working paper no.5, december 2011

Evaluation of Australian Infrastructure Reforms: An Assessment of Research Possibilities Working Paper no.5, December 2011

ACCC/AER WORKING PAPER SERIES

AN ASSESSMENT OF RESEARCH POSSIBILITIES

ACCC/AER working paper No. 5, December 2011 ii

© Commonwealth of Australia 2011

ISBN 978-1-921964-51-0

This work is copyright. Apart from any use permitted by the Copyright Act 1968, no part may be reproduced without permission of the Australian Competition and Consumer Commission. Requests and enquiries concerning reproduction and rights should be addressed to the Director of Publishing, Australian Competition and Consumer Commission, GPO Box 3131, Canberra ACT 2601.

Citation details: ACCC/AER working paper 5 /December 2011

Series Note

The Australian Competition and Consumer Commission encourages vigorous competition in the marketplace and enforces consumer protection and fair trading laws, in particular the Competition and Consumer Act 2010 (formerly the Trade Practices Act).

The Australian Energy Regulator is an independent statutory authority and a constituent part of the ACCC.

Working papers are intended to disseminate the results of current research by ACCC staff and consultants. The aim of the series is to facilitate discussion and comment. The working papers come from across the ACCC covering competition law, economic regulation, and consumer protection. They are available at no cost in electronic format only from the ACCC website, www.accc.gov.au. To subscribe to this series, email [email protected]

The papers in this series reflect the views of the individual authors. The views expressed in the paper do not necessarily reflect the views of the ACCC or the AER.

Enquiries may be addressed to:

The Editor

ACCC/AER working paper series

Australian Competition and Consumer Commission

GPO Box 520

Melbourne Vic 3001

email: [email protected]


ACCC/AER working paper No. 5, December 2011 iii

About the Working Paper Contributors

In 2009 the Regulatory Development Branch of the Australian Competition and Consumer Commission (ACCC) commenced a major project, Developing Indicators for the Economic Evaluation of Infrastructure Reforms and Regulation led by Dr Rob Albon. The project has a number of outputs and this is the second working paper to be made available.

This working paper has evolved over many drafts and because of the nature of the work (broad based and covering all the industry areas subject to economic regulation by the ACCC/AER) it has not been produced by an individual author but rather has drawn upon a diversity of staff making specialist contributions.

This working paper has also benefited from the thoughtful insights provided by the projects’ external advisory committee – Professor Jeff Borland, University of Melbourne; Deborah Cope, Principal, Pirac Economics and Dr Denis Lawrence, Director, Economic Insights. Dr Chris Decker, Regulatory Policy Institute, Oxford, has made a valued contribution in commenting upon both structure and content.

Of course final responsibility for the working paper rests with staff. Rob Albon, Lin Johnson, Hayden Mathysen, Anne Plympton and Derek Ritzmann drafted individual chapters. Su Wu reviewed the data section of each chapter and prepared the data appendices; while Megan Willcox incorporated, developed and resolved successive ‘final’ comments. Torrin Nicolson, a student intern working with the ACCC, and Genevieve Pound, provided valuable assistance.


ACCC/AER working paper No. 5, December 2011 iv

Notes

Evaluation Methods This working paper discusses the potential for ex post evaluation of the impact of competition and regulatory reforms to Australian infrastructure, including the application of the following possible evaluation methods, Social Cost-Benefit Analysis (SCBA), Computable General-equilibrium modelling (CGE), econometric methods including Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA), and Productivity studies including Partial and Total Factor Productivity (TFP) analysis and Frontier Analysis. For a discussion of how to apply these methods and examples please refer to the working paper Evaluating Infrastructure Reforms and Regulation: A Review of Methods (ACCC/AER Working Paper No. 2) (hereafter Review of Methods) (ACCC, 2010c).

Principal Legislation Australia’s principal competition and consumer protection legislation, the Trade Practices Act 1974 (TPA), was renamed the Competition and Consumer Act 2010 commencing 1 January 2011. In this working paper TPA is used to describe the regulatory developments and the Competition and Consumer Act 2010 is used to describe the current regulatory provisions. It should be noted that due to the frequency of change occurring under the Competition and Consumer Act 2010 and related legislation, the information in this working paper is provided as at 31 October 2011 and subsequent changes will not be reflected.

Confidential Data Among other objectives this paper attempts to provide a guide to the content, quality, availability and status (regarding confidentiality) of the data collected under different regulatory regimes administered by the ACCC/AER. Given the diversity of the legislation, the range of data and the different information collection provisions this is challenging.

Some of the data discussed in this working paper are provided to the ACCC or the AER on a confidential basis and/or may be subject to statutory restrictions on disclosure. The general policy of the ACCC/AER on the collection, use and disclosure of information is set out in Information Policy (October 2008) available on the ACCC website.

Researchers considering undertaking an evaluation project may like to contact the project coordinator, Dr Rob Albon, so that further clarification/guidance can be provided. This can be done using the Working paper email address: [email protected]


ACCC/AER working paper No. 5, December 2011 v

Contents

FOREWORD.................................................................................................................. 1

1. Introduction ............................................................................................................ 2

1.1 Background.......................................................................................................... 2

1.2 Aim and Purpose .................................................................................................. 2

1.3 Evaluating Infrastructure Reforms and Regulation ....................................................... 3

1.4 Structure.............................................................................................................. 7

2. Energy ..................................................................................................................... 8

2.1 Introduction and Context.................................................................................. 8

2.2 Evolution of Institutions and Governance ........................................................ 9 2.2.1 The 1990s – moving towards a national framework............................................................9 2.2.2 The 2000s – Governance reforms ..................................................................................11 2.2.3 Current regulation - Electricity......................................................................................12 2.2.4 Current regulation – Gas.............................................................................................13 2.2.5 Retail market regulation ..............................................................................................14 2.2.6 Conclusion on reforms .................................................................................................15 2.3 Data Availability and Issues........................................................................................15 2.3.1 Electricity transmission data .........................................................................................15 2.3.2 Electricity distribution data ..........................................................................................16 2.3.3 Gas transmission data.................................................................................................17 2.3.4 Gas distribution data ..................................................................................................17 2.3.5 Energy retail data ......................................................................................................18 2.3.6 Data covering more than one sub-sector ...........................................................................19 2.3.7 Commercial-in-confidence information .............................................................................19 2.3.8 Conclusion on data .....................................................................................................20

2.4 Review of Relevant Literature.......................................................................... 20

2.5 Specific Research Possibilities.......................................................................... 23

2.6 Conclusions..................................................................................................... 29

3. Telecommunications............................................................................................ 30

3.1 Introduction and Context................................................................................ 30

3.2 Evolution of Institutions and Governance ...................................................... 30 3.2.1 Independence and corporatisation – 1975 to late 1980s .....................................................30 3.2.2 First steps towards competition – the early 1990s .............................................................31 3.2.3 Towards greater competition – 1993 to 1998 ..................................................................32 3.2.4 Subsequent reforms – 1998 to 2007..............................................................................33 3.2.5 Recent developments ....................................................................................................34 3.2.6 Current regulation ......................................................................................................35 3.2.7 Conclusion on reforms .................................................................................................37

3.3 Data Availability and Issues ............................................................................. 37 3.3.1 Regulatory data available to the ACCC .........................................................................37 3.3.2 Data from other sources ...............................................................................................38


ACCC/AER working paper No. 5, December 2011 vi

3.3.3 Conclusion on data .....................................................................................................39



4. Postal Services....................................................................................................... 45


4.2 Evolution of Institutions and Governance ...................................................... 45 4.2.1 1980s and 1990s - corporatisation ................................................................................45 4.2.2 Current regulation of Australia Post ..............................................................................46 4.2.3 Conclusion on reforms .................................................................................................48

4.3 Data Availability and Issues ............................................................................. 48 4.3.1 Regulatory data available to the ACCC .........................................................................48 4.3.2 Data from other sources ...............................................................................................49 4.3.3 Conclusion on data .....................................................................................................50


4.6 Conclusions..................................................................................................... 52

5. Water and Wastewater.......................................................................................... 54


5.2 Evolution of Institutions and Governance ...................................................... 54 5.2.1 Irrigation ..................................................................................................................55 5.2.2 Urban water .............................................................................................................56 5.2.3 Regulatory Institutions and Legislation by Jurisdiction .......................................................57 5.2.4 Conclusion on reforms .................................................................................................59

5.3 Data Availability and Issues ............................................................................. 59 5.3.1 Regulatory data available to the ACCC .........................................................................59 5.3.2 Performance benchmarking data ....................................................................................60 5.3.3 Conclusion on data .....................................................................................................60

5.4 Review of Relevant Literature.......................................................................... 61 5.4.1 Review of relevant literature – irrigation ..........................................................................61 5.4.2 Review of relevant literature – urban water ......................................................................62

5.5 Specific Research Possibilities.......................................................................... 64 5.5.1 Specific research possibilities – irrigation..........................................................................64 5.5.2 Specific research possibilities – urban water ......................................................................64

5.6 Conclusions..................................................................................................... 65

6. Rail ......................................................................................................................... 66


6.2 Evolution of Institutions and Governance ...................................................... 66 6.2.1 The establishment of Australian National Railways Commission ........................................66 6.2.2 1996 rail reforms .......................................................................................................67 6.2.3 Formation of the Australian Rail and Track Corporation (ARTC) ....................................67 6.2.4 Current national regulation ..........................................................................................67 6.2.5 Current state regulation of rail infrastructure....................................................................68 6.2.6 Conclusion on reforms .................................................................................................69


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6.3 Data Availability and Issues ............................................................................. 69 6.3.1 Regulatory data available to the ACCC .........................................................................69 6.3.2 Data from other sources ...............................................................................................70 6.3.3 Conclusion on data .....................................................................................................71



6.6 Conclusions..................................................................................................... 74

7. Airports .................................................................................................................. 75


7.2 Evolution of Institutions and Governance ...................................................... 75 7.2.1 First phase – corporatisation ........................................................................................75 7.2.2 Second phase – privatisation .........................................................................................76 7.2.3 Evolution of regulatory regime during 2000s ....................................................................77 7.2.3 Current economic regulation of airports ...........................................................................78 7.2.4 Conclusion on reforms .................................................................................................79

7.3 Data Availability and Issues ............................................................................. 79 7.3.1 Regulatory data available to the ACCC .........................................................................79 7.3.2 Data available from other sources ..................................................................................81 7.3.3 Conclusion on data .....................................................................................................82



7.6 Conclusions..................................................................................................... 86 8. Ports...............................................................................................................87


8.2 Evolution of Institutions and Governance ...................................................... 87 8.2.1 Regulation of ports......................................................................................................87 8.2.2 Container stevedoring inquiries and monitoring .................................................................89 8.2.3 Regulation of harbour towage ........................................................................................90 8.2.4 Regulation of wheat export ports....................................................................................90 8.2.5 Logistics chain coordination ..........................................................................................91 8.2.6 Conclusion on reforms .................................................................................................92

8.3 Data Availability and Issues ............................................................................. 92 8.3.1 Regulatory data available to the ACCC .........................................................................92 8.3.2 Data available from other sources ..................................................................................93 8.3.3 Conclusion on data .....................................................................................................94



8.6 Conclusions..................................................................................................... 98 9. Conclusions ...................................................................................................99

A. Overview of Data Reviewed................................................................................ 99

B. Detailed Tabulation of Available Energy Data................................................... 102


ACCC/AER working paper No. 5, December 2011 viii

C. Detailed Tabulation of Available Telecommunications Data ............................. 116

D. Detailed Tabulation of Available Postal Services Data....................................... 122

E. Detailed Tabulation of Available Water and Wastewater Data ........................... 126

F. Detailed Tabulation of Available Rail Data........................................................ 138

G. Detailed Tabulation of Available Airport Data .................................................. 145

H. Detailed Tabulation of Available Port Data ....................................................... 150

List of Abbreviations, Initialisations and Acronyms................................................ 153

References ................................................................................................................... 159


ACCC/AER working paper No. 5, December 2011 1

FOREWORD

Evaluating Infrastructure Reforms and Regulation: A Review of Methods was released in August 2010 as part of the ACCC/AER working paper series. This volume is the companion piece. In part it is a reference document – each chapter provides context about regulatory frameworks, the literature and available data. It is hoped that this work will provide researchers from the public and private sectors with useful material. Such work will hopefully encourage the sharing of research insights and contribute to the ongoing development of regulatory reform in Australia’s infrastructure industries. The views expressed in this paper are those of the researchers, and not necessarily those of the ACCC. However, I am hopeful that this work will encourage the adoption of research agendas that will increase our understanding of the impact of economic reforms and regulation commenced at national and state levels in the 1980s, and formalised as part of the National Competition Policy in 1995.

Joe Dimasi

Commissioner

Australian Competition and Consumer Commission



1. Introduction

1.1 Background

Australian governments at each of the national, state and territory levels have been reforming provision of infrastructure-based services (in some cases) for upwards of forty years, and most substantially since the 1990s. These reform activities (see Gray, 2009) have included the removal of operations from government departments; corporatisation of operational entities, allowance of competition (in various ways); vertical separation and other structural change; and privatisation of ownership. Regulatory bodies, at both state and national level, have been established as part of these legislative and institutional reforms. The main areas of economic infrastructure concerned are energy (electricity and gas); telecommunications; postal services; urban water and wastewater; irrigation; rail; airports and ports (including bulk-handling and port services).

The changes to infrastructure institutions and governance represent massive transformations in vital parts of the economy, with important links into other sectors. In particular, exporters; import-competing industries; education; health and government services all rely on these infrastructure services for the supply of crucial inputs. Indeed, a major catalyst for the reforms in the 1990s was a concern about the extent of international competitiveness of the Australian economy; reflected in the then Prime Minister’s explanation of his 1992 One Nation statement (Keating, 1992):

When this Government came into office the problem of inefficient performance was endemic in areas shielded from competition ⎯ including domestic aviation, electricity supply, shipping, railways, and telecommunications. The effect was higher costs, poor service and inefficient allocation of resources in the economy. As in all developed economies, these industries provide vital inputs to all our major export and import competing sectors. Australia was placed at a considerable disadvantage in competing against imports at home and in export markets.

The link between infrastructure services and the productivity of all aspects of the economy has increased with time. In more recent years, an important reason for telecommunications reforms has been to boost productivity, and to effect improvements in the provision of health and education services.

The central importance of efficient infrastructure services was further evidenced by the series of reviews undertaken by the Productivity Commission (PC) from the late 1990s to 2005. These and other inquiries aimed at finding ways of improving the regulation and governance of infrastructure services. However, while numerous reviews of this kind have been undertaken, it is difficult to find studies by either public-sector agencies or private-sector economists that specifically set out to evaluate the reforms, either in part or in total, against the counterfactual of ‘no reforms’.

To greater or lesser extents, the objective of reforms to institutions and regulation since the 1980s has been to improve economic efficiency and community living standards. In addition, for some regulated infrastructure areas, there have also been specific economic objectives suggesting a number of more targeted research questions. In other areas, the history of reforms and regulation reveals considerable debate and discussion about the appropriate regulatory framework and regulatory processes. Broadly speaking, the infrastructure reforms undertaken are well regarded, and there is little genuine sentiment in favour of reverting to the old ways of monopoly and bureaucracy. However, to date at least, the appreciation is based more on intuition and informal empiricism, and less on a body of formal evaluative research.

1.2 Aim and Purpose

This paper aims to assess the extent to which ex post evaluations of competition and regulatory reforms affecting Australia’s seven key economic infrastructure services are currently possible. It is the culmination of a project conducted by the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Regulator (AER) titled Developing Indicators for the Economic Evaluation of Infrastructure Reforms and Regulation. It draws upon the insights gained from



the project’s first output, Evaluating Infrastructure Reforms and Regulation: A Review of Methods (ACCC/AER Working Paper No. 2) (hereafter Review of Methods) (ACCC, 2010c) and a stock take of available data across the seven key economic infrastructure service areas (energy, telecommunications, posts, water and wastewater, rail, airports and ports). This is based on a project conducted internally that both provides a stock take of data for the infrastructure area and makes a high-level assessment of data quality. This work continues within the ACCC.

In particular, the aim is to provide an overview of the reforms that have occurred and the data that are available, and to make assessments of the suitability of those data for particular evaluation purposes. By understanding the scope and quality of these data, and the possible evaluation methods that might be used, it is possible to identify areas where useful ex post evaluations of infrastructure reforms might currently be possible. It also identifies some limitations of existing data and methods and thus advocates a cautious approach to evaluations in some areas and makes suggestions for improving the potential for ex post evaluations in the future.

Either the ACCC or the AER has a role as regulator of much of the economic infrastructure discussed in this paper. Given this, the evaluation role is best undertaken by others and it is hoped that this will be a useful tool for independent researchers – in government, universities or the private sector – interested in evaluating the effects of competition and regulatory reforms. The release of this final product of the Developing Indicators project is therefore aimed at encouraging a body of evaluative research.

1.3 Evaluating Infrastructure Reforms and Regulation

The evaluation of government involvement in infrastructure requires a normative basis of ‘economic welfare’ drawing on the notions of allocative, cost and dynamic efficiency. The original authors of the reforms, the Independent Committee of Inquiry (1993, pp. 4-5) stated that

Economic efficiency plays a vital role in enhancing community welfare … The promotion of effective competition and the protection of the competitive process are generally consistent with maximising economic efficiency.

Consistent with the ACCC’s guiding legislation, the aim is to ‘enhance the welfare of Australians’, and as frequently emphasised by the Productivity Commission (PC), the aim is to improve the economic welfare of the community, encompassing improvements in ‘living standards and quality of life’ (Banks, 2010, p. 6).

Research Design

Ex post evaluations of policies and programs can focus on reform and regulatory impacts or on regulatory processes, or a combination of both. The emphasis in this review of research possibilities tends to be on the overall impact of the reforms on economic variables reflecting economic welfare. The reform process (‘governance’) in this work tends to be viewed as a means to an end. However, as bad outcomes can be a consequence of bad processes, there is often a need to distinguish between the worth of a particular policy approach and the processes (‘governance’) in implementing it.

The level of focus for an evaluation can be at the system-wide, program or individual project level. This study tends to avoid detailed consideration of really big questions such as an evaluation of the entire National Competition Policy (NCP) or even of the entire reforms in the energy sector. The questions that an evaluation seeks to explain must be clearly specified and capable of being answered. Generally, a specific evaluation question is easier to answer than a more general question. Therefore, the specific research possibilities identified – reviewed later in this chapter – tend to be in relation to more ‘micro’ topics relating to particular reforms within sub-sectors.

The evaluation design provides the logical framework for making conclusions about outcomes and attributing results to the policy or program of interest. To draw valid conclusions from an evaluation, it is necessary to compare the observed outcomes (the ‘factual’) with the outcomes



that may have eventuated had the policy or program not gone ahead (the ‘counterfactual’). Specifying the counterfactual is one of the central problems confronting ex post evaluation. The approach taken to the counterfactual depends on the specific evaluation question being asked. It is often pragmatic, but must always be consistent with the other aspects of the evaluation process, including the research question, the evaluation design and data availability.

Data Availability and Limitations

The first stage of the Developing Indicators project comprised a review of methods and a simultaneous stock take of data available for each infrastructure area and an assessment of various dimensions of data quality. Each chapter therefore contains a review of the data that are available to the ACCC and from other sources and an assessment of their quality, and more details are contained in appendices. Three more general data issues can be mentioned here.

First, the type of information required to conduct the evaluation is usually quantitative in nature, although qualitative information will also be required in fully understanding the results of statistical work. The role of qualitative information in evaluative work is reviewed in chapter 10 of the Review of Methods.

Second, data limitations may affect the extent to which a particular evaluation is possible, and high-quality data are a crucial requirement for a robust and defensible evaluation. For examples, there is often an issue of not being able to access data over a sufficiently long period on a comparable before-and-after-the-reforms basis; definitions of services may change over time; and new services may eclipse existing ones in dynamic areas like telecommunications. Institutional restructuring – as with vertical separation in energy – may lead to a fracturing of data collection and publication.

Third, while in most cases, specific research possibilities can be pursued using publicly available information, much of the data provided to the ACCC or the AER is subject to confidentiality restrictions and/or statutory provisions that prevent or limit the ability of the ACCC/AER to disclose some of the information. The general policy of the ACCC/AER on the collection, use and disclosure of information is set out in Information Policy (October 2008) available on the ACCC website. Please refer to the notes on Confidential Data on page iv and the relevant chapters for sector specific provisions.

The importance of providing infrastructure statistics has been recognised by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) in publishing the first yearbook on measures of Australian energy, communications, water and transport infrastructure and its use (BITRE, 2011). The publication provides a single source of aggregate time-series infrastructure statistics, using data published by the BITRE or other data-collecting government agencies, such as the Australia Bureau of Statistics and the National Water Commission. Where source data are available, summary measures at the industry or sector level are provided to facilitate comparison or aggregation on four aspects, namely physical infrastructure, non-capital inputs, activities and relevant safety, security and environmental issues.

Evaluation Methods

An understanding of the available research methods is the first step in undertaking an evaluation study and therefore it is recommended that this paper is read in conjunction with the Review of Methods. There are a range of methods that can be used to evaluate competition and regulatory reforms. The choice of method should be guided by the evaluation question and the availability of appropriate data. A brief overview of the key insights from the Review of Methods is presented here.

Social Cost Benefit Analysis (SCBA) encompasses all benefits and costs flowing from a policy action, including those that are not readily measured or quantified, such as environmental impacts, changes in health and safety and externalities. As SCBA takes the perspective of the costs and benefits of society as a whole, it differs from private-sector project appraisal; which is sometimes called ‘cost benefit analysis’ (CBA) in which the focus is on the private costs and benefits that accrue by measuring the cash flows associated with the project and bringing these back to a net present value using a private-sector rate of return. In contrast, SCBA requires a



‘social discount rate’ to bring costs and benefits back to a present value. It can be used on either a narrow (‘partial equilibrium’) or a broad (‘general equilibrium’) basis.

Computable General-Equilibrium (CGE) modelling takes account of the economy-wide effects of reforms and is particularly suited to evaluating policies that have large nationwide effects or generate substantial benefits that extend beyond the markets that are directly affected by the policy or regulation. A policy or reform is introduced as a ‘shock’ to the model. Through the interaction of demand and supply, CGE models compute market-clearing prices and thus determine outputs, the allocation of resources and the distribution of income that are consistent with the resulting new general equilibrium. Because of their complexity, CGE models tend to be purpose-built by a specialised multi-skilled team. The PC has consistently advocated an economy-wide approach and has in many cases used its CGE ‘Monash Model’ to analyse reform impacts. For examples, the PC’s research report on benefits of the National Reform Agenda (PC, 2006d) applies this model, and the PC is currently modifying the Monash Model in preparation for its reporting on the economic impacts of Council of Australian Government (COAG) reforms (PC, 2010d); including in energy, transport and water.

Econometric methods can be applied on a within-country basis or on a cross-country basis to analyse the impact of different aspects of the regulatory regime on economic outcomes in the regulated industries. Econometric methods are used to examine the effect of a policy intervention on the variable of interest, and by assuming that all other factors are held constant (the ceteris paribus assumption), the impact of the policy or program can be isolated and identified. Cross-country studies use econometric methods to analyse the impact of particular variables, such as aspects of the regulatory regime and/or economic and institutional factors, on economic outcomes in the regulated industries. However such studies are subject to a variety of data weaknesses – a particular variable may be defined differently in different countries and the methods used to measure that variable may also vary across countries.

Productivity studies are often based on a partial-equilibrium framework and are well suited to estimating the effects of regulation or policy in directly affected markets. Total Factor Productivity (TFP) growth occurs where the quantity of outputs produced grows at a greater rate than the quantity of inputs used for that production. Either an index- number approach or an econometric approach can be used to measure TFP. While both approaches have strengths and weaknesses, the index approach is more typically used as it requires fewer observations and is more transparent and reproducible. TFP growth can, in principle, be measured at the economy-wide macroeconomic level, industry-wide level, the firm level, or down to the level of production units within a firm or organisation. However, if the indirect effects of competition and regulatory reforms are widespread and large, then it is advisable to supplement the results obtained from partial-evaluation methods with results obtained from additional general-equilibrium or qualitative methods.

Frontier Analysis is based on the notion that there is a best-practice level of technical efficiency (a production possibilities frontier) which can be reached (but not surpassed) or is not reached – production can be below best-practice or within the frontier. In this framework, an observed change in productivity (e.g., measured by a change in TFP) for any one economic unit, could be the result of either an increase in the best-practice technology available (which would shift the frontier) or a better and more efficient use of existing technology (which would move the economic unit closer to the frontier). As Frontier Analysis is theoretically able to distinguish between these two sources of productivity growth, it enables more detailed analysis of each firm against best practice but requires considerably more observations than index methods. It also potentially permits the origins of technical efficiency (e.g., different regulatory regimes) to be identified. The Review of Methods explains both of the two significant classes of quantitative techniques for Frontier Analysis – data envelopment analysis (DEA) and stochastic frontier analysis (SFA) – and an assessment of their relative merits.

Qualitative methods are a suitable approach for process evaluations and reviews of regulatory governance. Qualitative approaches may also be necessary if data are inadequate for the purposes of quantitative evaluation and/or if insufficient time has elapsed since reforms were



implemented. It is in this latter, more supplementary, sense that qualitative data are considered in this research.

Regardless of the chosen evaluation design and method, trade-offs will inevitably be required between what is theoretically ideal and that which is achievable in practice. Trade-offs arise, for example, as a result of the difficulty of specifying a defensible counterfactual, the limited resources (including time) available to conduct an evaluation and data limitations. The need to make trade-offs means that an evaluation’s findings can be controversial and subject to criticism. The Review of Methods discusses how trade-offs may be made while retaining the robustness and defensibility of the results of evaluations – for example, by specifying a number of counterfactuals and subjecting the evaluation findings to sensitivity analysis. However, fundamentally, researchers are hostage to the information and circumstances they face, and these will often militate against decisive conclusions.

Specific research possibilities

The reforms to Australian infrastructure took place over many years and across a broad range of areas. Seven of these infrastructure areas are considered in this working paper. Given the complexity of the reforms it is not considered feasible to undertake an overall assessment of the reforms. However, this working paper identifies numerous specific research possibilities across all seven of the infrastructure areas. The evaluation of numerous specific reforms could, however, be used to indicate the general direction of the net benefits of the overall reform agenda. .

Each chapter identifies at least two research possibilities for each of the seven different infrastructure areas. Here is a sample:

• Consideration of the impact, particularly on productivity, of corporatisation and privatisation of state-based energy providers (chapter 2).

• Structural and governance arrangements in electricity differ across states, and this could form the basis of an assessment of these arrangements on performance (chapter 2).

• Evaluation of the effect on key efficiency indicators of the changing composition of the National Electricity Market (NEM) (chapter 2).

• An analysis could be undertaken on whether, and to what extent, corporatisation of the government-owned telecommunications entity (Telstra) improved the productive efficiency of the entity and/or the sector (chapter 3).

• Evaluation of the impact on economic efficiency of development of the access regime in both fixed-line and wireless telecommunications (chapter 3).

• Estimates of total factor productivity of Australia Post over a long period could be applied to a before-and-after reform evaluation, after controlling for other influences (chapter 4).

• Identification and quantification of the effects on efficiency of the establishment of water trading for irrigation entitlements (chapter 5).

• Existing work on the effects of corporatisation of urban water corporations could be extended and embellished (chapter 5).

• The existence of different rail infrastructure providers subject to different state-based regulatory regimes may present opportunities for the implementation of meaningful benchmarking studies, depending on the consistency of available data from different states (chapter 6).

• A comparative study could be made over periods when airports were subject to price control rather than price monitoring, possibly enabling differences in performance over time to be attributed to the particular form of prices oversight (chapter 7).



• The impact on productivity of the corporatisation of major container ports could be assessed (chapter 8).

1.4 Structure

This paper assesses the extent to which is it currently possible to evaluate the processes or ex post impacts of competition and regulatory reforms across seven infrastructure areas. Each infrastructure area is considered in sequential order – energy (gas and electricity), telecommunications, post, water and wastewater, rail, airports and ports. Of course, the scale, scope and type of regulation across infrastructure areas explain the substantial differences that occur in chapter length.

Each chapter starts with a discussion of the central policy themes associated with the particular infrastructure area. It then reviews the historical evolution of reforms and regulation in the relevant area, with a particular emphasis on the ex ante objectives and expectations of these reforms and regulations. A summary of a sample of the key empirical-based academic research follows. The focus of the summaries is on the different methods and data used to approach the evaluation questions and in some cases the qualifications that have to be placed on their findings. With this background information in place, each chapter then turns to an examination of the extent to which ex post evaluation of reforms and regulation are currently possible in each of the infrastructure areas. As noted above, the feasibility of ex post evaluation can often be compromised by inadequate data. Thus a key section of each chapter discusses the regulatory and industry data that are currently available.



2. Energy

2.1 Introduction and Context

The structure adopted for individual chapters has been described in the Introduction and it is closely followed in the Energy chapter. Energy is the longest chapter in the paper reflecting the technical complexities of the sector and the ambitious reform agenda.

Creating the conditions for lower energy costs and prices by improving efficiency and promoting competition in the generation, supply and sale of energy, has been the critical objective of the reform process. Offering customers a choice of supplier, improving environmental outcomes, and moving toward a national approach to energy markets (with its consequent efficiencies) have also been priorities.

Reforms have occurred at the different stages of the supply chain. The supply chain for electricity consists of four stages: generation, transmission (via high-voltage lines), distribution (via low-voltage lines in metropolitan and regional areas) and retailing to residential, commercial and industrial customers. The supply chain for natural gas also consists of four stages: exploration and production, transmission (via large diameter high-pressure pipelines that convey natural gas to a market), distribution (via pipelines that reticulate natural gas within a market) and retailing to residential, commercial and industrial customers.

In electricity, reforms have included the establishment of a national market for the wholesale trading of electricity (excluding Western Australia); the establishment of an open access regime for transmission and distribution networks, and a move to national regulation of transmission lines (excluding Western Australia and the Northern Territory). For distribution networks (excluding Western Australia and the Northern Territory) regulation has evolved to a national level but approaches can vary slightly between networks. In gas, the reforms have included the introduction of a national access regime to transmission and distribution pipelines (excluding Western Australia), which is intended to promote a competitive national natural gas market and permit customers to choose their supplier.

Two major changes in governance arrangements have occurred over the reform period. A movement to national regulation (with the exceptions indicated above) has occurred reflecting an emphasis on a consistent approach to regulation to reduce distortions between areas (states/territories) and between energy sources (gas and electricity). The other major governance change has been the separation of high-level rule making and market development from economic regulation and enforcement. This has resulted in the creation of the Australian Energy Market Commission (AEMC) for rule-making and energy market development and the creation of the Australian Energy Regulator (AER) for economic regulation and enforcement.

Retail market reform in both electricity and gas markets has been in process since the early 1990s and is still in evolution. All state and territory governments have introduced full retail contestability for gas customers (meaning that all gas customers can enter a supply contract with a retailer of choice) while for electricity, contestability arrangements have varied across jurisdictions (all National Energy Market jurisdictions except Tasmania have introduced full retail contestability). State and territory governments are currently responsible for the regulation of retail energy markets but an agreement has been made to transfer non-price functions to a national framework (again with the exception of Western Australia and the Northern Territory). This transfer is expected to occur in 2012.

With regard to pricing, different jurisdictions have adopted different approaches to maintaining or phasing out retail-price regulation and all jurisdictions except Victoria apply some form of price-cap regulation for electricity services. In gas retail markets, New South Wales and South Australia regulate prices for smaller customers.

Given such a complex reform and policy landscape, numerous issues have emerged during and as a consequence of the reform process. These have included concerns about constraints and congestion on the network and the extent to which this results in the short-term mispricing of energy. Investment issues have been highlighted, and, in particular, the incentives for



transmission and distribution network operators to invest under the different forms of price control arrangements, and in response to new renewable sources of energy. At a broader level the relative performance and efficiency of assets in state government control compared to private-sector ownership has been an issue. The interaction between environmental and energy policy is an increasingly important and pressing issue.

2.2 Evolution of Institutions and Governance

There has been an extensive history of reform in the energy sector over the past two decades. Prior to the 1980s, the electricity industry was dominated by vertically integrated, government-owned monopoly suppliers who operated within state-boundaries. Apart from the Snowy Mountains Hydro-electric scheme, the industry did not operate on an interstate basis. Regulation was state-based. In contrast, gas infrastructure was predominantly owned by private enterprise and was less vertically integrated. However, regulation of natural gas was primarily state-based.

2.2.1 The 1990s – moving towards a national framework

At the Special Premiers’ Conference in 1990, New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory (ACT) agreed to interconnect electricity networks. This was in recognition of the potential benefits of interconnection, for example, correcting the imbalances in electricity generation capacities between New South Wales and Victoria experienced during the 1980s. Subsequently, the Industry Commission (IC) considered electricity markets could be made more competitive by separating transmission from generation, and by ensuring open and non-discriminatory access to the grid (IC, 1991a). In response to the IC’s findings, the National Grid Management Council was formed to develop a national market for the wholesale trading of electricity and the Commonwealth announced a National Gas Strategy to remove barriers to trade in natural gas and ensure monopoly power could not be used to restrict access to pipelines.

Throughout the 1990s, the States progressively separated electricity production into contestable and non-contestable elements, and some also privatised certain electricity assets. The motivations for the reforms included, inter alia, improved efficiency, competition and environmental outcomes and movement towards a national approach to regulation. There was some concern about volatility of prices from vertical separation and that regulated prices might be insufficient to cover debt costs.1

The Council of Australian Governments (COAG) agreed to a broad set of principles for the gas and electricity industries in 1994 including:2

• Removing legislative barriers to free and fair trade in gas.

• Implementing a uniform third-party access regime for gas transmission and distribution pipelines, placing state-owned gas utilities on a commercial footing through corporatisation, separation of gas transmission and distribution where the utility was publicly owned, and requiring ring-fencing arrangements in privately owned gas utilities.

• A national code of conduct covering electricity network pricing, pool rules, operation and system control and network connection and access.

Electricity

New South Wales (NSW), Victoria, Queensland, South Australia and the Australian Capital Territory (ACT) reached agreement on the enactment of legislation to apply a National Electricity Code (Code) in 1996.3 The regulatory framework:

1 Second reading debate to the Electricity Industry (Amendment) Bill, Victoria, Hansard, Legislative Assembly, 24 May 1994 (Mr Brumby), p. 2128. 2 Council of Australian Governments (1994), Communiqué, 19 August, Attachment A 3 National Electricity Market Legislation Agreement (9 May 1996).



• Established and governed the operation of a National Electricity Market (NEM). The objectives of the NEM were to allow customers to choose their supplier, to implement non-discriminatory access to transmission and distribution networks, to ensure no legislative or regulatory barriers to entry existed in generation or retail and to ensure no barriers existed to interstate trade. Under the Code, all generated electricity was centrally pooled and scheduled by the market administrator, the National Electricity Market Management Company (NEMMCO), to meet demand. The price paid by retailers and wholesale end-use customers to generators was calculated by NEMMCO using price offers and bids.

• Established the National Electricity Code Administrator (NECA) to enforce the Code and consider amendments to it.

• Set out technical standards.

• Underpinned the NEM with an open access regime for the use of electricity networks, with the intention to foster efficient investment and operating practices. The ACCC was responsible for regulating transmission lines using a revenue cap. Distribution was regulated by the states using a revenue cap, a weighted-average price-cap or a combination of the two.

• Require the provision of information by electricity transmission and distribution networks and the separation (known as ‘ring-fencing’) of the accounting and functional aspects of prescribed services from those aspects of other services provided by the transmission or distribution service provider.

The objective of the Code was to provide ‘light-handed’ regulation to achieve a set of market-oriented rules governing market operations, systems security, network connection and access and network services pricing; a cost-effective framework for dispute resolution and to provide efficient processes for changing the code.4

In addition, Victoria and South Australia began privatising their transmission and distribution networks through the late 1990s and early 2000s. At present transmission networks in Victoria and South Australia are privately owned as are three direct-current interconnectors (Directlink, Murraylink and Basslink). Victoria’s five distribution networks are privately owned, while the South Australian network is privately leased. New South Wales began privatising its electricity assets in 2010 and the ACT has joint government and private ownership of the distribution network. Other jurisdictions have retained government ownership for both transmission and distribution networks.

Gas

The Commonwealth, and all state and territory governments, reached agreement to enact legislation to apply a National Third Party Access Code for Natural Gas Pipelines Systems in 1997.5 The regulatory framework:

• Established the National Gas Pipelines Advisory Committee (NGPAC) and a Code Registrar.

• Required owners or operators of certain pipelines to lodge an access arrangement with the relevant regulator for approval, which would be assessed against criteria in the Code. Access arrangements were not enforceable. In the event of a dispute, the terms and conditions of access were determined by the relevant arbitrator.

• Required the provision of information by gas transmission and distribution networks and the ring-fencing of the accounting and functional aspects of prescribed services from those aspects of other services provided by the transmission or distribution service provider.

4 Second reading debate to the National Electricity (South Australia) Bill, South Australia, Hansard, House of Assembly, 29 May 1996, (Mr Foley, Hart), p. 1565. 5 Natural Gas Pipelines Access Agreement (7 November 1997).



In addition, vertically integrated gas companies were disaggregated and most government-owned transmission and distribution pipelines were privatised over the following ten years.

Initially the Code applied to most major pipelines, specifying criteria by which to determine coverage of new pipelines. Competition in gas transport capacity has since increased with the expansion of existing transmission pipelines and the construction of new ones. Some newer transmission pipelines are therefore not regulated, and coverage of some older transmission and distribution networks has been reduced or revoked.

2.2.2 The 2000s – Governance reforms

The Ministerial Council on Energy (MCE), established by COAG in 2001, is responsible for delivering economic and environmental benefits, within the COAG’s national energy policy framework. The MCE released several influential reports, including the Energy Market Review (MCE, 2002) and Reform of Energy Markets (MCE, 2003). These reports and a Review of the Gas Access Regime by the Productivity Commission (PC, 2004a) identified the need to create a consistent and seamless approach to regulation, to improve certainty and minimise the costs of regulation for investors.

Australian governments agreed to a number of governance reforms in 2004. In particular, the AEMC was established with responsibility for rule-making and energy market development (in place of NECA, NGPAC and the Code Registrar). The AER commenced operation on 1 July 2005 with responsibility for market regulation (functions previously exercised by NECA, the ACCC and the state regulators). The AER had initial responsibility for enforcing the National Electricity Rules (NER) and the economic regulation of electricity transmission networks. The regulation of distribution networks remained with the state regulator.

The changes to the electricity regime were reflected in a new National Electricity Law (NEL) and the NER which replaced the National Electricity Code. The single national market objective of the new NEL was to:6

promote efficient investment in, and efficient use of, electricity services for the long term interests of consumers of electricity with respect to price, quality, reliability and security of supply of electricity, and the safety, reliability and security of the national electricity system.

These amendments separated high-level rule making and market development from regulation and enforcement, in order to ‘strengthen and improve the quality, timeliness and national character of the governance and economic regulation of the NEM’.7 It was expected the cost and complexity of complying with regulation, as well as barriers to competition, would be lowered as a result.

Further changes

The Australian Energy Market Agreement (AEMA) was amended in 2006 to establish a nationally consistent framework for electricity and gas energy access. This was in response to the report to the MCE of the Expert Panel on Energy Access Pricing (2006), and the MCE’s response to the PC (2004a) review. The response included a policy decision to amend the gas regime to introduce a ‘light-handed regulatory option’ consisting of monitoring and dispute resolution, as an alternative to the regulator conducting an up-front, periodic assessment of tariffs.

The NEL was amended in 2008, introducing new revenue and pricing principles for electricity, transferring economic regulation of electricity distribution to the AER, introducing merits review of certain AER decisions and implementing a new access dispute framework.

6 National Electricity (South Australia) Act 1996, Schedule – National Electricity Law, s. 7 (as at 1 July 2005) 7 Second reading speech to the National Electricity (South Australia) (New National Electricity Law) Amendment Bill, South Australia, Hansard, House of Assembly, 9 February 2005 (The Hon. JD Hill).



A new NGL commencing on 1 July 2008 transferred regulation of gas transmission and distribution to the AER (except in Western Australia) and established the Natural Gas Services Bulletin Board to provide information on Australia’s gas markets.

Creation of Australian Energy Market Operator

The COAG established an Energy Reform Implementation Group (ERIG) in February 2006. The purpose of the ERIG was to support more efficient energy markets by reviewing elements of the operation of the energy sector and suggest further reforms. The ERIG was to report on:

• suitable governance arrangements to ensure a fully national transmission grid;

• any measures necessary to address identified structural issues restricting competitiveness and efficiency; and

• any measures necessary to ensure sufficient financial markets exist to support energy markets.

The ERIG reported in 2007, recommending the creation of a national energy operator (ERIG, 2007). At that time, the NEM and various gas markets across the eastern states were managed by a variety of different entities. In response to the ERIG, the Australian Energy Market Operator (AEMO) was established in 2009 as an amalgamation of the NEMMCO, Victorian Energy Networks Corporation, Electricity Supply Industry Planning Council, Retail Energy Market Company, Gas Market Company, and the Gas Retail Market Operator. It operates as an independent member-based organisation, membership split 60:40 between government and industry.

The AEMO is the system and market operator in wholesale electricity, responsible for overseeing the NEM, along with retail and wholesale gas markets. Its key roles include to act as the National Transmission Planner for electricity and to establish a short-term trading market for gas.

2.2.3 Current regulation - Electricity

The NEM is regulated under the NEL and the NER.

National Electricity Law

The objective of the NEL is to (s. 7):

promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to:

(a) price, quality, safety, reliability and security of supply of electricity; and

(b) the reliability, safety and security of the national electricity system.

The NEL sets out the:

• Powers and functions of the AER, the AEMC, the AEMO and the Australian Competition Tribunal under the NEL.

• Proceedings for judicial review of decisions by the AEMC and the AEMO.

• Procedures for making national electricity rules either by the Minister or the AEMC.

• Revenue and pricing principles that the AER and AEMC must have regard to in certain circumstances.

National Electricity Rules

The Rules are made under the NEL and have the force of law.

Chapter 6 of the NER deals with economic regulation of electricity distribution services and Chapter 6A deals with the economic regulation of electricity transmission services.



Chapter 6 – Economic regulation of electricity distribution services

Part B gives the AER the power to classify distribution services, to determine the type of regulation to apply to distribution services and to make distribution determinations. The NER is prescriptive about the processes that the AER must follow when performing these functions. The AER may classify a distribution service as either a direct control service, or a negotiated distribution service, having regard to a number of factors including any previous classification and regulation, the potential for competition in the relevant market, and the desirability of consistency in regulation. Both direct control services and negotiated distribution services must be supplied on terms and conditions of access consistent with the NER.

If a distribution service is classified as a direct control service, then the prices of the service, or revenue that is generated from supplying that service, are subject to ex ante incentive regulation of the Consumer Price Index (CPI) minus X form. The NER prescribes the use of a building block approach to incentive regulation of standard control services and is prescriptive about derivation of the ‘X’ factor and the circumstances in which adjustments may be made to regulated prices during the regulatory period.

Negotiated distribution services

Services classified as negotiated distribution services do not have their terms and conditions determined by the AER. They are, however, subject to a dispute resolution process. Prices of access to and provision of negotiated distribution services must be negotiated in a manner consistent with Negotiated Distribution Service Criteria, specified by the AER in the determination for the distribution network service provider (DNSP) providing the services. The AER will also use these criteria in resolving an access dispute about terms and conditions of access to negotiated distribution services (subject to consistency with the principles set out in clause 6.7.1 of the NER).

Dispute resolution and other provisions

The AER has the power to determine certain access disputes in relation to access to regulated distribution services. A regulated service provider is also subject to detailed provisions governing connection applications, and the terms and conditions of connection; and guidelines, which may be developed by the AER, for the accounting and functional separation of the provision of ‘direct control services’ from other services.

Chapter 6A – Economic regulation of transmission services

The NER defines two categories of regulated transmission services: prescribed transmission services and negotiated transmission services. Chapter 6A requires a transmission-network service provider (TNSP) to provide these services, upon application by certain persons, on terms and conditions consistent with the NER requirements. The AER is required to make a transmission determination for each TNSP. This contains:

• a revenue determination for the supply of prescribed transmission services;

• a determination regarding the TNSP’s negotiating framework;

• a determination specifying the Negotiated Transmission Service Criteria that apply to the provider; and

• a determination specifying the pricing method applying to the provider.

Chapter 6A also provides for the arbitration of access disputes by a ‘commercial arbitrator’ appointed by the AER. 90



2.2.4 Current regulation – Gas

The objective of the NGL is set out in s. 23:

to promote the efficient investment in, and efficient operation and use of, natural gas services for the long term interests of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.

Any person may apply to the National Competition Commission (NCC) for a recommendation to the Minister that a pipeline be covered. Service providers of covered pipelines are fully regulated (and must submit an access arrangement to the AER for approval) unless the NCC determines that the pipeline services are ‘light regulation’ services. Those services subject to ‘light regulation’ are required to publish the terms and conditions of access on their websites, but may voluntarily submit a ‘limited access arrangement’ to the AER for approval. The regime also governs ring-fencing and information provision.

2.2.5 Retail market regulation

The AEMA was amended in July 2009.8 Among other things, the agreement provides for a national framework for economic regulation of energy (gas and electricity) at the retail level. The agreement contains a commitment to full retail contestability in accordance with the National Competition Policy Agreements. Under the agreement, the AEMC assesses the effectiveness of competition at the retail level for supply of small energy customers in each state and publicly reports its assessments. If the AEMC determines that competition is effective, retail price regulation for electricity and/or gas will be phased out. If competition is not found to be effective, the AEMC conducts a further review every two years, unless the AEMC recommends otherwise, until all retail energy price controls are phased out or at the request of a Party thereafter. Where retail competition is not yet effective, retail energy price controls can be imposed by the relevant state or territory.

Proposed new rules under the National Energy Customer Framework will transfer non-price distribution and retail regulatory functions from state and territory jurisdictions to the AER (except in Western Australia and the Northern Territory in respect of electricity), likely to occur on an incremental basis in June 2012.9 The new rules are contained in the National Energy Retail Law (South Australia) Act 2011. The stated objective is to promote efficient investment in, and efficient operation and use of, energy services for the long-term interests of consumers of energy with respect to price, quality, safety, reliability and security of supply of energy.10 The Act provides for small customers to be supplied with energy under a standard retail contract or a market retail contract. The rules set out the model terms and conditions under which a standard retail contract must be offered to customers to whom a retailer is a designated supplier. Standing-offer prices must be published by the suppliers and notified to the AER, which also publishes the prices. Alternatively, a supplier and customer may negotiate a market retail contract which must comply with minimum requirements that will be set out in the Rules.

The AER’s responsibilities under the new Law and Rules include:

• Providing for retailer authorisations and exemptions

• Approving retailer customer hardship policies

• Compliance and performance monitoring and reporting

• Administering a retailer-of-last-resort scheme

Responsibility for electricity and gas retailer prices is to remain with state and territory jurisdictions.

8 Notice of Amendment to the Australian Energy Market Agreement, 2 July 2009. 9 Ministerial Council on Energy (2010), Communiqué, December. 10 National Energy Retail Law (South Australia) Act 2011 s. 13.



The new Law and Rules under the proposed National Energy Customer Framework are underpinned by a series of guidelines and procedures that have been developed by the AER in consultation with energy market stakeholders.11

2.2.6 Conclusion on reforms

There has been significant reform of different stages of the supply chain in the energy sector. Prior to the 1980s, the electricity industry was dominated by vertically integrated, government-owned monopoly suppliers who operated within state-boundaries. Gas infrastructure was predominantly owned by private enterprise and was less vertically integrated, with the exception of natural gas which was primarily state-owned. Over time the disaggregation of transmission and distribution networks has occurred and gradually many state-owned assets have been privatised.

In the early 1990s there was a move by New South Wales, Victoria, Queensland, South Australia and the ACT to interconnect state electricity networks. The National Grid Management Council was also formed to develop a national market for the wholesale trading of electricity and a National Gas Strategy was announced by the Commonwealth to remove barriers to trade in natural gas and ensure monopoly power could not be used to restrict access to pipelines. Throughout the 1990s separation of electricity production into contestable and non-contestable elements occurred, and certain electricity assets were privatised. In 1994 COAG agreed to broad principles for the gas and electricity industries.

