(N)

Separate accounting arrangements should be required for the elements of a business which are covered by the access regime.

An effective access regime must impose appropriate requirements for facility owners to make available financial information that focuses exclusively on the elements of their business subject to the regime.

Ring Fencing Requirements

The Access Regime recognises the significance of implementing appropriately segregated administrative and accounting functions and as such has placed these provisions in the Act, rather than in subsidiary legislation (the Code).

Part 4, Division 3 of the Act requires service providers of covered infrastructure to put in place a number of arrangements to ringfence those businesses providing access to infrastructure from their other functions and services.

Section 34 of the Act requires the infrastructure owner to keep separate accounting arrangements for the elements of its business that are covered by the Access Regime.

A railway owner must ensure that its accounts and records are in such form as to enable –

a) all income, expenditure, assets and liabilities relating to the carrying out of its access related functions to be properly recorded and distinguished from the railway owner’s other income, expenditure, assets and liabilities; and


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b) where necessary, any item of income, expenditure, assets or liabilities which relates only in part to the carrying out of its access-related functions to be apportioned in a fair and reasonable manner.

Segregation of Access Related Functions

In recognition that more rigorous ringfencing requirements may be required where a infrastructure owner has interests in the same markets as those in which third party access seekers participate, the Act includes additional ringfencing rules.

Part 4, Division 3 of the Act deals with general ringfencing requirements with regard to:

• segregation of the infrastructure owner’s access related functions from other functions;

• protection of confidential information;

• avoidance of conflict of interest;

• duty of fairness; and

• accounts and record keeping.

Under section 28 of the Act, the infrastructure owner must have appropriate controls and procedures to ensure compliance with these requirements.

Section 29 of the Act stipulates that the infrastructure owner must obtain the Regulator’s approval before establishing or varying an administrative arrangement relating to the segregation of its access related functions. The Regulator may give directions to the infrastructure owner with respect to matters concerning such segregation in the event that agreement on these matters is not reached between the two parties.

The Regulator is responsible for monitoring and enforcing the infrastructure provider’s compliance with the provisions of the Act, including the obligations imposed by Part 4 of the Act. Provisions for the enforcement of segregation requirements are detailed in clause 29(4) of the Act as well as in Part 5 of the Act. This clause 29(4) of the Act prescribes a penalty of $100000 for non-compliance with the accounting and administrative segregation provisions.

Summary

The Access Regime complies with clause 6(4)(n) by providing for ringfenced accounting and segregation of access related functions.

CLAUSE 6(4)(O)

The dispute resolution body, or relevant authority where provided for under specific legislation, should have access to financial statements and other accounting information pertaining to a service.


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For an access regime to incorporate the clause 6(4)(o) principle, it should provide the dispute resolution body and any other relevant body, such as the Authority, the right to inspect all financial documents pertaining to services concerned.

Arbitrator and Regulator’s Power

The Economic Regulation Authority Act 2003 has provisions that provide the Regulator with information gathering powers. Clause 51(1) states that:

If the Authority has reason to believe that a person has information or a document that may assist the Authority in the performance of its functions, the Authority may require the person to give the Authority the information or a copy of a document.

In addition, under sections 20 and 21 of the Act, the Regulator has the power to obtain information which includes financial information, relating to a railway owner’s own use of infrastructure to which the Code applies. Failure to comply within a prescribed timeframe will result in a penalty of $100,000 in addition to a $20,000 daily penalty.

Section 26 of the Code refers to arbitration of disputes under the Commercial Arbitration Act 1985. Under sections 17 and 18 of the Commercial Arbitration Act 1985, a party to arbitration may obtain a subpoena from the Supreme Court requiring any person to attend an examination before the arbitrator. This may also include a requirement to produce documents. Refusal or failure to comply with this requirement may result in an appearance before the Supreme Court.

Summary

In light of the above, the Access Regime satisfies the requirements of clause 6(4)(o).