In 1996, New South Wales, Victoria, Queensland, South Australia and the ACT agreed on the enactment of legislation to apply a National Electricity Code, in support of the NEM. In 1997 the Commonwealth and all state and territory governments agreed to apply a National Gas Pipelines System. Supporting the regulatory reform was the creation of the AEMC for rule-making and energy market development and the creation of the AER for economic regulation and enforcement.

The ability to use analytical techniques (as described in the Review of Methods) to undertake an ex post assessment of the impact of these energy reforms, on firm and industry performance and on the broader economy-wide impacts, will depend on the availability of adequate data. Data will need to be extensive in terms of the information available on financial and non-financial performance indicators, available both before and after the reform periods, and relatively consistent across time.

2.3 Data Availability and Issues

The Developing Indicators project included a major stock-take and examination of data available across seven infrastructure areas, including energy, finding a substantial amount of data about the Australian energy sector. These data can be separated into five different sub-sectors subject to regulation – two for electricity (transmission and distribution), two for gas (transmission and distribution) and one for energy retail (which includes electricity retail activities and gas retail activities). Some data sources may report data covering more than one sub-sector. A detailed summary of data availability by type of information and data source for each of the five sub-sectors is presented in Appendix B - Energy.

As shown, the majority of data are price; financial-statement information on revenue, expenditure (operating expenditure and capital expenditure), balance sheet and cash flows; and quality-of-service information. Quantity and physical data are more limited. While some data have historically been collected on a national basis, other data have been collected by state or territory regulators, or by a mixture of federal and state bodies.

2.3.1 Electricity transmission data

The AER (and the ACCC before it) has collected information on electricity transmission network service providers (TNSPs) since 2002-03 as part of its annual performance reporting. Relevant

11 See: http://www.aer.gov.au/content/index.phtml/itemId/730412 [ accessed 14 October 2011]



data collected include detailed financial-statement information on revenue, expenditure (operating expenditure and capital expenditure), balance sheet and cash flows, disaggregated into regulated services (prescribed services), negotiated services, and non-regulated services. Customised service-standards templates have been used to gather service-performance information from TNSPs, covering a range of performance measures such as outages, circuit availability (including in peak and critical periods) and loss of supply.

The historical information collected is combined into spreadsheet data covering regulated TNSPs from 2003-04, although in some cases data items are available from 2001-02. The combined spreadsheet contains information on revenue, capital expenditure, operating expenditure, asset age and various service-standard indicators. The spreadsheet also contains demand data (average weekly and maximum weekly), from 2005-06, disaggregated for each of the five/six regions of the NEM. Therefore, a set of time-series data covering regulated TNSPs is available. While the data appear to be comprehensive and continuous, there are some consistency issues. For example, the definitions of most output items and the reporting of disaggregated components for operating expenditure (opex) and capital expenditure (capex) have varied over time. Furthermore, cost-allocation methods do not appear to be uniform across TNSPs.

There are two further sources of publicly available data for the electricity transmission sub-sector. First, there are the annual regulatory reports, published by the AER since 2002-03. The reports detail business-specific information regarding revenue and expenditure and service standards, although there are some issues of consistency in how the reports are presented. An interesting aspect of information analysis in some of these reports is the ‘out-turn’ profitability and investment figures relative to forecasts in the original revenue-cap decision.

The second source of data for the sub-sector is the AEMO (previously NEMMCO) data. The AEMO has data relating to the NEM for generation output, price and demand, as well as ancillary services. The price data for the NEM have been published since 1998, and are available at the regional level. The AEMO also publishes weekly data on future contract prices. In relation to generation, the AEMO publishes information on the existing and future capacities of generators.

In summary, in relation to transmission, there is a reasonably consistent set of financial performance and quality-of-service performance data available since 2002. Care would, however, need to be taken in using these data in light of variability in reporting by TNSPs of particular components over time – such as opex, changes in certain key definitions (such as throughput) over time, and potential inconsistencies in the cost-allocation methods historically adopted by TNSPs.

2.3.2 Electricity distribution data

Compared to electricity transmission, data on electricity distribution are less uniform as the state and territory regulators were responsible for regulation of DNSPs. The issue has been alleviated somewhat by the introduction in 2000 of the national regulatory reporting framework under the Utility Regulators Forum (URF). However, as this framework is non-binding, the quality and quantity of data provided by DNSPs vary.

In terms of pricing and financial information, major sources of data include:

• In New South Wales (NSW), the Independent Pricing and Regulatory Tribunal (IPART) collected information on revenue, opex, capex and asset type between 2002-03 and 2006-07.

• In South Australia, the Essential Services Commission of South Australia (ESCOSA) has collected data on electricity distribution prices by tariff type (such as residential and small business) since 2000, although it is unclear whether data on other aspects of financial performance (such as revenue and capex) are available before 2008-09.

• The Queensland Competition Authority (QCA) reports on regulated DNSPs contain information from 2001-02 on financial and operating performance, including revenue, opex, capex, while quality-of-service information is provided from 2004-05 onwards.



• In Tasmania, the Office of Tasmanian Economic Regulator (OTTER) provides some financial information for DNSPs from 2005-06, including revenue, opex, and capex.

• In the ACT, the Independent Competition and Regulatory Commission (ICRC) has data on financial aspects of distribution from 2003-04 to 2008, including revenue, capex and opex.

• In the Northern Territory, extracts from annual regulatory accounts show revenue and various costs are available from 2001 to 2008.

• In Western Australia, there is no reporting of financial performance indicators.

• In Victoria, the Essential Services Commission (ESC) (and later the AER) has established a substantial database of spreadsheets containing financial information such as the actual and forecast value of the regulatory asset base (RAB) since 1994, and revenue, capex and opex figures from 2000.

Sufficient information has been collected by the regulators in relation to reliability and quality of service. This includes information on the number of connections, problems with connections, interruptions (planned and unplanned) and notification periods, and customer-response times. This type of information is available for NSW from 2004; Queensland from 2004; Tasmania from 2001; South Australia from 2000; the ACT from at least 2004-05 (some data extend back to 2001-02); and in Victoria from at least 2000 (with some data available from 1996). In Western Australia and the Northern Territory, quality-of-service data for distribution networks are available from 2005-06.

In general, summary information on regulatory accounts, reliability of supply, network characteristics and customer-service indicators are available in the various regulators’ reports. However, the detailed data underlying the summaries may not be publicly available. Furthermore, it appears individual regulators sometimes apply different terminologies to describe the same indicator.

In summary, data available on distribution networks vary in scope, coverage and quality, which may limit the usefulness of the data for any evaluative work. The most comprehensive area of data collection is in relation to various quality-of-service indicators. The coverage of financial data varies among the different jurisdictions, partly due to some of the regulatory account data not being available in the public domain.

2.3.3 Gas transmission data

The regulatory data in relation to the gas transmission pipelines are limited as businesses are not subject to economic regulation or annual regulatory information-reporting requirements. In particular, there are little available data on financial aspects or quality of service. One available source of information is the access arrangements that have been submitted to the AER (or the ACCC before it) as part of the regulatory process. However, the information available is not continuous or uniform. A further source of information is the AEMO, which has collected and reported data on gas transmission demand from 1982 to 2001, and on gas prices and withdrawal from 2002 to 2009.

2.3.4 Gas distribution data

Prior to the transfer of access regulation to the AER in 2008, gas-distribution networks were regulated by the jurisdictional regulators, and the available historical data include the following:

• In Victoria, the ESC and subsequently the AER published comparative performance reports from 1999. These reports include data on demand, customer numbers, revenue, opex, and capex, as well as various indicators of quality-of-service and reliability. However, financial information has only been collected since 2004-05.

• The ESCOSA has collected data since 2004-05 on gas-distribution networks, including various operational statistics, as well as information about connections and augmentations. The data also include information on various financial aspects such as revenue and



expenses, and return on assets. Nevertheless, the data recorded in these reports are not detailed and vary in quality.

• The QCA has data from 2003-04 to 2006-07 which cover reliability indicators. However, the only information on financial data is provided in relation to financial performance. This is contained in the 2006 access arrangement review, which also has some information on capital expenditure.

• In the ACT, the ICRC published reports from 2001-02 which addressed various aspects of operational performance and quality of service.

• In the case of both New South Wales and Tasmania, both the IPART and the OTTER do not appear to hold much historical information on gas-distribution networks, although there does appear to be some data available on reference tariffs for the different networks in New South Wales, and there is some information on customer connections and quality for Tasmania.

• In Western Australia, the Economic Regulation Authority (ERA) has data from 2006-07 which cover both operational (number of customers and connections) and reliability and quality information.

In summary, other than in Victoria and South Australia, there appear to be very limited historical data available in relation to gas-distribution networks. Much of the data collected by regulators are not readily available to the public, limiting the usefulness of the data for any broad evaluation exercise.

2.3.5 Energy retail data

Data relating to retail activities in energy are collected by jurisdictional regulators. The Utility Regulators Forum (2002) agreed on a consistent template for the reporting of operational and performance indicators for electricity retailing by different jurisdictional regulators in 2002. However, variations in implementation of this template are observed.

Major sources of data include the following:

• The IPART has published data relating to electricity retail markets (since 2004-05) and gas retail markets (since 2007) in New South Wales. These data include information on continuance of supply (for example, number of disconnections), accessibility and payment methods, and customer service. Some data on customer service performance are available from 1999-2000.

• In Victoria, the ESC has published annual performance reports since 2000-01 containing information on energy retailing including pricing and customer services indicators. The data collected vary over the time period but include information on customer numbers, customer switching, tariffs, annual average bills and standing-offer prices. In addition, data have been collected since 2001 in relation to various affordability and quality-of-service indicators.

• In Queensland, the QCA has published data on customer statistics and disconnections and complaints since 2007 in both electricity and gas retail.

• The ESCOSA has extensive historical data on energy markets in South Australia since at least 2004-05. These include information on entry and exit of suppliers, number and type of customers, type of contracts (including non-standard contracts), energy price as well as other performance and accessibility statistics.

• The OTTER in Tasmania has published data on the retail market in its annual reports it has prepared since 2000-01. This includes in some reports information on retail billing; revenue collection; number of customers, disconnections; payment plans and quality. This information has been collected in relation to gas retailing activities since 2003-04.



• In Western Australia, the ERA has published separate reports on electricity and gas since 2005-06. These reports contain information on customer type, affordability, connections and disconnections and customer-service indicators.

• In the ACT, the ICRC has collected data on retail activities since 2002, including information on customers and consumption, revenue and average charges and customer service.

• In addition to these data, the AEMO has collected retail transfer data (in terms of electricity switching) for Victoria, Queensland, New South Wales and South Australia from at least 2006 (and from 2004 in some cases).

In summary, although there has been a common reporting framework adopted in some jurisdictions for the collection of energy retailing data, the reported data appear to vary in scope, coverage and quality across jurisdictions and between gas and electricity. While some jurisdictional regulators have collected information on pricing and tariffs, others have focussed on connection data and quality-of-service indicators.

2.3.6 Data covering more than one sub-sector

A number of major data sources covering more than one energy sub-sector are also identified.

The annual publication by the Energy Supply Association of Australia (ESAA) and its predecessor organisations contain data from across the energy sector. The annual reports titled Electricity Gas Australia contain state-level system capacity and performance (concentrating on technical aspects such as reliability) data on electricity (generation, transmission and distribution, and consumption and demand) and downstream natural gas. This series also contains general information on companies, markets, proposed new facilities, and merger and acquisition activities. Prior to 2003, the Electricity Supply Association of Australia annually published statistical and general information on the electricity industry and the Australian Gas Association (AGA) published a statistical yearbook on the gas industry. Since 2003, there appears to have been a substantial reduction in the scope of information released. The earlier publications up to the 2003 report cover financial information, financial indicators, and non-financial performance indicators (for example, employment and labour productivity) that are largely absent from the later reports. The later reports focus on information pertaining to certain aspects of energy, including demand and supply, price, reliability and safety.

Another source of data is the industry-level data compiled and reported by the Australian Bureau of Statistics (ABS) according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) standard. The annual reports on electricity, gas, water and waste services in Australia cover two areas in the energy sector, one is electricity supply (covering generation, transmission, distribution and wholesaling/retailing but excluding the construction, repair or maintenance of electricity transmission towers or lines, power station buildings or water storage dams), and the other is gas supply (covering the distribution and wholesaling/retailing). Key data include industry-based estimates on employment, financial performance (such as revenue, expenditure and profit) and value added. Other relevant ABS publications include the publication of electricity and gas price index by household or business users.

Relative to the regulatory data, these two sources of data are more aggregated, for example by state, as opposed to state-based service provider, level. In addition, the ABS industry classification may not align with the sub-sector or segment division in the regulatory context. As a result, they are not readily complementary in the evaluative work.

2.3.7 Commercial-in-confidence information

Some of the regulatory data summarised above are information pertaining to individual service providers and are of commercial-in-confidence nature. Data specific to a service provider have been submitted by that service provider to the respective jurisdictional regulators in performing their regulatory duties.



The ACCC and the AER have developed a general policy on the collection, use and disclosure of information (ACCC/AER, 2008). Confidentiality claims for exemption from information disclosure will generally be reviewed on a case-by-case basis. In energy matters, the AER is able to release confidential information if it is of the opinion that the benefit would outweigh any detriment. This decision is subject to merits review.

2.3.8 Conclusion on data

Significant amounts of regulatory data have been collected for the electricity and gas distribution and transmission sub-sectors. The majority of these data are price, financial-statement and quality-of-services data and are mainly available post-2000. There are limited physical data on system characteristics and output. The coverage, continuity and consistency of existing regulatory data vary across jurisdictions and over time due to changes in definition and collection requirements.

Regulatory data for electricity transmission are more uniform and complete than for electricity distribution and the gas sub-sectors. The move towards nationally-consistent regulatory reporting will gradually improve the scope, quality and consistency of regulatory data over time.

Data are also available from other public sources, including information published by industry associations or government organisations. However, the quality and comparability of the data from different sources vary, making it difficult to construct consistent time-series sufficiently long for the evaluation. For example, compatible data that can be used to measure financial or non-financial performance over time are not readily available given the differences in the reporting of regulatory data and the reporting of the earlier ESAA data. These data issues may limit the nature and scope of the evaluation work that it is possible to undertake.

2.4 Review of Relevant Literature

There is an extensive literature that uses a variety of methods to examine the effects of various aspects of energy reforms on economic welfare, as well as on various indicators of the energy sector’s performance in Organisation for Economic Co-operation and Development (OECD) and developing countries. There is also an extensive literature that examines the effects of regulatory governance and regulatory design on energy-sector performance. A sample of the most relevant empirical literature is presented in this section.

International energy studies

Several studies have used social cost benefit analysis (SCBA) to examine the efficiency effects of particular aspects of energy reforms. For example Brunekreeft (2008) examined the effects of ownership unbundling on electricity transmission in Germany; Barmack, Kahn and Tierney (2007) examined the effects of deregulation and the introduction of competition into the wholesale electricity market in New England; and both Domah and Pollitt (2001) and Newbery and Pollitt (1997) used SCBA to examine the effects of privatisation of electricity assets in the UK.

Computational general-equilibrium (CGE) modelling has been used to examine both the ex ante and ex post effect of energy reforms as part of the broader package of reforms in various studies that are identified in the Review of Methods. For example, Whiteman (1999) uses Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) methods to measure ‘X-inefficiency’ (see page 43 of the Review of Methods) in the Australian electricity supply industry, and uses these estimates to shock a CGE model to estimate the potential gains from reforms that are expected to eliminate this X-inefficiency.

There are also numerous examples of assessments that use econometric methods and productivity/efficiency methods to assess the effects of various aspects of energy-sector reforms on a cross-country or case-studies basis. These types of studies are generally partial-equilibrium analyses. Andres, Guasch and Azumendi (2008) use panel data for 26 countries to examine the links between regulatory governance and energy sector performance. In a cross-country econometric study of 28 developing countries, Cubbin and Stern (2006) examine whether regulatory law and higher-quality governance lead to improved performance in electricity



generation, particularly in relation to generating capacity. Doove, Gabbitas, Nguyen-Hong and Owen (2001) use econometric methods and the results of Steiner (2000) to quantify the effects of restrictive domestic regulatory regimes (relative to a benchmark ‘ideal’ regime that would minimise prices) on pricing in a number of sectors, including electricity supply, for 50 OECD and non-OECD countries. Von Hirschhausen, Cullman and Kappeler (2006) use DEA to evaluate the efficiency of electricity distribution in Germany. Delmas and Tokat (2003) use DEA to evaluate the short-run impact of retail deregulation on US electric utilities. Arocena and Waddams-Price (2002) evaluate the effect of switching from rate-of-return regulation to incentive regulation on productivity in Spanish electricity generation using an index of Total Factor Productivity (TFP) growth. Cost-based benchmarking with DEA and SFA is used by Hattori, Jamasb and Pollitt (2005) to examine the relative performance of electricity distribution systems in the UK and Japan between 1985 and 1998. The authors use a balanced panel of 12 UK and nine Japanese utilities. The findings show larger productivity gains in the UK than in Japan, and accelerated productivity gains in the UK when the utilities were subject to tightened revenue caps. The authors consider that the use of multiple techniques in comparative analysis is useful for cross-checking data and the results obtained under each technique.

There have been numerous studies of the energy sector in the US. Jamasb, Pollitt and Triebs (2008) apply DEA to a panel of 39 US inter-state gas transmission pipelines over nine years to study the changes in productivity following the introduction of increased pipe-to-pipe competition. Granderson (2006) measures and decomposes TFP growth for a panel of 34 US privately owned electric utilities from 1992 to 2000 to examine whether increased competition can lead to worse environmental outcomes. Sickles and Streitwieser (1998) examine the impact on TFP growth of the transition from price regulation to partial deregulation using panel data from 24 interstate US gas pipeline firms between 1977 and 1985. They find significant declines in productivity mainly due to lower output during the first eight years following partial deregulation. Lowry and Getachew (2009) present a method for calculating TFP when peer data are unavailable. The method is based on an econometric cost model and is designed for use in rate-adjustment regulation. The method is then applied to data covering 36 US gas distributors between 1994 and 2004.

Agrell, Bogetoft and Tind (2005) compare actual cost and technical data from 238 electrical distribution companies in Sweden between 1996 and 2000 with a DEA-based regulatory model to show that the DEA-based incentive regulation compares favourably to the popular CPI–X model.

There is also considerable focus in the literature on the use of qualitative and mixed methods to assess the effects of regulatory governance. Stern and Holder (1999) develop a ‘regulatory reform index’ to assess regulatory governance across countries. Ocaña (2002) uses qualitative methods to examine the factors underlying the choice of regulatory institutions in the energy sector in a number of OECD countries. Dixit, Dubash, Maurer and Nakhooda (2007) develop a regulatory-governance ‘toolkit’ for benchmarking regulatory frameworks and practice in the electricity sub-sector.

Australian energy studies

The evolution and form, of reforms and regulation in the Australian energy sector have been the subject of numerous reviews and reports since the early 1990s. Using a combination of qualitative and quantitative methods, these reports have influenced the path to the current state of regulation and reform in the Australian energy sector. Initially, both sub-sectors were regulated at the state level. Thus issues of regulatory inconsistency, timeliness, cost and overlap loomed large in the ensuing debate about the appropriate regulatory model. A key issue for many of the reviews of reforms and regulation has been the examination of the extent to which existing arrangements ‘chill’ efficient investment in infrastructure. An overview of a selection of these reports, including the evaluation methods used, is given in this section. The reports are IC (1991a), PC (2004a), and Energy Market Review (2002). There is also a discussion of the AEMC’s approach in reviewing the effectiveness of retail-market competition, a summary of two efficiency benchmarking studies undertaken by IPART on energy distribution businesses and a



description of three efficiency benchmarking studies prepared by Meyrick and Associates for Multinet Pty Ltd (Multinet).

The IC (1991a) was asked to report on the institutional, regulatory or other arrangements subject to government influence that led to inefficiencies in electricity and gas, and to advise on ways to reduce or remove these inefficiencies. Its overriding conclusion was that the ‘electricity and gas industries have not been performing to full potential’ (p. 2). This was the result of poor investment decisions during the 1980s, resulting in excess capacity, low-capacity utilisation and overstaffing. There were also cross-subsidies between different types of users, and between regions. Price structures did not take account of differences in costs of supply during the day, week or year.

The majority of the IC’s insights were gained from analysis of a range of partial indicators of performance and information about price structures and their relationships to costs. Significantly, the IC found that these inefficiencies had substantial broader economic implications. Its analysis of the economy-wide implications of inefficiencies in electricity was based on CGE modelling of three scenarios of TFP growth and the removal of cross subsidies using the long-run, linear, comparative-static Fiscal-Horridge-ORANI model. This version of ORANI improved the model’s treatment of taxes and transfers and the determination of the main components of aggregate demand. For gas, the economy-wide effects were found by simulating a 15 per cent saving in unit labour and capital requirements. The IC (1991a, p. 34) qualified its results and stressed they did not form the sole basis for its recommendations:

It is not possible to model the effects of many of the IC’s recommendations, such as corporatisation and increased competition, in a model like ORANI. Rather the ORANI analysis is intended to illustrate the size of the gains which are potentially available from improvements in efficiency of the electricity and gas industries.

The main aim of the Review of the Gas Access Regime (PC, 2004a) was to examine the extent to which the gas-access arrangements balanced the interests of relevant parties. The PC adopted a primarily qualitative approach to assessment. Specifically, it identified the various costs and benefits of the current gas access regime, then illustrated these with qualitative and anecdotal evidence from inquiry participants. The PC also used a checklist for assessing regulatory quality developed by the Office of Regulation Review (ORR) based on a range of OECD indicators (PC, 2004a, p. 86). As noted in the Review of Methods, qualitative and mixed methods approaches can be useful ways to evaluate the effects of reforms and regulation when applied rigorously. In determining its analytical method, the PC (2004a, p. xxviii) specifically discounted the use of quantitative approaches, such as a formal social cost-benefit analysis using CGE modelling:

Quantifying the benefits and costs of the Gas Access Regime is extremely difficult, particularly in the absence of information about what would have occurred without the regime (the counterfactual). This is even more difficult because, while most of the significant pipelines are covered, much of the gas transported is determined under long-term contract and is not directly regulated, there are other dynamic competitive forces at work as competition emerges, and other policy influences are simultaneously at work.

The PC considered that these difficulties would cast ‘considerable doubt’ on the conclusions of quantitative modelling. Applying its qualitative approach, the PC found that the current regime generated benefits, but also imposed costs, which had the potential to distort investment. It considered that some form of access regime was still necessary and therefore it made a series of recommendations to address the costs. The PC was particularly concerned about the potential for regulation to ‘chill’ efficient investment.

The Energy Market Review (MCE, 2002) took place after an independent review of energy market reform was agreed by COAG in June 2001. The review was partly in response to increasing energy prices and concerns that this reflected the exercise of market power. The review found that Australia’s energy reforms had brought benefits such as increased generator



efficiency and availability, and additional investment in generation capacity. The review made a number of recommendations relating to governance and regulation of the electricity market, electricity market structure, electricity transmission, improvements in financial markets, demand-side participation, increasing the penetration of gas, and options to reduce greenhouse gas emissions. In order to quantify the benefits associated with its recommendation, the review panel commissioned ACIL Tasman to estimate the impacts on the Australian economy of the recommendations. It modelled the impacts of the proposed reforms for 2005 to 2010, assuming the full implementation of all measures by 2005, using its Tasman Global dynamic CGE model, and two models that simulated price formulation in the gas and electricity markets (GasMark and PowerMark).

The AEMC is responsible for assessing the effectiveness of competition in the retail markets for electricity and gas for the purpose of phasing out retail price regulation and introducing full-retail contestability. As at October 2011, the AEMC has finalised three reviews for Victoria (AEMC, 2008a), South Australia (AEMC, 2008b) and ACT (AEMC, 2011a).

As part of an inquiry into the prices of monopoly electricity distribution businesses in New South Wales, the IPART commissioned an efficiency benchmarking study (IPART, 1999a). The study undertaken by London Economics used DEA and SFA on a large database of 219 electricity distributors from Australia, New Zealand, England, Wales and the United States and TFP indices are calculated for the NSW distributors. The study found that the DEA scores for NSW distributors ranged between 59 per cent and 87 per cent and productivity growth for NSW distributors was comparable to overseas counterparts, averaging 2-3 per cent per annum. The IPART conducted a similar benchmarking study for Gas distributors (IPART 1999b) as part of a review of access arrangements for AGL Gas Networks Ltd (AGLGN). The IPART applied partial productivity measures, DEA, SFA and regression analysis techniques to data from Australian and US gas distributors. The results indicated potential for local distributors to improve performance and the choice of benchmarking technique did not unduly influence the results of the study.

In 2007, Meyrick and Associates conducted three efficiency benchmarking studies for Multinet Pty Ltd as part of the Victorian Gas Access Arrangement Review for 2008-2012. The first study uses three econometric models, including a translog cost function model, an opex requirements model and second stage regression analysis, to examine Multinet’s relative cost efficiency compared with 11 other Gas Distribution businesses in Australia and New Zealand (Lawrence, 2007a). In the second study, an econometric cost function model is estimated using pooled data from 69 US gas distribution businesses between 1996 and 2005 and Multinet from 1998 to 2006 (Lawrence, 2007b). In the third study, partial productivity indicators are developed and compared for Multinet and 14 other gas distribution businesses in Australian and New Zealand (Lawrence, 2007c).

2.5 Specific Research Possibilities

While it may not be feasible to explore adequately the question, ‘What has been the impact of the National Competition Policy reforms on the energy sector as a whole?’, given how the energy markets are structured and have evolved, it may be possible to conduct narrower evaluative exercises.

Evaluation of the impact of changes in ownership and form

The various instances of state-owned entities becoming corporatised and, in some cases, privatised, provide the potential for comparative work on the performance of entities under different forms of ownership and management in different sub-sectors (before-and-after studies of performance). Such work would call for an analysis of the changes in the performance of electricity utilities both before and after a specific reform was introduced (corporatisation and possibly privatisation). While there are a number of methods that could be used to conduct such analysis, the most appropriate will depend on the adequacy of available data.

SCBA could be used to examine the effects of the move in some jurisdictions from government to private ownership and operation. Using this approach the counterfactual would be the



‘before’ state, having allowed for growth in relevant variables. Many applied SCBA studies (references on page 91 of the Review of Methods.) have sought to examine the impacts of restructuring and privatisation, including a number of studies in the electricity industry in other jurisdictions. However, in practice, it would be difficult to undertake this approach in the Australian context given the available data. Specifically, this approach requires that a full set of indicators be identified which could allow for the measurement of the social costs and benefits in both the before and after states. Indicators on which any assessment could be made would be changes in prices, profitability, consumer surplus, producer surplus, and costs. However, it appears that such data do not readily exist across the jurisdictions in a comprehensive manner, and that, where they do exist, there may be differences in the way they have been collected and recorded.

There are two principal obstacles to using CGE to assess the impacts of energy reforms. First, modelling results are sensitive to the magnitude of the shock that is introduced and it may be difficult to adequately identify and quantify the relevant ‘shock’, particularly when a reform is aimed at changing the incentives of market participants or fostering particular environments conducive to competition. Second, determining which variables should be treated as exogenous, rather than endogenous, to the model can be problematic, particularly when examining changes in the energy sector. This may be controversial where it involves variables which are impacted by various policy decisions – for example, in relation to the natural environment. The approach adopted in some cases has been based on using estimates of ‘best practice’.

Given the data limitations, econometric methods may provide a more promising approach to examining the effect of corporatisation and privatisation on performance. The advantage of the econometric approach is that it allows questions to be tailored to the specific data that are available across the various energy sub-sectors (that is, transmission and distribution for both electricity and gas). Unlike with a SCBA, full information on prices and quantities may not be required. However, such an analysis would require a sufficiently long time-series of data which cover the period both before and after the specific policy reforms were introduced.

In relation to electricity transmission, it was noted in section 2.3 that the available AER datasets provide reasonably consistent data on TNSPs’ costs, and various quality indicators, from 2002-03 onwards. For data earlier than that – in relation to capital expenditure and operating expenditure – it may be possible to look to other sources, such as the reports of the various state energy boards. An econometric method could be used to address questions about the impacts of changes in ownership on factors such as capital expenditure levels; operating expenditure levels; or service-quality indicators (including planned and unplanned outages). As ownership changes have occurred at different times in different states, panel-data techniques could be applied to a set of financial-performance or service-quality data on the different states across time to identify the effects of ownership change.

In relation to electricity distribution, the regulatory data coverage and quality are less uniform across jurisdictions. However, some state regulators (for example, the ESC in Victoria) have collected relevant regulatory data from the commencement of independent economic regulation in the mid-to-late 1990s. Combining data from other sources, panel data that cover a sufficiently long time-period both before and after the privatisation of DNSPs in Victoria and South Australia may be available for an assessment of the impact of ownership changes in this sub-sector. Nevertheless, the research task is challenging given the inherent data availability and quality issues.

Another approach could involve applying various indicators of efficiency or productivity, including changes in the input/output ratio before and after corporatisation or privatisation for the different utilities in the energy sub-sectors. As noted in the Review of Methods, for these types of studies to be robust and reliable, it is generally necessary to have a large number of consistent and continuous data observations. On the basis of the available data, it does not appear possible to undertake such studies, particularly focussing on changes in TFP both before and after corporatisation or privatisation. This conclusion is consistent with both the general findings of NERA (2007) in relation to sectoral studies, and the more recent reports by the AEMC (2009)



and by the consulting firm, Economic Insights, for the AEMC (Lawrence and Kain, 2009). While it may not currently be possible to undertake a full TFP analysis, there are long-term datasets from 1989 on various aspects of electricity supply which include some labour-productivity measures. In relation to gas, the data available start from 1988-89. Further, a number of studies have examined productivity changes based on the analysis of company annual reports and statistical year books.

In July 2011, the AEMC finalised its review of the use of TFP analysis in regulatory decision making (AEMC, 2011b). The final report suggests that ‘more consistent and robust data on network business’ inputs and outputs needs to be collected and reported to the regulator.’ The AEMC considers that such data collection would improve regulatory practices and transparency, and address the regulator’s information limitations. The report also proposes rules that would facilitate the data collection. If followed through, the collection of input and output data on network businesses could provide opportunities for assessing the impact of future reforms using TFP-based analysis. Evaluation of the impact of different structural and governance arrangements

In electricity transmission and distribution the different structural and governance arrangements among the different states – notably Victoria compared with New South Wales and Queensland – provide some scope for comparative work. There are various differences in governance and structural arrangements that might form the basis of such comparative work. For example, Victoria has separated out planning tasks from operation of the transmission grid, while other states have combined these functions. Different states have adopted or applied different reliability standards. In addition, Western Australia’s regulatory arrangements have remained distinct from those of the NEM states. Specific changes in governance arrangements may also provide a basis for consideration of the impacts on key indicators such as tariffs or productivity. Evaluative work of this type appears, in principle, to be best suited to the econometric method or the productivity- and efficiency-based approaches. For example, Wallsten (2001) used a fixed-effects panel data technique to analyse the effects of privatisation, competition and regulation on telecommunications providers’ performance in a panel of 30 African and Latin American countries from 1984 to 1997.

In practice, it will be necessary to have sufficiently detailed and consistent panel data across the different jurisdictions to allow for such comparisons to be made. There appears to be a reasonably consistent regulatory dataset across jurisdictions for TNSP’s capital expenditure, operating expenditure and other quality indicators. In addition, since 2005-06 there are data available on demand levels, which may be important in controlling for changes in the growth of the market in any econometric study. In addition, it may be possible to combine AER data with the contemporaneous AEMO data on spot-market prices (and possibly futures prices) for the different regions of the NEM to assess whether the introduction of the various governance and structural arrangements appear to be related to any noticeable changes in the market prices.

The econometric approach may allow for more specific questions about the effects of differences in governance arrangements, and four specific research possibilities can be identified. These research possibilities may, however, be limited by the availability of sufficiently long data series to achieve statistically significant results. Over time more information is likely to become available as the responsibility for monitoring and reporting on the energy sector has been centralised through the AER. Therefore some of these research possibilities may be best addressed in the future when more data are available.

First, it may be possible to examine the effects of the movement after 2004 towards a regulatory framework which included an ex ante investment allowance for TNSPs (see ACCC, 2004b). Specifically, it may be possible to examine the impact that such a change had on the capital expenditure undertaken by the different TNSPs, and whether this could be related to differences in the structural and governance arrangements.

Second, it might be possible (utilising the AER data on financial and service performance of electricity TNSPs) to examine the changes in transmission network capital expenditure against



changes in relative demand in each NEM region. Such an evaluation could be used to assess the relative responsiveness of TNSPs operating in different regions of the NEM to changes in demand profiles over the longer term, and then to examine whether this might be related to differences in the structural and governance arrangements. The data published by the AEMO on generation (including planned projects) might provide similar potential for an evaluative exercise. Such data could be linked to TNSP investment data to assess the relative responsiveness of TNSPs to generation proposals.

Third, ESCOSA data on electricity distribution prices by tariff type (such as residential and small business) since 2000 might provide an opportunity to examine how tariffs have changed over time for different DNSP users, and in particular, the extent to which changes in each type of tariff are related to changes in the tariffs charged by the South Australian TNSP (Electranet). There is also the potential to examine how other, more specific, regulatory policies introduced in South Australia during the relevant period might have impacted on the tariffs for use of the distribution network.

Fourth, an econometric study could perform a comparative analysis of quality and performance in Western Australia’s network (Western Power’s SWIN) relative to the DNSPs in the NEM. This could examine whether there is any difference in quality and performance for the Western Australian DNSP which could be associated with a different regulatory approach and framework in that state as compared to DNSPs operating in the NEM. However, there is currently limited information for Western Australia upon which such a comparison might be made.

Alongside the econometric approach it might be possible to examine descriptive statistics to analyse whether the differences in structural or governance arrangements across jurisdictions are associated with differences in efficiency and productivity. For reasons already noted, such data do not readily exist which would allow for a detailed comparison across TNSPs or DNSPs. Nevertheless, it may be possible to use partial indicators of productivity. This might include relative calculations based on information presented in the service providers’ annual reports and statistical year books, such as operating costs per kilometre of transmission line; or costs per customer.

To summarise, the quality of the available data on transmission networks across the different jurisdictions of the NEM suggest that this is a promising area in which to examine the impact of the different structural/governance arrangements. It could be insightful to conduct a comparative analysis to the distribution networks; however, data availability and consistency issues may limit the research scope and the usefulness of the results.

Evaluation of the impact of different approaches to the regulation of gas networks

In gas networks, the different approaches adopted in regulation (over time and between jurisdictions) provide potential for comparative work examining the outcomes associated with the different approaches. Such analysis would combine both temporal and comparative aspects of performance to examine how the regulation of gas networks (particularly gas distribution networks), has impacted on key indicators such as investment, prices, and service quality over time and across the different jurisdictions.

The econometric, productivity and efficiency approaches seem most suited to addressing this type of question. For example, it should be possible to use econometric methods to examine whether the performance of gas-distribution pipeline operators can be related to differences in regulatory approach and policies adopted by the various jurisdictional regulators prior to 2007. Likewise, it should be possible to undertake a comparative efficiency study of the different gas-distribution networks to examine whether these can be related to any differences in regulatory approach. Similarly, the different regulatory treatment of covered and non-covered gas transmission pipelines should provide a basis to investigate the sources of any differences in performance over time. However, given data constraints it is likely to be difficult to identify the effects of separate policy changes when multiple reforms have occurred around the same period. In this case, it may be more appropriate to identify changes in outcomes as a result of a basket of regulatory changes.



Historical data in relation to gas transmission and distribution pipelines are very limited. Nevertheless, some historical data for Victoria and South Australia exist (albeit in varying quality) which might present an opportunity for comparative efficiency work to be undertaken. Looking ahead, now that the responsibility for the regulation of covered gas transmission and distribution pipelines rests with a single body (the AER) it should be possible to allow for the collection of a consistent series of data which could facilitate addressing these questions more rigorously in the future.

Evaluation of the impact of different forms of regulation

State regulators have historically adopted different approaches to regulation of distribution networks in energy, some setting a revenue cap, some an average-price-cap and others using a combination of approaches. These differences provide the potential to examine whether the different approaches adopted have had any appreciable effect on outcomes that can be related to economic welfare, including average prices, investment and productivity. The particular basis on which the cap is determined – total revenue, average revenue or weighted-average revenue – may have important effects on the incentives of a supplier to reduce costs; set efficient tariff structures; expand demand and improve the quality of supply.

The focus of an econometric analysis would be on whether the different forms of price control can be related to observed differences in service quality; operating expenditure; capital expenditure; demand-efficiency initiatives or measures. An econometric method could also allow for a comparison, under the different forms of price control, of how forecast costs relate to actual costs, and the extent to which there is evidence of a significant divergence. Moreover, it may be possible to undertake a comparative-efficiency study to examine the extent to which performance and service quality can be related to the differences in the controls applied.

While there appears to be a good body of historical data for electricity DNSPs on customer service and performance, the quality and coverage of financial data vary between jurisdictions. Nonetheless, it may still be possible for the data on customer service and performance to be used as part of an econometric exercise to examine the relationship between the form of regulation and performance and service quality. It may also be possible to combine the existing data for the different jurisdictions with other contemporaneous data (such as AEMO data for the different regions of the NEM, or the annual reports and data from the distribution companies) to assess whether the different forms of regulation appear to be related to any noticeable changes in performance and market outcomes.

Evaluation of the impact of the changing composition of the NEM

The composition of the NEM has changed over time, with the addition of states such as Tasmania, and the abolition of the Snowy Region in 2008. This may provide the potential to examine the impact of these changes on various indicators, such as transmission constraints and average pool prices. There are a number of potential methods that could be used to address this type of question.

The SCBA approach could be used to compare the net benefits of the change in the NEM boundaries with the net benefits without the change. The counterfactual, which could allow for such a comparison, could involve projecting the values of parameters of interest under the old NEM boundaries. The SCBA approach would require the identification of suitable indicators to measure the social costs and benefits associated with changes in the composition of the NEM. While the available data do not readily afford such a modelling exercise, it may be possible to employ other data to populate the model and to ‘fill the gaps’.

Similarly, a CGE approach could be used to focus on the evaluation of the economy-wide effects of the changing boundaries of the NEM, where the change in the boundary is the basis of the ‘shock’ that is modelled to estimate the effects associated with such a change. The principal problem with applying the CGE approach typically relates to the quantification of the ‘shock’ and more broadly the availability and quality of data at this time.

Alternatively, econometric methods could be used to examine whether there have been any effects on key indicators (such as average NEM settlement prices, and changes in congestion)



following the expansion/contraction of the NEM. Given that some areas of data collection are more comprehensive than others, this approach is a more practical method for examining the changes associated with the composition of the NEM. In particular it may be possible to utilise long-run data in relation to average NEM prices and average volumes traded from the AEMO. In addition, it may be possible to combine AER data with the contemporaneous AEMO data on spot-market prices (and possibly futures prices) for the different regions of the NEM to assess whether the changes in the composition of the NEM can be related to any noticeable changes in the market prices.

Evaluation of the impact of different approaches to retail competition

Jurisdictions have adopted different policies in relation to retail competition in the energy market. This has affected the ability of different types of retail consumers to choose a supplier, and has been phased in over different timeframes in the various states and territories. These differences create the potential for examining how average retail prices, service quality and consumer switching have changed following the different phases of competition being introduced, and whether these changes can be related to other variables; particularly levels of investment in generation capacity. There are a number of potential methods that could be used to explore this issue.

It may be possible to examine the social costs and benefits at the state level of specific policies that have sought progressively to reduce the scope of, and, in some cases, ultimately remove, retail regulation in the energy sector. A good candidate could be the gradual reduction and ultimate removal of the standard retail-energy tariffs in Victoria. Similarly, it may be possible to apply existing CGE models at a more disaggregated state-level to examine the impacts of retail price deregulation as a ‘shock’ to the model. Again, Victoria suggests itself as a candidate. The ability to apply these approaches effectively will depend on the availability and quality of data – some relevant data do appear to exist for Victoria but may be insufficient to satisfy all the requirements for SCBA or CGE.

The econometric approach might be applicable in at least three research projects.

First, the relatively detailed retail pricing data available for Victoria and South Australia (and possibly the Australian Capital Territory) might permit an examination of whether the policy changes in relation to retail competition have been associated with any changes in end-user retail prices. In addition, Victoria has recently lifted the existing retail price controls (or standard tariffs) in electricity and gas, and it may be insightful to explore whether this change is associated with an increase or decrease in average retail prices. Moreover, it may be possible to examine whether such a change has led to a greater number of retail tariffs being offered to consumers. To the extent that data are differentiated by tariff-type, this could facilitate an evaluation of the impact of these reforms on prices for different types of consumers (such as households, small industrial, or large industrial). Non-price elements of competition can be an important part of the assessment. Performance indicators on customer accessibility to services and customer services are generally available and, thus, quality-of-service performance can be considered together with the price outcome in assessing the impact of retail competition.

Second, the econometric approach could be applied to examine specific sub-sets of questions relating to retail performance, such as whether the different ownership structures of the transportation networks (TNSPs and DNSPs) across different jurisdictions can be associated with observable differences in retail prices and service quality. The ability to undertake such an exercise will depend on the availability of retail data across the different jurisdictions.

Third, the econometric approach could be applied by utilising the existing AEMO switching data (from 2004 for Victoria, New South Wales, Queensland and South Australia) to explore the extent to which consumer switching can be associated with various regulatory policies, in particular the progressive deployment of contestability across the different states. Some states (such as South Australia) have collected data on entry and exit of retailers in the energy-supply market.

Evaluation of impact of different approaches to implementation



As reforms have been implemented by different jurisdictional regulators, there is potential to assess the relationship between regulatory governance and the outcomes associated with the different approaches. Process reviews readily suggest themselves to some form of qualitative assessment, or mixed qualitative/quantitative assessment. Two evaluation methods in particular may be applicable. First, it may be possible to make a relative assessment of the different regulatory processes across jurisdictions, with a view to examining the extent to which the different processes adopted can be causally related to differences in the performance of the various TNSPs and DNSPs. Second, it may be possible to make a comparative assessment of the different technical processes and principles that have been adopted for energy networks across jurisdictions, such as planning and operation processes and requirements. A related line of analysis might examine whether the different reliability thresholds/tests, and reliability-approvals processes, applied in the different jurisdictions, have had any material impact on service quality. For this to be robust and reliable, it would be necessary to ensure that any investigation of processes adequately takes account of the broader factors which impact on outcomes.

2.6 Conclusions

There are a number of narrowly focussed evaluative exercises which may provide insights into the impact of various reforms. Each of these is concerned with determining the impact of a reform or ‘shock’ on key indicators. There is a question in each case on which methods are best suited to the specific question of interest and which indicators are most useful to examine. For example, the types of indicators might include changes in wholesale and retail prices, and in average tariffs for prescribed services; the levels and timing of investment in assets in the sub-sectors; customer-switching behaviour; supplier entry or exit and cost, quality, efficiency and performance indicators. There may also be opportunity for a comparative analysis of the effects of the different governance, structural and regulatory arrangements that have occurred across different jurisdictions at different times.

There is substantial variation in quality and scope of existing data, and serious issues regarding the level of aggregation across different sub-sectors and states exist. The historically fractured processes of data collection may make any evaluation exercise unduly susceptible to being non-robust and in error. However, recent efforts to harmonise the arrangements for data collection across the energy sector should improve the prospects for any future evaluations.

In any evaluation exercise, exogenous factors will need to be appropriately accounted for. In the context of any current evaluation, environmental initiatives that have been introduced at the state-level – such as incentives for particular forms of generation and types of investment – will be among the more significant of these, and will arguably become more significant over time. Other exogenous factors – such as changes in global energy prices – also potentially have an effect on outcomes to the extent that contracts are linked to these indicators.

Important reforms in the energy sector (at transmission, distribution and retail level) were introduced relatively recently (2007 and 2008) and this may not be early enough (in terms of data that have been collected to date) to assess the impacts of those reforms. It is therefore important that, in the future, a consistent and reliable dataset across energy sub-sectors and across jurisdictions be developed and maintained. The formation of the AER, and the consequent relative centralisation of data collection, should mean that future researchers will have better data to work with than current researchers.



3. Telecommunications


The structure of this chapter follows that described in the Introduction but as with the energy sector, telecommunications is complex, made up of various sub-sectors divisible by functions and/or by technology – for examples, between wireline and wireless or between telephony (voice) and broadband or between 2G, 3G and 4G within wireless. The reform process has been a major focus of government policy over a considerable period of time. The chapter therefore reflects the complexity of telecommunications in its length and detail.

Australian telecommunications has undergone substantial changes since the 1970s. One catalyst for these changes has been the rapid and continual transformation of the technological possibilities in communication. With this transformation the impact of telecommunications on the rest of the economy has increased. Consequentially government’s focus on the efficient operation of telecommunications has had to increase. The transformation of the economic structure of the industry and the government control and regulation surrounding it has been profound, and, of course, continues with the policy emphasis that the current Government has placed on the development of a national broadband network.

Until the mid 1970s, telecommunications services were supplied exclusively by a department of the Commonwealth public service. This was followed by the corporatisation and then the gradual privatisation of Telstra in three stages. At the same time competition was gradually introduced into telecommunications, and this led to a more economic approach to regulation particularly in relation to the pricing of ‘access’ to network assets and facilities. In addition, the advent and widespread adoption of mobile telecommunications and broadband since the 1980s raised new issues and challenges.

Against this background, an overarching objective of structural and regulatory reforms in the fixed-line services market has been to achieve economic efficiency in the broadest sense, including improving performance and increasing responsiveness to consumer needs. The principal means intended to achieve these objectives have been a complex series of policy reforms described in this chapter (see section 3.2 below).

The reform process has raised a number of issues specific to telecommunications, a pervasive one being related to the impacts on the development of competition of Telstra being vertically integrated. Investment issues, in particular the incentives to invest in such a technologically fast-evolving area of the economy, have been core issues in much debate. In mobiles, the issues have related to the appropriate type and level of interconnection access price and the implications this has for end-user tariff structures. Questions regarding the level of cross-subsidisation of services to fund community service obligations have raised major technical, efficiency and competition issues.12


3.2.1 Independence and corporatisation – 1975 to late 1980s

Until 1975, domestic telecommunications services in Australia were provided by a public service department, the Postmaster-General’s Department, and international telecommunications services by the Overseas Telecommunications Commission (OTC). In 1975, the operation within the Postmaster-General’s Department was replaced by two statutory authorities, one responsible for postal services, and the other, the Australian Telecommunications Commission (Telecom), responsible for operating telecommunications services. A stated objective was to create greater ‘freedom of management’ for the service provider than would be possible in a

12 The cross-subsidy issue has also been relevant for Post (see chapter 4) but has been played-out in a quite different environment of reform.



public service department.13 The provision of satellite services by AUSSAT Pty Ltd (AUSSAT), primarily to remote and outback regions in Australia, began in 1985. AUSSAT was a commercial tax-paying joint venture between the Commonwealth (75 per cent) and Telecom (25 per cent), and it was prohibited from providing public switched telephone services or public data services.

In the next phase of reforms, Telecom and OTC were corporatised (incorporated) in 1988. The stated objective was to make Telecom and OTC more efficient and more responsive to consumer needs. However, privatisation of these Government Business Enterprises (GBEs) was rejected on the basis of recommendations by the relevant Davidson Inquiry (Committee of Inquiry into Telecommunications Services in Australia, 1982) that Telecom remain fully government-owned (O’Leary, 2003). Further, introduction of competition in telecommunications infrastructure and basic services was rejected, for the stated reason that the continued monopoly position of Telecom was maintained to:14

secure the orderly and efficient development of the basic telecommunications network by taking advantage of the economies of scale and scope that exist in the industry, and by avoiding costly and uneconomic duplication of facilities that can be most efficiently provided by a single supplier.

It was also argued that a continued monopoly position was necessary to allow Telecom to average its prices and practise some cross-subsidisation to fund community service obligations. However, limited competition was introduced for the provision of value-added services, private networks, customer equipment and cable installation. An independent telecommunications regulator, the Australian Telecommunications Authority (AUSTEL), was established.

3.2.2 First steps towards competition – the early 1990s

In 1991, Telecom and OTC were merged to form the Australian and Overseas Telecommunications Corporation (AOTC),15 which was renamed ‘Telstra’ in 1994.16 AUSSAT (which had been operating at a loss) was privatised and sold to Optus Networks Pty Ltd.17 However, Telstra remained in full government ownership.

The Telecommunications Act 1991 created a general carrier duopoly (that is, Telstra and Optus) to end on 30 June 1997 and provided for the granting of three public mobile operator licences (that is, Telstra, Optus and Vodafone). The three mobile network carriers were required to establish digital networks rather than replicate Telstra’s analogue network. The stated objective of the June 1997 sunset clause was to give notice to participants that the duopoly would end, in order to provide ‘strong incentives’ for the second carrier to invest rapidly and effectively to establish itself as a competitor to Telstra, and for Telstra to restructure itself in anticipation of full competition.

The 1991 legislation provided for full resale of services, under a transitional regulatory regime featuring the arbitration of interconnection agreements by the AUSTEL. Separate financial reporting requirements for AOTC (Telstra) and Optus were implemented in 1992, and price-caps applied to AOTC (Telstra), featuring an overall price-cap, and sub-caps for international calls and for a basket comprising connections, rentals and local calls. The Universal Service Obligation (USO) in relation to basic telephony services was maintained by Telstra (with costs shared among operators).

Acts or omissions necessary to comply with a condition of a licence or a direction, or determination, made by the AUSTEL, or the relevant Minister, were exempted from the

13 Second reading speech on the Postal Services Bill 1975, Australia, Debates, Senate, 23 April 1975, p. 1256 at pp. 1257-1258 (Senator Bishop, Postmaster-General). 14 Second reading speech on the Telecommunications Bill 1989: Australia, Debates, House of Representatives, 13 April 1989, p. 1621 (The Hon. R Kelly, Minister for Telecommunications and Aviation Support). 15 Australian and Overseas Telecommunications Corporations Act 1991. 16 Transport and Communications Legislation Amendment Act 1994, Schedule 1. 17 AUSSAT Repeal Act 1991.



operation of the Trade Practices Act 1974. A carrier was also authorised to refuse supply of a basic carriage service or a facility to another party, if that service was not included in the carrier’s Basic Carriage Service (BCS) tariff.18 Carriers therefore enjoyed preferential access rights compared to service providers, as the latter were not guaranteed the provision of access necessary to conduct their operations.19 Nevertheless, the AUSTEL did refer a number of matters relating to predatory pricing, refusals to deal, misleading advertising and unconscionable conduct to the then Trade Practices Commission.

3.2.3 Towards greater competition – 1993 to 1998

In 1993, the Hilmer National Competition Policy report was published (Independent Committee of Inquiry, 1993) and in 1995 the intergovernmental Competition Principles Agreement was signed (the agreement was subsequently re-affirmed and updated in 2007).20 Between 1997 and 1998 a number of reforms to the telecommunications market were implemented:

• Restrictions on the number of carrier licences that could be issued were removed (service providers are not required to be licensed).

• One-third of Telstra was privatised (with a further one-sixth privatised in 1999).21

• The exemption from Part IV of the TPA was removed and the TPA was amended to introduce a telecommunications-specific anti-competitive conduct (Part XIB) and an access regime (Part XIC).22

• Economic regulation was transferred from the industry-specific regulator (AUSTEL) to the Australian Competition and Consumer Commission (ACCC).

The Australian Communications Authority (ACA) was established to manage technical regulation, consumer issues and radio communications. In 2005, the ACA and the Australian Broadcasting Authority were merged to form the Australian Communications and Media Authority (ACMA). The new Parts XIB and XIC of the TPA were based on Parts IV and IIIA, respectively, and were intended to be less ‘interventionist’ than the previous regime. However, an industry-specific regime was thought necessary because of specific features of telecommunications, such as the desirability of ‘any-to-any’ connectivity,23 Telstra’s significant market position derived from its historical monopoly position, and the vertical integration of the incumbent.

An access regime was established, whereby an access seeker could gain mandated access to infrastructure, where the service has been declared by the ACCC. In making a declaration, the ACCC was required to have regard to the objectives of:

• promoting competition in markets for listed services;

• achieving any-to-any connectivity in relation to carriage services that involve communication between end-users; and

• encouraging economically efficient use of, and investment in, the infrastructure by which listed services are supplied. This required consideration of the technical feasibility of supplying and charging for particular services, the commercial interests of the supplier or suppliers and the impact on incentives for investment in infrastructure.

For declared services, the access provider was required to provide access on commercially agreed terms and conditions, as detailed in an access undertaking. If no undertaking was in place, the

18 Telecommunications Act 1991. 19 Carriers provide the infrastructure on which service providers provide services such as broadband. 20 Council of Australian Governments (1995), Competition Principles Agreement, 11 April 1995 and 13 April 2007. 21 Telstra (Dilution of Public Ownership) Act 1997. 22 Trade Practices Amendment (Telecommunications) Act 1997. 23 The ability of any end user to connect with any other end user, irrespective of the service provider.



ACCC would, through the arbitration process, make a binding private determination. The decision would set out terms and conditions (including access price) to apply specifically to the parties involved. Standard access obligations also applied to ensure services were provided on the same quality standards as the access provider provided to itself.

The ACCC had a role in providing ‘ex ante advice on pricing principles to guide the regulatory process (for example, total service long run incremental cost (TSLRIC) for determining interconnection access pricing)’ (PC, 2001a, p. 597). The Productivity Commission (PC) considered the ACCC’s preference for the TSLRIC approach to determining access prices for the purpose of resolving access disputes and outlined the use of a retail-minus approach by the ACCC in determining local call resale access prices. At that time, a benchmarking approach had also been proposed by the ACCC to determine terminating access fees, where the initial access price for all mobile operators is set equal to the lowest Australian access price. Operators could then increase termination prices, but only by the average retail price of their own package of services (PC, 2001a, Appendix D). The 1997 reforms were generally intended to promote competition and market-based determination of industry pricing, investment and other outcomes. Specifically, the reforms were stated to be aimed at achieving: a market driven mix of technologies; multiple service providers offering diverse and innovative services; and contestable market strategies to encourage lower prices and greater service quality.24

The main statutory objective as contained in s. 3.1 of the Telecommunications Act 1997 was to provide a regulatory framework that promoted: (a) the long-term interests of end-users of carriage services or of services provided by means of carriage services; and (b) the efficiency and international competitiveness of the Australian telecommunications industry. The ‘long term interests of end-users’ in turn was defined (somewhat differently from equivalent sections of Part IIIA) as being to (a) promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and (b) provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry (PC, 2001a).

The Government stated a desire to increase reliance on self-regulation by the industry where possible. However, the Government noted that ‘market forces may not always be sufficient to guarantee outcomes that are in the interests of all consumers’,25 and consequently community service obligations, including the USO, were maintained.

3.2.4 Subsequent reforms – 1998 to 2007

Telstra was fully privatised in three stages. The Government sold one-third of its shares in Telstra in 1997, a second tranche of Telstra shares was sold to the public in 1998, leaving 50.1 per cent government ownership.26 In the final stage of privatisation, the Government disposed of this share by way of a public offering of 33.1 per cent of Telstra shares in 2006, and transferring the remaining 17 per cent into the Future Fund in 2007. The principal stated objective was to resolve the inherent conflict between the Government’s role as both a regulator of, and shareholder in, the company.27 The Future Fund reduced its Telstra shareholding to 10.9 per cent in 2009 and further to 0.8 per cent in 2011.

Parts XIB and XIC of the TPA were amended in 1999 and 2001, allowing the ACCC to determine pricing principles at the time a service is declared, and altering the arbitration determination processes. A central element of these amendments was to encourage negotiation

24 Second reading speech on the Telecommunications Bill 1996, Australia, Hansard, House of Representatives, 5 December 1996, pp. 7799, 7804 and 7805 (Warwick Smith, Minister for Sport, Territories and Local Government and Minister Assisting the Prime Minister for the Sydney 2000 Games). 25 Second reading speech on the Telecommunications Bill 1996: Australia, Hansard, House of Representatives, p. 7799, 5 December 1996 (Warwick Smith, Minister for Sport, Territories and Local Government and Minister Assisting the Prime Minister for the Sydney 2000 Games). 26 Telstra (Further Dilution of Public Ownership) Act 1999. 27 See the Bills Digest, no. 45 2005-06 on the Telstra (Transition to Full Private Ownership) Bill 2005. Available at: http://www.aph.gov.au/library/pubs/BD/2005-06/06bd045.htm [accessed 8 August 2011].



of commercial outcomes and to speed up the arbitration process, 28 with ACCC arbitration being intended as a last resort.29

The 2001 PC Inquiry into telecommunications regulation included the recommendation that the objects clause in Part XIC be amended from promoting ‘the long-term interests of end-users’ to promoting ‘economically efficient use of, and investment in, telecommunications services’ (PC, 2001a, p. 260). The Government rejected this recommendation, arguing industry developments (especially consolidation) meant competition was not yet sufficiently entrenched.

Further amendments were made in 2002, with the stated objectives to accelerate access to ‘core’ telecommunications services, to facilitate new infrastructure investment (particularly by providing greater certainty), to increase transparency of regulation (particularly in relation to Telstra’s retail and wholesale operations) and to enhance accountability and transparency in dealing with anti-competitive conduct.

A requirement for operational separation by Telstra was introduced in 2005 in conjunction with its full privatisation, intended to restrain Telstra’s ability to act anti-competitively (Environment, Communications, Information Technology and the Arts Legislation Committee, 2005). This entailed the maintenance of separate business units for retail, wholesale and key network services. The proposals included a price-equivalence framework to determine the internal prices Telstra could charge to its retail unit for access to core network services. The amendment required Telstra to submit an operational separation plan to the Minister for approval, as a condition of Telstra maintaining its carrier licence (Part 8, Schedule 1).

3.2.5 Recent developments

In 2007 the Australian Labor Party (then in opposition) proposed to facilitate a National Broadband Network (NBN) with a fibre-to-the-node (FTTN) architecture by investing in a public-private partnership. After forming government, it implemented a tender process for the NBN, but ceased this process in April 2009, after advice from the Independent Panel of Experts that none of the national proposals offered value for money.30 The Government subsequently established a new wholly government-owned company, NBN Co Ltd, to build and operate the NBN, which is to be built with a fibre-to-the-premise (FTTP) architecture. NBN Co will be operated as a commercial entity and new legislation, passed in April 2011, provides a framework for the future privatisation of NBN Co once the NBN build is complete.31 NBN Co will be obliged to supply wholesale-only telecommunications services and to provide open access to those services on a non-discriminatory basis.32

In conjunction with this development, in 2010 the Government legislated to enable the Minister of Broadband, Communications and the Digital Economy to make instruments that provide the statutory framework for Telstra to voluntarily structurally separate.33 Structural separation will require Telstra to no longer supply fixed-line carriage services to retail customers using a network controlled by Telstra. Telstra will have to provide an undertaking to the ACCC that the

28 Second reading speech on the Trade Practices Amendment (Telecommunications) Bill 2001: Australia, Hansard, House of Representatives, p. 29555, 9 August 2001 (Mr McGauran, Minister for the Arts and the Centenary of Federation). 29 Explanatory Memorandum to the Trade Practices Amendment (Telecommunications) Bill 2001, p. 2. 30 Joint Media Release 2009 – New National Broadband Network, Available at: http://www.minister.dbcde.gov.au/media/media_releases/2009/022 [accessed on 8 August 2011]. 31 National Broadband Network Companies Act 2011. 32 NBN Legislative Framework, Available at: http://www.dbcde.gov.au/funding_and_programs/national_broadband_network/nbn_legislative_framework [accessed on 8 August 2011]. 33 The changes were introduced by the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2010; see Telecommunications Regulatory Reform, Available at: http://www.dbcde.gov.au/funding_and_programs/national_broadband_network/telecommunications_regulatory_reform [accessed on 8 August 2011].



wholesale network will no longer be controlled by Telstra. In July 2011, the Minister made five instruments relating to Telstra’s structural separation undertaking (SSU). These included:

• the matters which the ACCC must have regard to when considering Telstra’s SSU;

• the exemption of certain services from the scope of Telstra’s SSU, for example television and audio services provided over Telstra’s hybrid fibre-coaxial network;

• mandatory elements of the migration plan, concerning the timing and process whereby Telstra must migrate customers from its fixed-line network to the NBN. The migration plan must be approved by the ACCC, after which it forms part of Telstra’s SSU;

• specific matters that a migration plan may contain and matters it must not contain; and

• the regulated services to which the transparency and equivalence measures set out in Telstra’s SSU must apply.

If Telstra fails to structurally separate on a voluntary basis, then functional separation will be required and Telstra will be prohibited from acquiring or using specified bands of spectrum which could be used for advanced wireless broadband services. On 30 August 2011, the ACCC released a discussion paper inviting comment from industry stakeholders and consumers in relation to Telstra's Structural Separation Undertaking and draft Migration Plan.34

The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2010, also amended Parts XIB and XIC of the Competition and Consumer Act 2010 (formerly TPA) to broaden the market to include content services; remove procedural impediments such as the requirement on the ACCC for procedural fairness when issuing a Part A competition notice; grant the ACCC the power to set upfront terms and conditions of access to declared services via access determinations; and disallow merits review of the ACCC’s decisions. New rules were also introduced to strengthen the Universal Service Obligation and the Customer Service Guarantee requirements.

3.2.6 Current regulation

Telecommunications-specific competition rule

Part XIB of the Competition and Consumer Act 2010 prohibits telecommunication carriers and carriage service providers from engaging in anti-competitive conduct. Part XIB is similar to Part IV, but carriers and services providers are subject to an additional prohibition against taking advantage of market power with the effect of substantially lessening competition. This is referred to as the ‘competition rule’.

Proceedings for enforcing the competition rule (other than proceedings for injunctive relief), cannot be instituted unless the alleged conduct is of a kind dealt with in a ‘Part A competition notice’ that is issued by the ACCC, and that was in force at the time the alleged conduct occurred. The particulars set out in a ‘Part B competition notice’ can be used as prima facie evidence of the matters in any proceeding under or arising out of alleged contraventions of the competition rule. 35

Access to services

Part XIC of the Competition and Consumer Act 2010 governs access to ‘listed carriage services’ and access to services that facilitate the supply of listed carriage services. Under Division 2, the ACCC must first declare the relevant service. The current declarations include: six fixed-line services (that is, unconditioned local loop service, line sharing service, public switched telecommunications network (PSTN) originating access, PSTN terminating access, wholesale line rental, and local carriage service), mobile terminating access service, domestic transmission capacity service, and digital set-top unit service (Foxtel). The amendments introduced under the

34 Refer to: http://www.accc.gov.au/content/index.phtml/itemId/1003999 [accessed 14 October 2011]. 35 Competition and Consumer Act 2010, s. 151AK, AJ and AN respectively.



Telecommunications Legislation Amendment (National Broadband Network Measures – Access Arrangements) Act 2011 provides for the ACCC to declare a Layer 2 bitstream service.36

A provider of the declared service is required to comply with standard access obligations, including an obligation to supply the service to an access seeker (subject to certain exceptions). Since 1 January 2011, the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2010 has repealed the provision for the ACCC to make an arbitration determination on the terms and conditions of access once a final access determination for a service has been made.

Part XIC also provides for:

• the ACCC to make access determinations which set out price and non-price terms and conditions of access to a declared service, which serve as a default for parties that cannot commercially agree on terms and conditions of access;37

• the ACCC to make binding rules of conduct which set out price and non-price terms and conditions of access to a declared party, which serve as a default for parties that cannot commercially agree on terms and conditions of access. Binding rules of conduct may only operate for a year, and are only to be made if the ACCC considers there is an urgent need to do so;

• the ACCC to accept special access undertakings and grant anticipatory exemptions for services that are not yet declared or supplied (to facilitate investment in new telecommunications infrastructure).

Access to facilities

Schedule 1 of the Telecommunications Act 1997 specifies the conditions imposed on a carrier holding a carrier licence granted by the ACMA, including the provision of access to supplementary facilities to other carriers (Part 3); the provision of network information to other carriers (Part 4); the provision of access to telecommunications transmission towers and underground facilities to other carriers (Part 5);38 and the acquisition of an interconnection service from a carriage service provider that is interconnected with the carrier’s network (to ensure any-to-any connectivity) (Part 7). For access disputes, the ACCC can act as arbitrator in accordance with the Telecommunications (Arbitration) Regulations 1997. Division 4 of the proposed Telecommunications Legislation Amendment (Fibre Deployment Bill) 201139 also proposes a third-party access regime, which provides a framework for carriers to seek access to non-carrier fixed-line facilities.

Monitoring and reporting

Operational separation is implemented as a statutory condition of Telstra’s carrier licence.40 Telstra was required to prepare a draft operational separation plan, which was approved by the Minister on 23 June 2006. The plan includes a requirement to maintain separate wholesale, retail, and network business units, and establishes internal wholesale pricing mechanisms for Telstra to ensure its retail businesses receive no more favourable treatment than its wholesale customers.

36 ACCC, Layer 2 Bitstream Service Declaration under section 152AL(3C) of the CCA, Available at: http://www.accc.gov.au/content/index.phtml/itemId/1002378 [accessed on 6 September 2011]. 37 The ACCC is able to incorporate provisions in access determinations that remove or limit the obligation of carriers or carriage service providers to comply with some or all of the standard access obligations. 38 In 1998 the ACCC made a facilities access code governing access to certain telecommunications facilities owned by carriers. See the ACCC, A Code of Access to Telecommunications Transmission Towers, Sites of Towers and Underground Facilities. Available at: http://www.accc.gov.au/content/index.phtml/itemId/723176 [accessed on 4 January 2011]. 39 Fibre in New Developments, Available at: http://www.dbcde.gov.au/broadband/national_broadband_network/fibre_in_new_developments [accessed on 6 September 2011]. 40 Part 8 of Schedule 1 of the Telecommunications Act 1997.



Part XIB of the Competition and Consumer Act 2010 allows the ACCC to issue tariff-filing directions to certain carriers and carriage service providers and make rules requiring carriers and carriage-service providers to keep and retain records. The ACCC is also required to report each year on competitive safeguards within the telecommunications industry and monitor charges for listed carriage services.

Consumer safeguards

Consumer safeguards in relation to end-user services include:41 the USO to provide reasonable access to basic telephone, payphone and digital data services; access to untimed local calls; and price controls on Telstra.42 The licensed carriers are required to contribute to the annual USO costs in proportion to their revenue.


There has been an extensive history of structural and regulatory reform in the telecommunications industry since the 1970s. Prior to 1975 telecommunications services were provided by the Postmaster-General’s Department and the Overseas Telecommunications Commission (OTC). Telecom replaced the Postmaster-General’s Department in 1975, and was later corporatised, along with the OTC, in 1988. The OTC and Telecom were merged to form the AOTC in 1991 (now ‘Telstra’). AUSSAT was privatised and sold to Optus in 1991. A general carrier duopoly was created under statute in 1991 and three public mobile operator licences were granted, which were required to create digital networks. The Hilmer Report (IC, 1993) and Intergovernmental Competition Principles Agreement in the 1990s resulted in a number of reforms including removal of carrier licence restrictions, partial privatisation of Telstra, the removal of the Part IV exemptions and the transfer of economic regulation to the ACCC. Full privatisation of Telstra was completed in 2006 and with this, the requirement for operational separation was introduced. Telecommunications is still in the process of considerable reform with the creation of the NBN, under which NBN Co will supply wholesale-only services on an open and non-discriminatory basis. As a part of this process, the Government has legislated to provide the framework for the voluntary structural separation of Telstra.

These reforms provide the basis for undertaking ex post analysis of their impact on the performance of the telecommunications incumbent, the wider industry and the economy. The ability to undertake such ex post studies using the analytical techniques (as described in the Review of Methods) depends however on the availability of adequate data. Data will need to be extensive in terms of the information available on financial and non-financial performance indicators, available both before and after the reform periods, and relatively consistent across time.


Data availability and quality for Australian telecommunications have been assessed as part of the Developing Indicators project. The stock take reveals a substantial body of data about the Australian telecommunications industry, including from annual reports of the carriers, government agencies such as the Australian Bureau of Statistics (ABS) and as provided to the economic regulator (the ACCC) and the technical regulator (the ACMA). A detailed summary of data availability by type of information and data source is presented in Appendix C – Telecommunications.

3.3.1 Regulatory data available to the ACCC

Regulatory data submitted to the ACCC under the various telecommunications record-keeping rules (RKRs) are predominantly company-specific data – it is the information that each provider has and that may be gathered as information pertaining to that provider. The most comprehensive company-specific information has been collected in accordance with the Telecommunications Regulatory Accounting Framework (RAF) RKR issued in 2001 and revised

41 Telecommunications (Consumer Protection and Service Standards) Act 1999. 42 The current price controls determined by the minister under Part 9 of that Act was extended to 30 June 2012. See the ACCC, Telstra Carrier Charges—Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2005 (Amendment No. 1 of 2010).



in 2003. Highly disaggregated financial-statement information (for example, revenue, operating expenditure, profit, and regulatory asset) and quantity information (for example, service usage) are available to the ACCC from Telstra since 1999-2000 and other reporting carriers (such as, Optus, AAPT, Primus and Vodafone) since 2001-2002. However, when the RAF data are defined at the individual service level it is sometimes difficult to verify the disaggregation method – for example for cost allocations – and this may potentially affect the data quality, comparability and consistency. In the past, the ACCC has used the data in the analysis of individual carriers and the industry to inform regulatory decisions.

There are a number of other RKRs specific to Telstra or applicable industry-wide that provide the ACCC additional sources of regulatory data. In particular, pricing information for Telstra bundled residential services, price information for individual retail services provided by relevant service providers, physical data covering geographical information of infrastructure assets for 22 specific carriers, as well as access to Telstra exchange facilities, are regularly collected. They are generally available at more aggregate levels (for example, broader categories for product or network) and for the more recent period.

Information pertaining to individual service providers is collected to assist the ACCC in performing its regulatory functions. The Competition and Consumer Act 2010 provides that data collected in accordance with RKRs may be disclosed to persons by the ACCC, subject to certain circumstances and procedures.43 The ACCC published its public disclosure principles with respect to the public disclosure of telecommunications RKR information in January 2003. Disclosure of commercial-in-confidence information will be considered by assessing whether the benefits from promoting competition and facilitating the operation of telecommunications-specific regulatory regimes outweigh the costs in terms of harm to firms’ legitimate commercial interests and considering any other relevant matters (ACCC, 2003, p. 30).

3.3.2 Data from other sources

In relation to quality-of-service data, the ACMA has published service performance information on major carriers in specific areas since 2004-05, and the Telecommunications Industry Ombudsman (TIO) has published statistics on complaints lodged by small business and residential consumers against the service providers since the quarter ending 30 September 2001.

The Australian Bureau of Statistics (ABS) produces a number of publications relevant to the telecommunications industry. There are also some surveys of telecommunication services, and of particular relevance is the survey of Internet activities for Internet service providers operating in Australia since 2000. Despite the large volume of industry-classified data (for example, income, value added, profit, capital expenditure, and productivity) published by the ABS, the data pertaining to the telecommunications industry are not specifically reported. Under the ABS industry data presentation, the industry groupings are generally broader. For example, industry division J under the 2006 ANZSIC classification covers both information media and telecommunications, and industry group H under the 1983 classification is communications services incorporating telecommunications and postal services. For confidentiality reasons the industry detail of published data was restricted and while it may be possible to request this information from the ABS, it is likely to present an issue in terms of the replication of results by third parties.

None of the preceding data sources has sufficiently long time-series for the evaluation of infrastructure reforms in the telecommunications industry that occurred in the 1970s. Externally sourced information from company annual reports and commercial databases may be useful for providing time-series data at company or industry level that cover the post-corporatisation period. However, as a number of major carriers are foreign-owned, these company annual reports may not be directly comparable across the carriers due to different accounting frameworks and financial reporting standards, and differences in the level of information

43 See sections 151BUAB, 151BUA, 151BUB and 151BUC of the Competition and Consumer Act 2010.



disclosed. Nevertheless, Telstra company annual reports appear to contain relevant historical financial and non-financial information over a sufficiently long period, albeit with some definitional, classification and accounting changes over time.


The review shows that there are a number of potentially useful internal and external data sources for analysing certain aspects of telecommunications reform or in relation to some business segments. To the extent that data from various sources are available, they may not be compiled in an aggregate form readily usable in undertaking broader sectoral evaluations. However, there are some overlaps and compiled data from different sources can be combined to form valuable inputs for evaluation of more limited aspects of the reform. Where a usable dataset is available, it is important to cross-check against the source data and other publicly available data to ensure better data quality and reliability.


Most Organisation for Economic Co-operation and Development (OECD) economies have gone through reform processes transforming their telecommunications from statutory monopolies to situations where privately owned operators are subject to (regulated) competition. This transformation has stimulated a large literature using the full range of tools to evaluate various aspects of the reforms. A representative sample of these studies is reviewed in this section.

International telecommunications studies

A range of academic studies has analysed the impact of competition and/or regulation in telecommunications using panel data-type econometric techniques. For example, Ai and Sappington (2002) analysed the impact of incentive regulation on productivity and performance in communications markets in different states of the United States between 1986 and 1999. Clements (2004) analysed the impact of regulation, competition and labour-intensity (number of employees per line) on the quality of service in local telephony in the United States. Ros (1999) used cross-country panel-data techniques to analyse the impact of privatisation and competition on telecommunications providers’ performance in respect of the rate of network expansion and the degree of network operating efficiency, and Ros (2003) analysed the impact of the nature of the regulatory regime on network density (lines per person) and operating efficiency. Wallsten (2001) similarly analysed the effects of privatisation, competition and regulation on telecommunications providers’ performance in a panel of 30 African and Latin American countries from 1984 to 1997. Other studies have used productivity and/or efficiency methods to analyse the impact of reform and regulation. For example, De Boer and Evans (1996) analysed productivity changes occurring in New Zealand telecommunications in a period of privatisation and reforms.

Madden and Savage (2001) conducted a cross-country comparative analysis of total factor productivity (TFP) growth rates in the telecommunications industries of 74 countries for the period 1991 to 1995, drawing a number of conclusions including that higher digitisation rates dampen TFP growth in the short run; cross-subsidisation of services creates inefficiency; developing countries can increase TFP growth through catch up; and privatisation and competition are conducive to productivity growth. In a subsequent paper, Madden, Savage and Ng (2003) examined the TFP growth of 12 Asia-Pacific telecommunications carriers, chosen to represent different stages of telecommunications liberalisation, during the period 1987 to 1990. They found that competition, private ownership, technology change and scale economies improve carriers’ TFP growth rates.

Roycroft (1999) used firm-level data to examine TFP growth before and after implementation of alternative regulatory regimes for Ameritech operating companies. The results suggested increased TFP growth following the introduction of price-cap and incentive regulation. Similarly, Resende (1999) assessed the impact of different forms of regulation in the US using data between 1989 and 1994. The analysis involved decomposing TFP growth and estimating a flexible



translog cost function. The results did not support differences in efficiency under different forms of regulation.

Lam and Shiu (2008) used data envelopment analysis (DEA) techniques to measure and compare productivity and efficiency performance of Chinese telecommunications operators at a provincial level. Their results showed that the efficiency scores of telecommunications operators in the coastal, eastern provinces were significantly higher than those in the inland central and western provinces, and that these differences were mainly due to differences in the operating environment rather than due to efficiency performances of the different enterprises. Liao and González (2009) compared the operational efficiency of the ten dominant mobile operators in Brazil, Russia, India and China between 2002 and 2006, using both partial factor productivity and DEA techniques. They found that Brazilian mobile operators were fully efficient during the period and that Indian operators were the least efficient; that full operational efficiency can be achieved by operators with large as well as small or medium revenues; and that the input variable that most seems to affect (in a sensitivity analysis) the efficiency scores of mobile operators is its total assets. Façanha and Resende (2004) also used DEA on Brazilian local telephony data over the period 1998 to 2002 to review the incentive properties of yardstick schemes. They found that the relative efficiency scores created for quality performance suggest the use of premiums to create incentives for quality performance in the application of price-cap regulation. Majumdar (1997) used DEA to evaluate the effect of incentive-based regulation on the productivity of 45 US local exchange carriers between 1988 and 1993, during which time a number of states moved away from rate-of-return regulation. Uri (2001) used DEA and stochastic frontier analysis to analyse technical and scale efficiency of local exchange carriers in the US between 1988 and 1998. The results showed that most local exchange carriers were technically efficient over the period but in aggregate there was no improvement in technical efficiency.

In another cross-country study undertaken by the OECD, Boylaud and Nicoletti (2001) investigate the linkages between regulatory regimes, market environments and performance in three telecommunications services – domestic long-distance, international long-distance and mobile in 23 OECD countries over the period 1991 to 1997. Factor and cluster analysis was used to identify the main factors that determine the position of each of the OECD countries along the reform process and to group countries according to these factors. Panel analysis was then used to infer the effects of deregulation on performance. The results supported liberalisation of entry and development of effective competition as leading to higher productivity, lower prices and improved quality. Similarly, Varoudakis and Rossotto (2004) used international data to assess the benefits of liberalisation. They developed an indicator of performance based on three factors including competition in fixed and mobile services, openness to foreign ownership and pro-competition regulation. The study found that liberalisation is conducive to higher efficiency and growth in communications technology. Fraquelli and Vannoni (2000) examined the dynamics of different components of performance for major European telecommunications operators between 1989 and 1993. Their findings were consistent with the view that incentive regulation can be useful for productivity improvement, however, lower prices are best achieved through competition. Roycroft and Garcia-Murrilo (2000) use regression techniques to examine the impact of local competition, different forms of state-level regulation and mergers on network reliability and service quality. The data cover seven Regional Bell Operating Companies, in 48 US states between 1991 and 1998.

Another set of studies analysed the impact of regulatory change or privatisation on the performance of the dominant telecommunications firm using time-series data. Florio (2003) conducts a before-and-after analysis, using company account data for British Telecom from 1960 to 1999, to show the effects of privatisation on output prices, costs, productivity, profits and investment. The analysis indicated that ownership change per se had little impact on productivity trends between 1984 and 1991 and productivity changes after 1991 were related to variations in financial arrangements, competition and regulatory pressure. Lee (2002) evaluated the impact of telecommunications reforms in Malaysia by examining the difference in several indicators of performance between 1986 and 1997. Lee found improved performance following privatisation of Telekom in 1987. Bernstein, Hernandez, Rodriguez and Ros (2006) used Peruvian



telecommunications data from 1996 to 2003 to calculate annual average total factor productivity growth and an X-factor for updating price-cap regulation for the major local exchange carrier, Telefonic del Peru. Gronau (2006) analysed the regulatory experience of the Israeli communications industry by examining the impact on consumer welfare profitability and productivity between 1984 and 2002. Lam and Lam (2005) used data between 1964 and 1998 to analyse changes in total factor productivity for the dominant Hong Kong telephone company that had undergone several reforms. They found that TFP growth varied substantially under different regulatory regimes and that the importance of the scale effect relative to technological effect diminished over time.

Australian telecommunications studies

A number of across-time TFP or partial-productivity studies of Australian telecommunications were conducted from the late 1980s to the late 1990s (Industries Assistance Commission, 1989; Bureau of Industry Economics (BIE), 1995b and Albon, 1998). The BIE (1995b) estimated TFP growth for Telecom (later Telstra) from 1979-80 to 1993-94, and TFP growth showed an acceleration in the late 1980s (corporatisation) and the early 1990s (network competition). The BIE study also included international comparisons of labour productivity, and this raised ‘some concern’ about the ‘distance between… recent public telecommunications infrastructure performance and international best practice’ (p. 49).

Lawrence, Diewert and Fox (2006) used the index-based approach to TFP to quantify the productivity change of Telstra during the period 1984 to 1994. They found that Telstra had made significant productivity improvements that were comparable to telecommunications services in other countries.

Work was undertaken by the PC in 1999 and 2001, comparing Australian prices (residential and business; four service categories) with those in selected OECD countries (PC 1999a, 1999c and 2001b). Baskets were constructed for representative users in each category, and the same basket was priced in each country. Across-country comparisons were made using Purchasing Power Parity. Taxes were included in the prices. The focus was more on the consumer impact than the cost of production (production efficiency).

A form of computable general equilibrium (CGE) analysis has been applied to analyse the economy-wide impact of reform in telecommunications. ACIL Tasman for the ACMA (2005) used a CGE model to analyse the impact of developments in Australian telecommunications during one particular financial year 2004-05, by comparing economic outcomes and welfare during that year, incorporating the actual developments in telecommunications during that year, and comparing the results with the economy-wide outcomes if the counterfactual of no additional reforms had occurred – that is, if telecommunications had not experienced any additional effects from reform over and above those already embedded in the economy at the end of 2003-04. The study estimated that the Australian economy as a whole had grown by around $2 billion more than it would have, absent the reforms, and estimated economy-wide benefits from telecommunications reform and subsequent market developments of around $12.4 billion in 2004-05. Analogously, the PC (2008a) used the Monash Multi-Region Forecasting (MMRF) model, to estimate the price and income effects of changes in infrastructure industries, including telecommunications services.


Australian telecommunications has seen a series of different reforms since the 1980s, ranging from corporatisation and privatisation, to the gradual introduction of competition among carriers, and the introduction of economic regulation for natural monopoly elements and services. Telecommunications has experienced rapid technological changes and structural changes, and continues to evolve over time. It is possible to ask a broad question about the success of the reforms, or to pursue more specific and narrower evaluation questions regarding certain aspects of the reforms. The most interesting and relevant evaluation questions would likely be whether telecommunications reforms increased the efficiency, productivity and dynamic



responsiveness (investment and adoption of new technology), and whether these changes had positive flow-on effects to the broader economy.

Effect of corporatisation, introduction of competition and privatisation of Telstra

Telstra, as the former statutory monopoly service provider in Australia, has experienced corporatisation, introduction of competition and privatisation in phases since the early 1980s. To gauge the effectiveness of this telecommunications reform it would be necessary to track Telstra’s financial, operational and economic performance over time over this period and to relate it to these reforms. This could build on TFP and partial-productivity work conducted in the 1990s. If data are available, measures of performance, such as price, quality and productivity, can be computed to see whether Telstra has improved its performance following each of the reforms. For example analysis could be undertaken on whether, and to what extent, corporatisation of the government-owned telecommunications entity improved the productive efficiency of one or both of the entity and the broader industry. Similarly, the question of whether the privatisation of Telstra (in three stages) improved the efficiency and productivity of the company and the industry could be analysed. Another research question could be whether the enhanced competition introduced into telecommunications network and services from the late 1990s resulted in better economic efficiencies in the industry and the economy more broadly. All of these research questions could be addressed and relative comparisons could be made on the success of each of the reforms in achieving the primary objective of improving productive efficiency. A useful data source could be Telstra’s annual reports dating back to 1994.

The impact of access regulation

The impact of the introduction of economic-based access pricing regulation could be analysed against the primary objectives of improving efficiency, including allocative, cost and dynamic efficiency. The research question could be asked in relation to all access services, or in relation to particular access services, such as fixed-line services or mobile services.

Fixed-line

Much of the ACCC’s work in the early years of the access regime was in relation to access to fixed-line services; initially origination and termination on the public switched telecommunications network (PSTN OTA) and later more sophisticated access services involving the unbundling of the local loop (the unconditioned local loop service (ULLS) and the line sharing service (LSS)). This work mainly involved declaration inquiries (deciding whether or not to regulate), the development of pricing principles for the declared services and the assessment of undertakings. This body of work is voluminous, so rather than make specific references to reports and papers, it is indicated that this work can be found on the ACCC website.44

Because this regulatory activity is concentrated in the late 1990s (particularly PSTN OTA) and the early 2000s (particularly ULLS and LSS), and also because of the richness of the data on prices, number of subscriptions, and service quality, it should be possible to undertake a reasonably sophisticated before-and-after analysis of the impact of access regulation on fixed-line services in terms of retail price charged, service usage and service quality. Further, detailed data may be available to facilitate an evaluation of the impact of the reforms on measures of partial or total factor productivity, and cost efficiencies.

Mobiles

In 2004 the ACCC moved to a more activist approach to the pricing of mobile termination (known as the mobile terminating access service; MTAS) and, in line with a schedule set out in ACCC (2004a), the access charge for mobile carriers fell from over 21 cents per minute (cpm) in 2004 to 12 cpm from the beginning of 2007. The target price was based on the upper bound of the range of cost estimates from studies in a number of countries. The 2007 MTAS review was based on a cost model that the ACCC had constructed for it (by WIK Consult) and included a

44 ACCC, Access Pricing, Available at: http://www.accc.gov.au/content/index.phtml/itemId/356715 [accessed on 6 September 2011].



review of the impact of the previous reductions in MTAS on key indicators such as retail prices, subscription, investment and profitability (ACCC, 2007). This analysis is informal (mainly assessing the outcomes against pessimistic claims and predictions by some carriers), but illustrates that there is prima facie evidence of a positive response to moving towards cost-based access pricing across the long-term interests of end-users (LTIE) criteria.45 The model with updated data was considered during the 2009 review. The indicative access charge was further reduced to 9 cpm applicable to the period 1 July 2007 to 31 December 2011 (ACCC, 2007 and 2009a), and is currently under review again. The ACCC’s draft final access determination released in September 2011 proposes further price reductions from 6cpm on 1 January 2012 to 3.6 cpm on 1 January 2014. 46

The ACCC’s work was done as part of its normal process activities, and was not targeted at an ex post evaluation of an aspect of the telecommunications access regime. However, this appears to be an area where research could be undertaken using a before-and-after framework. Detailed data (including recent years of data that were unavailable in earlier reviews) are available to the ACCC if a more formal evaluation analysis was to be undertaken.

An evaluation of the impact of telecommunications reform on the broader economy

This approach would mean analysing the impact of reforms on the broader economy, by way of CGE, social cost benefit analysis (SCBA) and other techniques. These techniques are outlined in the Review of Methods. Similar evaluative work to the CGE modelling in ACMA (2005) could be done in relation to any particular set of reforms and/or time period of reforms. For instance, it might be interesting to consider the duopoly policy (1991 to 1997), and to analyse the economy-wide welfare with and without this policy by comparing the period before and after the creation of Optus in 1991. Whether the change in economic welfare can be fully attributable to this policy hinges on the assumption of the counterfactual, where all aspects but the policy are held the same. The ACCC has some, but not all, of the types of data that would likely be required for CGE, SCBA or similar analyses. The data required for such studies tend to be broader, economy-wide data, in the context of economy-wide models, that is, types of data that the ACCC does not ordinarily gather or use. However, where the CGE or SCBA question is related specifically to telecommunications reforms, the ACCC data may be a useful source of some of the input data required. In particular, the ACCC has data specific to telecommunications carriers or carriage service providers, such as volume of major inputs (physical capital and similar) and outputs (for example, major carrier service usage and similar), and values of major inputs (costs) and outputs (revenues), the majority of which is confidential. The ACCC also has data series on prices for different services (some back to 1999-2000) which may be valuable inputs into broader economy-wide analyses. However, as was stated above, these data will primarily serve as additional inputs to datasets primarily sourced elsewhere, rather than being sufficient to form the foundational basis of a dataset for CGE or SCBA modelling.

Productivity and efficiency performance of telecommunications services

Analysis of the impact of reforms on productivity and efficiency within the telecommunications industry, either at an aggregate whole-of-industry level or at a carrier level, could be carried out. The most relevant techniques, as reviewed in the Review of Methods, would be various types of TFP analysis, such as an index-based TFP measure, DEA and stochastic frontier analysis (SFA). Two classes of analysis of this type are possible – cross-country comparisons, and comparisons between Australian carriers. In a cross-country comparison, Australian telecommunications carriers (or perhaps the dominant incumbent carrier) could be included in a broader sample covering carriers in different countries. In the second class of analysis, the sample might consist of all the (significant) Australian carriers. The data required would generally consist of a set of inputs, a set of outputs, and other environmental control variables (see the Review of Methods for a closer description of this technique). A substantial proportion of these data could be found, for

45 Competition and Consumer Act 2010, s. 152AB. 46 See: http://www.accc.gov.au/content/index.phtml/itemId/990531 [accessed 17 October 2011].



Australian carriers, amongst the data available. However, the data collected in respect of carriers other than Telstra, are in places not as comprehensive as those collected for Telstra, and this may restrict the types of analysis that can be done comparing the different Australian carriers against each other.

3.6 Conclusions

The telecommunications industry has experienced rapid changes in technology, structure and governance arrangements. Reforms since the 1980s have ranged from corporatisation and privatisation, to the gradual introduction of competition among carriers, and the introduction of economic regulation for natural monopoly elements and services. Telecommunications continues to evolve, with the advent of the NBN seemingly set radically to alter both the structure and governance arrangements.

Core evaluation questions are about whether these reforms increased the efficiency, productivity and dynamic responsiveness (investment and adoption of new technology) of the telecommunications industry itself, and whether these changes had positive flow-on effects to the broader economy. However, on the basis of data available, it is unlikely that such broad evaluations are possible. It is more likely to be possible to conduct narrower evaluative exercises. For example, it may be possible to evaluate the productivity and efficiency performance of certain carriers and the industry-as-a-whole using a before-and-after analysis for some of the more recent reforms. Further, the establishment of the access regime – as applied in both fixed-line and wireless – could be treated as suitable areas of evaluation, building on work already done by the ACCC in its consideration of declaration and pricing of these services.

Looking forward, the data would seem to be available now and prospectively to form the basis of an ex post evaluation of the now-commenced construction of an NBN, the planned structural separation of the incumbent Telstra (and of the market more generally).



4. Postal Services


In comparison to Energy and Telecommunications, the reform process in postal services has been partial, without major structural change or a significant legislative program of reform. The same format of the earlier chapters is followed, but what emerges in this chapter is a quite different impetus for change to the working of the postal services market in Australia from that observed in other infrastructure areas.

Reforms in the postal industry have occurred in the context of Australia Post’s continued government ownership and continued statutory monopoly as provider of reserved postal services (that is, the right to collect, carry and deliver standard letters within Australia). Over time the scope of reserved postal services has been gradually reduced, and presently covers letters up to 250 grams and charged at least four times the basic postage rate. The corporatisation of the Australian Postal Commission in 1989 initiated a gradual evolution of postal governance. As part of the corporatisation process, Australian Postal Corporation, which traded as Australia Post, was required to perform its functions in accordance with sound commercial practice. Prices surveillance powers were used to oversee the statutory monopoly services and take account of the dichotomy that was set-up between these services and all those other services provided by Australia Post that were subject to competition.

Over time the scope of Australia Post’s monopoly services has been reduced to provide greater opportunities for private mail operators (including upstream mail-houses) to develop value-added services and niche markets in time-sensitive (‘express’) mail and higher-value bulk-business mail. To support these potential market changes, the ACCC has been given power to arbitrate over bulk-access disputes with regard to both price and non price terms. Also, with the opening up of competition in the parcel and letter-delivery markets outside the reserved services, the ACCC has been given powers to monitor for any cross-subsidy from reserved services to non-reserved services (where there is competition with other suppliers).

A number of issues specific to postal services have arisen during the reform process. In particular, there have been issues regarding Australia Post’s requirements to fulfil its universal service obligations (USOs) and other community service obligations (CSOs), especially in the context of the changing market for letter services. There have also been issues related to the convergence of postal services with other communications markets, such as e-mail and mobiles, which has seen letter volume being flat since 2001-02 and reduced significantly in 2008-09 and with it rising per-unit costs highlighting the conundrum of increasing prices in a time of decreasing demand. Finally, the ACCC has in recent regulatory decisions identified some concerns about the efficiency of Australia Post’s cost base and the pace at which new technology to sort and process mail has been adopted (see for example, ACCC 2009d, pp. 160-163).


4.2.1 1980s and 1990s - corporatisation

Reform of the postal industry began in 1975 when responsibility for postal services was moved from the Postmaster-General’s Department to the Australian Postal Commission. The Australian Postal Commission remained under government ownership, and over time became subject to a limited degree of competition on standard mail. Only in 1983 was the scope of the agency’s monopoly reduced by allowing competitors to carry letters provided they charged at least ten times the standard letter rate.47

In 1989, as part of the Australian Government’s GBE reform program, the Australian Postal Commission was ‘corporatised’, becoming the Australian Postal Corporation, which continued to trade as ‘Australia Post’. This new framework required Australia Post to provide a letter service

47 Postal Services Act 1975 and Telecommunications Act 1975, following the Australian Post Office Commission of Inquiry (1974).



that met its community service obligations and general government obligations; and to perform its functions ‘in a manner consistent with sound commercial practice’. As a GBE, it would also be entirely self-funded, with a requirement to pay a dividend to the Minister for Broadband, Communications and the Digital Economy, and the Treasurer.

In 1992 existing Prices Surveillance Authority scrutiny was extended to all services reserved to Australia Post and the carriage within Australia of registered publications. Specifically, Australia Post became subject to a requirement to notify and obtain approval from the ACCC for the price and non-price terms of these services.

In 1994, the scope of Australia Post’s monopoly was clarified to provide greater opportunities for private mail operators to develop value-added services and niche markets in express mail, time-sensitive and higher-value bulk-business markets.

The Postal Services Legislation Amendment Act 2004 gave the ACCC power to arbitrate disputes over bulk-mail services and expanded the scope of the ACCC’s dispute-resolution role to include both price and non-price terms. It also introduced provisions enabling the ACCC to require Australia Post to keep records in relation to its roles in prices surveillance, arbitrating disputes over bulk mail services, and monitoring cross subsidies between reserved and non-reserved services. Further, under Part VIIA of the Competition and Consumer Act 2010, the ACCC has a role in assessing proposed price increases of Australia Post’s reserved services. The ACCC has historically adopted a cost-based approach to its assessment of postal service price notifications under the Competition and Consumer Act 2010. However, Australia Post has agreed with the ACCC that the current approach to assessing price increases, including the allocation of costs, needs to be re-examined, and that this needs to occur before another major price notification.

4.2.2 Current regulation of Australia Post

Price Scrutiny

Australia Post is a declared person, and the carriage of reserved letter services and the carriage within Australia of registered publications are notified services. Australia Post must notify the ACCC if it proposes to:

• increase the price of a notified service,

• introduce a new service that would fall within the definition of notified services, or

• provide an existing notified service under terms and conditions that are not the same or substantially similar to the existing terms and conditions of that service.

In reviewing the price notifications, the ACCC must have ‘particular regard’ to the following matters outlined in s. 95G (7) of the Competition and Consumer Act 2010:

• the need to maintain investment and employment, including the influence of profitability on investment and employment;

• the need to discourage a person from taking advantage of potential market power in setting prices;

• the need to discourage cost increases arising from increases in wages and changes in the conditions of employment inconsistent with principles established by relevant industrial tribunals.

The ACCC’s consideration of these criteria is outlined in detail in its Statement of Regulatory Approach to Assessing Price Notifications (ACCC, 2009c). They are interpreted as ‘seeking to promote economically efficient investment and employment throughout the economy’ (p. 12). This will be promoted when Australia Post operates efficiently and charges prices that are as close as possible to efficient levels.

Accordingly, the ACCC assesses the consistency of the proposed price increases with these criteria by considering the efficiency of the cost base and the reasonableness of the return on capital Australia Post is seeking. Consideration of these criteria is subject to any direction issued



by the Minister. Direction 11, made on 14 September 1990, requires the ACCC to give special consideration to Australia Post’s functions and obligations, particularly financial policy and pricing targets, as set out under certain provisions of the Australian Postal Corporation Act 1989.

In July 2011, the Department of Broadband Communications and the Digital Economy (DBCDE) released a discussion paper proposing to discontinue price surveillance of letter services that are generally priced below ordinary letter services, which are mainly business mail services.48 This proposal would enable Australia Post to set the prices for discount letter services without reference to the ACCC.

Network access

Access to lodgement at Australia Post’s delivery network is required by bulk mailers lodging bulk letters or publications at lodgement points nominated by Australia Post. Australia Post’s Letter Pricing Principles require that bulk interconnection prices will, in addition to the requirements of section 32A(2)(c) of the Australian Postal Corporation Act 198949, broadly reflect the level of work saved by Australia Post through work carried out by its customers. Under Part 4 of the Australian Postal Corporation Act 1989 and Part 3 of the Australian Postal Corporation Regulations 1996, a person who requests a ‘bulk interconnection service’ from Australia Post is able to notify the ACCC of a dispute if access cannot be negotiated. After conducting an inquiry, the ACCC must provide a report to the Minister who may then direct Australia Post to act in accordance with a recommendation in the report.