CLAUSE 6(4)(P)

Where more than one State or Territory regime applies to a service, those regimes should be consistent and, by means of vested jurisdiction or other cooperative legislative scheme, provide for a single process for persons to seek access to the service, a single body to resolve disputes about any aspect of access and a single forum for enforcement of Access Arrangements.

Clause 6(4)(p) is only applicable in situations where an access regime applies to services of facilities extending beyond the jurisdictional boundary of the State or Territory seeking certification. This point has been discussed in greater detail in the analysis of the Access Regime’s compatibility with clause 6(2) of the Competition Principles Agreement.

The railway networks and associated infrastructure covered by the Access Regime are identified in Schedule 1 of the Code. Appropriately, the Code only applies to routes that are situated wholly within Western Australia.


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However, section 27 of the Code does make provision for appointment of an arbitrator that is capable of determining a dispute under the Access Regime and some other access regime recognised under the TPA. Clause 27(2) states that:

Where this subsection applies, the Regulator must, so far as is practicable, appoint under section 26 a person or persons who in his or her opinion is or are qualified and acceptable for appointment to conduct an arbitration both under this Code and the other access regime.

Subclause 27(1)(c) outlines the circumstances in which clause 27(2) must be applied:

Subsection (2) applies if –

c) the issues in dispute are –

i. likely to be the same as or similar to issues requiring to be arbitrated under the other access regime; or

ii. issues directly affecting both access regimes.

Given the inclusion of section 27, it can be said that the Code provides for a single body to resolve disputes about aspects of both this Access Regime and another access regime.

Summary

The principle of clause 6(4)(p) has been incorporated by the Access Regime.

CLAUSE 6(5)(A)

A State, Territory or Commonwealth access regime (except for an access regime for: electricity or gas that is developed in accordance with the Australian Energy Market Agreement; or the Tarcoola to Darwin railway) should incorporate the following principles:

a) Objects clauses that promote the economically efficient use of, operation and investment in, significant infrastructure thereby promoting effective competition in upstream or downstream markets.

An effective access regime must incorporate a clear statement of objectives that identifies the purpose of regulating third party access is to promote economic efficiency and effective competition. Clarifying the intent of an access regime is likely to reduce the opportunities for dispute.

Section 2A of the Act contains a clear and concise description of the object of the Act:

The main object of this Act is to establish a rail access regime that encourages the efficient use of, and investment in, railway facilities by facilitating a contestable market for rail operations.


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Summary

Accordingly, the Access Regime is consistent with clause 6(5)(a).

CLAUSE 6(5)(B)

Regulated access prices should be set so as to:

(i) 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 include a return on investment commensurate with the regulatory and commercial risks involved;

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

(iii) 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

(iv) provide incentives to reduce costs or otherwise improve productivity.

The intent of clause 6(5)(b) is to ensure that the price of access promotes the efficient use of, operation and investment in infrastructure as a means of promoting effective competition. A desirable outcome is for regulated prices to mirror the outcomes of an effectively competitive market.

Schedule 4 of the Code details the provisions relating to the prices to be paid for access and contains a division relating to access price negotiations. Schedule 4 also prescribes that the infrastructure owner is entitled to a return on and of their capital investment.

Access Pricing

Schedule 4 of the Code sets out some important elements of the costing framework, including clauses 7 and 8 which prescribe the floor and ceiling price tests. As previously stated, the results of the floor and ceiling price tests will form a price range to guide negotiations of the access tariff.

The floor price test specifies that an operator who is provided with access must pay an amount not less than the incremental costs resulting from its operations on that route and use of that infrastructure.

The ceiling test prescribes that an operator provided with access must pay an amount no more than the total costs attributed to that route and associated infrastructure.

The inclusion of floor and ceiling price tests in the Code ensure that access tariffs paid by an access seeker are efficient, with the establishment of a regulated price band (rather than regulated prices) allowing for price discrimination between access seekers.