Record-keeping

The ACCC has issued one record-keeping rule (RKR) that sets up the regulatory accounting framework (RAF) for Australia Post.50 The ACCC uses information obtained under this RKR to assess whether Australia Post is using revenue from its reserved postal services to cross subsidise its non-reserved services. The ACCC has issued a guideline which sets out the principles the ACCC will apply when assessing whether information claimed to be confidential by Australia Post should be included in the ACCC’s public reports.51

Community Service Obligations (CSOs)

The Australian Postal Corporation Act 1989 prescribes the CSOs to be met by Australia Post in the provision of mail services. They include:

• to provide all people in Australia reasonable access to a letter service regardless of where they live or carry on business;

• to provide access at a uniform charge for standard letters;

• to provide a letter service between Australia and places outside Australia; and

• to provide a letter service of a standard such that the social, industrial, and commercial needs of the Australian community are reasonably met.

Performance Standards

Finally, the Australian Postal Corporation (Performance Standards) Regulations 1998 prescribe the performance standards to be met by Australia Post in respect of the frequency, speed and

48 Refer to: http://www.dbcde.gov.au/post/prices-surveillance [accessed 14 October 2011]. 49 Section 32A(2)(c) requires that the terms and conditions of a bulk interconnection service must provide for the rate reduction to include a component that is Australia Post’s estimate of the average transport costs per letter avoided by Australia Post in respect of letters lodged for delivery under the service. 50 ACCC, Record Keeping Rule: Establishing a Regulatory Accounting Framework for AP – issued under Section 50H of the Australian Postal Corporation Act 1989, 30 March 2005. Available at: http://www.accc.gov.au/content/index.phtml/itemId/672018 [accessed on 8 August 2011]. 51 ACCC, Principles for the Public Disclosure of Record-keeping Rule Information provided by Australia Post, November 2006. Available at: http://www.accc.gov.au/content/index.phtml/itemId/771933 [accessed on 8 August 2011].



accuracy of mail delivery, and the number of mail lodgement facilities and points. The Australian National Audit Office independently audits Australia Post’s performance against the Performance Standards. The audit results are published in Australia Post’s Annual Report.


There has been minimal structural change or legislative reform to Postal Services. Australia Post was corporatised in 1989 as a part of the GBE reforms. The extent of Australia Post’s monopoly was also reduced, allowing private operators more easily to develop value-added services and niche markets. Australia Post is currently facing a number of challenges associated with declines in its traditional letter services and the rise of electronic communications. The ability to use analytical techniques (as described in the Review of Methods) to undertake an ex post assessment of the impact of postal service reforms on the performance of Australia Post will depend on the availability of sufficient performance data on a consistent basis across time, and the ability to adequately identify the point or points of time at which the more substantial reforms to postal services occurred.


Data availability and quality for the postal industry have been reviewed as part of the Developing Indicators project. Relevant data are found to be available from a variety of sources including Australia Post’s annual reports, government agencies such as the Productivity Commission (PC) as part of the annual Government Trading Enterprises (GTE) review and as collected by the ACCC. A detailed summary of data availability by type of information and data source is presented in Appendix D – Post.

The primary source of information in the public domain is the annual reports of Australia Post and other postal operators.


Australia Post has submitted annually the required Regulatory Accounts since 2004-05. The data include, for each defined reserved/non-reserved service group, revenues (by type) and expenditures (by input category and cost attribution), capital employed (by asset category), movements in valuation of non-current assets, WACC and service usage. The information (which includes a significant amount of commercial-in-confidence data) is made available to the ACCC as part of its role of monitoring for the presence of cross-subsidy between reserved and non-reserved services. Some of the regulatory accounting data and derived estimates for the cross-subsidisation test are available publicly and published in the annual cross-subsidy reports. Some of the regulatory data are published by the ACCC at more aggregate levels than the service group level defined under the RKR.

Postal data are also provided to the ACCC in relation to its assessment of Australia Post price notifications. In particular the ACCC received a significant amount of information from Australia Post in 2002, 2008, 2009, 2010 and 2011 in relation to the assessment of price increase proposals (see for example, ACCC 2002, 2008a and 2010b). The data, typically covering historical and forecast data on many aspects of postal operation (for example, demand, productivity, cost allocation) were provided in support of the proposed price increases. While demand data is generally published, typically forecasts of revenues and costs, as well as disaggregate cost data are not. Since different regulatory issues and concerns may arise during each price notification, the nature and amount of data available may differ across notifications and from the regulatory accounts. An issue that has been assessed in past price notifications is the historical and potential total factor productivity (TFP) performance of Australia Post (see for example, Lawrence 2002, 2007d, and 2009a).

It should be noted that data pertaining to the operation of Australia Post are made available to the ACCC pursuant to RKRs made under the Australian Postal Corporation Act 1989 and in order for the ACCC to undertake its regulatory role under Part VIIA of the Competition and Consumer Act 2010. Some of the data are commercially sensitive. The Australian Postal Corporation Act 1989 allows the ACCC to prepare and publish reports analysing the information that is provided to it



under a RKR. The ACCC may publish the information that is claimed by Australia Post to be commercial-in-confidence if it is satisfied that (a) the claim for commercial in confidence is not justified; or (b) it is in the public interest to publish the information (section 50K of the Australian Postal Corporation Act 1989). The ACCC’s approach to disclosure of confidential information under these provisions is set out in the ACCC guideline on public disclosure of the information provided by Australia Post.52

Information provided to the ACCC for the purpose of Part VIIA of the Competition and Consumer Act 2010 is specifically restricted under the secrecy provisions of s 95ZP. These limitations apply in addition to any confidentiality restrictions. Some of the information provided by Australia Post to the ACCC is made publicly available in accordance with the Competition and Consumer Act 2010 and/or the Australian Postal Corporation Act 1989, for example through the ACCC’s annual report Assessing Cross-Subsidy in Australia Post.53


The publicly available data are primarily drawn from the annual reports of Australia Post. The annual report data cover two broad categories of information, namely financial-statement data and non-financial data relating to quality/quantity of services.

The financial-statement data cover standard information, including:

• revenue by source (for example, sales of goods and services, interest, other income and gains);

• cost, consisting of:

o depreciation and amortisation cost

o other cost items;

• assets, consisting of:

o current assets with a major item on cash and cash equivalents

o non-current assets with major items on land and buildings, and plant and equipment.

• cash flow by operating/investment/financing activities; and

• other financial information such as asset movements, cost of community service obligations, and standard financial performance indicators.

Non-financial data are operational statistics that cover quantity, physical data and service standard performance. Relative to financial-statement data, they are less detailed but typically include measures such as total mail articles (in millions), number of employees, labour productivity improvement (in percentage), mail delivery and collection points, and delivery frequency.

Annual reports of Australia Post are available from 1988-89, the first year of its corporatisation. Consistency of the data may be affected by accounting and reporting changes over time. The reduction in business segments over time (particularly in 2003-04) is a significant hindrance to the development of consistent segmented data. It is more difficult to obtain comparable data on private postal operators providing non-reserved postal services, given their diverse ownership and wide range of businesses.

The first Productivity Commission (PC) review into financial performance of government-owned businesses was for the period 1991-92 to 1996-97 (PC, 1998b). Under annual reviews up to 2006-07, the PC has regularly published key indicators for these businesses, including Australia Post, over three broad areas – profitability (for example, earnings before interest and taxes (EBIT)), financial management (for example, debt to equity ratio) and transactions with

52 See: http://www.accc.gov.au/content/index.phtml/itemId/771933 [accessed on 8 August 2011]. 53 See: http://www.accc.gov.au/content/index.phtml/itemId/584687 [accessed 17 October 2011].



government (for example, dividends). Source data covering standard financial-statement information and indicators are also publicly available. Consistency issues arise from changes in accounting system and data definition. A limited number of measures on output and non-financial performance indicators (for example, employment and productivity) have been also reported for the period 1987-88 to 1996-97.


The data stock take shows that the postal information from various sources may be complementary. The regulatory accounts are more comprehensive in terms of highly disaggregated financial-statement data and service usage data. The price notification data contain detailed price information on a large number of postal products and services, and input-output data for potential TFP assessment. While the input-output data are not published in much detail, the annual reports are available at quite aggregate levels but for a longer period.

Analysis of financial performance using Australia Post annual reports is complicated by the changes in the business segment classification and in the accounting system. In addition, for broader industry evaluations, comparable data on private operators offering non-reserved mail or related services may not be readily available. 4.4 Review of Relevant Literature

There has been a wide range of work done on evaluation of postal operators both internationally and in Australia. The quantitative measurement of performance of the postal industry internationally has concentrated on two main types of analysis – estimation of total factor productivity (TFP) for a particular postal operator over time, and comparative studies of the TFP of a number of national postal operators across a number of countries. A sample of relevant empirical studies is reviewed as a background to considering the type of evaluative research that might be conducted on reforms to postal services.

International postal service studies

In its consultancy work for UK Postcomm, LECG (2005 and 2006) assessed efficient costs for Royal Mail’s regulated letter business over the next price control period 2005-06 to 2010-11. A number of methods were adopted to gauge the scope for efficiency gains. LECG considered historical changes in productivity growth and found that productivity growth had been faster during the current price control period. They then used deterministic frontier analysis (DFA), stochastic frontier method (SFA), and Data Envelopment Analysis (DEA) techniques to compare the productivity performance of Royal Mail’s mail centres and delivery offices. The results suggested scope for cost saving of between 2.7 per cent to 3.5 per cent over the next four-year period. LECG then compared Royal Mail’s mail operation with other industries undertaking similar operations to gauge the likely productivity performance of mail services. For example, LECG (2006, p. 34) considered that Royal Mail’s logistics costs could be appropriately linked to transport and communications business segment, which includes rail, water, air and other transport activities, as well as a number of logistic activities. LECG also performed high-level international benchmarking to compare Royal Mail with postal operators in other countries. It found that the general trend in unit cost is downward; postal prices in the UK are among the lowest in Europe; and that labour productivity in the UK was relatively low and had not improved much over time.

Perelman and Pestieau (1994) compare the performance of 16 postal services in Organisation for Economic Co-operation and Development (OECD) countries between 1975 and 1988 to test the effect of competition and regulation on indicators of productive performance. The authors use a SFA to derive technical efficiency adjusting for exogenous factors and inter-temporal differences. They found that it is possible for an operator with low productive efficiency to catch up with more technically efficient operators.

Australian postal service studies

A series of TFP studies that assess Australia Post’s TFP performance in both reserved services and aggregate services over time have been conducted by Denis Lawrence and his affiliates



during the price notifications submitted by Australia Post in 2002, 2007 and 2009. Lawrence (Swan Consultants) examined Australia Post’s overall TFP performance, using price and quantity data for 1976 to 2002 (Steering Committee on National Performance Monitoring of Government Trading Enterprises, 1992). A 2002 study assembled price and quantity data for seven outputs (reserved letters, other addressed mail, unaddressed mail, money orders, agency services accommodation and other outputs) and four inputs (labour, contractors, capital, and materials and services) over the 27 year period from 1976 to 2002 (Lawrence, 2002). Improvements in Australia Post’s information systems enabled the number of output categories to increase to 25 for the aggregate analysis and to five for the reserved service analysis (Lawrence 2007d and Lawrence 2009a). In these two reports, different time periods were used, in which to assess Australia Post’s TFP performance. Both the 2007 and 2009 studies (Lawrence 2007d and Lawrence 2009a) found that Australia Post has historically outperformed the economy as a whole, but formed a pessimistic view of potential productivity gains for the next five years.

Two other TFP studies in support of Australia Post’s price notification in 2009 were conducted by the consulting firm, Economic Insights (Lawrence 2009b and 2009c). One is the international benchmarking study that compared Australia Post’s productivity performance with that of mail operators in six other countries (Canada, Denmark, Italy, Japan, New Zealand and the US). High-level confidential data were used to estimate TFP and partial-factor productivities of benchmark countries for four inputs – labour, other operating expenditure, land and buildings combined, and plant, equipment, software and other capital combined. The measure of output includes three broad categories of letters, parcels and other output. After making some adjustment for differences in operating environment, the study concluded that Australia Post performed relatively well among comparable postal operators. The other study measured Australia Post’s reserved-service productivity dividend and allocated it to stakeholders (such as, owners, employees, contractors and consumers). The method used allows changes in a firm’s real gross return to capital to be broken down into effects due to productivity change, real output price changes, real input price changes and growth in the firm’s size (as measured by the real capital stock employed). However, in assessing the relevant price notification, the ACCC raised concern about the usefulness of these studies given the inability to review the data used and the adjustments made to the data.


Productivity growth – before and after

One possible approach is to track productivity change over time and check for significant differences before-and-after a reform occurred. As previously reviewed, there has been a very substantial amount of research on Australia Post’s TFP and partial productivity, and there are data over a very long period of time with annual reports dating back to 1988-89, following corporatisation, and regulatory accounts data since 2004-05. Of course, there are many influences on productivity, and it would be necessary to control for these in isolating the influence of infrastructure reforms. Further, there are particular issues raised because of the gradualness of the changes – there is no ‘big bang’ establishing a clear before-and-after and this could mean that the before-and-after approach is not a feasible means of estimating the effects of regulatory change in the case of Australia Post. There has been some analysis of this kind, and – as seen – evidence that corporatisation encouraged Australia Post to expand its range of services, rationalise its network and caused it to experience strong labour productivity growth.

International benchmarking

Comparative productivity assessment of Australia Post with that of comparable postal operators in other jurisdictions is another possible means of determining the impact of reform on Australia Post’s performance. For example, international benchmarking against countries with substantially deregulated postal services and alternative regulatory approaches to USOs could be conducted to see whether Australia Post performs well, relative to other countries’ postal service providers, in terms of price, quality, efficiency and other relevant aspects of postal services. Such an assessment could involve a simple comparison of aggregate or service-segment TFP performance of Australia Post and that of postal operators in other jurisdictions. For this



approach to be feasible it would be important to be able to control for exogenous factors that could explain cross-country difference in performance measures, such as geography and topography of the delivery network; the strength of labour unions, absolute input costs and changes in input costs. Further, in projecting future productivity changes, the sources of productivity change may be different for different national postal services – that is, it may be either labour augmenting or capital augmenting. Even if two firms share the same factor-augmenting technical change, if factor intensities are different, TFP growth is unlikely to be the same. These factors that determine the differences in productivity levels may also determine the differences in productivity growth. A dataset may be able to be constructed using annual accounts from Australia Post dating back to 1989, and the annual accounts of other postal operators internationally. However, caution may need to be exercised as accounting frameworks and standards may not be consistent across jurisdictions and time. Importantly the usefulness of international benchmarking studies relies on the ability for others to review the data and check that it is appropriately used.

Internal benchmarking – nature-of-work comparisons

Nature-of-work comparisons based on TFP trends involve splitting up the firm’s operations and comparing the productivity performance of these operations with the productivity performance of similar industries. For example, the firm’s transport operation can be compared to the TFP performance of the transportation industry, and the performance of its manufacturing operations can be compared to the TFP performance of a relevant industry of the manufacturing sector. The results from each industry area are then aggregated into a sector composite estimate for the whole economy (LECG, 2005, p. 419). Such comparisons could potentially provide a useful benchmarking evaluator of Australia Post’s performance relative to the performance of the general economy. The regulatory accounts data submitted annually by Australia Post to the ACCC provides a consistent and highly disaggregated set of data on financial performance since 2004-05 that could be employed in a range of internal benchmarking – nature of work comparisons. Comparable data on benchmarking industries would also need to be sourced. Such data may be available for other regulated infrastructure industries or from publicly available sources, such as annual reports, relevant government departments or the Australian Bureau of Statistics.

4.6 Conclusions

The research approach most promising for evaluating the reforms in the Australian postal industry would likely involve a study of performance over time using an appropriate control mechanism to account for factors other than economic reform. This could involve an entirely domestic approach (tracing, for example, Australia Post’s TFP or partial productivity over the entire period while controlling for other influences) or an international approach.

Consideration of performance across time is difficult because of the gradualness of the reforms (there is no clear distinction between the periods before and after reforms) and because of the need to control for so many other variables. There is, however, a strong body of literature on TFP and other productivity studies, and this could be developed further and specifically focused on evaluation. As noted earlier, corporatisation appears to have encouraged Australia Post to expand its range of services and rationalise its network, and some studies (for example, Lawrence 2007d) have found that Australia Post experienced strong labour productivity growth, much greater than the Australian average across all sectors.

Given that the development and regulation of postal services internationally are very diverse (Infrastructure Consultative Committee, 2009), it may be possible to do cross-country studies to assess the relative performance of Australia Post compared with jurisdictions where postal service providers are subject to different corporate or ownership structures or different forms of regulation. While cost-volume elasticity may not be an entirely meaningful comparator, given the potentially profound differences between postal operators and national economies and the



possibility of a non-linear variable cost function54, a cost-volume elasticity comparison across countries may provide some insights into the impacts of postal reforms. Similarly, it may be possible to conduct cross-industry studies to compare the performance of aspects of Australia Post’s operations with the rest of the economy. As relatively comparable financial and quality performance data on Australia Post appear to be available these types of analyses will depend on the availability of verifiable and comparable data from other postal service providers in other countries or from comparable industries.

54 A non-linear variable cost function means that the value of average variable costs changes depending on the quantity produced.



5. Water and Wastewater


The application of economic regulatory tools has only in relatively recent times been accepted as the necessary response to long-held concerns in Australia about the management of water resources. Water and wastewater services in Australia have typically been divided between ‘rural’ (three-quarters of total water) and ‘urban’ (one quarter). Urban water under some state and territory jurisdictions has been subject to some level of structural and pricing reforms. The application of these types of reforms to rural water (primarily, irrigation) stalled for at least a decade and only in more recent times has the reform agenda been re-invigorated, including a role prescribed for the Australian Competition and Consumer Commission (ACCC) (Water Act 2007).

Since the early 1990s, an increasing concern about the conservation and management of rural water resources has precipitated an incremental movement towards federal regulatory oversight of the sector. Water shortages and environmental concerns provided the backdrop to the advocacy of regulatory reforms in relation to rural water and wastewater, including the adoption of a number of strategic intergovernmental frameworks, initiatives and agreements.

The objective of these intergovernmental arrangements has been to establish an efficient and sustainable water industry, and to arrest widespread natural resource degradation partly caused by water use. However, providing momentum behind reform initiatives has been a major issue.

Concern regarding the natural environment and water security, in the face of protracted drought, precipitated the intergovernmental Murray-Darling Basin (MDB) Agreement, in the agriculturally important MDB. Federal legislation in 2007 created institutional and governance arrangements for the management of the MDB giving the ACCC new responsibilities including the development of draft ‘water rules’ and ‘water charge rules’ for consideration by the relevant minister, and monitoring compliance and enforcing such rules, as well as providing advice to the Murray Darling Basin Authority (MDBA) on water-trading rules. Institutional arrangements are not yet well-bedded down with many complex issues to be resolved including the balance between environmental and other objectives.

Urban water, wastewater and drainage services in Australia have historically been provided by vertically integrated state or local government bodies that operated as geographically defined monopolies. Regulation occurs at the state and territory level. Reforms have seen the corporatisation and restructuring of urban water bodies into, for example, retail water businesses and wholesale water and sewage businesses. Where corporatisation has occurred water utilities have been given clear commercial objectives under expert boards accountable to the relevant minister.

Nevertheless, despite a commitment to a reform agenda across most jurisdictions the power and authority of state-based regulators vary considerably reflecting in part the ‘geographical determinism’ of the availability of water. In general, prices and service standards are regulated (but not always by the independent regulator) and licensing and monitoring of providers is usually conducted by the independent regulator.

Although different approaches have been adopted across the states and territories in relation to urban water and wastewater, issues that have been raised during the reform process have related to access pricing, different tariff structures (such as increasing block tariffs), environmental standards and the role of pricing versus water restrictions as a response to conditions of drought.


This section focuses on the types of reforms introduced in water and wastewater, the reasons for those reforms and the expected outcomes of such reforms. Rural water issues are treated separately from urban water and wastewater issues.



5.2.1 Irrigation

Following water shortages and environmental concerns, in 1991 the Industry Commission (IC) was asked to review the regulatory arrangements for water resources and wastewater disposal. The IC concluded that (IC, 1992b, p. 1):

reform is urgent. The problems now confronting Australia in the water area demand an end to the political expediency which has so often thwarted worthwhile reforms in the past.

Subsequently, the Council of Australian Governments (COAG) adopted a strategic water reform framework in 1994, which was incorporated into the National Competition Policy agreements. The strategic framework covered pricing, the appraisal of investment in rural water schemes, the specification of, and trading in, water entitlements, resource management (including recognising the environment as a user of water via formal allocations), institutional reform and improved public consultation.

In 2004, the COAG agreed to the Intergovernmental Agreement on a National Water Initiative, between the Commonwealth of Australia and the governments of New South Wales, Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory (25 June 2004), designed to develop and extend the existing water reform strategic framework. It was intended to provide even ‘greater certainty for investment and the environment, and underpin the capacity of Australia’s water management regimes to deal with change responsively and fairly’.55 The NWI represents a shared commitment by state and territory governments to work towards a more cohesive national approach to the management, measurement, planning for, pricing, and trading of water. 56

The NWI created the National Water Commission (NWC) to oversee implementation of the reforms and to advise COAG and the Australian Government on national water issues and the progress of the NWI. Each government was required to submit a NWI implementation plan to the NWC, and to date nine plans have been accredited. Under the Water Act 2007, the NWC was given a new, ongoing function to audit the effectiveness of implementation of the MDB Plan and associated water resource plans. The NWC publishes annual reports on the performance of urban and rural water utilities to aid national benchmarking of water-utility performance, in terms of price and service quality, through time and across geographical locations.

In addition to the NWI, the Commonwealth, New South Wales, Victoria, South Australia and the Australian Capital Territory signed the Intergovernmental Agreement on Addressing Water Over-allocation and Achieving Environmental Objectives in the MDB (25 June 2004). This agreement established a framework for the investment of $500 million to fund water recovery in the MDB.

The MDB is the catchment for the Murray and Darling Rivers and runs through Queensland, New South Wales, the Australian Capital Territory, Victoria and South Australia. It is of particular importance because it contains over 40 per cent of Australia’s farms. In 2007, in response to the protracted drought and concerns about ‘shortcomings of the current model’, the Prime Minister announced the National Plan for Water Security. The Commonwealth proposed to seek the agreement of New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory to transfer powers to enable the Commonwealth to oversee water management in the MDB. Following Victoria’s decision not to participate, the Commonwealth enacted the Water Act 2007 (the Act), based on the Commonwealth’s existing constitutional powers. The Act was amended in 2008 after all parties entered into the Agreement on Murray-Darling Basin Reform.

55 National Water Commission website: http://www.nwc.gov.au/resources/documents/Intergovernmental-Agreement-on-a-national-water-initiative.pdf [accessed on 8 August 2011], paragraph 5. 56 http://www.nwc.gov.au/www/html/117-national-water-initiative.asp [accessed on 8 August 2011].



The Act built upon the NWI and MDB agreement to create new institutional and governance arrangements to address the sustainability and management of the MDB water resources, and to provide for the collection, collation, analysis and dissemination of information about Australia’s water resources and the use and management of water in Australia. It required the optimisation of ‘economic, social and environmental outcomes’ in the use and management of basin water resources.57

The Act states that water charges should be based on the full cost recovery of water services (schedule 2 s. 3(3)) in order to contribute to achieving an economically efficient and sustainable use of water resources and water infrastructure assets. The Act also stipulates that water-charge rules must be applied consistently across the basin (schedule 2 s. 3(7)), to facilitate the efficient functioning of water markets by removing distortions to trade and by sending signals to water users about efficient investment in water infrastructure assets.

The Act created the MDBA, which reports to the Federal Minister for the Environment and Water Resources. The establishment of the MDBA meant that, for the first time, a single agency would have responsibility for planning integrated management of the MDB water resources. The MDBA is required to prepare a ‘Basin Plan’ including limits to the quantity of water that may be withdrawn from the Basin and rules for the trading of water rights, and is responsible for implementing and enforcing the Basin Plan and advising the Minister on state water resource plans. In October 2010 the Authority released its Guide to the Proposed Basin Plan (MDBA, 2010), but, as discussed later in this chapter, this has not yet been broadly accepted as a basis for planning. The MDBA also has responsibility for monitoring and managing water resources in the MDB. This role is implemented through a range of programs that aim to mitigate the adverse environmental and biodiversity impacts of water use.

New functions for the ACCC were also provided by the Act. These included developing draft ‘water market rules’ and ‘water charge rules’ for consideration by the relevant minister and advising the new MDBA on water trading rules (ss. 92, 93 and 98). The Act also requires the ACCC to monitor compliance with, and to enforce, the water market rules and water charge rules (ss. 95 and 100).

Note also that water infrastructure services in the rural and urban areas may be declared under the economy-wide access regime in Part IIIA of the Competition and Consumer Act 2010.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) contributes to public and private sector decision-making in relation to agricultural and natural resources issues through the provision of independent research, analysis and statistical information.

5.2.2 Urban water

Despite the more recent extensions of Commonwealth regulatory power, the states and territories retain substantial regulatory powers in relation to urban water and wastewater, and to rural water outside the MDB. Each state has its own independent economic regulator that regulates and oversees the industry, each with specific roles and authority. The establishment of these regulatory arrangements followed the corporatisation and restructuring of water bodies in the 1990s.

Prior to the 1990s all the main state and territory urban water bodies were operated within government departments under traditional bureaucratic arrangements. During the 1990s all were corporatised sometimes followed by disaggregation. For example, in 1995 the Melbourne Water Corporation was split into four separate businesses; three retail water businesses and a wholesale water and sewerage business. After corporatisation, water utilities were given clearer commercial objectives under expert boards accountable for performance to the relevant minister. For example, South Australia Water is obliged to:58

57 Water Act 2007, s. 3. 58 South Australian Water Corporation, Available at: http://www.audit.sa.gov.au/00-01/b1/sawater.htm.



ensure South Australia’s water and wastewater services are operated in a commercial manner, delivering high-quality, value-for-money services to customers, and adequate financial returns to the Government as owner within the context of Government pricing decisions.

Contracting out has also been important in the corporatisation process. For example, in South Australia the management, operation and maintenance of Adelaide’s water and sewerage network, together with the management of the capital works program, were contracted out for a fifteen year period to United Water in 1996.

In the ACT, the ActewAGL was set up in October 2000 when the then Australian Gas Light Company (AGL), and ACTEW Corporation, an ACT government-owned enterprise (GBE), entered into Australia's first utility joint venture. ActewAGL was Australia’s first multi-utility to offer electricity, gas, water and wastewater services and is made up of two partnerships; ActewAGL Retail (owned equally by ACTEW Corporation and AGL Energy via subsidiary companies) and ActewAGL Distribution, which is owned equally by ACTEW Corporation and SPI (Australia) Assets Pty Ltd via subsidiary companies.

5.2.3 Regulatory Institutions and Legislation by Jurisdiction

The power and authority of state-based and territory-based regulatory regimes vary.

New South Wales

In New South Wales, the Independent Pricing and Regulatory Tribunal (IPART) makes price determinations that set maximum prices for bulk water, urban water and wastewater services. Responsibility for price regulation of bulk water will transfer from the IPART to the ACCC at the time of the next price reset in 2014. The IPART administers the state-owned utilities (Sydney Water, Hunter Water, State Water, and Sydney Catchment Authority) through regular reviews of the operating licences and annual audits of performance. Both local water utilities (currently at 105) serving non-metropolitan urban areas and private irrigation companies (currently at five) in rural areas set water charges by themselves. They are monitored by the New South Wales Office of Water in the Department of Environment, Climate Change and Water, which replaced the former Department of Water and Energy in July 2009.

The New South Wales Government applied to the National Competition Commission (NCC) on 19 December 2008 for a recommendation that the access regime (in the Water Industry Competition Act 2006 and Water Industry Competition (Access to Infrastructure Services) Regulation 2007) is an effective access regime. On 13 August 2009, the Minister for Competition Policy and Consumer Affairs accepted the NCC’s recommendation and certified the access regime as effective for a period of ten years.59 As a result, the State’s negotiate/arbitrate framework in the case of access disputes is implemented by the IPART. The relevant legislation in New South Wales is the Independent Pricing and Regulatory Tribunal Act 1992, the Hunter Water Act 1991, the Sydney Water Act 1994, the Sydney Water Catchment Management Act 1998 and the Water Industry Competition Act 2006.

Queensland

The Queensland Competition Authority (QCA) has price oversight powers, at the direction of the Premier and Treasurer, to conduct investigations into declared water and wastewater services and to determine water supply prices. For 2011-12 the QCA has a new formal role of reviewing bulk water charges. The QCA also undertakes interim price monitoring investigations of South East Queensland water and wastewater distribution and retail activities covering the period 1 July 2011 to 30 June 2013.

59 National Competition Council, Certification of NSW Water Industry Access Regime, Available at: http://www.ncc.gov.au/index.php/application/nsw_water_industry_access_regime/ [accessed on 8 August 2011].



Local government councils (currently at 110) are responsible for setting prices for urban bulk and retail water services. Rural water boards are generally responsible for rural retail water pricing, except that SunWater and Seqwater set rural bulk and retail prices under the SunWater Water Supply Schemes. The Queensland Water Commission has a role to ensure sustainable water supplies, including providing advice to government and reforming the industry. The Department of Environment and Resource Management develops resource plans for catchment areas throughout the state, helps maintain sufficient water flow for rivers, monitors surface and groundwater systems to check water levels and quality, develops pricing and trading systems to encourage efficient water use and is responsible for river conservation under the Wild Rivers program.60 The relevant legislation in Queensland is the Water Act 2000 and the Water Supply (Safety and Reliability) Act 2008 (recycled and drinking water).

South Australia

The Cabinet of the South Australian Government is responsible for setting urban retail water prices and private irrigation trusts (currently at 27) for rural retail water prices. The Essential Services Commission of South Australia (ESCOSA) conducts, at the direction of the Treasurer, inquiries into government processes for setting water and wastewater charges. The relevant legislation in South Australia is the Essential Services Commission Act 2002.

Tasmania

The Office of the Tasmanian Economic Regulator (OTTER), incorporating the Government Prices Oversight Commission (GPOC), assumed a new role as the economic regulator of water and sewerage from 9 July 2008. Its main responsibilities include licensing, regulating service prices and terms and conditions, establishing and administering customer service standards and monitoring, and reporting on, industry performance on an annual basis.61 The OTTER took responsibility for licensing on 1 July 2011 and the first full price determination is due to commence on 1 July 2012, until that time regulation of water and sewerage prices is undertaken by the Treasurer. The relevant legislation in Tasmania is the Tasmanian Water and Sewerage Industry Act 2008.

Victoria

The Essential Services Commission (ESC) has been responsible for regulating price and service standards of 19 water companies providing bulk and retail water and wastewater services to Victorian urban and rural irrigation customers since 1 January 2004. The ESC must ensure regulatory decisions have regard to health, safety, environmental sustainability (including water conservation) and social obligations of regulated entities. The ESC may make price determinations and impose consultation obligations, regulate standards and conditions of service, develop Codes in relation to its functions and require information disclosure. The relevant legislation in Victoria is the Essential Services Commission Act 2001, the Water Industry Act 1994, Part 1A and the Water Industry Regulatory Order made under s. 4D of the Water Industry Act 1994.

Western Australia

The Economic Regulatory Authority (ERA) is responsible for licensing and monitoring providers of water, sewerage, drainage or irrigations services. There are currently 30 licensed operators. Charges for water services are set by the State government, assisted by the ERA that conducts inquiries into the pricing for WA Water Corporation, Aqwest (Bunbury Water Board) and Busselton Water Boards. Local government councils operate their own sewerage services and set charges accordingly. The relevant legislation in Western Australia is the Water Services Licensing Act 1995.

60 Department of Environment and Resource Management. Available at: http://www.derm.qld.gov.au/about/organisation/whatwedo.html [accessed on 8 August 2011]. 61 OTTER, Available at: http://www.economicregulator.tas.gov.au/domino/otter.nsf/water-v/000 [accessed on 8 August 2011].



Australian Capital Territory (ACT)

The Independent Competition and Regulatory Commission (ICRC) is responsible for price determination, licensing, and investigating competitive-neutrality complaints. The regulated services cover retail water and wastewater services, and bulk water. The relevant legislation in the ACT is the Independent Competition and Regulatory Commission Act 1997 and the Utilities Act 2000.

Northern Territory

The Water Management Branch within the Department of Natural Resources, Environment, the Arts and Sport (NRETAS) has been established for the development of water allocation plans across the territory. The Utilities Commission is the economic regulator responsible for monitoring and enforcing compliance with pricing determinations made by the Treasurer in relation to urban water supply and sewerage services. The relevant legislation in the Northern Territory is the Northern Territory Water Act 2009.


Concern about water shortages and environmental concerns prompted COAG to adopt a strategic water reform framework in 1994. The Intergovernmental Agreement on a NWI in 1994 extended and developed this strategic framework. In 2004 an Intergovernmental Agreement was signed on Addressing Water Over-allocating and Achieving Environmental Objectives in the MDB. The Act built on both of these Intergovernmental agreements, creating new institutional and governance arrangements for Australia’s water resources and giving new responsibilities to the ACCC. The ACCC’s new functions included developing draft water market rules and water charge rules for consideration by the relevant Minister and for monitoring compliance and enforcing such rules.

Historically in urban water, all the main state and territory urban water bodies were operated within government departments. However, during the 1990s all were corporatised and some disaggregated. There are currently state-based regulatory regimes and the state-based regulators have varying degrees of powers and authority.

The reforms in the rural and urban water sub-sectors provide some opportunity to undertake ex post analysis of the impact of the past or future reforms on the performance of irrigators and water utilities and on the broader economy. The ability to undertake such ex post studies using the analytical techniques (as described in the Review of Methods) depends however on the availability of adequate data. Data will need to be extensive in terms of the information available on financial and non-financial performance indicators, available both before and after the reform periods, and relatively consistent across time.


Data availability for water and wastewater, both in the rural (irrigation) and urban sub-sectors has been reviewed as part of the Developing Indicators project. The review shows that the majority of historical information is derived from a number of external sources, including jurisdictional regulators and industry organisations, which have published performance benchmarking data for certain groups of comparable utilities. A detailed summary of data availability by type of information and data source for urban water and rural water respectively is presented in Appendix E – Water.


Under s. 155 of the Competition and Consumer Act 2010, the ACCC has the power to obtain information, documents and evidence relating to a ‘designated water matter’, defined under Part 4 or 4A of the Water Act. In practice, the ACCC adopts a cooperative approach to information-gathering in fulfilling its functions.

In its advisory role, the ACCC has recommended that its termination-fee ruling on all irrigation infrastructure operators begin on 1 July 2009, with a review starting in 2012 and concluding in 2013 providing for up to four years of data (ACCC, 2008b, p. xviii). The Water Charge



(Termination Fees) Rules 2009 were registered by the Minister for Climate Change and Water (the Minister) on 22 June 2009 and came into effect on 23 June 2009.

With respect to the role of monitoring compliance with the rules, the ACCC is required to provide the Minister with a public monitoring report annually, with the first report covering the financial year 2009-10 (ACCC, 2011b). To perform this role, the ACCC is incrementally consulting on its proposed information requirements (in four parts) with accompanying information templates for reporting infrastructure operators. The ACCC has finalised and released information requests parts one and two, under which information for monitoring physical data (for example, network length), output (for example, customers numbers, volume of water entitlements held), revenue, details of transformation and termination activities for individual irrigation infrastructure operators serving over 10GL of water entitlements is required annually. The relevant information for 2009-10 from 19 irrigation infrastructure operators has been collected and summary information is presented in the ACCC monitoring report.

5.3.2 Performance benchmarking data

Performance benchmarking data cover some areas in relation to price, quantity, and quality-of-service, financial performance, and physical data, including water resources. These data, published by various external sources, are complementary to each other in that each source examines certain segments (for example, urban major, urban non-major and rural) during a particular period. The National Water Commission’s National Performance reports on both urban water and rural water, provide a comprehensive set of performance indicators for a sample of urban utilities and rural service providers. The National Performance reports are available annually from 2005-06 for urban water and 2006-07 for rural water. The National Performance reports build upon the industry’s annual benchmarking work going back to as early as 1996-97, including publications by the Water Services Association of Australia (WSAA) on major urban water utilities, by the Australian Water Association (AWA) on non-major urban water utilities, and by the Australian National Committee on Irrigation and Drainage (ANCID) on irrigation water providers. Since 2007, the ABARES has conducted an annual survey of irrigated farms throughout the MDB. The survey provides farm-level data on physical, financial and socioeconomic characteristics of irrigated farms and is used by the ABARES for monitoring, evaluating and reporting changes occurring in the irrigation sub-sector.

The combined data might potentially be applicable in evaluative work as certain indicators (for example, customer and pricing) seem to be consistently available. However, the comparability of the external data that can be gathered and compiled could be of concern. The quality, consistency and presentation of the data may vary substantially, depending on the publishers’ information-gathering scope, accounting conventions, and reporting practices.

Irrigation and drainage indicators on rural utilities exhibit improved consistency in the last four annual reports of the ANCID before the series were replaced from 2006-07 by national performance reports for rural water utilities. However, the quality of data remains an issue as data are not audited.

Performance indicators published by the WSAA on major urban utilities are fairly consistent across utilities and over the period covered in the later publications. Performance indicators published by the AWA on non-major urban utilities are less reliable as they display inconsistency depending on what indicator category is examined. Both publications are incorporated in the national performance reports for urban water utilities from 2005-06 onwards. Urban water utilities as a whole, and in particular major utilities, have a consistent stream of indicators that are potentially useful in evaluative work. For example, pricing data on access charges and pay-for-use charges in a typical residential bill are presented throughout the publications.


The stock take of the data sources and publications in water and wastewater indicates that the performance benchmarking data collected and reported by various external sources, if combined, may be useful for evaluative work that examines the comparative performance or change in performance by individual service providers or groups of service providers. However, the



usefulness can be limited by data issues such as consistency over time and comparability across sources. With the commencement of the monitoring regime for rural water supply in the MDB, the ACCC has started the annual information collection and reporting of monitoring on regulated water charges, transformation arrangements and compliance with the rules. It is expected that, in the future, data in relation to the managed water resources will be more readily available.


5.4.1 Review of relevant literature – irrigation

Irrigation projects have been undertaken for centuries in many parts of the world, and these projects have, in many instances, been subject to economic appraisal. For example, the application of social cost-benefit analysis (SCBA) to federal projects in the United States was mandated, and the appraisal of projects has ensued. A sample of the relevant empirical literature relating to irrigation is presented.

International irrigation studies

Internationally, there has been little empirical research into the efficiency and productivity performance of rural water utilities. One of the relevant studies is Bhattachayya, Harris, Narayanan and Raffiee (1995), which compared the technical efficiency for 26 rural Nevada water utilities in 1992 using a two-step stochastic frontier analysis. They found that private utilities were more efficient than their public counterparts. Among the public water utilities, those owned by municipalities were most efficient. Two studies on rural water supply in Germany (Sauer 2005; Sauer and Frohberg 2007) applied a symmetric generalised McFadden (SGM) cost function to examine issues relating to economies of scale and allocative efficiency. The findings provide evidence for policy-induced structural inefficiencies in rural water supply, given the regulatory framework (such as legally set supplying areas and public administrative criteria) as well as local characteristics of water resources. Rodríguez-Díaz, Camacho-Poyato and López-Luque (2004) apply DEA techniques to data on irrigation districts in Andalusia (southern Spain) to evaluate where the application of water is most efficient. The authors conclude that, while difficult to compare, intensive agriculture (located on the littoral) with localised irrigation systems achieves the highest efficiency values compared with extensive agriculture (located on the interior). Using the same dataset, Rodríguez-Díaz, Camacho-Poyato and López-Luque (2008) apply multivariate data analysis (cluster analysis) to analyse performance indicators in nine irrigation districts in Andalusia. The analysis is used to benchmark performance between districts and identify factors affecting difference in performance. Raju and Kumar (2006) use DEA and Multi Objective Linear Programming to rank alternative irrigation plans for the Sri Ram Sugar project in Andhra Pradesh, India. The analysis is designed to enable selection of the irrigation plan that is most efficient for achieving three stated objectives of maximising net benefit, agricultural production and labour employment.

Australian irrigation studies

Australian economists have played an active role in the economic analysis of irrigation for many decades, including the substantial contributions of Campbell (1964) and Davidson (1969) in the 1960s. The area of research in these studies was primarily based in agricultural economics, and these and other economists concentrated particularly on the costs and benefits of irrigation developments in relation to agricultural outputs, where irrigation water is an input into the production process. However, over time, the emphasis has changed, and now environmental consequences of irrigation are considered as well as the more traditional concern with output.

The recent change of emphasis towards environmental issues raised by irrigation development has recently been reviewed by Bennett (2008). A significant number of Australian economists in both universities and government bodies have become involved in cost-benefit research incorporating environmental impacts. Techniques such as hedonic pricing, the travel-cost method, contingent valuation and choice modelling have been applied, and – see later – the



expertise that has been built up could be used in any ex post evaluations in the future. Some of these studies have been reviewed for the MDBA by Morrison and Hatton MacDonald (2010).

The Productivity Commission (PC) has taken an active role in analysing the economics of irrigation, and, inter alia, its role in assessing the COAG reforms will cause it to continue in this role. Some of the recent titles of relevant work undertaken by the PC are Irrigation Externalities: Pricing and Charges (PC 2006a); Rural Water Use and the Environment: The Role of Market Mechanisms (PC, 2006b), Developing a Partial Equilibrium Model of an Urban Water System (PC 2010a) and Market Mechanisms for Recovering Water in the Murray-Darling Basin (PC, 2010b).

The PC (2010b) research report contains a long and detailed analysis of the economics of water buy-backs and infrastructure expenditures in the MDB, listing over 200 items in the reference section. A key chapter (five) sets out the assessment framework, and discussions of costs and benefits of different approaches appear throughout the research report. However, the report does not bring together the framework and a well-developed quantitative analysis of the costs and benefits in order to present an actual social cost-benefit analysis of government interventions in irrigation. Following the PC report (2010b), Dixon, Rimmer and Wittwer (2011) employed a dynamic multiregional CGE model to analyse the potential impacts should the Government introduce a buy-back scheme to increase water flows in the Southern Murray-Darling Basin. The computable general equilibrium (CGE) model, called ‘TERM-H2O’, is a variant on the MONASH CGE model with new features to facilitate the analysis of policy problems concerning irrigation water in Australian Agriculture. The authors find that a buy-back scheme would increase economic activity (represented by consumption). Their results indicate that, if a large buy-back scheme was implemented, then the price of irrigation water would sharply increase. However, aggregate farm output would not be significantly affected as the higher water price would lead to resources being reallocated between farm activities, for example, away from irrigation-intensive land uses towards dry-land farming or less-intensive irrigable land crops.

The National Water Commission (NWC) has, since 2006-07, produced a National Performance Report for Rural Water Service Providers containing comprehensive physical and economic data, and providing a commentary on those data (NWC, 2010a). While the report includes discussion of such things as modernisation of irrigation supply infrastructure, it does not apply any of the established evaluation methods presented in the Review of Methods. Similarly, the ABARES has produced a number of papers focused on estimating the ex ante economic effects of major water policies affecting irrigation in the MDB.62

5.4.2 Review of relevant literature – urban water

There is a substantial amount of research into the efficiency and productivity performance in the urban water and wastewater sub-sector, and this is related to industry structure. As reviewed by Abbott and Cohen (2009), the research questions focus on the presence of economies of scale and/or scope, public ownership and economic regulation, and their impact on the efficiency and productivity of the water sector. A number of methods have been used in measuring performance, including partial-productivity indices, the index number-based total factor productivity, econometric analysis, stochastic frontier analysis and data envelopment analysis. In this sub-section, a representative sample of empirical research on urban water is reviewed as a background to considering the type of evaluative research that may be possible with respect to urban water reforms.

Economists have been active in relation to the economic analysis of urban water institutions and regulations. In particular, research into the efficiency and productivity performance of the urban water supply sub-sector has been undertaken in a number of countries, including Australia. As industry structure and business activities differ across countries, the subjects under study may cover vertically integrated but horizontally separated entities, vertically separated entities (for example, wholesale or retail water supply), or entities undertaking multiple activities (for example,

62http://www.abares.gov.au/publications_remote_content/publication_topics/water_and_irrigation [accessed 8 August 2011].



water supply and wastewater). A range of methods has been used in measuring performance, including partial productivity indices, index-number-based total factor productivity, econometric analysis, stochastic frontier analysis and data envelopment analysis.

International urban water studies

Internationally, several efficiency and productivity studies originated from the debate during the 1970s on the optimal size of water utilities in the United States; and, in the United Kingdom there were studies examining the impact of economic reform and regulation introduced since 1980. With regard to private versus government ownership, the empirical results have been ambiguous. According to Abbott and Cohen (2009, p. 238), this suggests that ownership is not as important as other factors, such as economies of scale and the level of competition. A number of studies examining the privatisation of the water utilities in England and Wales (see for example, Saal and Parker (2000, 2001, 2004)), using multi-product translog cost functions, found negligible or limited efficiency improvement following privatisation. These studies, including Saal, Parker and Weyman-Jones (2007), using stochastic frontier analysis, generally found that the economic and/or environmental regulation imposed improved efficiency and productivity performance.

Marques (2008) computed total factor productivity (TFP) indices under different methods (index number and stochastic frontier analysis) for Portuguese water and wastewater services between 1994 and 2001, and found that regulated private operators were more efficient than their public counterparts. Lin and Berg (2008) used DEA to construct a quality-adjusted TFP index to evaluate the comparative performance of 44 Peruvian water utilities from 1996 to 2001. The study highlighted the importance of incorporating quality-of-service into performance benchmarking under yardstick regulation. Similarly, Picazo-Tadeo, Sáez-Fernández and González-Gómez (2008) use DEA to compute quantity-based and quality-adjusted scores of technical efficiency for a sample of Spanish water utilities. The authors show that quality matters when measuring technical efficiency.

International benchmarking is conducted in Estache and Rossi (1999), who compare the performance of public and private water companies operating in the Asia and Pacific region using stochastic cost frontier analysis. They found that, relative to their public counterparts, private water companies operated more efficiently and had incurred lower costs.

Other instances of economic analysis of urban water and wastewater arrangements include the implications of the adoption of per-unit pricing for urban water (as against increasing block tariff (IBT)); and the effects of quantitative and temporal water restrictions on urban users. This research tends to be carried out on an ex ante basis, as opposed to an ex post one that would be required to evaluate past reforms.

Australian urban water studies

Several empirical studies using DEA have examined the efficiency and productivity performance of the Australian water and wastewater sub-sector. Woodbury and Dollery (2004) analysed the efficiency of regional water and wastewater service providers operating in New South Wales (NSW) over the three years from 1997-98 to 1999-2000. A water quality index (encompassing compliance with chemical and physical requirements and compliance with microbiological requirements) and a water service index (encompassing water quality complaints, service complaints and average customer outage) were constructed to derive quality-adjusted efficiency measures. The sampled water utilities were found to have considerable scope for efficiency improvement. Coelli and Walding (2006) measured efficiency and productivity performance for the 18 largest water businesses over the years 1995-96 to 2002-03. The authors considered that the performance measures derived from two outputs and two inputs were useful for informing the price-cap regulation. Two recent studies by Byrnes, Crase, Dollery and Villano (2009, 2010) have examined relative technical efficiency, for wastewater and water utilities respectively, in regional NSW and Victoria. They found that, in general, larger utilities in Victoria were relatively more efficient, implying that size and governance arrangements matter. Abbott, Wang and Cohen (2011) analysed a number of aspects of the economic performance of Melbourne



metropolitan water since 1970, including price, profitability, debt, and TFP (measured as Malmquist index under Data Envelopment Analysis). They found that water reform resulted in productivity gains and rising returns to shareholders.

The PC released a staff working paper in March 2010 (PC, 2010a) developing a partial-equilibrium model of an urban-water system. Later in 2010 the PC was requested to examine the case for microeconomic reform in Australia’s urban water sub-sector. In undertaking the inquiry, the PC was to identify opportunities for efficiency gains in the structural, institutional, regulatory and other arrangements that govern the urban water sub-sector. The final report (PC, 2011a) recommends that first priority should be given to policy, governance and institutional reforms as these would provide the greatest efficiency benefits, and are a prerequisite to pursuing the structural reforms as the second priority.

The NWC has, since 2005-06 produced a National Performance Report for Urban Water Utilities, containing comprehensive physical and economic data, and a commentary on those data (NWC, 2010b). For example, the urban water report for 2008-09 draws attention to ‘unprecedented investment in infrastructure’, the increasing role of recycling’ and the ‘steady rise in the cost of water to consumers’. However, it does not apply any of the methods in the Review of Methods in an attempt to reach an overall conclusion about the net benefit of past reforms.


Based on the review of evaluation literature conducted to date and the availability of data in the water and wastewater sector, this section assesses the prospects for future ex post evaluations, firstly with respect to irrigation water; and then for urban water.

5.5.1 Specific research possibilities – irrigation

In spite of the considerable amount of activity by Australian economists in relation to the study of irrigation water infrastructure, mainly in terms of the contribution to agricultural productivity and environmental impacts, the literature on the ex post evaluation of changes over the past twenty years is insubstantial. This is because the reforms still have not properly taken place, after beginning in the mid-1990s and then stalling for more than a decade. The resumption signalled by the Water Act has been faltering, as most recently evidenced by the publication of a ‘guide to a plan’ for the MDB that has not been well received and is subject to revision. Hence, after twenty years of consideration, there is no clear ‘before-and-after’ for researchers to analyse in search of the impact of reform.

A possible exception is in relation to the movement towards trading of water rights where there has been a decisive change, dating from the early 1980s (see Watson and Cummins, 2010, pp. 4-5). This could create a basis for an efficiency analysis of this particular aspect of reform. At this stage, however, the work that has been done on evaluating water trading has not progressed beyond the setting out of the evaluation framework, and some speculation about the quantitative impacts. Data on rural water utilities are available from a range of sources from 1997 to the present, and future years of information should be available from the NWC’s annual National Performance reports. This data combined with the ACCC’s annual monitoring data available from 2009-10 could, in the future, provide a sufficiently long series of information that may (provided there is adequate consistency across data sources) be useful for assessing ex post impacts of the recent rural water reforms, for example the introduction of water trading, or of any future reforms. The ABARES farm-level survey could also provide a future means of assessing the impacts of future reforms on agricultural productivity in the MDB.

5.5.2 Specific research possibilities – urban water

The relative paucity of relevant scholarly work on Australian urban water and wastewater may be attributable to the lack of comprehensive and consistent cross-sectional and time-series data for performance measurement. Existing studies have either compared several water utilities operating in a geographical region during the post-reform period (for example, Coelli and Walding, 2006) or examined the performance of a monopoly operator over time (for example, Abbott, Wang and Cohen, 2011). The reforms took place long-enough ago (in the 1990s) for



there to be enough time for the effects to have worked their way through. However, consistent data may only reach back to 2000-01, and then only for some items. While a closer examination of the availability of data from the early 1990s might reveal some possibilities for limited evaluation in some jurisdictions, an assessment of this could only be made after actually beginning the work.

Current work of interest in relation to urban water is the PC’s Australian Urban Water Sector inquiry. However, this takes a prospective (ex ante) approach in identifying potential efficiency gains from different reform options, and in specifying suitable quantitative and qualitative indicators. In the future, the NWC’s annual National Performance reports (available from 2006-07) on the performance of urban utilities and the ACCC’s water monitoring program could provide a source of data for evaluating any future urban water reforms.

5.6 Conclusions

Economic research on water and wastewater in Australia has produced a rich literature both with respect to rural (irrigation) water and urban water and wastewater. Much of this research has been undertaken in government agencies (particularly the Productivity Commission) and by university economists, many of whom publish internationally. However, this volume of research does not include a systematic evaluation of past reforms in either of the water sub-sectors.

With respect to irrigation, the lack of clarity about jurisdictional responsibility and the intermittent nature of COAG consideration have meant that the reforms relating to rural (irrigation) water have been spread out over a long period of time, and therefore there is not a clear distinction between ‘before’ and ‘after’ the reforms. This makes it difficult to apply any of the evaluation techniques reviewed in the Review of Methods. However, this is an area where sophisticated ex ante economic analysis has occurred, providing strong guidance for future policy.

There are data available on rural water utilities from a range of sources from 1997 to the present; and future data from the ACCC’s water monitoring could provide a sufficiently long series of information that may (provided there is adequate consistency across data sources) be useful for assessing ex post impacts of the recent reforms, or of any future reforms, in terms of environmental outcomes or productivity.

The economic literature on urban water to date has mainly focused on ex ante analysis of ways of improving efficiency in the sub-sector, most particularly work surrounding the PC’s recent Australia’s Urban Water Sector inquiry. However, the data limit the prospective for ex post evaluation of the effects of the corporatisation of urban water and wastewater providers. Some performance benchmarking data may be derived from multiple sources such as industry bodies or state regulators; however, caution is advised given potential inconsistencies across data sources and time periods.

Relatively comprehensive and consistent sets of time-series data may be made available in the future from the NWC’s National Performance reports on urban water utilities and from the ACCC’s water monitoring program on rural water utilities, respectively. These potential data sources may provide sufficient consistency for evaluating future reforms.



6. Rail


While each chapter follows a standard structure, what has become clear with regard to the approach taken to the application of economic regulation is that each infrastructure area is different from the others. A defining characteristic of rail regulation has been the combination of activity at both the state and federal level and the existence of considerable diversity across regulatory regimes, with related problems in terms of consistency.

By the 1990s the need for rail reform was clearly apparent. Conflicting social and financial objectives meant that rail services were not provided on a commercial basis and there was a need to improve the poor financial and non-financial performance of Australia’s national railway system. Structural reforms to open rail to competition were seen to be required.

The ownership and management arrangements for Australia’s rail infrastructure and rail operations are generally divided into ‘below’ rail (track management) and ‘above’ rail (operators of trains and rolling stock). Privatisation and vertical separation have occurred at both state and federal levels. However, there have been instances of privatisation being reversed, with government buy-backs (for example, Tasmania). Access to infrastructure is generally required and state-based access regimes are in operation. Competition in passenger and freight services remains limited, although rail transport is potentially subject to inter-modal competition from road, air and shipping in some cases.

National regulation now occurs for nationally significant railways managed by the Australian Rail and Track Corporation (ARTC). The ACCC has a regulatory role with regard to these rail tracks in assessing access undertakings put forward by the ARTC under Part IIIA of the Competition and Consumer Act 2010 (Cth), and in carrying out functions under those undertakings once accepted.

The goals of reforms have included: lowering the cost of transport to industry through increased rail efficiency, better meeting the needs of customers, and harmonising the technical interoperability of rail infrastructure and regulatory regimes. An emerging theme has been the recognition that rail is part of a supply chain, with a corresponding need to consider outcomes in rail reform in light of what is happening in other parts of the supply chain, particularly at the rail/port interface.

The reform of rail has been slow and for all the activities that have taken place, fundamental questions – such as the merits of separation versus vertical integration – are still being debated. There is broad acknowledgement of the need for nationally consistent access regimes to promote greater certainty for investors and consistency across regulators. Also, supply-chain issues relating to the relative competitive interaction between rail and road transport services present regulatory challenges (Productivity Commission, 2006e, pp. xxvi-lxii).


6.2.1 The establishment of Australian National Railways Commission

The Australian National Railways Commission (AN) was established in 1978 by the amalgamation of the Commonwealth Railways, South Australian Railways and Tasmanian Government Railways. AN took over the operation of all Commonwealth and non-urban South Australian lines and the railways of Tasmania. AN was placed on a more commercial footing in 1983. In the second reading speech, the Minister for Transport referred to AN’s financial performance and stated:

The Bill now before us will provide the framework under which AN can function as a commercially oriented transport authority…An important feature of this Bill is that the powers of the Commission have been comprehensively defined. Ministerial intervention in day to day activities is minimised while ministerial oversight is retained in critical areas. This ensures that the Commission is



provided with that necessary flexibility to operate commercially but remains properly accountable to the Parliament.63

The Government commenced community service obligation payments to AN in 1986. In 1989, as part of the Australian Government’s government business enterprise (GBE) reform program, AN was given further commercial autonomy. In response to rail budget deficits and concerns about the efficiency of intercity rail freight operations, Australian governments agreed under the National Rail Agreement 1991 to establish National Rail Corporation (NRC) to provide an interstate rail freight carriage service, which commenced operation in April 1993.

AN’s interstate freight operation was transferred to NRC, although AN retained the Commonwealth’s below-rail infrastructure (the lines between Melbourne and Adelaide, Adelaide and Kalgoorlie, Adelaide and Broken Hill and Adelaide and Alice Springs). In 1995 the interstate standard gauge rail network was completed, and an interim access pricing regime for AN’s interstate rail network was established to allow private firms to compete with NRC.

6.2.2 1996 rail reforms

The Australian Government announced a rail-reform package in November 1996 that included the privatisation of AN and NRC, and the establishment of the ARTC to manage access to the interstate rail network. The objectives were to respond to rail’s decreasing share of the freight market by increasing private-sector involvement to lower the cost of transport to industry, better meet the needs of customers and provide long-term employment in the rail industry.

In 1997-98 the Australian Government sold AN’s interstate freight and interstate passenger services to three operators:

• Great Southern Railways (GSR) took charge of the passenger services, The Indian Pacific, The Ghan and the Overland on 7 November 1998.

• Australian Southern Railroad (ASR) now Genesee and Wyoming Australia Pty Ltd took control of the SA rail freight businesses on 31 October 1997.

• Transrail took ownership of Tasrail on 14 November 1997.

In January 2002, the New South Wales government-owned freight operator, Freightcorp, and the NRC, jointly announced that the two companies had been sold and now operates as the private entity, Pacific National.

6.2.3 Formation of the Australian Rail and Track Corporation (ARTC)

In 1997, the Australian Transport Council, and State and Commonwealth Transport Ministers signed an intergovernmental agreement to establish the ARTC and reaffirmed commitment to establishing an efficient and competitive rail industry in Australia. The ARTC commenced operations on 1 July 1998. It owns or leases the interstate track from Kalgoorlie in the west to Acacia Ridge in Queensland. The ARTC is a public company whose shares are wholly owned by the Australian Government. The ARTC was intended to provide efficient and seamless access to the interstate rail network through operating on a commercial basis, pursuing a growth strategy for interstate rail, improving interstate infrastructure through better asset management, and a program of investment, and promoting operational efficiency and uniformity on the interstate network. The agreement included a framework to enable interstate freight operators to negotiate access to the entire interstate network through a single organisation (ARTC) rather than undertaking multiple negotiations with the various authorities in each jurisdiction.

6.2.4 Current national regulation

Under the Competition and Infrastructure Reform Agreement 2006, governments agreed to implement a simpler and consistent national system of rail access regulation, using the ARTC

63 Second reading speech on the Australian National Railways Commission Bill 1983: Australia, Debates, House of Representatives, 16 November 1983, p. 2755 (Mr Peter Morris, Minister for Transport).



access undertaking as a model to apply to nationally significant railways, including major intra-state freight corridors on a case-by-case basis. State-based access regimes may govern other rail infrastructure facilities, subject to certification by the National Competition Council (NCC). The ARTC is regulated by the ACCC under Part IIIA of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)).

The ACCC’s regulatory role in relation to rail has involved assessing Part IIIA access undertakings submitted by the ARTC and in carrying out functions conferred by those undertakings. The ACCC has approved access undertakings for the ARTC’s interstate rail network, the first in 2002 for a period of five years, and then a replacement in 2008 for a period of ten years. An access undertaking for the Hunter Valley network was approved in June 2011 for a five-year term.

6.2.5 Current state regulation of rail infrastructure

New South Wales

In New South Wales, the interstate and Hunter Valley lines are leased to the ARTC, and the urban rail system is operated by RailCorp. The Independent Pricing and Regulatory Tribunal (IPART) is the compliance regulator for the New South Wales Rail Access Undertaking. Under this framework, the IPART determines compliance with asset valuation principles and accounting requirements, and decides the final regulatory asset base.

Queensland

Prior to 2010, Queensland rail infrastructure was owned by the Queensland Government, under Queensland Rail (QR). In 2010, the Queensland Government separated QR’s commercial activities from its passenger services. QR was separated into Queensland Rail and QR National Limited. Queensland Rail remains government-owned and is responsible for passenger operations, regional track and support services. QR National Limited owns the balance of commercial activities including above-rail coal and freight services, the export coal network in Queensland and rolling stock manufacturing and track maintenance services. QR National Limited was listed on the Australian Stock Exchange on 22 November 2010. The State of Queensland retained a 34 per cent shareholding in QR National Limited, which it intends to sell down as appropriate following the release of the 2011-12 results.64

The rail infrastructure for the interstate network between the NSW border and Acacia Ridge Intermodal Freight Terminal is leased to the ARTC. The Queensland Competition Authority assesses and approves access undertakings, and arbitrates access disputes involving QR.

South Australia

In South Australia the ARTC owns the interstate standard-gauge line, however, the links to Darwin are operated by Freightlink. Other lines (mainly grain) are privately owned and are operated by Genesee and Wyoming Australia Pty Ltd. The urban rail system in Adelaide is operated by Trans Adelaide. The Essential Services Commission of South Australia (ESCOSA) serves as the administrator for South Australia’s Rail Access Regime, and regulates the Tarcoola-Darwin railway under the Australasia Railway (Third Party Access) Code. Access providers are required to produce compliance reports and provide regulatory information to the ESCOSA.

Tasmania

In Tasmania, the rail operations and infrastructure were sold to Australian Transport Network, which was taken over by Pacific National in 2004. Controversies in 2005 led to the subsequent government buy-back of rail infrastructure. Rail is currently operated by a state-owned rail company, Tasmanian Railway Pty Ltd (TasRail) established in December 2009.

Victoria

64 See: http://www.qld.gov.au/assetssale/businesses/qr-national/index.shtml [accessed 9 August 2011].



In Victoria, the interstate standard-gauge line is leased by the ARTC. The broad gauge and some standard-gauge branch lines are owned by the Victorian Government, under Victrack. The urban rail infrastructure is operated by Metro Trains Melbourne Corporation. The Essential Services Commission (ESC) is responsible for approving access undertakings submitted by access providers and resolving access disputes, in accordance with the Victorian Rail Access Regime established under the Rail Corporations Act (1996).

Western Australia

In Western Australia, the interstate standard gauge line from Kalgoorlie to Adelaide is owned by the ARTC. Rail lines in the south-west region of the state are leased to WestNet Rail, which is a privately owned corporation. Pilbara lines are managed by mining companies.

Northern Territory

In the Northern Territory, there is currently no jurisdictional regulator in charge of monitoring financial and operational performance of rail operators. The rail-safety regulator is the Northern Territory Transport Group.


The reforms to rail regulation have been both significant and varied since the 1990s. Privatisations have occurred including the privatisations of the AN and NRC after the 1996 rail reform package and, most recently, Queensland Rail commercial services. Whilst Tasmanian rail operations and infrastructure were initially sold to Australian Transport Network, controversies resulted in a subsequent government buy-back in 2005. The government-owned, public company, the ARTC, commenced operation in 1998, to provide better access to the interstate rail network and is responsible for regulating nationally significant, designated railways. While regulation is at state level, in 2006, as a part of the Competition and Infrastructure Reform Agreement, Commonwealth and state governments agreed to implement a simpler and consistent national system of rail regulation (for nationally significant railways only and modelled on the ARTC access undertaking). The Northern Territory does not have a rail infrastructure regulator.

The greater integration between modes of transport (for example, road) and ‘terminals’ such as ports and airports has required a ‘general-equilibrium’ analytical approach to regulation, taking into account the substitutability and complementarity relationships between different supply-chain components and services provided. According to the Productivity Commission (PC, 2006e), competitive distortions between road and rail in Australia have been limited because of their limited substitutability and much complementarity. It recommended that the COAG should oversee regulatory reform to both rail and road for enhancing efficiency and productivity within each mode of transport.

The ability to use analytical techniques (as described in the Review of Methods) to undertake an ex post assessment of the impact of the rail reforms will depend, inter alia, on the availability of adequate data. Data will need to be extensive in terms of the information available on financial and non-financial performance indicators, available both before and after the reform periods, and relatively consistent across time and service providers.


Data availability for rail has been reviewed as part of the Developing Indicators project. The majority of the data available comprise a combination of publicly available data from relevant government agencies and rail company annual reports. Regulatory data are limited due to the absence of a performance monitoring regime in rail. A detailed summary of data availability by type of information and data source is presented in Appendix F – Rail.


The ACCC has commercial-in-confidence data on revenues and costs relating to inter-state rail access undertakings that have been submitted by the ARTC to the ACCC. However, information provided in undertakings is mainly concerned with forecast economic conditions and performance. Moreover, most of the data relate to prices, costs and revenue received by the



ARTC for specific operations of its business, since the respective undertaking only covers a particular region of the ARTC network.

For example, historical data submitted in relation to the Hunter Valley Coal Access Undertaking lodged by the ARTC in 2009 include:

• weighted average cost of capital (WACC) parameter values;

• regulatory asset base values for each segment of rail in the regions specified by the Undertaking in the preceding ten years; and

• one-year cost estimates, including the fixed component of cost, the new capital component of cost and the variable component of cost, for each rail segment.

Rail data available internally are limited to those collected during the assessment of access undertakings and the ACCC typically relies on the service providers to voluntarily provide the required information in support of a proposed undertaking.

Data provided to the ACCC on a confidential basis is treated in accordance with the ACCC/AER Information Policy (ACCC/AER, 2008).


Rail data that are available in the public domain comprise those published by the state regulators in relation to the intrastate rail network, reports released by government agencies, and data emanating from annual reports of rail service providers.

Currently a state-based performance monitoring and reporting framework by the jurisdictional regulators does not exist. While decision reports on access undertakings and access arbitrations may contain useful information on the intrastate rail networks, the reported information may be limited, irregular, and different across states.

Relative to other regulators, the Economic Regulation Authority (ERA) published a considerable amount of network information and key performance indicators for the two major rail service providers operating in Western Australia, WestNet Rail (WNR) and Public Transport Authority (PTA), from 2003-04 to 2005-06. Examples of operational statistics reported include maximum train length, tonnes by routes, and train services cancelled. There are no detailed financial and operational statistics publicly available for Tasmania; however, information about rail safety (such as rail accidents, and collisions) can be sourced from the Department of Infrastructure and Energy Resource (DIER). Data submitted to inform access undertaking decisions in Victoria, New South Wales, Queensland and South Australia are not publicly available but may be available upon request.

There are also data on rail performance published by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) (in conjunction with the Australian Railways Association). The data include (BITRE, 2010):

• Indicators on train and track performance, including scheduled intermodal transit time, actual intermodal transit time, train service frequency, train length, double-stacking capability, track quality and train flow patterns;

• Market indicators, such as access revenue yield indicator, rail task (by line segment) and intermodal state-to-state market share.

However, the BITRE does not appear to offer or assess any indicators of economic performance such as the relative cost incurred of providing such services across regions and rail infrastructure providers.

As with Australia Post, government-owned rail service providers are also covered in the Productivity Commission’s (PC’s) annual review into the Government Trading Enterprise (GTE) financial performance. The key indicators available for individual GTEs are in respect of profitability (for example, earnings before interest and taxes (EBIT)), financial management (for example, debt to equity ratio) and transactions with government (for example, dividends), along



with source financial-statement data and indicators. Consistency issues arise from changes in the accounting system, data definition and firm coverage. Six rail companies are included in the 2008 report (PC, 2008b). They are QR, the ARTC, the Rail Infrastructure Corporation (NSW rural rail infrastructure provider), RailCorp (NSW metropolitan rail operator), V/Line (rail service provider in regional Victoria), and VicTrack (owning rail tracks in Victoria). A limited number of measures on output and non-financial performance indicators (for example, employment and productivity) have been reported at the GTE level and the industry level for the period up to 1996-97.

A major source of data at the infrastructure provider level is the audited annual reports published by the rail companies. The evolution of the rail industry demonstrates varied changes in network ownership (for example, Tasmania) and rail operation (for example, Victoria), which may render some annual-report data inconsistent and discontinuous. However, the ARTC annual reports and the QR annual reports may provide useful information that covers a substantial period under the rail reform. The annual reports typically contain an array of standard financial-statement information and some financial performance indicators (for example, per-unit earnings for passenger services or freight services). Other available information, including quantity data (for example, traffic by type of services), physical data (for example, track length), and quality-of-service data (for example, key performance indicators developed by the ARTC) may have consistency issues due to changes in the reporting.


The review shows some useful data from government agencies and annual reports of rail service providers and limited regulatory data available to the ACCC or reported by the jurisdictional regulators. The ARTC undertaking data, to which the ACCC has access, are not sufficient for making any evaluation, such as benchmarking the ARTC against other below-rail operators. Data from other sources, such as annual reports published by the ARTC and the QR, and PC reports on GTE performance, appear to offer some longer time-series data that may be useful for an evaluation of the effect of the rail reform on some rail service providers. However, comparability of annual-report-type data on different below rail operators may vary substantially due to changes and diversities in company ownership.


As in other important infrastructure areas, there has been a substantial amount of economic research on performance evaluation in rail, particularly in jurisdictions such as Europe and North America. There has been some limited research in Australia. A variety of techniques have been used in this research, and a sample of the key empirical research is reviewed in this section.

International railway studies

Cantos and Maudos (2001) review the estimated cost and revenue frontier functions of 16 European railways from 1970-1990, a period characterised by regulation of prices at low levels. They find that the simultaneous improvements in productivity but worsening of profits are explained by the loss in revenue being greater than the decrease in costs.

Cantos, Pastor and Serrano (2010) review the evolution of vertical and horizontal separation in European railways from 1985 to 2005 and evaluate the impact on the productivity of 16 national railway systems. The rail restructuring is heterogeneous among the countries reviewed, which are classified into four groups – countries without reform (for example, Spain), countries with vertical reform only (for example, France), countries with horizontal reform only (for example, Germany) and countries with both vertical and horizontal reform (for example, Sweden). Non-parametric linear programming techniques are used to measure the efficiency and productivity performance of sampled national railway systems, producing two outputs (that is, passenger transport and freight transport) with four inputs (that is, labour, passenger train, freight train and railway network). The productivity changes over time are also decomposed into efficiency change and technical change. A second-stage regression technique is used to examine the key determinants of efficiency and productivity performance is also conducted. The results show that countries with the greatest efficiency improvements are those that have undertaken both



vertical and horizontal separation, the main source of productivity growth is technical progress, and both the vertical separation and the free entry in freight services encourage greater productivity.

Santos, Furtado and Marques (2010) conducted a review of rail regulation in Portugal. They found productivity losses at the level of the infrastructure manager and a lack of progress in cost recovery by the infrastructure manager despite access charges being defined under a price-cap regulation regime since 2005.

Pollitt and Smith (2005) used a social cost-benefit analysis framework to assess whether rail privatisation in Britain produced savings in operating costs in the 1999-2000 financial year. They found greater efficiencies, lower consumer prices and the same or better standard of output quality than under public ownership.

In 2010, the UK Office of Rail Regulation (ORR) applied international efficiency benchmarking to Network Rail (NR) as part of its price control review. In a top-down study, econometric techniques were used to estimate the relation between cost drivers and maintenance and renewals costs. Using the estimated parameters, an efficiency frontier was determined. The peer group data was sourced from the International Union of Railways ‘Lasting Infrastructure Cost Benchmarking (LICB)’ database, including 14 European rail infrastructure managers between 1996 and 2008. The authors found that in 2006 NR had an efficiency gap of 40-43 per cent compared with the frontier and a gap of 37 per cent compared with the upper quartile of the peer group (ORR, 2010a). The findings of this top-down study were corroborated by a bottom-up study which examined specific practices of European rail companies (for example, practices relating to asset inspection and asset management). The ORR found that differences between European practices and those of NR account for some of the cost inefficiency of NR that was found in the top-down study (ORR, 2010b). Smith, Wheat and Smith (2010) review the data, methodology and results of the ORR’s econometric studies. They find that top-down econometric techniques, combined with bottom-up engineering analysis produced a robust comparison between NR and its peers and the success of the analysis could be partly attributed to the high-quality dataset.

Wilson (1997) used an unbalanced panel of railroads in the US from 1978-1989 to estimate a translog cost function. Whilst cost savings from partial deregulation were initially found to be modest, by 1989, costs savings significantly increased, up to 40 per cent lower than under regulation. Initial effects of deregulation on productivity gains were found to be large, but they have fallen over time and are currently comparable to pre-deregulation levels.

Lim and Lovell (2009) examined how productivity changes and price charges have contributed to short-run profit change in the railroad industry. The authors used an unbalanced panel of data from US Class I railroads for the period 1996-2003.

A short-run profit change decomposition model is used to attribute inter-temporal profit change to its causal factors. They found that productivity improvements and an increased scale of production contributed to increases in profit, and that variation in operating efficiency had a mixed impact on profit.

Boardman, Laurin, Moore and Vining (2009) used cost-benefit analysis to estimate welfare gains from the privatisation of Canadian National Railway (CN) and to estimate how these gains have been distributed among consumers, producers, and government, and between Canadians and non-Canadians. They found CN’s privatisation generated welfare gains of at least CAD$4 million (in 1992 dollars) and possibly as high as CAD$15 billion, the Canadian government and CN shareholders capturing the majority of the gains. Costs of the Canadian Pacific Railway were used to create a comparison.

Bitzan and Keeler (2003) studied the effects of post-deregulation innovation on rail freight productivity between 1983 and 1997, using a translog cost function estimated over a sample of Class I railroads. They focussed on trying to isolate the effects of specific innovations on productivity, rather than measuring productivity growth as a residual or time trend. The elimination of cabooses and related crew members from freight trains was found to reduce costs



by five to eight per cent on the typical Class I railroad in 1997 and overall productivity growth has continued at least at the same pace as in the mid-1980s.

Australian railway studies

Wills-Johnson (2008) estimated translog cost functions for above and below rail services to examine whether there are efficiency losses from vertical separation of these services and the likelihood of competition in above-rail services. The author uses an unbalanced panel of data from Australian National Railways, New South Wales State Rail Authority, Queensland Rail, Victorian railways and Westrail. The dataset is from a range of different sources (including the Australian Bureau of Statistics, the Bureau of Transport and Regional Economics and a study of railway productivity by Hensher, Daniels and De Mellow, 1995). While information on all the railways considered commences in 1970-1971, the data available for each railway end in different periods from 1992-1993 onwards. The paper finds limited evidence for sustainable above-rail competition, and limited evidence that vertical separation should have caused efficiency losses.

The Industry Commission (IC, 1991b) found evidence of inefficient operations and prices, leading to large financial losses. In turn, these generated substantial efficiency losses throughout the economy. The IC used computable general equilibrium (CGE) modelling (the ORANI-RAIL model) to estimate the potential economy-wide benefits of recommended reforms. As in other applications, this model was not suitable for estimating the effects of all of the IC’s recommendations, but was suitable for simulating the effects of achieving feasible cost reductions (assuming international best-practice is achievable) and full cost recovery through pricing.

The Productivity Commission (PC, 1999b) performed some productivity studies using both data envelopment analysis (DEA) and statistical analysis. It compared government-owned railways in Australia with each other, and with selected railways providing freight services in the United States and Canada. It also compared national rail systems in Australia with rail systems providing combined passenger and freight services in the United States, Canada, Japan, New Zealand, South Africa and 16 European countries (p. 65). The Australian rail data were sourced from a range of sources including the Bureau of Transport Economics and the Australian Bureau of Statistics.

Currently, no Australian federal or state regulator attempts to measure the relative economic performance of any rail infrastructure provider. While there are benchmarks for performance, these relate to network reliability and above-rail throughput. For example, for the ARTC’s 2008 Interstate Access Undertaking, performance benchmarks were in place, but these benchmarks only relate to the ARTC commitment to provide performance indicators – subject to the annual audit – as to reliability, network availability, transit time, track condition and unit operating costs.65 That is, such performance indicators can be met and/or exceeded, but the cost incurred in doing so compared to other infrastructure providers is not explored. The ARTC did not propose any efficiency benchmarking assessments, nor did the ACCC require such assessments for any ARTC undertakings to date.


Productivity growth

One possible evaluation theme is the assessment of whether the productivity performance of rail infrastructure providers has improved since industry reform was introduced in the 1990s. Addressing this research question would require sufficient information to construct total factor productivity or partial productivity indicators and a sufficiently long time-series of data covering both before and after the reforms. Some form of analysis may be possible using data sourced from the ARTC or QR company annual reports, as these cover a relatively long time period. However due particularly to ownership changes, the issue of consistency and data quality arises for rail infrastructure providers in other states, militating against a before-and-after study.

65 ARTC’s Performance Indicators, http://www.artc.com.au/Content.aspx?p=193 [accessed on 9 August 2011]



Internal benchmarking

The existence of different rail infrastructure providers subject to different state-based regulatory regimes may present opportunities for the implementation of meaningful benchmarking studies, comparing rail infrastructure providers within Australia. External factors affecting performance that are common to Australian rail infrastructure providers would have to be controlled for in the analysis. It will also be necessary to control for any state-specific factors that may affect the relative performance of rail infrastructure providers in specific states. Some form of internal benchmarking analysis may be possible for all or some of the Australian rail infrastructure providers and could be employed with a relatively short time-series of information.

6.6 Conclusions

Amongst important infrastructure areas in Australia, the economic evaluation of rail is perhaps the least developed of the seven areas surveyed for this project. The rail industry has experienced some reforms which have occurred to varying degrees and at different times across states. While techniques applied in Europe and the United States could be applied, potential evaluations undertaken may require more data than are currently publicly available and not in commercial-in-confidence format. It may be possible to undertake some form of comparative analysis between different Australian rail infrastructure providers, where some data are available for particular states. However caution is advised in assessing the consistency of the available data both across multiple sources and time periods.

In the absence of a formal regime, important and useful data, such as detailed regulatory accounts or even engineering studies, cannot be collected unless such studies are necessary to inform the assessment of an undertaking. Currently, only one regulator, the IPART, requires the rail infrastructure provider to submit regulatory accounts. Looking forward, it is perhaps worth considering the evaluation techniques that are available and the corresponding data requirements. Otherwise the options for future ex post evaluations of regulatory reforms will be limited.



7. Airports


Of the infrastructure areas covered in the developing-indicators research, the regulation of airports has been the area most subject to debate about the type of regulatory regime that should be applied to constrain the market power of airports. The regulatory regime has moved away from a more interventionist approach to a less interventionist one (termed ‘light-handed’). However, the current review by the Productivity Commission (PC) of airport regulation, which is in part a response to concerns raised by the ACCC about some airports’ ability and incentive to exercise their market power (ACCC, 2010a and 2011a), attests to the fact that an agreed position has yet to be achieved. It should be noted that the focus here is on the reforms to former Commonwealth airports (those that were formerly owned by the Commonwealth and transferred to the Federal Airport Corporation in 1985) and does not discuss state-based regulation of other minor or regional airports.

Originally airport reform (from the mid-1990s) focused on corporatisation and privatisation of major airports and sought primarily to achieve efficiency improvements in airport operations and investment decisions. For regulatory purposes, airport services are generally classified as ‘aeronautical’ and ‘non-aeronautical’.66 Airport facilities are generally categorised as landside (for example, terminals and perimeter roads) and airside (for example, runway, aprons, hangars, freight terminals and facilities for aircraft maintenance and refuelling).67 As airports are structurally separated from airlines by legislation, access regulation has been relatively less frequently used in airports than in some other areas and is reliant on Part IIIA of the Competition and Consumer Act 2010 (formerly Trade Practices Act 1974). Since privatisation there has been one declaration (of domestic airside services at Sydney Airport) which expired at the end of 2010.

The effect of regulation on the performance of airports has been widely canvassed in a number of reviews. The PC’s draft report on the economic regulation of airports, released in August 2011 (PC, 2011b), considers that there is insufficient evidence to suggest that the scope of the monitoring regime should be expanded. However, depending on the ultimate outcome from the current PC review, there may be further changes to the existing regulatory regime.


Since the early 1980s both the structure and regulation of airports has evolved considerably as part of the National Competition Policy (NCP). Key aspects of reform have included:

• Corporatisation

• Privatisation

• Restrictions on vertical integration of airlines and airports

• Introduction of independent regulation

• Movement away from price regulation towards light-handed price monitoring.

7.2.1 First phase – corporatisation

The Government announced the transfer of Commonwealth airports (capital city and some regional airports) from the Department of Aviation to a statutory enterprise, the Federal Airports Corporation (FAC) in 1985, following the Bosch inquiry into aviation cost recovery (Independent Inquiry into Aviation Cost Recovery, 1984). The subsequent legislation was intended to establish

66 Section 2 of ACCC (2009a) contains a detailed definition of aeronautical services for the purpose of current regulation. 67 The Airports Regulations 1997 state that, airside area and landside area have the respective meanings given in s. 9 of the Aviation Transport Security Act 2004. Section 29 of that Act defines airports' airside and landside areas by referring to notices published in the Commonwealth of Australia Gazette. These notices have maps showing the boundaries of the airside and landside areas.



an organisation more able to respond flexibly and quickly to changing industry needs and to promote a more efficient aviation industry and improve levels of customer service.68

The FAC began operations on 1 January 1988. It was subject to Ministerial approval if it proposed changes to aeronautical charges and was required to consult with users, disclose its financial results and publish annual indicators which showed its performance across a range of activities and on an airport-by-airport basis. In 1991 FAC’s aeronautical services and the Civil Aviation Authority’s (CAA) air traffic services were declared under s. 21 of the Prices Surveillance Act 1983.69 Declaration was intended to improve the efficiency of these organisations and for this to be reflected in their prices. In 1995, the CAA was split into two entities. A new Commonwealth statutory body (Airservices Australia) was established with responsibility (statutory monopoly) for air traffic services. The Civil Aviation Safety Authority took on the technical regulatory role. Airservices Australia’s proposed price increases continue to be reviewed by the ACCC under Part VIIA of the Trade Practices Act 1974 (which subsumed the Prices Surveillance Act).70

7.2.2 Second phase – privatisation

After nearly a decade of corporatisation, the Airports Act 1996 reflected, among other things, the government’s policy of privatising FAC airports. According to the PC (2002a, p. XIX), the rationale for privatisation was ‘to improve the efficiency of airport investment and operations in the interests of users and the general community, and to facilitate innovative management’. Cross-ownership of certain airport pairs was restricted and airport ownership by an airline was limited to five per cent.

Privatisation of FAC airports commenced in 1996 through long-term leasing of each airport to private operators.71 This proceeded in three phases, the first phase was in 1997 including Brisbane, Melbourne and Perth airports, the second phase was in 1998 including Adelaide, Alice Springs, Canberra, Coolangatta, Darwin, Hobart, Launceston and Townsville airports and the third, and final, phase in 2002 with the privatisation of Sydney Airport.

There was recognition that privatised airports would have market power in the provision of aeronautical services. Thus ‘transitional’ price regulation was introduced to allow all parties to adjust to the new operating environment. This consisted of:

• a five-year consumer price index (CPI) – X price-cap on aeronautical services provided at Melbourne, Brisbane, Perth, Adelaide, Alice Springs, Canberra, Coolangatta, Darwin, Hobart, Launceston and Townsville airports (the price-cap was administered by the ACCC under the Prices Surveillance Act);

• cost pass-through provisions for ‘necessary new investment’ and government-mandated security services;

• accounting and reporting requirements on airport operators, and quality-of-service monitoring administered by the ACCC under the Airports Act 1996;

• an access regime which resulted in certain airport services being deemed to be declared services for the purposes of Part IIIA of the TPA; and

• limitations under the Airports Act 1996 on airline ownership and cross-ownership of certain airports, effecting a form of vertical separation.

68 Second reading speech: Australia, Debates, House of Representatives, 13 November 1985, p. 2692 (Peter Morris, Minister for Transport and Minister for Aviation). 69 Declaration No. 65 under the Prices Surveillance Act 1983 dated 5 April 1991. The Prices Surveillance Act 1983 was repealed in 2003. 70 The Prices Surveillance Act 1983 was repealed in 2003. 71 The term of the airport leases were up to 50 years with an option to renew for 49 years: Airports Act 1996, s. 14(5)(c).



The objectives of the Airports Act 1996 include to establish a system for the regulation of airports that has due regard to the interests of airport users and the general community, to promote the efficient and economic development and operation of airports, and to facilitate the comparison of airport performance in a transparent manner (Airports Act 1996, s. 3).

7.2.3 Evolution of regulatory regime during 2000s

The regulatory regime for airport services has been revised on a number of occasions over the last decade. The price-cap regime was revised in 2001 to allow price increases at the Phase 1 airports, replace price-caps with price monitoring for Adelaide, Canberra and Darwin airports, and to remove the remaining Phase II airports (Alice Springs, Coolangatta, Hobart, Launceston and Townsville) from the regulatory regime. Following a review by the PC (2002a), the Government introduced a more ‘light-handed’ regulatory regime by deciding that a price-cap regime would apply only to Sydney Airport in respect of regional air services. Sydney, Brisbane, Melbourne, Perth, Adelaide, Canberra and Darwin airports would be subject to price monitoring for a five-year period, effective 1 July 2002, with the threat of re-regulation if the airports misused their market power. The move to this regime reflected a view at the time about the impact of price-cap regulation and the effectiveness of non-regulatory constraints on airports’ market power. The PC (2002a) concluded that many of the major airports had substantial market power (particularly Sydney, Melbourne, Brisbane and Perth) and abuse of market power could manifest as increasing prices above efficient costs, deterioration in quality, inefficient investment or selective denial of access to airport facilities. Nevertheless, commercial constraints and incentives were considered likely to mitigate such abuses of market power. In particular:

• The incentive to promote greater throughput in order to profit from sale of non-aeronautical services such as retail and car parking.

• Incentives to discriminate and differentiate in pricing were expected to provide price structures that are intended to retain marginal customers. The PC considered that ‘efficient’ price discrimination would minimise efficiency losses arising from pricing above marginal cost to recover the fixed costs of providing aeronautical services or from the exercise of market power’ (PC, 2002a, p. 202).

• Countervailing power of airlines, particularly at smaller airports.

The PC (2002a) concluded that the existing price-cap regime risked regulatory failure because of difficulties assessing airports’ costs and investment decisions. Furthermore, price-caps were not necessary because of the identified incentives and constraints on market power. The PC considered that price monitoring would better meet the objectives of facilitating commercial negotiation, benchmarking between airports, promoting efficient airport operations and minimising compliance costs. It also considered any potential for exercise of market power in such negotiations would be constrained by a credible threat of government intervention should airports be deemed to be abusing that market power.

The Government agreed with the PC, noting the threat of re-regulation would encourage efficient price negotiations and provide greater scope for airports to operate and invest efficiently. The Government also considered price monitoring would enhance transparency and assist the competitive process without the need for stronger price controls (Anderson and Costello, 2002).

When introducing the new light-handed regulatory approach, the Government specified a number of overarching ‘Review Principles’. The principles referred to pricing to recover long-run efficient costs, including an appropriate return on assets, the scope for price discrimination and multi-part pricing, the use of efficient peak/off-peak prices to deal with capacity constraints, quality-of-service outcomes and the negotiation of commercial agreements between airports and airlines. The principles were intended to provide guidance on appropriate outcomes under the new regulatory arrangements. If such outcomes were not forthcoming, the threat of re-regulation might be triggered.



The Government asked the PC in 2006 to inquire into the new regulatory arrangements. The purpose of the inquiry was to examine the effectiveness of the arrangements and to advise on any changes to the regime (PC, 2006c, p. IV). In undertaking its assessment the PC was to have regard to the Government’s Review Principles. The PC (2006c) found the commercial constraints on airports’ market power, identified in PC (2002a), were not as effective as originally envisaged. In particular, airlines did not have the countervailing power originally attributed to them. However, the impact of higher charges on passenger traffic and therefore revenues was not significant. As a result, the PC recommended continuation of the existing monitoring regime until 2013, and continuation of the price-cap on regional services at Sydney Airport until 2010. In making its assessment, the PC referred to the Government’s Review Principles as well as whether negotiations were being undertaken in ‘good faith’ and whether reasonable risk-sharing between airports and customers was being provided for.

The Government announced its response to the PC’s 2006 inquiry in April 2007. Key aspects of the new regulatory regime were (Costello, 2007):

• Price monitoring of aeronautical services at Sydney, Brisbane, Melbourne, Perth and Adelaide airports would continue for a further six years, effective 1 July 2007.

• The price-cap regime applying to regional services at Sydney airport would continue until 2010.

• Revision of the Government’s Review Pricing Principles (renamed ‘Aeronautical Pricing Principles’) to provide better guidance on expected outcomes of price negotiations.

• Request to the ACCC to monitor car parking prices at the major airports.

• Introduction of a ‘show cause’ process whereby the Minister may require price-monitored airports to demonstrate why their conduct should not be subject to more detailed scrutiny, such as a formal price inquiry under the TPA.

• An independent review to be carried out in 2012, or earlier if there is clear evidence of unjustifiable price increases or other misuse of market power across the price monitored airports.

The Government reserved the right to reintroduce price controls if airports were found to be misusing their market power by acting in a manner inconsistent with the Government’s Aeronautical Pricing Principles as defined in Part 7 of the Airports Regulations 1997.

7.2.3 Current economic regulation of airports

Prices surveillance

Aeronautical services and facilities provided by Sydney airport to regional air services (those which operate wholly within NSW) are declared under Part VIIA of the Competition and Consumer Act 2010 for the period 1 July 2010 to 30 June 2013 (Declaration No. 92). This requires Sydney Airport to notify the ACCC if it intends to increase the price of these services.

The ACCC is also required to monitor, and report on at the end of each financial year, the prices, costs and profits relating to the supply of aeronautical services (Direction No. 29) and airport car parking services (Direction No. 31) at Sydney, Brisbane, Melbourne, Perth and Adelaide airports.

Record-keeping and information disclosure

Regulations made under Part 7 of the Airports Act 1996 require the operators of Sydney, Brisbane, Melbourne, Perth and Adelaide airports to prepare audited accounts and give those accounts to the ACCC. The ACCC may publish those accounts.

Quality-of-service monitoring

The ACCC is required under Part 8 of the Airports Act 1996 and the Airports Regulations 1997 to monitor and evaluate the quality of certain aspects of airport services and facilities at Sydney, Brisbane, Melbourne, Perth and Adelaide airports.



Access

Services provided by airport operators may be declared under the economy-wide access regime in Part IIIA of the Competition and Consumer Act 2010. The one declaration that had been in force, in respect of Sydney Airport, expired on 8 December 2010. This followed a lengthy process that started in 2002 when Virgin Blue Airlines Pty Ltd applied to the National Competition Council (NCC) for a recommendation (s. 44F(2) refers) that Airside Services at Sydney Airport be declared (NCC, 2003). It was not until March 2007 that the declaration was finalised after the Parliamentary Secretary, the Australian Competition Tribunal, Federal Court and the High Court had become involved. Of the requirements for the Minister to declare a service, the most contentious, and thus the focus of economic debate, were, first, consideration of whether access or increased access to the service would promote competition in a market, other than the market for the service and, second, whether the declaration of the service would be contrary to public interest (s. 44G2(a) and (f) refer). The Tribunal found a declaration would enhance the ‘environment for competition in the market’ by providing the opportunity for airlines to have access disputes with Sydney Airport Corporation Limited (SACL) resolved by the ACCC. It found, absent the declaration, SACL’s market power would not be constrained by countervailing power, the threat of re-regulation or the incentive to earn non-aeronautical revenue. Further, the Tribunal rejected the argument that the costs of regulation arising from the declaration would be of such weight that it would be contrary to public interest.72


Significant reform began in the 1980s with the corporatisation of airports, followed by privatisation in the 1990s. The movement from price regulation towards ‘light-handed’ price monitoring remains controversial and subject to continuing review and debate. The Government has reserved the right to reintroduce price controls as a threat against the misuse of market power by airports. It may be possible to analyse the ex post impacts of the airport reforms using the analytical techniques described in the Review of Methods. However this type of analysis would require the availability of adequate data covering the financial and non-financial performance of airports across the time periods before and after the reforms. It will also require data to be consistent both across time and across different airports.


Airport data availability and quality have been reviewed as part of the Developing Indicators project. There are various sources of data about a range of aspects of operation in capital city airports. As part of its regulatory role, the ACCC collects price, financial performance, and quality-of-service data for the five major airports. Data have been reported extensively and continually for these airports. Historical data exist for all airports previously owned by the FAC. Other potential sources include the Bureau of Infrastructure Transport and Regional Economics (BITRE) reports. A detailed summary of the availability of useful datasets by type of information and data source is presented in Appendix G – Airports.

The review notes that data for the privatised regional airports have not been continuous due to changes in the scope and existence of economic regulation. Other reporting of council-operated regional airports is limited. Therefore they will not be further discussed below.


The ACCC has collected regulatory accounts data since 1997-98, which are used to assess the costs, prices and profits of aeronautical services for the airports governed under the regulatory regime. The regulatory accounts consist of:

72 For more information refer to Sydney Airport Corporation Limited v Australian Competition Tribunal [2006] FCAFC 146 (October 2006) and Sydney Airport Corporation Limited v Australian Competition Tribunal &Ors [2007] HCATrans98 (2 March 2007).



• Regulatory Accounting Statements – an income statement, balance sheet and cash flow statement

• Supporting schedules to regulatory accounting statements, including:

o Expense allocations schedule, which reports the allocation of expenses into aeronautical and non-aeronautical services;

o Schedule of aeronautical assets and (since 2007-08) Schedule of Line-in-the-Sand Aeronautical Assets, which report aeronautical assets valued under the statutory approach and under the line-in-the-sand approach respectively;

o Schedule of non-aeronautical assets, which reports the assets classified as non-aeronautical assets;

• Operational Statement including information on passenger numbers, aircraft movements, tonnes landed, and workforce;

• Monitoring of Aeronautical Services Statements containing information on revenues, costs and charges in relation to aeronautical services;

The format and presentation of the regulatory accounts are fairly consistent across monitored airports, with the key statements having similar line items and breakdowns. While there are some differences in the way that airports allocate revenue, charges and costs, these differences generally reflect differences in the operations of the airports. Since monitoring commenced, the provision of data by monitored airports has been in the form of templates developed by the ACCC which set out a standard form of information disclosure and detail the data items for required statements, supporting schedules and other documents (see ACCC, 2009b).

There are three sources of quality-of-service data – the airport quality-of-service monitoring data provided to the ACCC by the airports, the airline survey results and the Australian Border Agency survey results (which consist of the Australian Customs and Border Protection Service, the Department of Immigration and Citizenship, and the Australian Quarantine and Inspection Service). The quality-of-service monitoring data are of two types, objective measures from the airport operators and subjective measures from passenger perception surveys arranged by the airport operators. The service-based objective measures have been used to derive quality-of-service indicators, such as the number of aircraft bays per arriving aircraft at peak hour, and percentage of hours with more than 80 per cent of check-in desks in use. The quality-of-service data are fairly consistent over time for a single airport, although comparisons across airports require care.

The results are presented in the ACCC’s annual monitoring reports published since 1997-98. Not all data collected are published. The published data tend to be quite aggregated, for example averages or totals, and some data are presented only in graphical form.

The changes to coverage and scope over time may affect the data consistency and continuity. Significant changes include the following:

• The change in the regulatory regime from price control to price monitoring following the PC review in 2002 (PC, 2002a). The post-2002 regulatory accounts and price-monitoring reports contain more information that may be useful for evaluative purposes than the pre-2002 reports.

• The development of regulatory information requirements that may improve the quantity and quality of available data.

• The definition of aeronautical services and facilities has changed over time. For example, from 1 July 2007 the definition includes aircraft refuelling services and facilities (including pipelines to and from the hydrant distribution equipment, known as Joint User Hydrant Installation).



• The change in accounting standards from the Australian generally accepted accounting principles (AGAAP) to the Australian international financial reporting standards (AIFRS) in 2005-06, which changed the classification of specific accounting items. The transition affected the valuation of aeronautical assets in the regulatory accounts of some airports which, in turn, affected the expenses related to those assets and earnings. The transition may not materially affect information on prices and revenues.

• The approach to asset valuation for monitoring purposes. In 2007-08, the ‘line-in-the-sand’ approach to aeronautical asset-base valuation was introduced. This approach excludes any asset revaluations recorded subsequent to 30 June 2005.