Schedule 4, clause 13 of the Code outlines the guidelines that are to be applied in the negotiation of prices for the provision of access. These include:


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a) consistency in the application of pricing principles to rail operations on a specific route, irrespective of whether it is the railway owner or another entity;

b) price consistency requires that any difference between the respective prices paid for access to the same route must only reflect a difference between the costs or risks associated with the provision of access;

c) prices should reflect the standard of the infrastructure, proposed operations and the relevant market conditions;

d) any apportionment of costs should be fair and reasonable;

e) prices should be structured in a way as to encourage the optimum use of facilities; and

f) prices should allow the railway owner to recover, over the economic life of the infrastructure concerned, the costs of the owner in respect to any extension or expansion to accommodate the requirements of an operator.

To ensure that these guidelines are adhered to, section 46 of the Code specifies that infrastructure owners must submit their costing principles to the Regulator for approval.

Nature of Costs

Schedule 4, clause 4 of the Code prescribes that the costs incorporated in the Code are efficient costs:

“The costs referred to in this Schedule are intended to be those that would be incurred by a body managing that railway network and adopting efficient practises applicable to the provision of railway infrastructure, including the practise of operating a particular route in combination with other routes for the achievement of efficiencies.”

Summary

In light of the above, the Access Regime satisfies the requirements of clause 6(5)(b).

CLAUSE 6(5)(C)

Where merits review of decisions is provided, the review will be limited to the information submitted to the original decision-maker except that the review body:

(i) may request new information where it considers that it would be assisted by the introduction of such information;

(ii) may allow new information where it considers that it could not have reasonably been made available to the original decision-maker; and

(iii) should have regard to the policies and guidelines of the original decision-maker (if any) that are relevant to the decision under review.


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Clause 6(5)(c) recognises that an important aspect of an Access Regime is the independent review of access decisions. In the case of the Access Regime, an independent judicial review of awards as prescribed by the Commercial Arbitration Act 1985 addresses this clause. A merits review is not provided for under the Act or Code.

Section 38 of the Commercial Arbitration Act 1985 outlines the judicial review process that must be followed by the Supreme Court of Western Australia. Awards may be referred for judicial review on various grounds including:

• where there has been a breach of the rules of natural justice;

• where the decision was not authorised by the relevant Act or was an improper exercise of power; and

• where the decision involved an error of law.

A rigorous judicial review as carried out by the Supreme Court of Western Australia will ensure that infrastructure owners and access seekers provide all material relevant to the original determination.

Section 11A of the Act does however provide for consultation with railway owners on amendment or replacement of the Code. Clause 11A(1) states that the Minister must consult with and have regard to the submissions of a railway owner, where any proposed amendment or replacement of the Code may affect that railway owner. The inclusion of consultation provisions in the Act will ensure that railway owners are involved in the process to amend or replace the Code, lessening the need for a merits review process.

Summary

The Access Code contains arrangements to ensure that if required, an independent judicial review can be conducted.


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Duration of Certification

This application seeks a recommendation from the NCC that the Access Regime be recognised as effective within Part IIIA of the TPA for a period deemed appropriate by the NCC.


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Conclusion

The Western Australian Third Party Access Regime for rail is designed to realise the benefits of competition across the State’s railway network. In a state such as Western Australia, with its heavy dependence on rail infrastructure for both its domestic and export markets, an effective access regime is essential for promoting competition and creating efficient rail transport markets.

This submission demonstrates that the Access Regime conforms with the requirements of clause 6 of the Competition Principles Agreement. Accordingly, it is also considered that the Access Regime satisfies the requirements outlined in section 44M of the Trade Practices Act 1974.

Therefore, it is requested that the National Competition Council recommend to the Commonwealth Minister that the Western Australian State based Access Regime for Rail be certified as effective for a period deemed appropriate by the Council.


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Attachment 1

Legislation Supporting the Western Australian State Rail Access Regime • Railways (Access) Act 1998

• Railways (Access) Code 2000

• Economic Regulation Authority Act 2003

• Commercial Arbitration Act 1985

• Rail Safety Act 1998

• Interpretation Act 1984

http://www.slp.wa.gov.au/legislation/statutes.nsf/main_mrtitle_785_homepage.html