• Changes in reporting, including separate publications for price and financial performance monitoring and quality-of-service monitoring from 2003-04 to 2005-06; and to the airports covered (for example, reduction from seven airports including Darwin and Canberra to five airports, namely Adelaide, Brisbane, Melbourne, Perth and Sydney, in 2006-07).

In its monitoring role, the ACCC seeks to increase the transparency of the airports’ performance to discourage airport operators from increasing prices excessively and providing unsatisfactory standards. The information collected under Part VIIA of the Competition and Consumer Act 2010 and under Part 7 of the Airports Act 1996 is collected for this purpose and some of the aggregated data is made available in the ACCC’s annual monitoring reports and can be used by researchers. However, the disclosure of any information provided to the ACCC under Part VIIA of the Competition and Consumer Act 2010 and under Part 7 of the Airports Act 1996, which are not already made publicly available, in accordance with the Competition and Consumer Act 2010 through the ACCC’s monitoring reports, is specifically restricted under the secrecy provisions of s 95ZP of the Competition and Consumer Act 2010. These limitations apply in addition to any confidentiality restrictions.

7.3.2 Data available from other sources

Published data are also available from a number of external sources. Among them, the FAC annual reports from 1986 to 1998 can be particularly useful. In its role as the managing body for major airports, the FAC published summary information about the corporation as a whole and about individual member airports. For each member airport, summary financial-statement data (including items of revenue, expenditure, operating profit, total assets, return on assets, and capital expenditure), and operational statistics (including domestic and international passenger numbers, total aircraft movements, and tonnes landed) are generally available.

Annual reports of the airport managers also provide information about airport operational and financial performance, although there may be issues of consistency across airports and within a particular airport over time.73 The data at the company level may cover non-airport, or non-monitored airport operation, making it difficult to isolate data pertinent to the relevant monitored airport. The consistency over time of annual-report data may also be an issue, particularly if accounting standards have changed. Further, it may not be evident whether aeronautical and non-aeronautical services have been reported consistently. Therefore considerable caution should be exercised if relying on airport annual reports as a source of reliable information for evaluation purposes.

Other data sources include:

• The BITRE publishes a number of reports and statistical data on aviation and airport traffic, including monthly and yearly airport-traffic summaries for the ten major airports. These are consistent and continuous.

• As part of the Global Airport Performance Benchmarking project, the Air Transport Research Society (ATRS) has developed performance measures for 142 airports and 16

73 Annual reports are available for Southern Cross Airports Corporation, Australia Pacific Airports Corporation, Adelaide Airport Limited, Brisbane Airport Corporation, and Westralia Airports Corporation.



airport groups across North America, Europe, Asia, Australia and New Zealand since 2001. The Australian airports are Adelaide, Brisbane, Cairns, Melbourne, Perth and Sydney. The project aims to provide a ‘comprehensive, unbiased’ comparison of airport performance focusing on productivity and operating efficiency, unit-cost competitiveness and airport charges. Based on this benchmarking, Brisbane Airport won the 2008 Oceania Airport Efficiency Excellence Award.74 However, the underlying data are not published.


The review suggests that regulatory data available to the ACCC constitute a major source as the data on monitored major airports since 1997-98 appear to be continuous, comprehensive and reasonably consistent. They may be useful for cross-sectional and time-series analysis that can provide an indication of the performance of the major airports being monitored. Since there have been changes to the airport monitoring over time, care is required when comparing data collected at different times and some adjustments of the dataset may be necessary. In particular, the consistency of some financial performance data has been affected by the transition from accounting standards based on the AGAAP to the AIFRS in 2005-06. A supplementary data source is the FAC annual reports, which provide high-level financial performance and output data on individual airports and the industry for the years 1988-89 to 1997-98. The combined data are sufficiently long for an evaluation of the airport reform during the post-corporatisation and privatisation period.


There is an extensive body of empirical studies that are relevant to the evaluation of the effect of competition and regulatory reforms affecting airports. The sample of empirical studies covered in this review focuses predominantly on the efficiency of airports and the impact of corporatisation, privatisation and regulation on airports’ performance. The studies relate to a number of countries, including Australia.

International airport studies

The data envelopment analysis (DEA) method is used in a number of studies. Yoshida and Fujimoto (2004) used DEA as well as total factor productivity (TFP) to determine whether justified, the criticism that the amount of government investment in regional Japanese airports is excessive. They found efficiency of regional Japanese airports to be lower than others and those airports constructed in the 1990s to be relatively inefficient. Parker (1999) used DEA to evaluate the effect of privatisation of the former British Airports Authority (BAA) on technical efficiency of these airports during the period 1979-80 to 1995-96, finding that privatisation did not affect efficiency in these cases. Pels, Nijkamp and Rietveld (2003) used DEA as well as stochastic frontier analysis (SFA) to undertake cross-country benchmarking, using pooled cross-section time-series data for 34 European airports between 1995 and 1997. They found that European airports are on average inefficient, in part related to airline inefficiency. Adler and Berechman (2001) used DEA and principal components analysis to analyse airport quality and performance for West European and other airports. The authors used both subjective and objective data, with service quality defined from the airlines’ viewpoint derived from surveying airports’ perceptions of their own service quality.

Sarkis (2000) also used DEA to evaluate the operational efficiencies of 44 major US airports. In this study, efficiency measures were based on four inputs including airport operational costs, number of airport employees, gates and runways, and five output measures including operational revenue, passenger flow, commercial and general aviation movement, and total cargo transportation. Using the same dataset and input and output measures, Sarkis and Talluri (2004) used DEA and cluster analysis to identify benchmarks for improving poorly performing airports. Gillen and Lall (1997) also adopted DEA to assess the terminal and airside efficiency

74 See ARTS, Airport Benchmarking, Available at: http://www.atrsworld.org/airportawards.html [accessed on 18 April 2011].



performance of 21 US airports over five years. Regression techniques were used to explain the variations in efficiency performance over time and across airports by a set of environmental, structural and managerial variables.

DEA was also used to examine the technical efficiency of Spanish airports (Martin and Roman, 2001) and Latin American airports (Perelman and Serebrisky, 2010). In Perelman and Serebrisky (2010), TFP indices were constructed to measure productivity change from 1995 to 2007 for 22 Latin American airports. Second-stage regression analysis was used to study drivers of observed performance differences. The authors found no evidence that private operators have higher rates of TFP growth.

SFA was employed in a number of the studies. Barros and Marques (2008) used SFA to estimate the cost-frontier model for an analysis of the effect of managerial ability, regulation and ownership on airport efficiency, using panel data of 117 European airports from 2003-04 to 2008-09. They found that regulation affects efficiency, in particular, that those airports subject to incentive regulation operated more efficiently than those that were not. Ownership was also found to affect efficiency; in particular, privately operated airports were more efficient than government-owned ones. Barros (2008) used a stochastic random frontier model to evaluate the effect of regulation and ownership on the technical efficiency in 27 UK airports, using panel data from 2000-01 to 2005-06. The author found the majority of UK airports did not increase their technical efficiency during this period. Private airports were more efficient than public or municipally managed airports. In contrast to the Barros and Marques (2008) study of EU airports, Barros (2008) found that the presence of incentive regulation had no discernible effect on airport efficiency in the UK. Barros, Managi and Yoshida (2008) also used SFA to estimate technical efficiency of 16 Japanese airports from 1987 to 2005.

Various airport studies have computed TFP indices to analyse performance. Yoshida (2004) examined the efficiency of Japanese airports using TFP, finding that domestic trunk-route airports are more efficient than others, while regional airports in Japan are relatively inefficient. Fung, Wan, Hui and Law (2007) examine the patterns of productivity changes in 25 Chinese regional airports during 1995-2004, using TFP indices. Yokomi (2005) also used TFP to evaluate the effect of privatisation of the BAA on airport technical efficiency, finding almost all airports operated by BAA improved their technical efficiency after privatisation. They found the average annual growth in airport productivity was above three per cent, and that the major source of this growth was technical progress rather than efficiency improvements. Nyshadham and Rao (2000) used TFP to evaluate the efficiency of European airports and examined the relationship between TFP and several partial measures of airport performance. Oum, Zhang and Zhang (2004) conducted an econometric study to examine the effect of non-aeronautical services on pricing, and the effect of different types of regulation on capital productivity and TFP using panel data of the world’s major airports that are operating in different regions and under different ownership and regulation. They found higher TFP under price-cap regulation than rate-of-return regulation and higher TFP under dual-till price-cap than under single-till price-cap regulation. Oum, Adler and Yu (2006) studied the impact of varying degrees of privatisation on productivity performance using a sample of 116 airports world-wide. The analysis involved constructing Variable Factor Productivity (defined by the authors as total aggregate output over aggregate variable input) indicators and employed regression techniques. The authors found strong evidence that airports with government majority ownership and those owned by a multi-level of government are significantly less efficient than airports with a private majority ownership

Various other methods have been used in airport studies. Translog cost functions were used to evaluate performance of Spanish airports (Martin-Cejas, 2002). Bottasso and Conti (2010) estimated a translog variable cost function for the period 1994 to 2005 to determine whether different types of ownership of UK airports were associated with different cost structures. Using panel data of 25 major UK airports, they found privately owned airports exhibited lower variable costs relative to their public or mixed ownership counterparts. Bel and Fageda (2009) examined the factors influencing airport charges, using panel data for 100 large European airports. They found that the key factors contributing to higher airport charges were large passenger numbers, less competition from other transport modes and nearby airports, and low concentration and



therefore limited countervailing market power of airlines. There was some evidence that unregulated private airports charged higher prices than public or regulated airports.

Australian airport studies

Hooper and Hensher (1997) constructed TFP indices using non-parametric methods to examine the performance of six Australian airports over a four-year period focusing on the effect of corporatisation and privatisation. Similarly, Abbott and Wu (2002) used DEA to construct TFP indices for the evaluation of efficiency and productivity of 12 Australian airports for the period 1990 to 2000. They found strong productivity growth, mainly attributable to rapid technological change. When benchmarked against airports overseas, Australian major airports were found to perform reasonably well, although there were potential gains to realise. Most recently, Assaf (2011) has used the Malmquist bootstrapped method to examine productivity, efficiency and technological change for 13 Australian airports. Three outputs and three inputs were specified using the available panel data. Increased TFP growth over 2002 to 2007 has been associated with, inter alia, privatisation.

The Industry Commission (IC) and the PC have conducted a series of studies of Australian airports, dating back nearly twenty years. The IC (1992a) report, Regulation of Intrastate Aviation, examines factors subject to government influence and that lead to inefficiencies in intrastate aviation, using a largely qualitative approach. The IC found that intrastate aviation is not performing to its full potential because of a number of factors such as state-based economic regulation and the efficiency of providers of airport infrastructure and safety and air navigation services. The PC (2002a) Inquiry Report, examined whether new price regulatory arrangements applying to newly privatised airports with market power are effective in constraining that market power. The limited evaluation used a largely qualitative approach. The PC (2006c) report reviewing price regulation of airport services, examined the effectiveness of the current ‘light-handed’ regulatory regime. As in 2002, a largely qualitative approach is used, and the PC found that price monitoring had delivered some benefits. In its 2011 draft report on economic regulation of airports, the PC (2011b) reviews empirical studies of benchmarking of airport efficiency and productivity. The review contains a discussion of the limitations on effective benchmarking and efficiency analysis, including differences between airports, data limitations and competing methods (TFP, DEA and SFA).


Evaluation of the effect of airport reforms and regulation

An obvious central question is whether the efficiency and productivity of airports have changed over time, and whether this can be related to specific reforms and regulatory changes, controlling for other factors influencing airport performance. As noted, there have been many reforms spread over many years including corporatisation, privatisation and various forms of regulation and governance. The key questions are whether the reforms can be defined sufficiently for a before-and-after identification, and whether changes in economic efficiency over time can be related to these institutional and regulatory changes while other influences on efficiency are adequately controlled for.

A logical starting point would be to obtain a sufficiently long time-series of an appropriate indicator of productivity (one of the efficiency or productivity methods discussed in chapter 9 of the Review of Methods) and track it over time. The approach enables trends and other statistics to be estimated. The main limitation on the use of any method is the availability of sufficient and consistent data on relevant inputs and outputs, particularly if econometric or frontier methods are used. For Australian airports, there appear to be relevant time-series data that are of reasonable length and are fairly consistent across regulated airports, the more recent having been prepared to comply with regulatory accounts. There are, however, some data consistency issues that may need to be addressed if a study of efficiency and productivity is contemplated. The regulatory data available to the ACCC suggest that there are a range of partial performance indicators, such as quality of service, prices, costs and profits that might be usefully evaluated using appropriate econometric methods (see chapter 8 of the Review of Methods) to determine the



effect of privatisation. On an international level, the ATRS compiles over 30 performance indicators for each one of 142 airports and 16 airport groups.

One preliminary issue would be to determine whether an apparent improvement in performance on one aspect – cost efficiency, for example – has been achieved at the expense of another aspect of performance – quality of service, for example. Graham (2005) notes a number of other issues that need to be resolved; including definition of financial and physical inputs and outputs, and ensuring comparability and consistency of measurement of these variables. The problem of defining a ‘typical’ airport must also be resolved, taking into account the diversity of services and facilities provided by different airports, the mix between domestic and international passengers, and the subsequent impact of this diversity on costs, revenues and factor productivity. Larger airports may also enjoy economies of scale. To make inferences about productive efficiency, these exogenous influences have to be controlled for. In this regard, the ATRS makes adjustments for airport size, the size of aircraft using the airport, the share of international traffic, and the share of air cargo traffic, when estimating productivity.

The approach to the counterfactual will be important where an econometric study is applied. If a ‘treatment-effects’ approach is taken, it will be necessary to determine whether a suitable ‘control’ group is available. The control group provides the counterfactual of how the airport(s) in the treatment group would have behaved in the absence of the treatment. The control group may be an airport(s) that was not subject to the particular ‘treatment’ (for example, privatisation) but which is comparable to the privatised airport in other respects. Another method (see, for example, Abadie and Gardeazabal, 2003) involves creating a synthetic control group by taking a weighted average of a set of airports, where airports with similar performance history prior to regulatory reform are given greatest weight. If it is difficult to find a suitable ‘control’ group, it may be necessary to use the airport(s) as its own ‘control’ group in a ‘before-after’ study and make assumptions about the performance of the airport(s) in the counterfactual (that is, in the absence of the reform being evaluated). A standard approach is to attribute all observed changes in the performance indicator ‘after’ the treatment, to the effects of the treatment itself. As noted in chapter 4 of the Review of Methods, this may give misleading results unless significant qualification of those results is applied.

Evaluation of the effect of privatisation

Privatisation is the main structural aspect of reform of Australian airports and several methods may be used to assess the effect of privatisation on airport performance. The Review of Methods highlighted influential work by Jones, Tandon and Vogelsang (1990) that developed a SCBA model to evaluate the welfare effect of privatisation in a range of industries. This method has been applied in the academic literature to a range of infrastructure areas as highlighted in Box 6.1 of the Review of Methods. The method calculates the benefits or costs of privatisation as the difference between the actual and counterfactual scenarios. To apply the method, it is necessary to have a number of indicators of prices, costs, profits, etcetera, so that costs and benefits can be estimated. As above, these data are potentially available from the ACCC airport monitoring collection and collation.

Evaluation of the effect of price regulation

An evaluation of the effect of price regulation on a particular aspect of performance (such as prices, costs, profits and quality of service) could be made using suitable econometric methods. A comparative study could also be made of the periods when the airport was subject to price control rather than price monitoring. This would enable differences in performance over time to be attributed to the particular form of prices oversight. Adequate data for this type of analysis would also potentially be available from the ACCC airport monitoring data.

Evaluation of the effectiveness of light-handed regulation

Process evaluations might focus on understanding how particular aspects of a regulatory regime are implemented, or the effect that regulatory processes have on regulated airports’ incentives to use their market power when determining prices. These types of evaluations might best be approached using the qualitative or mixed methods approaches that were discussed in chapter 10



of the Review of Methods. For example, evaluation of the effectiveness of the current threat of reintroduction of regulation as a constraint on airports’ market power may best be evaluated using qualitative analysis of the behaviour of airports, regulators and governments. This may include evaluation of the extent to which the government is willing to enforce its Aeronautical Pricing Principles, and/or to act on any concerns expressed by the ACCC about the effectiveness of the current light-handed approach. A mixed-methods approach might also be used to evaluate the comparative compliance and regulatory costs of ‘light-handed’ compared with alternative approaches such as price-capping. However, any such evaluation would need to take account of possible strategic incentives for airports and users to misreport the relevant costs.

7.6 Conclusions

Following corporatisation in 1986, Commonwealth airports were privatised during the late 1990s, subject to price-cap regulation until 2002 and are currently subject to a monitoring regime. There is a large amount of data that are potentially useful for the evaluation of the airport reforms. As the data appear to be reasonably consistent and continuous, there is potential to use econometric methods to evaluate the effect of airport reform and regulation on a number of partial performance indicators including prices, costs, profits and service quality. For example evaluations could be undertaken on the effect of privatisation on financial performance or service quality, or the effect of price regulation compared with price monitoring.

The development of indicators for the economic evaluation of infrastructure reforms is important for a number of reasons, including as an input into current policy deliberations. The case for independent and credible evaluations of the effect of reforms (particularly regulatory reforms) on the performance of airports, is reinforced by the expiry of the declaration of Sydney Airport in December 2010 and the PC’s review of Economic Regulation of Airport Services, which is currently being undertaken (draft report was released on 22 August 2011).75 In previous reviews, there has been extensive debate and disagreement about the effect of regulation, in particular, on the performance of airports. The prevailing view that price monitoring combined with a threat of reintroduction of regulation would be an effective constraint on the exercise of airports’ market power has been questioned by the findings of the ACCC’s monitoring of financial and quality-of-service performance.

75 http://www.pc.gov.au/projects/inquiry/airport-regulation



8. Ports


The regulatory reform ‘package’ applied to ports has been piecemeal and shared between the Federal and state governments. The structure of this chapter follows the template described in the Introduction to this working paper, but covers a range of port-related activities – container stevedoring, harbour towage, wheat handling – and the different regulatory tools used to oversight these services. Most recently, the focus on supply-chain coordination has added another regulatory dimension to the achievement of further port reform.

Sea transport involves a chain of services where goods are moved from a primary producer or manufacturer to the port, loaded on to a ship, transported to a destination port, unloaded and delivered to a final customer (Bureau of Industry Economics (BIE), 1995a, p. 7). A port operator provides services to a specific port or group of ports – it controls the use of the water and lands within port boundaries; provides safe access and harbouring for ships; and plans, provides and allocates port infrastructure (such as channels, breakwaters, navigation aids and berths) (Industry Commission (IC), 1993, p. 1). Broadly, there are four categories of cargo: bulk (for example, coal, iron ore and grain); liquid bulk (for example, oil); containerised non-bulk; and general (non-containerised) non-bulk (BIE, 1995a).

Among the main users of port facilities are container stevedoring service providers. Stevedoring refers to the process of loading/unloading of cargo, storing the cargo and in most cases transferring the cargo to and from land transport.76 Container terminals consist of a yard in which to stack containers, handling equipment to transport and stack containers and shore-based cranes to lift the containers on and off ships (PC, 2003a). Harbour tugs assist ships to manoeuvre in navigation channels and to enter and leave berths at ports. Harbour towage requirements are largely determined by the characteristics of each port, and the size and number of ships using that port (PC, 2002b).

A common public narrative – since at least the 1970s – has been that productivity in Australian ports is materially lower than at ports in other, comparable countries, with deleterious consequences for exporters and importers, and, therefore, for the economy as a whole. An important aim of port reforms has therefore been to boost productivity, as measured both in terms of partial-productivity indicators (such as crane-rates) and also the underlying overall productivity (total factor productivity (TFP)). Productivity at ports, particularly at container ports, has been a political and public issue, which built up into a major conflict and new reform agenda for stevedoring in 1998.

The historical emphasis on maritime freight has now moved on, specifically to recognise that ports are part of a supply chain comprising land transport (road or rail) and storage as well as the port facilities themselves (including docking and loading/unloading of ships). Rapid growth in demand at many of Australia’s ports is placing strain on landside road and rail capacity and supply-chain links from the ports. The focus therefore has now moved to issues of capacity and landside links.


8.2.1 Regulation of ports

In Australia, the states have principal responsibility for the establishment and regulation of ports. Historically, Australia’s major ports were primarily controlled by public authorities, although privately owned ports were also developed under state arrangements; usually as an adjunct to a large industrial enterprise such as an iron-ore company (IC, 1993, pp. 6-8). In the 1990s, state governments initiated structural and governance reforms to port authorities within the

76 The stevedoring companies currently operating in Australia are Patrick (a subsidiary of Asciano), DP World, and DP World Adelaide.



framework of the National Competition Policy. The reforms included corporatisation and, in some cases, privatisation (in Victoria and South Australia).

New South Wales

The Ports and Maritime Administration Act 1995 established three state-owned port corporations: Sydney Ports Corporation (Port Jackson/Port Botany), Port Kembla Port Corporation, and Newcastle Port Corporation. The Act sets out a pricing regime that allows the minister to set charges and establishes a government body, the Maritime Authority of NSW, to regulate the port corporations.

Queensland

State-owned port authorities were created under the Transport Infrastructure Act 1994 and the Government Owned Corporations Act 1993. The ports of Mackay, Townsville and Cairns are managed by individual regional port authorities; the ports of Gladstone and Rockhampton are managed by the Gladstone Ports Authority; and the ports of Brisbane and Bundaberg are managed by the Port of Brisbane Corporation Ltd. The Ports Corporation of Queensland is responsible for thirteen ports. The Queensland Competition Authority (QCA) regulates prices and access to certain port terminals that have been declared for third-party access under the Queensland Competition Authority Act 1997. The QCA’s responsibilities include assessing and approving access undertakings, arbitrating disputes, monitoring prices and assessing competitive neutrality. In 2006 and 2010, the QCA approved an access undertaking in respect of the coal-handling services at Dalrymple Bay.

South Australia

The state-owned South Australian Port Corporation was replaced by a privately owned company (Flinders Ports Pty Ltd) to operate seven ports across South Australia (Port Adelaide, Port Lincoln, Port Pirie, Klein Point, Port Giles, Thevenard and Wallaroo) under the South Australian Ports (Disposal of Maritime Assets) Act 2000. The Essential Services Commission of South Australia (ESCOSA) is responsible for price and access regulation in respect of ports under the Maritime Services (Access) Act 2000 and Essential Services Commission Act 2002. The ESCOSA regulates three types of port services. Essential maritime services are subject to price determination and monitoring, access to regulated port services is subject to a negotiate-arbitrage framework, and a broader range of services are subject to review and notification process for any changes to charges or service standards.

Victoria

The Port Services Act 1995 established two state-owned port corporations, the Port of Melbourne Corporation and the Port of Hastings Corporation. The Port of Hastings Corporation administers the Port Management Agreement (Port of Hastings) through which daily operation of the port is undertaken by Patrick Ports Hastings (formerly Toll Holdings), a division of Asciano Ltd. The Port of Hastings has been leased and managed by Patrick since 1997. The Port of Geelong and Port of Portland were privatised in 1996 as Geelong Port and Port of Portland Pty Ltd, respectively. Port operators in Victoria are required to maintain a Reference Tariff Schedule which provides a standing offer of terms and conditions upon which prescribed services will be available. Port users may negotiate alternative arrangements with port operators and the Victorian Essential Services Commission (ESC) settles disputes if an agreement is unable to be met by the two parties. The ESC is also responsible for price monitoring, annual reporting and undertaking a five-yearly review of ports regulation. The last statutory review was conducted in 2009, ESC (2009). The relevant legislation is the Essential Services Commission Act 2001 and the Port Services Act 1995.

Tasmania

Under the Tasmanian Ports Corporation Act 2005, a state-owned company (Tasmanian Ports Corporation Pty Ltd) operates all ports in Tasmania.



Western Australia

The Port Authorities Act 1999 establishes eight state-owned port authorities. These are Albany, Broome, Bunbury, Dampier, Esperance, Fremantle, Geraldton and Port Hedland. There are also eight non-authority ports in Western Australia that contain privately operated export facilities – these facilities operate under an agreement with the Western Australian Department for Planning and Infrastructure, which retains ownership of each port on behalf of the Government.

Northern Territory

The Darwin Port Corporation Act 2005 established the government-owned Darwin Port Corporation which is subject to the directions of the Minister of Infrastructure.

Recent trends

The trend has been for port authorities to adopt the ‘landlord’ model of operation, under which they undertake only core activities, with contestable waterfront services (such as stevedoring) being supplied by private companies (Productivity Commission (PC), 1998, p. 23). Moreover, in general, Australia’s port authorities are not responsible for land transport links into and out of the ports (Infrastructure Australia, 2008, p. 23).

In 2006, all Australian governments agreed to a set of principles for port competition and regulation.77 Each jurisdiction was required to review the regulation of ports and port authority, and the competition in handling and storage facility operations at significant ports by the end of 2007, with the findings to be implemented by the end of 2008 (Council of Australian Governments (COAG), 2007a and 2007b).

At the time of writing, no port facilities have been declared under Part IIIA of the Competition and Consumer Act 2010 (formerly Trade Practices Act (TPA)). Two port access regimes have been certified. In December 1996, the Victorian Government made an application for certification of the Victorian access regime for commercial shipping channels, which was certified on 12 May 1997 for five years. In 2001 South Australia applied to the National Competition Commission for certification of its access regime for ports and maritime services. The application was withdrawn in 2002. Recently, South Australia made an application under s. 44M of the Competition and Consumer Act 2010 for certification of the South Australian ports-access regime, and this was certified in May 2011 for ten years.

8.2.2 Container stevedoring inquiries and monitoring

The introduction of containerisation in the 1960s resulted in a reduction in the number of waterside workers. However, a 1977 inquiry by the Prices Justification Tribunal referred to both the cost of wages and excessive profits, and recommended that container handling charges be reduced.

In 1989, following an inquiry by the Inter-State Commission, the Australian Government announced a three-year program (concluding in 1992) to reform the stevedoring industry. The reforms were implemented under the terms of an In-Principle Agreement negotiated between the Australian Council of Trade unions, stevedoring employers, stevedoring unions, and the Government (under the auspices of the Waterfront Industry Reform Authority). The Agreement involved a move from industry-based to company-based employment under enterprise-bargaining agreements, in return for the Government contributing to the costs of redundancy and training.

From March 1992 to November 1995, stevedoring prices and costs were monitored by the Prices Surveillance Authority (PSA) to evaluate the extent to which implementation of enterprise bargaining agreements had led to lower stevedoring charges.

The Workplace Relations Act 1996 was also intended to provide a framework for achieving increased competition and greater labour market flexibility and productivity. Key aspects

77 Competition and Infrastructure Reform Agreement, 10 February 2006, clause 4.



included moving to negotiation of employment agreements at the enterprise level, voluntary unionism, restricting the right to strike and reinstating secondary-boycott provisions.

In 1998, at the time of a Productivity Commission (PC) study (PC, 1998) and an industrial dispute between Patrick Stevedores and the Maritime Union of Australia, the Australian Government announced a further reform package to improve the efficiency of the industry. This included an agreement by the Government to make loans to the stevedoring operators to enable them to restructure their workforce by offering voluntary redundancies. There was also a direction by the Federal Treasurer to the ACCC for it to monitor prices, costs and profits of container terminal operator companies at certain ports under the Prices Surveillance Act. The monitoring was intended to provide information about the progress being made in waterfront reform, and to ensure that the stevedoring levy was absorbed by the industry and not passed on to consumers. The stevedoring levy was withdrawn in 2006.

Under Part VIIA of the Competition and Consumer Act 2010, the ACCC is required to monitor and report annually on prices, costs and profits relating to the supply of stevedoring services by container terminal operator companies at the ports of Adelaide, Brisbane, Burnie, Fremantle, Melbourne and Sydney.

8.2.3 Regulation of harbour towage

As part of broader reforms to the shipping industry in the late 1980s, a Towage Industry Reform strategy was developed in 1989. The strategy covered issues such as maximum crew size, training courses for crews to allow for smaller crew sizes, and voluntary early retirement and compulsory redundancy schemes. As part of this process, the PSA in 1990 undertook an inquiry into harbour towage charges, including whether the benefits arising from reforms were reflected in charges for harbour towage services. This led, in 1991, to the declaration under the Prices Surveillance Act of harbour towage services at the ports of Melbourne, Sydney (Port Botany and Port Jackson), Newcastle, Brisbane, Fremantle and Adelaide. In 1995, the ACCC conducted an inquiry into the declarations. These declarations were extended to 2002, but a PC recommendation that these declarations not be renewed upon expiry was accepted by the Government in 2003 (PC, 2002b). Since this time, harbour towage prices at nominated ports have been surveyed by the Bureau of Infrastructure, Transport and Regional Economics (BITRE).

8.2.4 Regulation of wheat export ports

The Australian Wheat Board (AWB) was established in 1939 as a statutory authority with a statutory monopoly over the marketing (both domestic and export) of Australian wheat (the ‘single-desk’). Growers were paid a uniform price out of the ‘pool’ with some adjustment for quality and transport costs. Bulk loading was controlled by state authorities like Victoria’s previous Grain Elevators Board.

These authorities were, in most cases, corporatised and privatised in the 1980s. The Victorian operation was privatised in 1995 (as ‘Vicgrain’) and merged with the New South Wales operation, GrainCorp (formerly Grain Handling Authority) in 2000. In Western Australia, the major grain handling operation is CBH Group, formed originally in 1933 and remaining fully-owned by growers throughout its history. It is vertically integrated, has 197 receival points and has a capacity of 20 million tonnes. The other main operator is Viterra with operations across six ports in South Australia.

The statutory monopoly on the sale of wheat to the domestic market was removed in 1989. In 1999 the AWB was converted to a private company (AWB Ltd) owned by wheat growers. A subsidiary of AWB Ltd continued to act as the single exporter of bulk wheat. On 1 July 2008 the export statutory monopoly was replaced by a Wheat Export Accreditation Scheme under the Wheat Export Marketing Act 2008. Under this scheme, parties wanting to export bulk wheat from Australia must be accredited by Wheat Exports Australia (WEA), a government statutory authority.

The export of Australian wheat relies upon a transportation chain including storage and handling. Country receival and storage facilities are connected by rail or road to seaboard export terminals. Bulk wheat is usually stored temporarily within the terminals. The main operators are AWB,



GrainCorp, and Viterra in south-eastern Australia and the CBH Group in Western Australia. The vast majority of Western Australian and South Australian wheat is exported, while the majority of wheat produced in Victoria, New South Wales and Queensland is consumed domestically.

A concern with the 2008 reforms was that port infrastructure owners who became accredited wheat exporters might deny other exporters equal access to their bulk-handling port facilities (example, ship loaders, intake and receival facilities and grain storage facilities at ports). Under the Wheat Export Marketing Act 2008 and Wheat Export Accreditation Scheme 2008, if an exporter (or an associated entity) provides a port terminal service, WEA must be satisfied it passes the ‘access test’ for the exporter to be eligible for accreditation. The access test requires wheat exporters, who also operate grain storage and handling facilities at ports, applying for accreditation from 10 October 2009 to comply with continuous disclosure rules and either:

• Have an access undertaking in place under Part IIIA of the Competition and Consumer Act 2010 (governing access by other accredited wheat exporters to the port terminal service for the export of bulk wheat), or

• be subject to a state or territory regime, certified as effective under Part IIIA of the Competition and Consumer Act 2010, for access to the port terminal service.

Three port terminal services access undertakings were accepted by the ACCC in 2009 and were operational until 30 September 2011. The second round of undertakings has been completed and the new arrangements commenced on 1 October 2011. No state or territory has applied to the National Competition Council (NCC) for certification of a wheat port access regime. The regime has been evaluated by a PC inquiry, with the final report released on 1 July 2010 (PC, 2010c). The PC recommended, inter alia, the retention of the access test until 30 September 2014 (and then reversion to Part IIIA of the Competition and Consumer Act 2010) and the abolition of the accreditation requirement.

The South Australian Parliament established a Select Committee on the Grain Handling Industry and an interim report covering ‘export and shipping arrangements, including port access’ was tabled in Parliament on 14 September 2011. The interim report suggests that the current regulatory arrangements may not be ‘providing the basis for a vigorous and competitive market’ or achieving the intended purpose of deregulation (Select Committee on the Grain Handling Industry, 2011). These issues are to be further investigated by the Committee and a final report is expected after the 2011-2012 harvest. The Senate’s Rural Affairs and Transport Committee is conducting a broader inquiry into ‘any risks of natural, virtual or other monopolies discouraging or impeding competition in the export grain storage, transport, handling and shipping network’. The report is due in November 2011.78

In addition to the Commonwealth regime, the Victorian Essential Services Commission (ESC) is responsible under the Grain Handling and Storage Act 1995 (VIC) for the economic regulation of certain services at the export grain handling and storage facilities at the ports of Portland, Geelong and Melbourne.

8.2.5 Logistics chain coordination

In recent years, there has been increased focus on ‘end-to-end supply chain’ solutions. The emphasis in maritime freight ten years ago was on waterfront reform to increase productivity levels and ship turnaround times. Today, rapid growth in demand at many of Australia’s ports is placing strain on landside road and rail capacity and supply chain links from the ports. The focus has now moved to issues of capacity and landside links.

In June 2004 the Federal Government released the AusLink White paper which established a coordinated planning and investment framework for national land transport (Department of

78 http://www.aph.gov.au/Senate/committee/rat_ctte/grains_2011/index.htm [accessed on 14 October 2011]



Transport and Regional Services, 2004). In its 2005 review, the Exports and Infrastructure Taskforce recommended that AusLink be expanded to include ports as the final link in the export chain (Export and Infrastructure Taskforce, 2005).

Where a port forms part of a logistics chain for the export of a product, there may be a commercial incentive for all participants in the chain to work together to maximise throughput. Such an agreement may require authorisation by the ACCC under Part VII of the Competition and Consumer Act 2010. Examples of authorisation include the Queensland Dalrymple Bay Coal Terminal (a queue management system designed to address the imbalance between demand for coal-loading services at Dalrymple Bay and the capacity of the Goonyella coal chain)79 and New South Wales Hunter Valley coal chain (a capacity balancing system at the Port of Newcastle).80


Reform in relation to ports has largely occurred since the 1980s. Historically Australia’s major ports were generally controlled by public authorities, however, since the 1990s state governments have initiated reforms bringing port authorities within the National Competition Policy framework. This has involved independent regulation, corporatisation and privatisation. Labour market reform has been particularly relevant to container ports. Changes to the Australian wheat export regime involved removal of the statutory monopoly and introduction of a Wheat Export Accreditation Scheme that requires vertically integrated wheat exporters that also operate port handling facilities to pass an access test to be able to export wheat.

Independent state regulators regulate pricing and access in South Australia, Queensland and Victoria, whereas there is shareholder ministerial oversight of port charges in New South Wales, the Northern Territory, Tasmania and Western Australia.

There may be some scope for analysing the ex post impact of these reforms on port productivity using the analytical methods described in the Review of Methods. Such analysis would require the availability of data on financial and non-financial performance indicators across the pre-and post-reform periods, and the data would need to be relatively consistent across time and different ports.


Availability and quality of port data have been reviewed as part of the Developing Indicators project. In its monitoring role, the ACCC has collected price, cost and profit data in respect of container stevedoring services since 1998-99. Data on port operation can also be drawn from the regulatory activities of jurisdictional regulators, although the extent of reporting varies significantly across states. Other potential data sources include the relevant reports published by the BITRE, the PC and port corporations. A summary table on availability of useful data by type of information and data source is provided in Appendix H – Ports.

The review notes that the ACCC generally relies on information voluntarily supplied by parties in assessing access undertakings in relation to wheat export ports. As there is little historical information in this regard, it will not be further discussed below.


Under the prices surveillance regime in Part VIIA of the Competition and Consumer Act 2010, the ACCC is required to monitor and report, on an annual basis, prices, costs and profits relating to

79 The ACCC granted authorisation until 31 December 2008 as a transition period to enable a long-term solution to excessive vessel queues to be developed and implemented. On 23 February 2009, the ACCC issued a draft determination proposing to deny authorisation to users of Dalrymple Bay Coal Terminal to extend the operation of their Queue Management System. The applicants withdrew their application on 27 February 2009. 80 The ACCC granted interim authorisation until 31 March 2009. In May 2009, the ACCC granted authorisation to the Stage 1 allocation system until 30 June 2009. In June 2009, a new application was made for authorisation of ‘Capacity Framework Arrangements’. Authorisation was granted by the ACCC in a final determination on 9 December 2009. This authorisation is in force until 31 December 2024.



the supply of container stevedoring services at the ports of Adelaide, Brisbane, Burnie, Fremantle, Melbourne and Sydney. The major stevedoring companies presently operating in the monitored ports are Asciano (Patrick), DP World, and DP World Adelaide.

The ACCC has produced annual monitoring reports since 1999, with the latest report for 2009-10 issued in November 2010 (see ACCC, 2010d). Two major sources of data have been used in the production of the monitoring reports:

• data from pro forma statements issued to stevedoring companies, which are used to develop financial performance indicators, such as unit revenues, unit costs and their components, and returns on assets for aggregate, stevedoring, and other services respectively; and

• data obtained from the BITRE Waterline reports (see below), which are used to report productivity indicators (for example, average crane rate, average ship rate, and average elapsed labour rate).

The source pro forma statements contain individual data items required to be provided to the ACCC (segregated by port), including relevant revenue, cost and asset information on TEU (twenty-foot equivalent unit) basis (for the company, and by 20 foot and 40 foot containers), numbers of containers by type, employee numbers by staffing category (for example, operational, maintenance, and administrative/planning), and movements in asset employed for stevedoring services. It should be noted that not all information provided to the ACCC are published in the annual stevedoring monitoring reports and the published data tend to be highly aggregated.

The set of financial performance indicators reported appears to be consistent throughout the monitoring reports from 1998-99 to 2009-10.

The ACCC’s monitoring program provides information to the government and wider community that might not otherwise be available about the performance of the Australian container stevedoring industry. The information collected under Part VIIA of the Competition and Consumer Act 2010 is collected for this purpose and some of the aggregated data is made available in annual monitoring reports and can be used by researchers. However, the disclosure of any information provided to the ACCC under Part VIIA of the Competition and Consumer Act 2010, that is not already made public by the ACCC in accordance with the Competition and Consumer Act 2010 through its annual monitoring reports, is specifically restricted under the secrecy provisions of s 95ZP of the Competition and Consumer Act 2010. These limitations apply in addition to any confidentiality restrictions.

Prior to the cessation of its role of assessing harbour towage price notifications in 2002, the ACCC had received selected data on price, output, and quality of harbour towage services, most of which are for five years 1996-97 to 2000-01.

8.3.2 Data available from other sources

The role of jurisdictional regulators over the port industry differs across states, and thus the extent of reporting and monitoring across these regulators varies significantly. Only the ESC and the Economic Regulation Authority of Western Australia (ERA) have published annual price monitoring reports on intra-state port operation in recent years. The monitoring data are of short time horizon and limited regional coverage.

The BITRE provides a number of publications and data in relation to sea freight, port and terminal performance. In particular, the quarterly Waterline reports have published data on stevedoring productivity, waterfront and landside output, productivity, and other non-financial performance (for example, output and employment), stevedoring and ship arrival reliability performance, and port facility charges (by activity category – for example, harbour towage) for the five major ports (that is, Brisbane, Melbourne, Sydney, Adelaide and Fremantle) since September 1996 (see for example, BITRE 2009). Selected time-series data are published in the form of spreadsheets. Since 2003, harbour towage prices at the nominated ports have been surveyed by the BITRE.



Potentially useful data sources also include the PC’s annual review of the financial performance of the Government Trading Enterprise (GTEs), including those operating in the port industry. For each GTE, key financial performance indicators in three areas, namely profitability (for example, earnings before interest and taxes (EBIT)), financial management (for example, debt-to-equity ratio) and transactions with government (for example, dividends), and supporting financial-statement data and indicators, are available. However, the PC (2008a, pp. 254-264) noted that the 19 government-owned ports reviewed exhibited great variations in business activities undertaken (for example, providing pilotage, stevedoring, or even non-port-related services), exposure to market conditions (for example, domestic versus international markets for traded commodities), and the jurisdiction-specific corporatisation framework. The industry has also experienced substantial ownership changes. For these reasons, data from annual reports of the corporations managing the ports may be discontinuous or of limited comparability.


The ACCC pro forma statements submitted by the stevedoring service provider on output, price and financial-statement information of container stevedoring services provides the ACCC with a standard set of historical information on stevedoring operation in a selected number of ports. As discussed above, only some of this data are made publicly available by the ACCC through its annual monitoring reports and the data that are published are often highly aggregated. Supplementary information on stevedoring productivity, price and reliability may be sourced from the BITRE. The combined data are reasonably consistent and sufficiently long for an evaluation of the port reforms in respect of stevedoring operation. Productivity performance over time and across ports may be measured. The combined ACCC and BITRE data on harbour towage services may also be useful for a review of price and productivity of the towage services. It is possible to compile a dataset that contains financial and other information on individual ports, sourced from the BITRE reports, the PC reports and company annual reports. However, caution over the comparability of the data across ports and over time needs to be exercised for reasons noted above.


There is a substantial international literature addressing the economic performance of ports. This literature covers ports in a large number of countries, and there are many studies making international comparisons. Perhaps reflecting the importance of international trade to the Australian economy, there have been several studies involving Australian ports, including those by the PC. A sample of the empirical research relating to ports is presented below.

It is common in analysing productivity in ports (or activities undertaken by ports) to consider partial-productivity indicators. Common partial-productivity measures of container terminals include the following:

• Cranes element: crane utilisation (TEUs per year per crane), and crane productivity (moves per crane-hour)

• Berths element: berth utilisation (vessels per berth per year), and service time (vessels service time in hours)

• Yards element: land utilisation (TEUs per year per gross acre), and storage productivity (TEUs per storage acre)

• Gate element: gate throughput (containers per hour per lane), and truck turnaround time (truck time in terminal)

• Gang element: labour productivity (number of moves per person-hour).

More advanced techniques may be used to model the multiple output and multiple input nature of ports operations that use labour, land and capital for the provision of stevedoring and other related services.



International port studies

Tovar, Jara-Diaz and Trujillo (2007) review econometric literature relating to ports’ cost structures and suggest the multi-output approach is useful as it allows for the calculation of key cost indicators (such as economies of scale, or scope) to determine the optimal port industrial structure for a given forecast of demand (traffic mix and volume). They found that the cost structure of the activity involved is important for determining whether competition is feasible and how to promote it, or conversely whether regulation is needed.

Other studies consider the productivity of ports as a whole, rather than the productivity of individual activities. An early study by Kim and Sachish (1986) considered the productivity of Ashdod port in Israel by modelling and econometric estimation of the structure of production, technical change (measured as the percentage of containerisation) and total factor productivity (TFP) growth. The authors found that technical change had been biased towards labour saving, and had contributed 85 per cent to the growth in TFP, with the remaining 15 per cent being due to economies of scale and output growth.

Barros (2003) examined the technical and allocative efficiencies of Portuguese seaport authorities, finding the incentive regulation carried out by the government was not achieving its aims. As public enterprise entities, these seaports rely on government subsidies to meet their deficits, which are intended to provide incentives for increasing productive efficiency.

Two papers evaluate the commercialisation and privatisation of Mexican container ports. In the first of these papers, Estache, González and Trujillo (2002) measured TFP gains in a range of Mexican ports during a period covering both pre- and post-reforms. They suggested how these TFP measures might be useful in establishing a system of ‘yardstick’ regulation of these ports. In the second of these papers, Estache, Tovar and Trujillo (2004) analysed more closely the sources of these productivity gains in these ports, using a data envelopment analysis (DEA) decomposition of the estimated TFP growth and a second-stage analysis of the sources of the TFP growth (see the Review of Methods for an exposition of these methods). The DEA method was also applied in a study by Turner, Windle and Dresner (2004) in which they examined seaport infrastructure growth in North America from 1984 to 1997. The authors explore several theorised causal relationships between infrastructure productivity and industry structure and conduct and use regression techniques to examine the determinants of infrastructure productivity in seaports. They found economies of scale at the container port and terminal level and that the relationship between seaports and rail industry appears to remain a critical determinant of container port infrastructure productivity. Ferrari and Basta (2009) apply a DEA output-oriented model to data from eight Italian ports between 2003 and 2006. The analysis compares the relative efficiency of each port to derive an X-factor, which represents a throughput goal, for each port.

Serebrisky and Trujillo (2005) examine the efficiency gains from the 1990s reforms in Argentina involving a process of restructuring and deregulation of ports. They found the reform allowed a 50 per cent drop in the container terminal handling price within five years in the most important ports. Further, the study considers the potential impact of horizontal and vertical mergers in the Port of Buenos Aires on the long-run sustainability of gains achieved.

Other studies of this type include an analysis of TFP growth in Indian ports by De (2006), who found statistically significant TFP growth in all but one Indian port since economic liberalisation. An analysis of European ports by Trujillo and Tovar (2005) used stochastic-frontier techniques to analyse the technical efficiency of a range of European ports. They found that the European ports achieved an average efficiency around 60 per cent in 2002; that is, the ports could, on average, have handled 40 per cent more traffic with the same resources if they were operating efficiently. Similar work for ports elsewhere in the world includes Coto-Millán, Baños-Pino and Rodríguez-Álvarez (2000), Marlow and Paixão (2003), Martner (2002), Cullinane, Song, Ji and Wang (2004), Tongzon and Heng (2005), and Cheon, Dowall, and Song (2009). More specifically, Defilippi and Flor (2008) suggest that the TFP technique and estimation of a retrospective X-factor is recommended in contexts characterised by institutional limitations and limited competition. However, if the industry is dominated by state-owned firms, they suggest



the X-factor should be estimated using data from the concessionaire (a private company that has a contract or lease to operate the port) rather than from the industry. This study explained the rationale of the regulatory framework developed by the Peruvian regulator for transport infrastructure, using the 2004 Price Review at Matarani port as an illustration.

Other studies have adopted different approaches. Talley (2004) investigates productivity impacts from deregulation in the US from 1973 to 1997 by analysing the occupation wage differentials among intermodal transportation carriers and ports under carrier economic regulation and deregulation. The estimation results suggest union wages of truck drivers, rail engineers and port dockworkers were comparable in the regulation period; in the deregulation period the union wages of truck drivers and rail engineers declined relative to those of dockworkers, reflecting the increase in the relative bargaining power of dockworkers in the deregulation period.

Trujillo and Nombela (1999) provide an overview of changes in maritime activity, discuss concession contracts (a key instrument of privatisation), and analyse how regulatory mechanisms affect such factors as seaport tariffs, port congestion, port safety, the quality of cargo handling, and relevant indicators of performance, finances, and factor productivity. They describe how an optimal seaport system should allocate tasks between the various institutions involved, including the port authority. They found the degree of a seaport’s decentralisation, depends on a country size, the number of ports it has, and its legal tradition.

Australian port studies

Some work on Australian container ports was performed by Tongzon (2001), the PC (2003b), Lawrence and Richards (2004), and the PC (2006d). The PC benchmarked major Australian container ports against overseas ports, such as Los Angeles, Philadelphia, Hamburg, Tilbury, Singapore, Port Klang, Pusan, Nagoya and three New Zealand ports, for the provision of stevedoring services. The PC (2003b, p. vii) found that the

productivity at Australian container terminals … has improved significantly … since 1997 … and also in relative terms, with the productivity improvement at Australian terminals generally greater than at overseas terminals between 1997 and 2002.

Later the PC (2006d) used an international benchmarking approach to determine that ‘productivity improvements of nearly ten per cent, on average, could be possible’ for major Australian ports. Partial productivity indicators that measure container handing rates are used in the PC studies. Using an index number approach, Lawrence and Richards (2004) estimated partial and total productivity change for a single container terminal (P&O’s West Swanson Terminal in Melbourne) over the period 1997 to 2001. More recently, some of these measures were used by the ACCC to analyse productivity of stevedoring services in Australian ports (ACCC, 2010d).

Tongzon (2001) applied DEA to compare the efficiency performance for four Australian and twelve overseas container ports for the year 1996. Two outputs (cargo throughput and ship working rate) and six inputs (for example, number of cranes, and delay time) at the port level were modelled. The ports of Melbourne, Rotterdam, Yokohama and Osaka were found to be the most inefficient ports mainly due to their inefficient use of container berths, terminal area and labour inputs relative to other ports in the sample. The study raised concerns about the availability of suitable data (for example, stevedoring employment) from sampled ports and other similar ports.

To consider the possibilities for substitution between port services at Brisbane, Sydney and Melbourne ports, Pracz and Tyers (2006) estimate the elasticities of substitution between those ports and examine actual and potential levels of price collusion between ports by using specialist econometric techniques. They found considerable potential for destructive oligopoly behaviour and that pricing by the Port of Melbourne has been effectively controlled by price-cap regulation. Although regulation appears less restrictive on the ports of Sydney and Brisbane, the substitutability of services appears to result in some level of competition, which aids in the control of pricing.



Other than the PC inquiry into the economic regulation of harbour towage and related services (PC, 2004b), there do not appear to be any recent studies specifically examining the performance of harbour-towage operation at Australian major ports. This perhaps is due to the lack of input and output data specific to harbour towage services. An inquiry by the PSA in 1990 into harbour towage charges and a study by the Bureau of Transport and Communications Economics (BTCE, 1989) are the most recent studies. The PSA inquiry considered whether the benefits arising from reforms were reflected in charges for harbour towage services. The inquiry led to harbour towage services becoming declared services under the Prices Surveillance Act 1983. The study analysed the technical and allocative efficiency of harbour towage in Australia through overseas comparisons, the use of a cross-section model of towage charges and a study of industry agreements. In the BTCE study, the performance of the harbour-towage services is considered by examining towage charges per tug, the number of tugs used for individual ship movements and service quality. The study’s findings include that the main impediment to increasing efficiency is crew levels and tug booking arrangements. It concluded that prospects for creating effective competition in the industry are limited and that port authority intervention in towage services may increase economic efficiency.

A lack of input-output data means that there do not appear to be any performance studies on port-terminal services associated with bulk-handling of wheat. As with stevedoring services, performance in other services could be captured in a range of partial-performance indicators or total productivity analysis that attempt to evaluate the port operation as a whole.


The most likely central themes of evaluations are whether port reforms significantly raised productivity at the Australian ports, both over time, and relative to each other or to ports in other countries, and to what extent this productivity improvement was beneficial to the broader economy. As shown in the literature review, to the extent that input and output data are available, a number of methods have been used to examine efficiency and productivity performance of Australian container ports.

Evaluation of reforms based on measures of productivity performance

Productivity performance evaluations could be conducted for the set of ports in Australia or for individual Australian ports. This might be done in isolation (thus tracking productivity changes over time), or by use of a comparison group of Australian ports and/or non-Australian ports (thus tracking productivity changes over time but also relative to other ports). Reforms and changes in regulatory regimes, as well as other exogenous factors that may affect performance, would also need to be controlled for in the analysis.

Partial performance measures (such as crane-rates) are useful for comparing the performance between ports and across time in relation to specific activities or in certain aspects. However, partial performance indicators, when considered in isolation, may fail to reflect the overall productivity performance of port operation that involves multiple inputs and outputs. For ascertaining the overall productivity performance of ports, TFP and similar measures, which model the overall transformation of productive inputs into outputs, are generally preferable.

A related type of analysis would be a comparative-efficiency analysis, using DEA, stochastic frontier analysis (SFA) or similar techniques. It should, in principle, be possible to undertake a successful comparative-efficiency study of individual Australian ports, and also a comparative-efficiency study of a sample of ports including both Australian and non-Australian ports. International benchmarking may be possible for stevedoring services where consistent data have been collected by the ACCC (and formerly the PSA) for each port and service provider since 1992. The feasibility of this analysis would therefore rely on obtaining adequate international port data over the same period.

In performing productivity and efficiency analysis (as described above), the production relationship (the inputs and outputs) would need to be carefully considered and defined. Further, it is important to understand and examine the factors influencing port performance. It appears from the review in section 8.3 that there are some time-consistent data, comparable among the



main Australian container ports, for the most important inputs and outputs in the provision of stevedoring services from 1998 to present. However, the available data may not cover a sufficiently long time period for a comparison of pre-reform and post-reform performance. Differences among ports in the evolution of efficiency and productivity within relevant periods could be analysed in the light of surrounding circumstances, such as differences in regulation and differences in the operating environment. Econometric analysis is generally needed to examine these relationships, and control for external influences, to gauge the net impact of economic reforms and regulation.

Harbour-towage

Harbour-towage services, as part of the chain of port activities, is a small but essential element supporting cargo movement. While some price and partial-performance indicators are available, input and output data specific to the towage and related services at each of the ports are generally not available. Limited evaluations could possibly be made by comparing available indicators relevant to towage services for a given port over time as well as across ports for a given time period.

Economy-wide impacts of reforms

An evaluation of the economy-wide impacts of the port reforms would indicate whether inefficient port operation was having a significantly negative impact on the economy as a whole. It should, in principle, be possible to analyse the impact of port reforms, and/or changes in regulatory regimes using a computable general equilibrium (CGE) analysis (such as the PC’s ‘Monash’ model, see PC 2010d) or a social cost benefit analysis (SCBA). However, CGE analysis would require adequate identification and quantification of the ‘shock’, or change, to the model resulting from the reform. CGE analysis would also require broader economy-wide data and identification of which variables in the model should be treated as exogenous or endogenous to the ‘shock’. It may therefore be difficult to assess the extent of economy-wide efficiency gains resulting from reforms to port operations.

8.6 Conclusions

This chapter has explored the potential for evaluating the effectiveness of reforms and regulation in Australian ports and port-related services. These reforms and regulation have tended to occur on an activity-by-activity basis (such as stevedoring, towage or grain handling) rather than on a port-wide or logistics-chain basis.

The aim of many reforms and regulation has ultimately been to improve the efficiency or productivity of the activity that is subject to the reform. Given the available data there is scope for partial productivity and/or TFP evaluations to be made for ports as a whole, and for stevedoring as a separate activity. The available data may, however, limit the scope for analysing the effects of reforms that occurred prior to the late 1990s. However, the effects of privatisation or corporatisation on productivity for either a particular port before-and-after a reform or on a comparative basis (for example, where government-owned ports are a control group for privatised ports) could be assessed.

Given the significance of trade to the Australian economy, a CGE or SCBA analysis of the effect of port reforms on the economy as a whole would appear to be valuable although may be limited by the ability to adequately identify the extent of port inefficiency.

An international benchmarking study may be possible for stevedoring services provided adequate data from international ports is available. There seems to be only limited scope with the data currently available for evaluating the effect of reforms to harbour towage or the effect of wheat-export regulation. In the case of wheat exports, the newness of the reform also militates against an evaluation.



9. Conclusions

This working paper has been written as a reference document for future ex post evaluations of reforms to Australia’s key infrastructure areas. The paper describes the evolution of regulation in energy, telecommunications, postal services, water and wastewater, rail, airports and ports; including an overview of the current regulatory regimes in place in each area. A sample of the most relevant existing research evaluating past infrastructure reforms, both internationally and in Australia, is provided for each of the infrastructure areas. The paper scans the available data for each infrastructure area for data that may prove useful in undertaking an evaluation in that area. The limitations of the specific data are also discussed, including possible restrictions on the use and disclosure of confidential data. Potential evaluation questions that could be addressed using the evaluation methods discussed in the Review of Methods working paper (ACCC, 2010c) and the available data are then drawn out. It is hoped that public and private sector researchers, consultants and academics will help contribute to the next phase of Australian infrastructure reforms by contributing their insights from ex post evaluations of the reforms. The purpose of this paper is to provide the foundation from which such research could be undertaken.

Appendices

A. Overview of Data Reviewed

The Developing Indicators project has included a major stock take and examination of data available across the seven infrastructure areas where the ACCC/AER has a regulatory role. The data reviewed are the information that is relevant to these infrastructure areas and is potentially useful for the evaluation of Australian infrastructure reforms.

The data are typically quantitative. The majority of the data are cardinal data as they are numerical based on commonly adopted units of measurement (for example, unit quantity or unit value) or ratios that are measured relative to a benchmark (for example, financial or non-financial indicators). Some of the data are ordinal data that give rankings. For example, air passenger survey data rank customer satisfaction from the least to the most by assigning scores between one and five.

The relevant data can be classified into the following broad categories:

• Revenue

Revenue is income that is generated from the core business activities of an entity, generally from the provision of goods and services to customers or users, during a period of time.81 It includes interest, rents, royalties or dividends received, but excludes gains from peripheral or incidental transactions. For example, certain types of income, such as the gains/losses arising from the one-off disposal of assets and the money received on behalf of third parities, are not recognised as revenue. Disaggregated revenue by type (for example, sales, fees, and rent) and by business segment and geographical region, if available, may be relevant.

• Price

The breakdown of price data into specific categories is dependent on the industry or sector examined. The pricing information generally corresponds to the number of products and services offered by the firm and may be generalised to the broader categories of outputs that exist in the relevant industry or sector in which the firm is operating.

81 The Australian Accounting Standards Board (AASB)’s definition of revenue is ‘the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity’. See AASB, Compiled Accounting Standard: AASB 118 Revenue, 2007. Available at: http://reference.aasb.gov.au/ [accessed on 28 July 2009]. Para. 7. Note that AASB 118 Revenue is an Australian Equivalent International Financial Reporting Standard (AIFRS) since 1 January 2005.



Price data are distinguishable from revenue data in that prices often involve a specific service and a relevant charging base, whereas revenue is more likely presented as a measure of income (such as, the product of price and quantity) generated at the product or service level or more aggregated levels. To the extent that relevant revenue and output data are available, average revenue can be measured as a proxy for the price paid for a unit of product or service considered. The measure accounts for discounts, subsidy or other forms of concessions to reflect the average price actually paid by the access seekers, users or consumers.

• Quantity

As per price data, quantity refers to the quantity of the different output categories for products or services offered by the industry or sector. Using the airport industry as an example, the high-level quantity data would include the number of passenger arrivals or departures, tonnes landed (for cargo airplanes) and aircraft movements, which establish the charging base for per-unit pricing. More disaggregated output data may be available. For example, the number of passengers can be further broken down into categories such as domestic, domestic on-carriage, international and international transit. Aircraft movements can be reported for regular public transport and for general aviation.

• Quality of services

This type of data is predominantly present where quality-of-service monitoring exists and surveys have been conducted to identify and quantify levels of consumer satisfaction. In electricity distribution, quality of service monitoring generally relates to network reliability (for example, interruptions/outages), technical quality (for example, voltage stability), and customer service (for example, on-time provision of services and the adequacy of call centre performance). In the airport industry, rating schemes for the international and domestic services and other airport facilities are existent.

• Expenditure

Expenditure data can be further separated into operating expenditure, maintenance expenditure, and capital expenditure.

Operating and maintenance expenditure refers to ongoing expenses incurred in the day-to-day principal revenue-producing activities of the organisation. Examples include salaries and wages, services and utilities expenses, and general administration expenses. Operating and maintenance expenditure data, segregated into labour and non-labour costs or further, may be available.

Capital expenditures are expenses in acquiring or upgrading fixed assets to increase productive capacity and efficiency. Examples include acquisitions of land, building, and plant and equipment. Disaggregated capital expenditure data by asset type, if available, are relevant.

• Balance sheet data

Assets and liabilities data show the financial position of the company at a certain point in time (typically the end of company financial year). They are regularly published in the Statement of Financial Position (that is, the Balance Sheet) of the company annual reports or government trading enterprise financial reports.

The balance sheet data are classified into three broad categories, namely assets, liabilities and owners’ equity, with further breakdowns for the assets and the liabilities into current and non-current types. In some cases, the owners’ equity may be disaggregated into share capital, reserves, and accumulated profits. For fixed assets, segregated asset value data by asset type (for example, land, building, and plant and equipment) are relevant for the derivation of measures of capital stock.

The balance sheet data published in the annual reports or financial statements are generally available at the aggregate business level, and in some cases, at the business segment level. The firms subject to regulation may be required to periodically submit regulatory asset data that show asset movements and balances by asset type.



• Financial performance indicators

In addition to standard financial information, financial performance indicators are often published in company annual reports or government trading enterprise financial reports. Key financial information on profits is commonly measured by earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortisation (EBITDA). EBIT is the earnings before interest and taxes and EBITDA is the earnings before interest, taxes, depreciation and amortisation. By adding non-cash expenses on depreciation and amortisation to EBIT, EBITDA measures the underlying cash flow of a firm. It further removes the effects of accounting treatment of past capital expenditure from measuring firm profitability.

Financial indicators, that are useful for performance comparisons across firms and over time, can be classified into broad categories including profitability, liquidity, gearing and asset utilisation measures. The profitability indicators include operating margins (for example, EBIT as a percentage of sales revenue), rate of return on assets, return on equity, and earnings per share. The liquidity indicators are the current ratio (that is, current assets as a ratio of current liability) and the working capital ratio. The relevant gearing indicators include debt ratio (that is, total liabilities as a ratio of total assets), debt to equity ratio and interest coverage ratio (that is, profit after tax as a ratio of interests due). The asset utilisation indicators include various asset turnover ratios (that is, sales relative to certain assets) and inventory turnover ratio (that is, cost of goods sold relative to inventories).

• Physical data

In evaluation it is important to consider performance indicators in conjunction with the operating environment under which the firm is operating. Relevant factors affecting the business performance may cover three levels: first, macroeconomic variables such as economic growth and employment; second, industry conditions such as industry structure, market condition, regulatory development, international environment; third, business conditions that cover geographic, demographic or other aspects of the operating environment. To the extent that a firm has no or little control over its operating environment, the impact on the performance should be carefully considered to derive reliable comparisons or benchmarking.

Therefore physical data showing the operating environment or the infrastructure are relevant. For example, for an energy network common data items include the network size and density, the customer density and mix, and the climatic and geographic information. The information can be available for the network at varying levels of detail such as regional coverage by state or by designated zone. For this review, system capacity measures showing the characteristics of the network in operation are classified as physical data. They are often considered, under productivity analysis, as relevant output measures showing the potential traffic that a network can carry.

• Non-financial indicators

Non-financial performance indicators vary across infrastructure areas according to the types of goods and services provided.

Partial productivity indicators measure output produced per unit of one input. Labour productivity (output divided by labour input) and capital productivity (output divided by capital input) are commonly adopted partial productivity indicators. An example of a partial productivity measure for the energy sector is the number of kilowatts of electricity generated per labour hour worked (that is, the annual amount of electricity generated divided by the annual labour hours worked). Total factor productivity indicators measure outputs controlling for changes in all relevant factors of production. Wherever available, the physical measures of labour input (for example, the number of full-time-equivalent staff) is considered under this category.

Technical or environmental indicators specific to a sector or an industry may also be adopted in some areas. Technical indicators used in energy generation include capacity factor (in percentage) and system load factor (in percentage). Environmental indicators measuring eco-efficiency of power generation include carbon dioxide equivalent emissions and water consumption.



The above data categories are used to tabulate the data availability in each of the seven infrastructure areas. Detailed tabulation is shown in Appendices B to H, one for each area. In reviewing the data, some consideration has been given to the availability of consistent time-series that are sufficiently long (for example, cover both pre-reform and post-reform periods).

B. Detailed Tabulation of Available Energy Data

The following tables summarise the data availability by data type for the energy sector, divided into five sub-sectors. For each data type (as classified in Appendix A), the tables detail a list of indicators, available from the following major sources identified:

• Australian Energy Regulator (AER) annual transmission network service provider (TNSP) performance reports (coded as source ‘PR’ below)

• AER weekly gas market report (coded as source ‘GMR’)

• Economic Regulation Authority of Western Australia (ERA) annual regulatory reports (coded as source ‘ERA’)

• Essential Services Commission (ESC) annual regulatory reports (coded as source ‘ESC’)82

• Essential Services Commission of South Australia (ESCOSA) annual regulatory reports (coded as source ‘ESCOSA’)

• Independent Competition and Regulatory Commission (ICRC) annual regulatory reports (coded as source ‘ICRC’)

• Independent Pricing and Regulatory Tribunal of NSW (IPART) annual regulatory reports (coded as source ‘IPART’)

• Office of the Tasmanian Economic Regulator (OTTER) annual regulatory reports (coded as source ‘OTTER’)

• Queensland Competition Authority (QCA) annual regulatory reports (coded as source ‘QCA’)

• Utilities Commission (UC) annual regulatory reports (coded as source ‘UC’), and

• Energy Supply Association of Australia (ESAA) annual reports (coded as source ‘ESAA’).83

The summary information covers data duration and frequency, level of aggregation, and company and geographical coverage (where applicable).

The overall coverage and quality of indicators from each of the data sources summarised in the tables are:

• The AER regulatory data on electricity transmission are relatively extensive (such that a range of financial and quality-of-service performance measures are available) and cover a long time period (most indicators are available for seven years).

• The gas market report data (GMR) are consistent and also cover a fairly long time period, but are not particularly extensive. The data may have limited use for evaluating the gas transmission sub-sector.

82 Since the transfer of regulatory responsibility over electricity distribution utilities in January 2008, the AER has published two annual performance monitoring reports on the Victorian Electricity Distribution Businesses (that is, 2008 and 2009). 83 These include: Energy Supply Association of Australia (ESAA), Electricity Gas Australia (EGA) 2008, 20 June 2008, and previous years (2005 to 2007); Electricity Supply Association of Australia, Electricity Australia 2003, 2003, and previous years; Australian Gas Association, Gas Statistics Australia, 2002 and previous years.



• Relative to other jurisdictional regulators, the data reported by the ERA are not particularly extensive for electricity distribution, but are relatively extensive for gas distribution. However, the duration of both datasets is brief. Depending on the indicator, consistent information is available for the most recent two years to four years. As for energy retailing, pricing and quality-of-service data are available for electricity from 2004-05 or earlier, and for gas from 2005-06.

• The ESC data generally have long time spans, ranging from nine years for electricity distribution, and more than five years for gas distribution. They are relatively extensive, covering operational, financial and service quality performance. Operational, pricing and service quality data are available for energy retailing from 2001. Unlike the other regulators the majority of the ESC data are presented in calendar years.

• The ESCOSA data are of long duration (from 2000-01 for both electricity distribution and gas distribution). They are fairly rich in breadth, covering operational, financial and service quality performance. Electricity retailing data are long (that is, eleven years) and extensive (that is, including revenue and tariff information) relative to gas retailing data (that is, six-year operational and quality-of-service data).

• The ICRC data are reasonably extensive and about five to six years long for electricity distribution and gas distribution. The ICRC does not publish financial information on gas distribution network. The energy retailing data are of reasonable duration (that is, more than four years) and breadth (covering operational and service quality information).

• The IPART publishes little historical information on gas distribution. The electricity distribution data are of reasonable duration (five-year financial information and ten-year data on service quality). However, they are not particularly extensive. For example, operational data are generally not available. As for energy retailing, pricing and quality-of-service data are available for electricity from 2004-05 or earlier and for gas from 2005-06.

• The OTTER data on electricity distribution are long (from 2000-01) and extensive in coverage of operational and service quality information. The gas distribution data are short and less informative. As for energy retailing, basic operational information and more detailed quality-of-service data are available. The electricity retailing data are available for longer (from 2000-01) than the gas retailing data (from 2003-04).

• The QCA publishes longer and more extensive electricity distribution data (that is, seven-year financial and quality-of-service data) than gas distribution data (that is, four-year quality–of-service data and basic operational information). In energy retailing, the QCA data are limited in terms of duration (available from 2007-08) and scope of coverage (quality-of-service data, plus basic operational information for electricity).

• The Northern Territory regulator, the Utilities Commission, does not publish data specific to electricity retailing and gas. In relation to electricity distribution, the eight-year financial data and nine-year operational data are long and extensive. However, the quality-of-service data were first reported in 2005-06 and earlier data collected are considered as less robust.

• The ESAA data are available at the state aggregate level. Financial statement information and indicators are not covered in the post-2003 reports.

With respect to energy distribution and retailing data, the jurisdictional regulators have largely adopted the Utility Regulators Forum (URF) national reporting frameworks.84 However, the data reported vary in terms of availability and quality.

The reference list below comprises relevant publications and websites that have been reviewed under the data stock-take for the summary of energy data availability and quality.

84 Utility Regulators Forum, National Regulatory Reporting for Electricity Distribution and Retailing Business, March 2002.



AER, Electricity Market Reports – Weekly Reports, 2000 to 2001; Available at: http://www.aer.gov.au/content/index.phtml/itemId/658727 [accessed on 17 August 2011].

AER, Transmission Network Service Providers: Electricity Performance Report for 2008-09, February 2011; and earlier reports (back to 2002-03).

AER, Victorian Electricity Distribution Businesses: Comparative Performance Report 2009, December 2010; and a 2008 report; Available at; http://www.aer.gov.au/content/index.phtml/itemId/731983 [accessed on 17 August 2011].

AER, Victorian Gas Distribution Business Comparative Performance Report 2008, May 2010. Available at: http://www.aer.gov.au/content/index.phtml/itemId/736840 [accessed on 17 August 2011].

Australian Gas Association, Gas Statistics Australia, 2002 and previous years (under the titles ‘Gas Industry Statistics’ and ‘Gas Distribution Industry Performance Indicators’).

Electricity Supply Association of Australia, Electricity Australia 2003, 2003, and previous years.

Energy Supply Association of Australia (ESAA), Electricity Gas Australia (EGA) 2008, 20 June 2008, and previous years (2005 to 2007).

ERA, 2009/10 Annual Performance Report Gas Distributors, March 2011; and earlier years (back to 2006-07); Available at: http://www.erawa.com.au/2/1155/51/gas_licensing__performance_reports.pm [accessed on 17 August 2011].

ERA, 2009/10 Annual Performance Report Gas Trading Licences, January 2011; and earlier years (back to 2006-07); Available at: http://www.erawa.com.au/2/1155/51/gas_licensing__performance_reports.pm [accessed on 17 August 2011].

ERA, 2009-10 Annual Performance Report – Electricity Distributors, March 2011; and earlier reports (back to 2005-06); Available at: http://www.erawa.com.au/2/1152/51/electricity_licensing__performance_reports.pm [accessed on 17 August 2011].

ERA, 2009-10 Annual Performance Report – Electricity Retailers, January 2011; and earlier reports (back to 2006-07); Available at: http://www.erawa.com.au/2/1152/51/electricity_licensing__performance_reports.pm [accessed on 17 August 2011].

ESC (VIC), Energy Retailers Comparative Performance Report – Customer Service 2009-10, and Energy Retailers Comparative Performance Report – Pricing2009-10, December 2010; and earlier years (back to 2000-01); Available at: http://www.esc.vic.gov.au/public/Energy/Regulation+and+Compliance/Performance+Reports/ [accessed on 17 August 2011].

ESC (VIC), Victorian Gas Distribution Business Comparative Performance Reports, 1999 to 2007; Available at: http://www.esc.vic.gov.au/public/Energy/Regulation+and+Compliance/Reports+and+Investigations/ [accessed on 3 December 2009].

ESCOSA, Annual Performance Report 2009-10: South Australia Energy Supply Industry, November 2010; and earlier years (back to 1999-2000); Available at: http://www.escosa.sa.gov.au/electricity-overview/market-information/energy-performance-monitoring.aspx [accessed on18 August 2011].

ICRC, Annual Compliance and Performance Reports on Electricity, Gas and Water and Sewerage Utilities 2008-09, June 2011; and earlier reports (back to 2001-02); Available at: http://www.icrc.act.gov.au/icrcreportsandpapers [accessed on 17 August 2009].

IPART, Electricity – Performance Reporting and Operating Data: DNSPs Regulatory Accounts, 2002-03 to 2006-07; Available at: http://www.ipart.nsw.gov.au/electricity/electricity_details_13.asp [accessed on 14 March 2010].



IPART, Electricity Distribution Businesses’ Performance against Customer Service Indicators in NSW, Information Paper, May 2011; and earlier reports (back to 2005). Available at: http://www.ipart.nsw.gov.au/electricity/licensing_further_information_8.asp [accessed on 18 August 2011].

IPART, Electricity Retail Businesses’ Performance against Customer Service Indicators in NSW, Information Paper, January 2011; and earlier reports (back to a report covering 1999-2000 to 2001-02); Available at: http://www.ipart.nsw.gov.au/electricity/licensing_further_information_8.asp [accessed on 18 August 2011].

IPART, Gas Retail Businesses’ Performance against Customer Service Indicators in NSW, Information Paper, January 2011; and earlier reports (back to a 2007 report covering 2005-06 to 2006-07); Available at: http://www.ipart.nsw.gov.au/electricity/licensing_further_information_8.asp [accessed on 18 August 2011].

OTTER, National Comparative Performance Data, 2002-03 to 2009-10, last updated 29 March 2011; Available at: http://www.energyregulator.tas.gov.au/domino/otter.nsf/elect-v/024 [accessed on 18 August 2011].

OTTER, Tasmanian Energy Supply Industry Performance Report 2009-10, January 2011; and earlier years (back to 2000-01); Available at: http://www.economicregulator.tas.gov.au/domino/otter.nsf/8f46477f11c891c7ca256c4b001b41f2/7715a04d0c9ce4e7ca256cdd007d685c?OpenDocument [accessed on 18 August 2011].

QCA, Annual Report of MSS and GSL Performance – 2009-10, Last updated 12 November 2010; and earlier reports (back to 2007-08); Available at: http://www.qca.org.au/electricity/service-quality/annrepmssgsl.php [accessed on 18 August 2011].

QCA, Distribution Pricing, Last updated on 10 March 2009; Available at: http://www.qca.org.au/electricity/pricing-principles/ [accessed on 14 May 2010].

QCA, Energex’s Financial and Service Quality Performance 2008-09, March 2010; and earlier report (back to 2001-02); Available at: http://www.qca.org.au/electricity/service-quality/annfinserqualperf.php [accessed on 18 August 2011].

QCA, Ergon Energy’s Financial and Service Quality Performance 2008-09, March 2010; and earlier report (back to 2001-02); Available at: http://www.qca.org.au/electricity/service-quality/annfinserqualperf.php [accessed on 18 August 2011].

QCA, Gas Distribution Service Quality Performance 1 July 2006 to 30 June 2007, November 2007; and earlier reports (back to 2003-04); Available at: http://www.qca.org.au/gas/service-quality/reports.php [accessed on 13 May 2010].

QCA, Reference Tariffs – Tariff Schedules, Last updated on 10 March 2009. Available at: http://www.qca.org.au/gas/reference-tariffs/tariffschedules.php [accessed on 13 May 2010].

QCA, Small Electricity Customer Disconnection and Complaints Statistics, 2006-07 to 2009-10; Available at: http://www.qca.org.au/electricity-retail/InfoRep/SmlCustDCStat.php [accessed on 17 August 2011].

QCA, Small Gas Customer Disconnection and Complaints Statistics, 2006-07 to 2009-10; Available at: http://www.qca.org.au/gas-retail/FRC/ [accessed on 17 August 2011].

Utilities Commission, Northern Territory Electricity Market 2007-08, August 2008; and earlier years (back to 1999-2000); Available at: http://www.nt.gov.au/ntt/utilicom/publications/reports_publications.shtml [accessed on 17 August 2011].

Utilities Commission, Power and Water Regulatory Accounts for the Year Ended 30 June 2008, March 2009; and earlier years (back to 2001-02); Available at: http://www.nt.gov.au/ntt/utilicom/publications/reports_publications.shtml [accessed on 17 August 2011].



Utilities Commission, Power and Water's Electricity Service Performance Reports (2007-08), December 2008; and earlier reports (back to 2005-06); Available at: http://www.nt.gov.au/ntt/utilicom/publications/reports_publications.shtml [accessed on 17 August 2011].



Table B1: Summary of Data for the Electricity Transmission Sub-sector

Data Type Indicator Details (Annual data at the TNSP level85) Source

Revenue • Revenue (actual vs. forecast) (PS)86

2001-02 to present (EnergyAustralia, Powerlink, Transgrid) 2002-03 to present (ElectraNet, SP AusNet, VENCorp) 2003-04 to present (Transend) 2004-05 to present (Murraylink) 2006-07 to present (Directlink)

PR

Expenditure • Opex (actual vs. forecast) (PS) • Capex (actual vs. forecast) (PS)87 • Depreciation and amortisation (PS)

As above PR

Balance sheet • Total assets, disaggregated by type o Cash o Receivables o Adjusted RAB (opening, closing, average) (PS)

• Total liabilities, disaggregated by type o Short-term debt o Long-term debt o Total debt

• Total equity, disaggregated by type o Share capital o Reserves o Accumulated profits

As above88,89

PR

Quality of services

• Circuit availability (%) • Frequency of lost supply events (e.g., > 0.2 minutes) • Average outage duration (minutes) • S-factor

1996-97 to present (ElectraNet, SP AusNet) 2004-05 to present (EnergyAustralia, Transend, Transgrid, Murraylink) 2006-07 to present (Directlink)

PR90

85 Unless stated otherwise. 86 PS denotes that the data item is for prescribed services. 87 Capex figures are not available for VENCorp. Instead it reports augmentation expenditure. 88 ElectraNet contains an additional item for liabilities and equity called Shareholders Notes (SN). 89 The indicators available to VENCorp are current/non-current/total assets/liabilities, accumulated surplus and shareholders funds.


108 ACCC/AER working paper No. 5, December 2011

• Net financial incentive 2007-08 to present (Powerlink)

• System minutes unsupplied (minutes) • Circuit availability (%)

From 2005 or earlier (state level) ESAA

• Electricity transmitted (GWh) 2001-02 to present (ElectraNet, EnergyAustralia, Powerlink, Transgrid) 2002-03 to present (SP AusNet) 2003-04 to present (Transend)

PR Quantity

• Electricity delivered (GWh) • Number of customers


Physical data • Network line length (km) • Maximum demand (MW)

2001-02 to present (ElectraNet, EnergyAustralia, Powerlink, Transgrid) 2002-03 to present (SP AusNet) 2003-04 to present (Transend) 2004-05 to present (Murraylink) 2006-07 to present (Directlink)

PR

• Maximum interconnector power transfer capabilities • Average interconnector power transfer capabilities


90 These listed indicators show the aspects of service performance generally reported. There are variations in the service performance parameters set for the TNSPs.



Table B2: Summary of Data for the Electricity Distribution Sub-sector

Data Type Indicator Details (Annual data at the DNSP level) Source

Revenue • Revenue (UR)91

2000-01 to present (ESCOSA, OTTER) 2001 to present 92 (ESC/AER) 2001-02 to 2008-09 (QCA) 2002-03 to present (ICRC) 2002-03 to 2006-07 (IPART) 2000-01 to 2007-08 (UC)

IPART ICRC QCA OTTER ESC ESCOSA UC

Expenditure • Capex (UR) • Opex (UR) • Depreciation (UR)

As above As above

Financial performance

• EBIT • Average return on assets

As above As above

Quality of services

• Reliability of supply (UQ)93 o SAIDI94 o SAIFI95 o CAIDI96 o MAIFI97 (optional)

• Technical quality of supply (UQ) o Number of complaints (by category) o Likely cause of problem

• Customer service (UQ)

2000-01 to present (IPART98, ESCOSA, OTTER) 2001-02 to present (ESC/AER) 2002-03 to 2008-09 (QCA) 2001-02 to present (ICRC) 2005-06 to present (ERA, UC99)

As above, ERA

91 UR denotes that the indicator is prescribed by the SCONRRR distribution regulatory accounts reporting template. 92 For revenue, expenditure and financial performance indicators, the ESC also reports the average figures for the period 1996 to 2000. 93 UQ denotes indicators prescribed by the SCONRRR distribution quality-of-service reporting template. 94 SAIDI denotes system average interruption duration index. It is measured as average minutes off supply per customer. 95 SAIFI denotes system average interruption frequency index. It is measured as average number of interruptions per customer. 96 CAIDI denotes customer average interruption duration index. It is measured as average interruption duration. 97 MAIFI denotes momentary average interruption frequency index. It is measured as average number of momentary interruptions per customer. 98 The IPART does not present the indicators using the method prescribed by the SCONRRR template. 99 Historical data back to 1999-2000 may be available. However, the UC was concerned with the robustness of historical data.



o Timely provision of service o Timely repair of faulty street lights o Call centre performance o Distribution network losses

• Reliability of supply o Outage duration o Outage frequency o Outage time


Quantity • Energy delivered (GWh) (UQ) • Number of customers (UQ)

1999-2000 to 2007-08 (UC) 2000 to present (ESC/AER) 2000-01 to present (OTTER, ESCOSA100) 2002-03 to present (ICRC) 2003-04 to present (QCA) 2005-06 to present (ERA)

ESC QCA OTTER ESCOSA ICRC ERA UC

Physical data • Other business descriptors (UQ) 101 o Number of metered supply points o Number of unmetered supply points (optional) o Line length (km) o Number of transformers o Total capacity of transformers (MVA) o Distribution losses o Number of poles o Network service area (sq. km) o Peak demand (MW)

1999-2000 to present (UC) 2000 to present (ESC/AER) 2002-03 to present (ICRC) 2003-04 to present (QCA) 2005-06 to present (ERA) 2000-01 to present (ESCOSA)

ESC QCA ICRC ERA UC ESCOSA

Price • Distribution price 2000-01 to present (ESCOSA) 2009-10 (QCA)

ESCOSA QCA

100 Indicators on energy delivered are available. 101 Other business descriptors prescribed under the SCONRRR may not be covered by the regulatory reports listed.



Table B3: Summary of Data for the Gas Transmission Sub-sector

Data Type Indicator Details Source


• Weighted Average Cost of Capital (WACC) parameters ACCC reports102

Quantity • Average daily pipeline flows • Daily production flows • Daily gas used by generators • Changes in gas demand and production and pipeline

flows

Aggregated to state level103 Aggregated to production zone level104 Weekly data for Southern and Eastern Australia pipelines

GMR

Physical data • Pipeline capacity GMR Price • Imbalance weighted prices ($/GJ)

o Average daily price (week) o Daily price o Access prices

Victorian weekly data GMR

102 AER, Consultancy Reports, Available at: http://www.aer.gov.au/content/index.phtml/itemId/681036 [accessed on 15 June 2010]. 103 The jurisdictions include New South Wales, Victoria, Tasmania, Queensland (sometimes divided into Brisbane, Mt Isa and Gladstone), South Australia, and sometimes the Australian Capital Territory. 104 The production zones include: Roma (QLD), Eastern Victoria, Otway Basin (VIC) and Moomba (SA/QLD).



Table B4: Summary of Data for the Gas Distribution Sub-sector

Data Type Indicator Details (Annual data at gas distributor level) Source

Revenue • Revenue 2004 to present (ESC/AER) 2004-05 to present (ESCOSA)

ESC ESCOSA

Expenditure • Capital Expenditure • Operating Expenditure

As above As above


• EBIT • Average assets • Average return on assets

2005-06 to present

ESCOSA

• Reliability of supply (UQ) o SAIDI o SAIFI o CAIDI o MAIFI (optional)

• Technical quality of supply (UQ) o Number of complaints (by category) o Likely cause of problem

• Customer service (UQ) o Timely provision of service o Call centre performance

2003-04 to 2006-07 (QCA) 2000-01 to present (ESCOSA) 2005-06 to present (OTTER) 2003105 to present (ESC/AER) 2006-07 to present (ERA)

QCA ESCOSA OTTER ESC ERA

• Number of gas main leaks • Number of outages106 • Number of leak repairs to service connections

2003 to present (ESC/AER) 2003-04 to present (ICRC) 2004-05 to present (ERA)

ESC ICRC ERA

Quality of services

• Unaccounted-for gas (%) • Average unplanned outages per 1 000 customers


105 Some of these indicators are available from 1999. 106 The ESC has reported the number of outages indicator and the ERA has reported the number of leak repairs to service connections indicator.



Quantity • Volume of gas distributed • Unaccounted-for gas • Number of customers

2002-03 to present (ICRC) 2003 to present (ESC/AER) 2003-04 to present (ESCOSA) 2003-04 to 2006-07 (QCA) 2005-06 to present (OTTER) 2006-07 to present (ERA)

ICRC ESC ESCOSA QCA OTTER ERA

• Maximum demand (MV) 2003 to present (ESC/AER) ESC Physical data

• Network length (km) 2003-04 to present (ESCOSA) 2003-04 to 2006-07 (QCA)

ESCOSA QCA



Table B5: Summary of Data for the Energy (Electricity and Gas) Retail Sub-sector

Data Type Indicator Details (Annual data at the retailer level) Source

Revenue • Energy Revenue 1999-2000 to present – electricity (ESCOSA) 2004-05 to present – energy (ICRC)

ESCOSA ICRC

• Disconnections and reconnections (UQ) o Number and percentage of disconnections o Number and percentage of reconnections within

seven days of disconnection • Customer Services (UQ)

o Number of complaints (by cause of problem) o Number of calls to call centre operators o Percentage of calls answered within 30 seconds o Percentage of unanswered calls

2004-05 to present – electricity (IPART)107 2005-06 to present – gas (IPART) 2001 to present – energy (ESC)108 2007-08 to present – energy (QCA) 2004-05 to present – energy (ESCOSA) 2005-06 to present – energy (ERA) 2000-01 to present – electricity (OTTER) 2003-04 to present – gas (OTTER) 2002-03 to present – energy (ICRC)

Quality of services

• Service standard payment o Number of payments by cause

2005-06 to present – energy (ERA)

IPART ESC QCA ESCOSA ERA OTTER ICRC

Quantity • Number of small customers (by type) • Energy consumption109

2001 to present – energy (ESC) 2007-08 to present – electricity (QCA) 1999-2000 to present – electricity (ESCOSA) 2004-05 to present – gas (ESCOSA) 2005-06 to present – energy (ERA) 2000-01 to present – electricity (OTTER) 2003-04 to present – gas (OTTER) 2005-06 to present – energy (ICRC)

ESC QCA ESCOSA ERA OTTER ICRC

Physical data • History of entry and exit of licensed retailers o Date of entry and date of exit o Licensing status

2004-05 to present – energy (ESCOSA) ESCOSA ESC ICRC

107 Some performance indicators are available from 1999-2000. 108 Some performance indicators are available from 1997. 109 This indicator has been reported by the ESC, the ESCOSA, and the OTTER.



• Number of customers who have switched retailer

2003-04 to present – energy (ESC) 2004-05 to present – energy (ESCOSA) 2005-06 to present – energy (ICRC)

• Number of customers on market contract • Number of customers on non-market contract

2007-08 to present – electricity (QCA) 2004-05 to present – energy (ESCOSA)

QCA

• Regulated retail price • Tariff (for households)

2010-11 to 2012-13 (electricity) (IPART) 2008-09 to 2012-13 (electricity) (NT Government) 2004-05 to 2008-09 – energy (ESC) 2004-05 to present – energy (ESCOSA) 2004-05 to present – energy (ICRC)

IPART NT Government110 ESC ESCOSA ICRC

Price

• Accessibility and affordability (UQ): for example, percentage of customers o using certain payment facilities o having security deposits held by the retailer o being granted extension for payment

2004-05 to present – electricity (IPART) 2005-06 to present – gas (IPART) 2001 to present – energy (ESC) 2004-05 to present – energy (ESCOSA) 2005-06 to present – energy (ERA) 2004-05 to present – energy (ICRC)

IPART ESC ESCOSA ERA ICRA

110 Northern Territory of Australia Government Gazette, No. S32, 30 June 2009.



C. Detailed Tabulation of Available Telecommunications Data

Table C1 summarises the data availability for telecommunications by data type (in accordance with the data item categories classified in Appendix A) from a number of major data sources identified. The data sources are:

• Telecommunications Regulatory Accounting Framework data (coded as source ‘TRAF’)

• Customer Access Network record keeping rule (RKR) data (coded as source ‘CAN RKR’)

• Access to Exchange Facilities RKR data (coded as source ‘Exchange RKR’)

• Audit of Telecommunication Infrastructure Assets RKR data (coded as source ‘Audit RKR’)

• RKR on Telstra bundled residential services (coded as source ‘Bundled RKR’)

• Data for the Competitive Safeguards reports (coded as source ‘Division 11’)

• RKR on Changes in the Prices Paid by Consumers for Telecommunications Services (coded as source ‘Division 12 RKR’)

• Telstra annual reports (coded as source ‘Telstra AR’)

• Australia Telco Tracker Excel Workbook compiled by UBS Securities Australia (coded as source ‘UBS’)

• Telecommunications Performance Bulletin published by the Australian Communications and Media Authority (ACMA) (coded as source ‘ACMA’)

• Complaints statistics published by the Telecommunications Industry Ombudsman (coded as source ‘TIO’), and

• Australian Bureau of Statistics survey on Internet activities (coded as source ‘ABS’).


The overall coverage and quality of indicators from each of the data sources summarised in the table are:

• The TRAF data contain disaggregated financial and service usage data at defined service levels for the five major carriers since 2001-02. The data are comprehensive, but the quality of data for smaller carriers may be of concern. The reasonableness of the cost allocation methods adopted may affect the reliability of the disaggregated cost and asset information. The data are confidential.

• Other RKR data collected by the ACCC cover different aspects of the telecommunication services, but are generally less comprehensive and are available only for more recent periods. The data are confidential.

• The ACMA data cover quality-of-service performance achieved by major carriers in specific areas since 2004-05.

• The TIO data cover statistics on telecommunications services complaints lodged by small business and residential consumers against the members of TIO since the quarter ending 30 September 2001. Changes in the scope and the classifications of the complaints have occurred over time.

• The Telstra annual reports contain detailed financial and operational data since 1995. Consistency of the data may be affected by accounting and corporate changes.

• The UBS data contain standard financial information for 13 telecommunications operators in Australia that can be dated back to as early as 1999. There is also a substantial degree of



variation in the disaggregated data for individual operators, and missing information is common.

• The ABS data cover output of Internet Service Providers during the period 2000 to 2009. There has been a change in data frequency (from quarterly to biannually) and a break in the series.

The reference list below comprises relevant publications and websites that have been reviewed under the data stock take for the summary of telecommunication data availability and quality.

ABS, Internet Activity – Australia, Cat. No. 8153.0, June 2008.

ABS, Use of the Internet by Householders – Australia, Cat. No. 8146.0, November 2000; and earlier quarterly reports dated back to February 1998. Available at: http://www.abs.gov.au/AUSSTATS/[email protected]/Lookup/8147.0Main+Features1Nov%202000?OpenDocument [accessed on 29 June 2009].

ACCC, Access to Telstra Exchange Facilities Record Keeping Rule 2008: Summary Report, various issues; available at: http://www.accc.gov.au/content/index.phtml/itemId/827798 [accessed on 22 July 2010].

ACCC, Access to Telstra Exchange Facilities: Record Keeping and Reporting Rules 2008; effective on 14 July 2008; available at: http://www.accc.gov.au/content/index.phtml/itemId/827798 [accessed on 25 November 2009].

ACCC, Annual Telecommunications Reports. Available at: http://www.accc.gov.au/content/index.phtml/itemId/755251 [accessed on 4 June 2009].

ACCC, Audit of Telecommunications Infrastructure Assets – Record Keeping Rules 2007, 19 December 2007. Available at: http://www.accc.gov.au/content/index.phtml/itemId/835987 [accessed on 22 July 2010].

ACCC, Bundling Record Keeping Rule, March 2003; and Revised Bundling Record Keeping Rule, March 2006; available at: http://www.accc.gov.au/content/index.phtml/itemId/668919 [accessed on 12 February 2010].

ACCC, Division 12 Report: Record-keeping and Reporting Rules, first issued in December 2004 and updated in April 2009. Available at: http://www.accc.gov.au/content/index.phtml/itemId/668921 [accessed on 25 November 2009].

ACCC, Market Indicator Report 2005-06, August 2007; and earlier reports (back to 2001-02); available at: http://www.accc.gov.au/content/index.phtml/itemId/690306 [access on 18 August 2011].

ACCC, Snapshot of Telstra’s Customer Access Network as at 30 September 2009, 2009. Available at: http://www.accc.gov.au/content/index.phtml/itemId/853523 [accessed on 22 July 2010].

ACCC, Telecommunications Industry Regulatory Accounting Framework, first issued in May 2001 and amended in October 2003, Available at: http://www.accc.gov.au/content/index.phtml/itemId/844151 [accessed on 18 June 2009].

ACCC, Telstra Customer Access Network Record Keeping and Reporting Rules: Section 151BU Trade Practices Act 1974, 2007, pp. 4–5. Available at: http://www.accc.gov.au/content/index.phtml/itemId/797549 [accessed on 20 November 2009].

ACMA, Telecommunications Performance Bulletin, various yearly issues; and Telecommunications Performance Data, various quarterly issues. Available at: http://www.acma.gov.au/WEB/STANDARD/pc=PC_1402 [accessed on 25 November 2009].

ACMA, Telecommunications Report 2005–06, 2006; and issues for 2006-07, 2007-08 and 2008-09. Available at: http://www.acma.gov.au/WEB/STANDARD/pc=PC_100897 [accessed on 5 February 2010].



Australian Communications and Media Authority (ACMA), Telecommunications Performance Report 2004-05, 17 November 2005. Available at: http://www.acma.gov.au/WEB/STANDARD/pc=PC_1402 [accessed on 24 May 2010].

Telecommunications Industry Ombudsman (TIO), Complaint Statistics, Available at: http://www.tio.com.au/statistics.htm [accessed on 16 March 2010].

Telstra, Telstra Annual Report, 1996 to 2010; Available at: http://www.telstra.com.au/abouttelstra/investor/financial-information/annual-reports/index.htm [accessed on 18 August 2011].

UBS Securities Australia, Australian Telco Tracker – 1 October 2008, 2008.



Table C1: Summary of Data for the Telecommunications Industry

Data Type Indicator Details (Annual data at the carrier level111) Source

Total revenue by business segment Disaggregated by defined service

2001-02 to present (annual and half-yearly)112 Major carrier level (Telstra, Optus, AAPT, Primus, Vodafone) Disaggregated by business segment and service113

TRAF114

Total revenue Disaggregated by product/service Sales revenues disaggregated by operational division

1994-95 to present (annual and half-yearly) Telstra Disaggregated by product/service

Telstra AR115

Revenue

Total revenue116 1999 to 2008 (annual, starting year may differ) 13 operators in Australia 117

UBS

Total operating cost by business segment Disaggregated by defined service Further segregated by cost category

2001-02 to present (annual and half-yearly) Major carrier level Disaggregated by service and cost category118

TRAF

Total expenses (including depreciation and amortisation) Disaggregated by expense category

1994-95 to present (annual and half-yearly) Telstra Disaggregated by expense category

Telstra AR

Expenditure

Total expenses 1999 to 2008 (annual, starting year may differ) 13 operators in Australia

UBS

111 Unless stated otherwise. 112 Note that the financial year end date differs across carriers. 113 Business segments are classified into three broad categories, namely retail, internal and external wholesale businesses. Telstra and Optus are required to report data for all three segments while AAPT, Primus and Vodafone are required to report data for the retail and external wholesale businesses 114 Note that Telstra has submitted RAF data since 1999-2000 and has submitted accounting and operational separation data measured on the current cost accounting basis under Division 6 of the Trade Practices Act 1974. 115 A small number of aggregate financial and operation data can be dated back to 1992-93 as they are reported in the 1997 report. Note that the change of accounting standards from the AGAAP to the AIFRS occurred in annual report for 2004-05. 116 Disaggregated revenue and expenditure data are also available, but the classification and the level of disaggregation differ across companies. 117 The telecommunications companies covered include Telstra, Optus, Vodafone, Hutchison, AAPT, iiNet, PowerTel, Amcom, Primus, Commander, Macquarie Telco, SP Telemedia and Unwired. Note that level of disaggregation, classifications and reporting frequency of the financial information (including revenue, expenditure, and balance sheet item) differ across companies. 118 Each reporting carrier is required to establish and maintain a Regulatory Account Procedures Manual (RAPM) that documents the allocation procedure used to allocate revenue, cost and asset to service level.



Working capital and non-current assets Disaggregated by business segment and defined service Further segregated by asset category

2001-02 to present (annual and half-yearly) Major carrier level Disaggregated data for Telstra and Optus

TRAF Balance sheet

Total assets Disaggregated by current/non-current Disaggregated by operational division Total assets Disaggregated by asset type Total liabilities Total equity

1994-95 to present (annual and half-yearly) Telstra Disaggregated assets by broad asset category 1999 to 2008 (annual, starting year may differ) 13 operators in Australia

Telstra AR UBS TRAF, Telstra AR, UBS

Profit119 Disaggregated by business segment and defined service

2001-02 to present (annual and half-yearly) Major carrier level

TRAF Financial performance

EBIT, EBITDA, EBITDA margin Profit after tax

1994-95 to present (annual and half-yearly) Telstra

Telstra AR

Quality of services

Customer Service Guarantee performance: for example, New service connections meeting CSG Standard timeframes by service area Priority assistance services performance: for example, Compliance with the licence timeframe by service area Telstra-operated payphone services: for example, Average business hours to repair to fault by state Complaints Number of complaints by issue Number of complaints by level of complaints

2004-05 to present (quarterly) Major carrier level CGS performance by Telstra and Optus Priority assistance services performance by Telstra, AAPT, and Primus Payphone services performance by Telstra September 2001 to present (quarterly) Member level

ACMA TIO

Quantity Service usage (retail / external wholesale): for example, Disaggregated by defined service Number of local call attempts Number of leased lines

2001-02 to present (annual and half-yearly) Major carrier level

TRAF

119 There are three profit measures reported, namely gross profit/loss, capital adjusted profit/loss, and access-adjusted profit/loss.



Service usage by product / service Number of subscribers (mobile / online)

1994-95 to present Telstra

Telstra AR

Number of Internet access lines Number of Internet subscribers Number of ISPs by State and ISP size

2000 to present All ISPs operating in Australia

ABS

Non-financial performance

Number of full-time equivalent employees Number of full-time employees

1994-95 to present Telstra

Telstra AR

Customer access network by exchange service area Number of services in operation by category Number of ULL used by access seeker Number of LSS used by access seeker

2007 to present (quarterly) Telstra

CAN RKR120

Access to Telstra exchange facilities Number of exchange with queues Number of capped exchange

December 2008 to present (monthly) Telstra

Exchange RKR

Physical data

Location of infrastructure assets Distribution of exchanges with a given number of service providers in competing services

2007 to present (annual) Carrier level (22 carriers)

Audit RKR

Prices for bundled residential services 2003 to present(quarterly) Telstra

Bundled RKR121

Average retail price by service 1999-00 to present (annual) Telstra

Division 11

Price

Price paid by consumers by service 1999-00 to present (annual) Telstra

Division 12 RKR

120 Telstra is required under the RKR to submit communications infrastructure data. Previously Telstra had been required to report, on a weekly basis, exchange access and service provision in relation to the ULL services. 121 The RKR, introduced in 2003 and revised in 2006, requires Telstra to provide quarterly reports on bundled residential services, including usage, revenue, and discounts.



D. Detailed Tabulation of Available Postal Services Data

The following table summarises the data availability for the postal industry by data type from a number of major data sources identified. The data sources are:

• Australia Post Record Keeping and Reporting Rule 2005 (coded as source ‘APRKR’ below)

• Australia Post Price Notifications in 2002, 2008 and 2010 (coded as source ‘APPN’)122

• Australia Post annual reports (coded as source ‘AP AR’), and

• Productivity Commission (PC) Government Trading Enterprise (GTE) reports (coded as source ‘PC’).


As shown in the table, the overall coverage and quality of indicators from each of the data sources are:

• The regulatory account data contain disaggregated financial and service usage data at defined service level for Australia Post since 2004-05. Given the relatively short period covered, the data are fairly consistent. However, the reasonableness of the cost allocation methods adopted may affect the reliability of the disaggregated cost and asset information.

• The data submitted by Australia Post for the purpose of price notification contain comprehensive price information for a large number of postal products and services.

• The Australia Post annual reports have contained detailed financial and operational data since 1988-89. Consistency of the data may be affected by accounting and reporting changes.

• The PC reports have published key financial performance indicators covering the period 1994-95 to 2006-07. Consistency of the data may be affected by changes in the accounting system and data definition.

The reference list below comprises relevant publications and websites that have been reviewed under the stock take for postal services data available and are found to provide data or supporting information that are potentially useful for the evaluation of infrastructure reforms.

ACCC, Assessing Cross-Subsidy in Australia Post 2009-10, April 2011; and earlier reports (back to 2004-05); available at: http://www.accc.gov.au/content/index.phtml/itemId/982020 [accessed on 18 August 2011].

ACCC, Assessing Price Notifications, Available at: http://www.accc.gov.au/content/index.phtml/itemId/332074 [accessed on 18 August 2011].

ACCC, Principles for the Public Disclosure of Record-keeping Rule Information provided by Australia Post, November 2006. Available at: http://www.accc.gov.au/content/index.phtml/itemId/771933 [accessed on 18 February 2010].

ACCC, Record Keeping Rule: Establishing a Regulatory Accounting Framework for AP – issued under Section 50H of the Australian Postal Corporation Act 1989, 30 March 2005. Available at: http://www.accc.gov.au/content/index.phtml/itemId/672018 [accessed on 17 July 2009].

ACCC, Statement of Regulatory Approach to Assessing Price Notifications, June 2009. Available at: http://www.accc.gov.au/content/index.phtml/itemId/700599 [accessed on 30 November 2009].

122 The availability of APPN data will not be summarised for data items covered by alternative major data sources.



Australia Post, Australia Post Annual Report, 2002-03 to 2009-10; available at: http://auspost.com.au/about-us/annual-reports.html [accessed on 18 August 2011].

Productivity Commission, Financial Performance of Government Trading Enterprises 2004-05 to 2006-07, Productivity Commission Research Report, July 2008; and earlier reports (back to 1997-98); available at: http://www.pc.gov.au/research/commissionresearch/gte0607 [accessed on 6 July 2009].

Steering Committee of National Performance Monitoring of Government Trading Enterprises, Government Trading Enterprises Performance Indicators 1987-88 to 1991-92; published by the Industry Commission, July 1993.

Steering Committee of National Performance Monitoring of Government Trading Enterprises, Government Trading Enterprises Performance Indicators 1992-93 to 1996-97; published by the Industry Commission, April 1998.



Table D1: Summary of Data for the Postal Services Industry

Data Type Indicator Details (Annual data for Australia Post123) Source

• Total revenue (reserved / non-reserved) o Disaggregated by defined service group

2004-05 to present Disaggregated by service group

APRKR

Revenue

• Total revenue o Disaggregated by business segment124 o Disaggregated by reserved/non-reserved

1988-89 to present Disaggregated by business segment

AP AR125

• Total cost (including depreciation and amortisation) (reserved / non-reserved)126 o Disaggregated by defined service group o Further segregated by defined cost category

• Capital expenditure o Disaggregated by reserved/non-reserved o Further segregated by defined asset category

2004-05 to present Disaggregated cost by service group and cost category Disaggregated capital expenditure by reserved/non-reserved and asset category

APRKR Expenditure

• Total Cost (including depreciation and amortisation) o Disaggregated by business segment o Further disaggregated by operating activity o Also available for reserved/non-reserved

1988-89 to present Disaggregated cost by business segment and operating activity

AP AR

• Fixed assets (reserved/non-reserved) o Disaggregated by defined service group o Further segregated by asset category

2004-05 to present Disaggregated by service group and asset category

APRKR Balance sheet

• Total assets o Disaggregated by broad asset category

• Total liability • Total equity

1988-89 to present Disaggregated assets by broad asset category

AP AR

123 Unless stated otherwise. 124 Business segment data (for revenue, cost and assets) are available from 2000-01 (or earlier), but the reported segments are reduced from seven to four in 2003-04. 125 Note that the change of accounting standards from the AGAAP to the AIFRS occurred in the annual report for 2004-05. 126 Activity-based accounting has been adopted by Australia Post to allocate costs/assets to defined service group.



• Profit (total revenue – total cost)

2005-06 to present Disaggregated by service group

APRKR

• EBIT, EBITDA & EBITDA margin • Profit after tax

1988-89 to present

AP AR


• EBIT • Debt to equity (%) • Dividends

1994-95 to 2006-07 PC

Quality of service • Delivery service performance by state o Percentage of letters delivered on time

• Access to postal network o Number of corporate outlets by state o Number of licensed post offices by state

• Frequency of service to delivery points by area: proportion of o delivery points receiving five-day-a-week delivery o delivery points receiving no-less-than-twice-a-week delivery

1988-89 to present AP AR

• Service usage (reserved / non-reserved) o Disaggregated by defined service group

2004-05 to present APRKR Quantity

• Total mail items delivered • Number of delivery points by category

1988-89 to present AP AR

Non-financial performance

• Number of employees (by employment status and division) • Labour productivity improvement

1988-89 to present

AP AR

• Prices for postal products and services 2002 to present APPN Price

• Basic postage rate 1988-89 to present APAR



E. Detailed Tabulation of Available Water and Wastewater Data

The following two tables summarise the data availability for the water and wastewater industry by data type (in accordance with the data item categories classified in Appendix A). The first table examines the urban water and wastewater utilities and the second table examines the rural water and wastewater utilities.

For each data type, the table details a list of indicators for the industry, available from the following major sources identified:

• ACCC annual monitoring on irrigation infrastructure operators (IIOs) (coded as source ‘ACCC’ below)

• Australian Water Association annual reports on non-major urban water utilities (coded as source ‘AWA’)

• National Water Commission annual reports on urban water utilities (coded as source ‘NWCU’)

• National Water Commission annual reports on rural water utilities (coded as source ‘NWCR’)

• Water Services Association of Australia (WSAA) annual publications, WSAA facts (coded as source ‘WSAA’) on major urban water utilities

• Australian National Committee on Irrigation and Drainage (ANCID) annual reports (coded as source ‘ANCID) on rural water utilities, and

• Australian Bureau of Agricultural and Resource Economics and Science survey of irrigated farms within the Murray-Darling Basin (coded as source ‘ABARES’).



• The collection of water monitoring data by the ACCC commenced in 2010. Information requested from the reporting IIOs is standard.

• The AWA data are generally consistent over time, given its short time period (four years from 1997-98 to 2000-01).

• The NWCU data are consistent and extensive, but the time period is relatively short (five years from 2005-06 to 2009-10). Although for some indicators there are data from 2002-03, it is generally incomplete for the period preceding 2005-06.

• The NWCR data are consistent and extensive, but the time period is quite short (four years from 2006-07 to 2009-10). There is also some degree of variation in the breadth of indicators reported across utilities.

• The WSAA data are consistent, very extensive and the time period is fairly long (generally six years from 1999-2000 to 2004-05). There is also some degree of variation in the breadth of indicators reported across utilities, and some indicators are reported inconsistently across time.

• The ANCID unaudited data (available from 1997-08) have shown improved consistency in the last four reports ending on 2005-06.

• The ABARES annual farm level surveys are generally consistent over time using the same representative stratified sample of irrigated farms from selected regions and industries within the MDB area. There have been three annual surveys from 2006-07 to 2008-09.



It should be noted that some of the above data sources have been discontinued. However, the data may continue to be reported by another data source. For example, WSAA ceased publication of performance data on major urban water utilities in 2005 when the reporting was transferred to the NWC. Datasets covering the same group of water utilities over time may be considered together for the evaluative work.

The reference list below comprises relevant publications and websites that have been reviewed under the stock take for water and wastewater data available and are found to provide data or supporting information that are potentially useful for the evaluation of infrastructure reforms.

ACCC, ACCC Water Monitoring Report 2009-10, March 2011; available at: http://www.accc.gov.au/content/index.phtml/itemId/985068 [accessed on 20 August 2011].

ACCC, ACCC Water Monitoring: Information Request – Part 1, June 2010; available at: http://www.accc.gov.au/content/index.phtml/itemId/944833 [accessed on 20 August 2011].

Australian Bureau of Agricultural and Resource Economics and Science, An Economic Survey of Irrigation Farms in the Murray-Darling Basin: Industry Overview and Region Profiles 2008-09, April 2011; and earlier reports (back to 2006-07); Available at: http://www.abares.gov.au/publications_remote_content/publication_topics/water_and_irrigation [accessed on 20 August 2011].

Australian National Committee on Irrigation and Drainage, Australian Irrigation Water Provider Benchmarking Data Report for 2005/2006, April 2007; and earlier reports for 1997-98 to 1999-2000, 2001-02 to 2003-04 and 2005-06; available at: http://www.irrigation.org.au/assets/pages/6E9E6203-1708-51EB-A65470E3F41123EB/ANCID_Benchmarking_Data_Report_2005-06%5B1%5D.pdf [accessed on 20 April 2010].

Australian Water Association, Performance Monitoring Report 2000-2001: Australian Non Major Urban Water Utilities, 2002; and earlier reports (back to 1997-98).

National Water Commission, National Performance Report 2007-08: Rural Water Service Providers, April 2011; and earlier reports (back to 2006-07); The respective reports (and earlier reports) are available at: http://www.nwc.gov.au/www/html/3030-npr-rural-2009-10.asp?intSiteID=1 [accessed on 20 August 2011].

National Water Commission, National Performance Report 2009-10: Urban Water Utilities; April 2011; and earlier reports (back to 2005-06); available at: http://www.nwc.gov.au/www/html/3031-npr-urban-2009-10.asp?intSiteID=1p [accessed on 20 August 2011].

Water Services Association of Australia, WSAAfacts, 1996 to 2001 and 2003 to 2005; some are available at: https://www.wsaa.asn.au/ResourceCentre/Pages/WSAAResults.aspx/Results.aspx?k=WSAAfacts [accessed on 20 August 2011].



Table E1: Summary of Data for the Urban Water and Wastewater Utilities

Data Type Indicator Details (Annual data at the utility level127) Source

• Revenue from community service obligations128 (%) • Total income129 ($000s) • Income per property ($)

2005-06 to 2009-10 Urban water utilities NWCU

• Revenue per property ($ at 2004-05 price) 1999-2000 to 2004-05130 Urban water utilities Water and sewerage disaggregated

WSAA

• Revenue from trading operations ($/property) • Revenue from usage charges, access charges, CSOs and other (%)

2000-01 Non-major urban water utilities Water and sewerage disaggregated 1997-98 to 2000-01 Non-major urban water utilities Water and sewerage disaggregated

AWA

Revenue

• Revenue from rural water service provision ($) • Revenue by tariff component ($ and %): for example, customer service

fee

2006-07 to 2009-10 Rural water utilities NWCU

Expenditure

• Capital expenditure for water and sewerage ($000s) • Combined operating cost – water and sewerage ($ per property) • Capital expenditure per property ($ per property) • Operating cost per property – water and sewerage ($ per property)

2002-03 to 2009-10131 Urban water utilities Water and sewerage aggregated 2005-06 to 2009-10 Urban water utilities Water and sewerage aggregated

NWCU

127 Unless stated otherwise. 128 In the water and wastewater industry, Community Service Obligations (CSOs) are mainly provided for pensioner rebates and may also relate to water or sewerage services provided for communities that are unable to raise sufficient income to fund their costs. 129 Income measure is defined as revenue from water and sewerage businesses and related activities, including income from asset sales. 130 Since revenue is stated in real dollars, there is consistency within reports without the need for conversion. For the latest report (2005), the data cover the period 1999-2000 to 2004-05. It is possible to extend the time-series back to 1997-98 by converting past data (the 2003 report is the earliest with the same format as the latest version). Beyond this (formats of WSAA facts from 1996 to 2001), problems arise since indicators are presented as an aggregation across water and wastewater. 131 The data from 2005-06 are comprehensive for utilities with between 10 000 and 20 000 connected, 20 000 and 50 000 connected properties and bulk service utilities. There are also gaps in the 2002-03 to 2004-05 data for utilities with between 50 000 to 100 000 connected properties.



• Total cost per property ($ at 2004-05 price) • Operating cost per property ($ at 2004-05 price) • Capital expenditure ($000s at 2004-05 price)

1999-2000 to 2004-05132 Urban water utilities Water and sewerage disaggregated

WSAA

• Renewals expenditure133 (%) 1997-98 to 2000-01 Non-major urban water utilities AWA

• Cost by type (operation/maintenance/administration) ($) • Capital expenditure ($ and % of current assets)

2006-07 to 2009-10 Rural water utilities NWCR

Balance sheet

• Fixed assets by water and sewerage ($000s) 1999-00 to 2004-05134 Urban water utilities WSAA

• Net profit after tax ($000s) and NPAT ratio • Dividend ($000s) and dividend payout ratio (%)

2005-06 to 2009-10 Urban water utilities NWCU

• Return on assets (%) • Tax paid (000s) • Net debt ($000s) • Net interest paid ($000s)

1999-00 to 2004-05135 Urban water utilities WSAA


• Economic real rate of return (%) • Return on assets (%)

1997-98 to 2000-01136 Non-major urban water utilities

AWA

Quality of services

• Average duration of unplanned interruption – water (minutes) • Water and sewerage complaints (# per 1 000 properties) • Percentage of calls answered by an operator within 30 seconds • Water main breaks (# per 100km of water main) • Sewer main breaks and chokes (# per 100km of sewer main) • Sewer overflows to the environment (# per 100km of sewer main) • Real losses (litres/service connection/day)

2005-06 to 2009-10137 Urban water utilities

NWCU

132 As with revenue data, the operating and capital expenditures are stated in real dollars. For the latest report (2005), the data cover the period 1999-2000 to 2004-05. 133 Renewals expenditure data are incomplete. 134 Financial ratios are not presented consistently over time (across utilities). 135 Financial ratios are not presented consistently over time (across utilities). 136 Financial ratios presented inconsistently. Real rate of return is virtually complete. Data on return on assets are very incomplete. 137 The first three indicators are only presented in charts.



• Percentage of population achieving microbiological compliance (%)

• System performance o Water main breaks (# per 100km of water main) o Unplanned water supply interruptions (# per 1 000 properties) o Average duration of an unplanned water supply interruption (hours) o Wastewater reticulation main breaks and chokes (# per 1 000

properties) o Property connections sewer breaks and chokes(# per 1 000

properties) o Average wastewater break/choke repair time (hours) o Wastewater overflows (# per 100k of wastewater main)

• Service delivery138 o Microbiological compliance achieved (yes/no) o Physical-chemical compliance achieved (yes/no) o Quality approved system/s (yes/no) o Public disclosure of compliance (yes/no) o Percentage of wastewater treated by level

(primary/secondary/tertiary) o Wastewater treatments plants compliant at all times (#) o Percentage of wastewater volume treated that was compliance o Compliance with environmental regulator (yes/no) o Water quality complaints per 1 000 properties (#) o Wastewater odour complaints per 1 000 properties (#) o Written complaints meaningfully responded to within ten days (%)


WSAA

• System water loss o Loss per length of main (ML/100 km) o Loss as a proportion of water supply o Loss per property per day (litre/property/day) o Water quality complaints (per 1 000 properties)139

1997-08 to 2000-01 Non-major urban water utilities AWA

138 Quality of service reporting varies widely throughout the publication. Although some indicators are consistently present, they are expressed in different formats. For example, certain bacteriology tests are represented as either ‘percentage compliant’ or in a simple ‘complaint/non-complaint’ way in other reports. New complaint measures are introduced later in reports, such as number of water quality complaints per 1 000 properties. 139 Water quality complaints data are only available for 2000-01.



o Microbiological samples (per 100 ML) o Physical and chemical samples (per 100 ML) o Physical and chemical compliance (%) o Confirmed sewer chokes (# per 100km of main) o Sewage overflows (# per 1 000 properties) o Sewage overflows (# per 100km of main)

• Net greenhouse gas emissions (tonnes per 1 000 properties)140 • Average annual residential water supplied141 (KL/property) • Total recycled water supplied (ML)

2002-03 to 2009-10 Urban water utilities 2005-06 to 2009-10 Urban water utilities

NWCU

• Connected properties and population (000s) by residential/non-residential

• Water supplied (ML) o Disaggregated into use

• Water consumed per residential property (KL/property) • Water supplied per total property (KL/property) • Total wastewater collected (ML) • Wastewater collected per total property (KL/property)


WSAA

Quantity

• Total water supplied (GL) • Average annual consumption (residential) (KL/property) • Average annual consumption (all users) (KL/property)

o Peak week to average week consumption ratio (%) • Water & sewerage (separately)

o Population served (000s and %) o Number of connected properties o Assessments (000s) (total and by type) o Properties served per km of main (properties/km) o Average daily flow


1998-99 and 2000-01 Non-major urban water utilities

AWA

140 The greenhouse gas emissions indicator is consistently provided from 2004-05 onwards for most of the major utilities and from 2006-07 for the smaller utilities. 141 The indicator of average annual residential water supplied is provided from 2002-03. The data are incomplete before 2005-06 for utilities with between 20 000 and 50 000 connected properties, and there are no data before 2005-06 for utilities with between 10 000 and 20 000 connected properties.



o Average daily flow per residential property / property / person • Total annual rainfall (mm) • Average temperature (°C): maximum, minimum • Length of water mains (km) • Water pumping stations (#) • Water properties per kilometre of water main (#) • Length of wastewater mains and channels (km) • Wastewater treatment plants (#) • Wastewater pumping stations (#) • Wastewater properties per kilometre of water main (#)

1995-96 to 2004 Urban water utilities 1999-00 to 2004-05 Urban water utilities

WSAA

Physical data

• Water and sewerage (separately): o Length of water /sewerage mains (km) o Pumping stations / treatment plants / reservoirs / bores / weirs /

dams (#)

1998-99 and 2000-01 Non-major urban water utilities

AWA

• Typical residential bill – water and sewerage 2007-08 and 2009-10 Urban water utilities NWCU Price

• Typical residential bill ($) by: o Fixed charge and usage charge o Number of meter readings per annum o Number of bills per annum

• Average annual bill

2004-05 Urban water utilities WSAA



• Average annual bill (based on 205KL consumption) • Water and sewerage (separately)

o Average residential bill ($ actual142) o Real increase in average residential bill ($ actual)

• Other (water) o Residential bill with 200 KL/annum use o Real increase in residential bill with 200 KL/annum use (%)

• Other (sewerage) o Typical developer charge per residential allotment ($/property) o Minimum access charge ($)


2000-01 Non-major urban water utilities

AWA

142 The terminology ‘actual’ is used in the source reports and is assumed to mean nominal.



Table E2: Summary of Data for the Rural Water and Wastewater Utilities

Data Type Indicator Details (Annual data at the utility level) Source

• Revenue o Fixed revenue o Variable revenue o Termination fee revenue

2008-09 to 2009-10 Irrigation infrastructure operators

ACCC

• Revenue o by customer service fee/customer service point fee / area service

charge/ water entitlement charge / consumptive charge / infrastructure access charge / other

2006-07 to 2009-10 Rural water utilities Disaggregated into tariff components

NWCR143

• Total revenue • Revenue from irrigation and drainage

1997-98 to 2005-06 Rural water utilities ANCID

Revenue

• Cash income per irrigated farm, by industry 2006-07 to 2008-09 Irrigated farms within the MDB

ABARES

Expenditure • Capital expenditure (nominal and real $) • Capital expenditure as a percentage of current assets (%) • Operating expenditure ($) • Maintenance expenditure ($) • Maintenance expenditure as a percentage of current assets (%)


Balance sheet • Current asset replacement cost ($) • Fixed asset replacement cost ($) • Net debt ($) • Total assets ($) • Total liabilities ($) • Net debt to equity ratio (%)


143 Availability of indicators varies depending on utility and function of utility. It is difficult to generalise the indicators since statistics are presented individually/separately for each utility. Reports appear to be consistent over time, although the duration of data is limited.



• EBIT ($) • Net interest ($) • Interest cover (%) • Economic real rate of return (%)



• Business profit per irrigated farm, by industry • Rate of return per irrigated farm, by industry

2006-07 to 2008-09 Irrigated farms within the MDB

ABARES

• Rural water service delivery complaints o Number of customer service delivery complaints o Customer service delivery complaints per 100 customers

• Customer billing and account complaints o Number of billing and account complaints o Billing and account complaints per 100 customers o Total number of complaints o Total number of complaints per 100 customers


Quality of services

• Salinity level 2001-02 to 2005-06 Rural water utilities ANCID • Customer accounts

o Customer accounts (#) o Customer service points and supply service classifications o Customer service points (#) o Capacity of supply network (ML/d) o Volume supplied at customer service points (ML) o Power consumption to provide service (kWh)

• Greenhouse gas emissions o Total electricity consumption for the reporting period (kWh) o Total greenhouse gas emissions (t C02e)


Quantity

• Number of customer by service type: for example, o Irrigation customers (#) o Gravity network irrigation customers (#)

• Water delivered at customer service points (ML)

2009-10 Irrigation infrastructure operators ACCC



• Network length by network type, for example, o Gravity network (km) o Pressurised network (km)

• Water delivery and irrigation rights o Water delivery/irrigation rights held by irrigation customers (ML) o Number of irrigation customers requesting termination of water

delivery rights between 1 July and 30 June (#) o Water delivery rights terminated by irrigation customers (ML) o Terminations of water delivery rights at 100 per cent (#) o Water delivery rights transferred to a third party (#)

• Transformation arrangement144 o Quantity of irrigation right transformed (ML) o Quantity of water delivery right terminated (ML)

2009-10 Irrigation infrastructure operators ACCC Physical data

• Irrigation area, by industry o Area irrigated as proportion of irrigation area set up (%)

• On-farm water storage, by industry o Percentage of farms with water storage (%) o Capacity of water storage (ML)

• Water trading, by industry o Percentage of farms engaging in water trading, by trading type (%) o Percentage of farms intending to trade, by type of intention (%)

• Irrigation management, by industry o Percentage of farms using a soil moisture measurement tool, by tool

(%)

2006-07 to 2008-09 Irrigated farms within the MDB

ABARES

144 Transformation arrangement refers to the process by which an irrigator permanently transforms entitlement to water under an irrigation right against an irrigation infrastructure operator into a separately held water access entitlement.



Price • Regulated water charges levied by an IIO for water delivery and drainage o Disaggregated by fee type; for example, o Access fee, fixed drainage charge, outlet charge, variable delivery

charge ($ per ML delivered) • Termination fee levied by an IIO

o Disaggregated by fee type; for example, o Access fee, fixed drainage charge, fixed government charge ($ per ML

of entitlement)

2009-10 Irrigation infrastructure operators ACCC



F. Detailed Tabulation of Available Rail Data

The following table summarises the data availability for the rail industry by data type. For each data type, the table details a list of indicators for the rail industry, available from the following major sources identified:

• Australian Rail Track Corporation (ARTC) annual reports (coded as source ‘ARTC’)

• Queensland Rail (QR) annual reports (coded as source ‘QR’)

• Economic Regulation Authority of Western Australia (ERA) reports (coded as source ‘ERA’)

• Australasian Railway Association (ARA)/ Bureau of Infrastructure, Transport and Regional Economics (BITRE) annual rail publications (coded as source ‘ARA/BITRE’)

• ARA industry reports (coded as source ‘ARA’), and

• BITRE’s 2011 statistics yearbook (coded as source ‘BITRE’).



• ARTC annual reports: The ARTC data cover a relatively long time period. The financial data reported are broadly consistent. The quality-of-service indicators are inconsistent due to several changes to the reporting format.

• QR annual reports: The QR data appear to be consistent, at least for the four-year data reviewed. If earlier annual reports can be sourced, the data can be extended back to 1998-99 and are expected to be broadly consistent with the ARTC data as both are subject to the reporting requirements for the government trading enterprises.

• ERA reports: The ERA data are consistent over time, given its short time period covered (three years up to 2005-06).

• ARA/BITRE annual rail publications: The ARA/BITRE data are short time-series data mainly covering three years in 2005-06 and 2007-08. The data are limited to key performance indicators on train, track and market share.

• ARA industry reports: The ARA survey information is published as the industry aggregate level and for the years 2002-03 to 2009-10. However, the coverage of rail companies participating in the survey has changed slightly over time. Most of the data (for example, revenue and expenses) are published on an irregular basis.

• BITRE yearbook: The BITRE publishes a very small number of aggregate rail output measures covering 1971-72 to 2007-08.

The reference list below comprises relevant publications and websites that have been reviewed under the stock take for rail data available and are found to provide data or supporting information that are potentially useful for the evaluation of infrastructure reforms.

ARA, Australian Rail Industry Reports, prepared by Apelbaum Consulting Group, December 2010; and earlier reports 2008, 2007, 2005 and 2003. Available at: http://www.ara.net.au/site/publications.php [accessed on 21 August 2011].

BITRE, Australian Infrastructure Statistics Yearbook 2011, March 2011; available at: http://www.bitre.gov.au/Info.aspx?ResourceId=792&NodeId=134 [accessed on 20 August 2011].

BITRE, Australian Intercapital Rail Freight Performance Indicators 2006-07, Information Paper 62, jointly produced with Australasian Railway Association, June 2008; available at: http://www.bitre.gov.au/info.aspx?NodeId=134 [accessed on 20 August 2011].



BITRE, Australian Rail Freight Performance Indicators 2005-06, Information Paper 69, jointly produced with Australasian Railway Association, June 2007; available at: http://www.bitre.gov.au/info.aspx?NodeId=134 [accessed on 20 August 2011].

BITRE, Rail Freight Performance Indicators 2007-08: Statistical Report, jointly produced with Australasian Railway Association, February 2010; available at: http://www.bitre.gov.au/info.aspx?NodeId=134 [accessed on 20 August 2011].

ERA, Public Transport Authority: General Network Information and Key Performance Indicators for 2005-06, February 2007; available at: http://www.era.wa.gov.au/cproot/5029/2/PTA%20KPI%20report%202005-06%20February%202007.pdf [accessed on 29 October 2009].

ERA, Public Transport Authority: General Network Information and Key Performance Indicators for 2004-05, January 2006; available at: http://www.era.wa.gov.au/cproot/3340/2/PTA%20KPI%20report%202004-05%20Dec%2005%20NEW.pdf [accessed on 29 October 2009].



Table F1: Summary of Data for the Rail Industry

Data Type Indicator Details (Annual data at the firm level145) Source

• Revenue (from continuing operations) • Total revenue and other income (from continuing

operations)

1998-99 to present (ARTC) 2005-06 to present (QR)

ARTC QR146

Revenue

• Revenue by source (for example, passenger, freight) 2002-03, 2004-05 and 2007-08 Industry aggregate

ARA

• Total expenses • Expenses, excluding finance costs

o incident costs o infrastructure maintenance o operating lease expenses o project and development expenses o service agreements o communications expenses o train control communications

1998-99 to present (ARTC) Disaggregated by category 1998-99 to present 2000-01 to present 2000-01 to present 2001-02 to present 2004-05 to present 2004-05 to present 2004-05 to present

ARTC Expenditure

• Expenses by type (for example, labour, rail access, maintenance)

• Labour costs by type of work (for example, network control, train crew)

• Net investment, by type of assets

2002-03, 2004-05 and 2007-08 Industry aggregate

ARA

• Assets (current and non-current) • Liabilities (current and non-current) • Total equity

1998-99 to present (ARTC) Disaggregated by component 2005-06 to present (QR) Disaggregated by component

ARTC QR

Balance sheet

• Fixed and deferred assets, by type of assets • Total assets

2001-02 to 2005-06 and 2006-07 to 2007-08 Industry aggregate

ARA

145 Unless stated otherwise. 146 Only QR annual reports from 2005-06 onwards are available on the QR website, and thus the duration of data for these indicators are limited. If, however, earlier annual reports can be

sourced, this will provide data from 1998-99 onwards.



• Liability • Shareholders’ Fund • Total borrowings • Access revenue yield • Intermodal state-to-state market share

2003-04 to 2005-06 Disaggregated into line segments147 1972 to 2005-06 Disaggregated into states and territories (original to destination)

ARA/BITRE

• EBITDA • Operating profits after tax • Net cash flows • Debt/equity ratios • Interest coverage ratios • Depreciation and amortisation • Access revenue yield

1998-99 to present (ARTC) 2005-06 to present (QR) 1999-2000 to 2002-03 (ARTC)

ARTC QR


• Operating profit • Taxes paid, by type (for example, income tax, payroll tax) • Dividend paid to Government • Earnings from passenger services per passenger kilometre • Earnings from freight services per tonne kilometre • Net profit on shareholder fund • Net profit on total earnings • Net profit on total assets • Debt to debt and equity ratio • Labour cost per employee

2002-03, 2004-05 and 2007-08 Industry aggregate

ARA

Quality of services

• Total delays (minutes) • All services

o Number of force majeure services o Number of services on time entry

2004-05 to present (East-West corridor) (quarter) 2005-06 to present (North-South corridor) (quarter) North-South and East-West corridors

ARTC

147 Line segments include Brisbane–Sydney, Sydney–Melbourne, Brisbane–Melbourne, Brisbane–Adelaide, Melbourne–Adelaide, Melbourne–Perth, Sydney–Adelaide, Sydney–Perth, Adelaide–

Perth, and Adelaide–Darwin.



o All services entering on time (%) o All services exiting on time (%)

• Healthy services o Number of healthy services o Services that are healthy (%) o On-time exit healthy services o Healthy trains exiting on time (%)

• Unhealthy services o Number of unhealthy services o Services that are unhealthy (%) o Number of late entry o Services that enter late (%) o Number of unhealthy en route o Number of services deteriorated o Unhealthy services undeteriorated (%) o Train management

• ARTC delays o ARTC communications o ARTC signalling o ARTC track fault

• Operator delays o Late entry o Crew/personnel o Terminal o Operator run o Slow run o Operator preference o Rolling stock failure

• Neither delays o Third party delay o Force majeure

• Train transit times • Reliability • Track yield

1999-2000 to 2003-04

ARTC



• Percentage of delays attributable to either above rail or below rail or neither148

• Number of incidents by cause

2003-04149 to 2005-06 Disaggregated by cause WestNet Rail/Public Transport Authority

ERA • Intermodal transit time (scheduled and actual)

• Number of weekly trains (intermodal city-to-city trains, intermodal trains on a line segment and steel trains)

• Train flow patterns (dwell time, number of stops, average speed)

2005-06 to 2007-08 Disaggregated into line segments

ARA/BITRE

• Total number of services • Track length by corridor (km) • Track under speed restriction (km) • Gross tonne kilometres (GTK)150 • East-west rail corridor annual tonnages

2000-01 to 2003-04 1998-99 to 2003-04 1998-99 to present 2000 to 2002

ARTC

• Total rail task o Intercity line segment share in total rail task

2005-06 to 2006-07 Disaggregated into line segments

ARA/BITRE

• Total passenger journey (#), by heavy and light rail • Total passenger-kilometres, by heavy and light rail • Tonnes carried (tonnes), by inter-and intra-state rail and by

bulk and non-bulk commodities • Net tonne kilometres, by inter-and intra-state rail and by bulk

and non-bulk commodities

2002-03 to 2009-10 Industry level

ARA

Quantity

• Passenger kilometres • Tonne kilometres, by state/territory

o Interstate non-bulk rail freight o Domestic freight

1971-72 to 2007-08

BITRE

Physical data • Train length • Double staking capacity

2005-06 to 2007-08 Disaggregated into line segment

ARA/BITRE

148 A delay is defined as a train arriving later than three minutes of scheduled time. 149 Data begin halfway through financial year (that is, from the beginning of the 2004 calendar year). 150 GTK is defined as tonnage transported times the number of kilometres.



• Track quality151 2002-03 to 2005-06 Disaggregated into line segment

• Network information o Track length (km) o Maximum axle load (tonnes) o Maximum speed (km/hr) o Maximum train length (m) o Passenger boardings (quarterly)

• Track quality o Number of temporary speed restrictions by cause o Number of permanent speed restrictions by cause o Actual and planned network unavailability (hour) by

reason o Train services cancelled (# and %)

• Number of train path policy breaches • Number of train management guideline breaches

2003-04 to 2005-06 WestNet Rail/Public Transport Authority Disaggregated by category

ERA

• Inter-capital rail distances, by terminal (freight/passenger) Current estimates BITRE Non-financial performance

• Direct fuel consumption by passenger services o By fuel type (electricity, diesel, and coal) o Further by area of operation (urban/non-urban)

• Direct fuel consumption by freight services o By fuel type (electricity, diesel, and coal) o Further by region (intra/inter-state) and type of

commodities (bulk/non-bulk) • Employment by type of work (for example, network control,

train crew)

2002-03 to 2009-10 Industry aggregate 2002-03, 2004-05, 2008-09 Industry aggregate

ARA

151 Replaced with track quality index from 2006-07.



G. Detailed Tabulation of Available Airport Data

The following table summarises the data availability for the airport industry by data type (in accordance with the data item categories classified in the Appendix A). For each data type, the table details a list of indicators for the airport industry, available from the following major sources identified:

• ACCC annual airports price monitoring and financial reporting data (coded as source ‘PMFR’)

• ACCC annual airports quality of services monitoring data (coded as source ‘QSM’)

• Bureau of Infrastructure, Transport and Regional Economics (BITRE) biannual journal, AVline (coded as source ‘BITRE’), and

• Federal Airports Corporation (FAC) annual reports (coded as source ‘FAC’). The summary information covers data duration and frequency, level of aggregation, and company and geographical coverage (where applicable). The overall coverage and quality of indicators from each of the data sources summarised in the table are:

• The PMFR data that may go back to 1997-98 cover five major airports (that is, Adelaide, Brisbane, Melbourne, Perth, and Sydney). For the data reviewed in detail (that is, Melbourne and Sydney airports for three years 2005-06 to 2007-08), the data appear to be highly consistent.

• The QSM data contain extensive quality of service and physical information, the majority of which can be dated back to 2002-03. For the data reviewed in detail (that is, Melbourne and Sydney airports for three years from 2005-06 to 2007-08), they appear to be highly consistent.

• The FAC data cover 12 years from 1986-87 to 1997-98. The data coverage is relatively extensive.

• The BITRE data are not particularly extensive, but appear to be consistent. In particular, the pricing data are available for around six or seven years and are frequently reported (biannually or annually).

The reference list below comprises relevant publications and websites that have been reviewed under the stock take for airport data available and are found to provide data or supporting information that are potentially useful for the evaluation of infrastructure reforms. ACCC, Airport Prices Monitoring and Financial Reporting Guideline: Part 7 of the Airports Act 1996 and Section 95ZF of the Trade Practices Act 1974, June 2009; Available at: http://www.accc.gov.au/content/index.phtml/itemId/328433 [accessed on 20 August 2011]. ACCC, Airport Quality of Service Monitoring Guideline, October 2008; Available at: http://www.accc.gov.au/content/index.phtml/itemId/328433 [accessed on 20 August 2011]. ACCC, Airport Monitoring Report 2009–10: Price, Financial Performance and Quality of Services Monitoring, January 2011; and earlier reports (back to 1997-98); Available at: http://www.accc.gov.au/content/index.phtml/itemId/347781 [Accessed on 22 August 2011]. BITRE, AVline 2009-10, August 2011; and reports for 2008-09 and biannually for earlier years (back to January 2003); Available at: http://www.bitre.gov.au/Info.aspx?NodeId=80 [accessed on 26 August 2011]. BITRE, Airport Traffic Data 1985-86 to 2009-10, 2009. Available at: http://www.bitre.gov.au/Info.aspx?ResourceId=191&NodeId=96 [accessed on 26 August 2011]. Federal Airports Corporation (FAC), Annual Reports, various years (1986-87 to 1997-98).



Table G1: Summary of Data for the Airport industry

Data Type Indicator Details (Annual data at the airport level152)

Source

Revenue • Total Revenue 1997-98 to present Disaggregated by aeronautical/non-aeronautical 1986-87 to 1997-98 Aggregated across member airports Disaggregated across member airports153

Also disaggregated by component

PMFR154 FAC

Expenditure • Total Expenditure • Capital Expenditure

1997-98 to present Disaggregated by aeronautical/non-aeronautical 1986-87 to 1997-98 Aggregated across member airports Also disaggregated by component

PMFR FAC

Balance Sheet

• Total assets • Total liabilities

1997-98 to present Disaggregated by aeronautical/non-aeronautical Further disaggregated by component 1986-87 to 1997-98 (annual) Aggregated across member airports Also disaggregated by component

PMFR FAC

152 Unless stated otherwise. The airports refer to the major airport in Adelaide, Brisbane, Melbourne, Perth, and Sydney. 153 The member airports include Sydney, Melbourne, Brisbane, Adelaide, Perth, Canberra, Darwin, Hobart, Townsville, Alice Springs, Launceston, Coolangatta, Mount Isa, Essendon, Bankstown, Moorabbin, Archerfield, Parafield and Jandakot. Note: Melbourne, Brisbane and Perth are excluded from the 2007-08 report. 154 The spreadsheet data cover five major airports only. Information on Brisbane, Melbourne and Perth Airports is available from 1997-98. Information on Adelaide and Perth Airports is available from 1998-99 when they became subject to the regulatory regime.



• Earnings before Interest and Taxes (EBIT) • Profit after Tax • Depreciation

1997-98 to present Disaggregated by aeronautical/non-aeronautical

PMFR Financial Performance

• Yield • Return on assets • Asset turnover

Sydney Airport up to 1997-98 FAC

Quality of Services

Passenger (domestic/international) satisfaction in, for example: • Check: check-in waiting time • Security clearance: quality of security search process • Gate lounge: quality and availability of seating in lounge area • Baggage process: waiting time for inbound baggage arrival • Baggage trolleys: findability of baggage trolleys • Signage and way finding: FID (Flight Information Display) screens • Washrooms: standard of washroom facilities • Car parking: standard of car parking facilities • Airport access: congestion at kerbside taxi drop-off and pick-up

2002-03 to present

QSM155

Aerobridges • Passengers arriving using an aerobridge (%) • Passengers departing using an aerobridge (%) Apron System • Aircraft parking bays (#) Check-in • Hours with more than 80 per cent of check-in desks in use (%) Government inspection (inbound/outbound) • Arriving/departing passengers per inbound/outbound immigration desk

2002-03 to present Disaggregated by terminal156

QSM

155 All QSM Indicators are ordered statistics with possible responses: 1-very poor, 2-poor, 3-satisfactory, 4-good, 5-excellent, 6-n/a (except for average waiting time) 156 For example, for Melbourne Airport the categories are T2 (international), T3 (domestic) and T4 (domestic/other).



(during peak hour) (#) • Arriving/departing passengers per baggage inspection desk (during peak hour)

(#) Security clearance • Departing passengers per security clearance system (during peak hour) (#) Gate lounges • Departing passengers per seat in gate lounges (during peak hour) (#) • Departing passengers per square metre of lounge area (during peak hour) (#) Baggage processing (inbound/outbound) • Average throughput of inbound/outbound baggage system (during peak hour) Baggage trolleys • Passengers per baggage trolley (during peak hour) (#) Signage and way finding • Passengers per flight information display screen (during peak hour) (#) • Passengers per information point (during peak hour) (#) Average peak hour Peak hour traffic Car parking (short/long-term/staff)

• Total passengers • Total aircraft movements • Total tonnes landed

1997-98 to present Disaggregated by type of services

PMFR Quantity

• Total passengers by domestic / international • Total aircraft movements • Tonnes landed

Up to 1997-98 Disaggregated across member airports

FAC



• Total passengers by major domestic/regional/international airlines • Total aircraft movements by major domestic/regional/international airlines

1997-98 to 2005-06 to 2009-10 Disaggregated across major airports157

BITRE

Physical Data • Total average staff equivalents • Total area (hectares)

1997-98 to present Disaggregated by type of services

PMFR

Aircraft-related services and facilities • Landing charges • Runway charges • Handling charges • Freight charges • Security charges • Terminal charges • Passenger charges

2004-05 to present Disaggregated by category Disaggregated into international and domestic

PMFR Price

• Real airport charges for indicative aircraft (international, domestic, regional) 2002 to 2008 (biannual) and 2007-08 to 2009-10 Disaggregated into category

BITRE

157 Major airports reported in the AVline publication include Adelaide, Brisbane, Canberra, Darwin, Hobart, Melbourne, Perth, and Sydney. The supporting spreadsheet

data has a broader coverage (that is, airports handling more than 7 000 passengers in 2009-10).


ACCC/AER working paper No. 5, December 2011

H. Detailed Tabulation of Available Port Data

The following table summarises the data availability for the ports and related industries by data type. For each data type, the table details a list of indicators for the ports industry, available from the following major sources identified:

• ACCC annual container stevedoring monitoring report (coded as source ‘ACCC’)

• Bureau of Infrastructure, Transport and Regional Economics (BITRE) quarterly journal, Waterline (coded as source ‘BITRE’).


The overall coverage and quality of indicators from each of the data sources summarised in the table are:

• The ACCC data cover a long time period, although the duration can substantially vary depending on the indicator (anywhere from six to 20 years). The data reported are also broadly consistent.

• The BITRE data are generally consistent, although the length of the time-series varies substantially depending on the indicator. The non-financial data are consistent and span 15 years. The output data are consistent, range from one to nine years in duration and are frequently reported (quarterly or biannually). All other types of data are available for the most recent one year.

The reference list below comprises relevant publications and websites that have been reviewed under the stock take for port data available and are found to provide data or supporting information that are potentially useful for the evaluation of infrastructure reforms.

ACCC, Container Stevedoring: Monitoring Report No. 12, November 2010; and earlier reports (back to 1999); Available at: http://www.accc.gov.au/content/index.phtml/itemId/655508 [accessed on 22 August 2011].

BITRE, Waterline, 49, July 2011; and earlier quarterly reports (back to September 1996); Available at: http://www.bitre.gov.au/Info.aspx?ResourceId=706&NodeId=166 [accessed on 4 June 2009].



Table H1: Summary of Data for Ports

Data Type Indicator Details (Annual data) Source

Revenue • Unit revenue ($/TEU)158 • Real unit revenue ($/TEU) • Stevedoring revenue ($/TEU) • Other revenue ($/TEU)

1986 to 2009-10 1998-99 to 2008-10

ACCC

Expenditure • Unit Cost ($/TEU) • Real unit cost ($/TEU) • Stevedoring cost ($/TEU)

o Relative cost shares o Variations in unit cost components ($/TEU or per

unit) o Trends in cost component (index)

1986 to 2009-10 1998-99 to 2009-10 2001-02 to 2008-10 Disaggregated by category (for example, labour, equipment) 1998-99 to 2009-10 Disaggregated by company and category (for example, stevedoring, labour, equipment and property)

ACCC

Financial performance indicators

• Rate of return on average assets • Nominal and real total margin ($/TEU) • Stevedoring margin ($/TEU)

1998-99 to 2009-10 Australia – firms aggregated New Zealand – firms disaggregated

1986 to 2009-10 Aggregated data 1998-99 to 2009-10 Aggregated data

ACCC

Quantity • Average crane rate, average elapsed labour rate and average ship rate (containers/hour)

• Average crane rate, average elapsed labour rate and

average ship rate (TEUs/hour) • Container throughput (volume)

1995 to 2010 (quarter) Disaggregated across the five major ports159 1992 to 2010 (quarter) Disaggregated across the five major ports 1990-91 to 2009-10

ACCC

158 This is expressed as total revenue per twenty foot equivalent unit (TEU). TEU is a standard unit for measuring container volume. 159 The five major ports refer to Brisbane, Sydney, Melbourne, Adelaide and Fremantle.



• Container throughput (volume, share) Disaggregated across the five major ports and Burnie

• Landside of container terminal size of task indicators o Total containers by road o TEU by road o Total trucks processed

• Adjusted vehicle booking system time usage • Productivity of truck turnaround (minutes)

o Fastest, slowest and average time • Productivity of container turnaround (minutes)

o Fastest, slowest and average time • Ships handled • Total containers • Crane rate • Vessel working rate • Ship rate • Crane time not worked (per cent) • 40-foot containers (per cent) • Throughout (pbm)

2006 to 2010 (biannual) Disaggregated across the five major ports 2007 to 2010 (quarter) Divided into periods (day, evening, night, Saturday and Sunday) 2006 to 2010 (quarter) Aggregated across the five major ports 2000 to 2010 (quarter) Disaggregated across the five major ports Reported in both containers and TEUs per hour

BITRE

Non-financial performance indicators

• Total cargo throughput (‘000 tonnes) • Non-containerised general cargo (‘000 tonnes) • Containerised cargo (TEU exchanged) • Average total employment

1993 to 2010 (biannual) Disaggregated across the five major ports

BITRE

Physical data • Ship visits by port 2007 to 2010 (annual) Disaggregated across the five major ports

BITRE

Price • Port and related charges for ships • Port interface costs for ships

2007 to 2010 (biannual) Disaggregated across the five major ports Disaggregated by ship size160

BITRE

160 Ships are included in either the 15 000-20 000 GT range, or the 35 000-40 000 GT range.



List of Abbreviations, Initialisations and Acronyms

ACA • Australian Communications Authority

ABS • Australian Bureau of Statistics

ACCC • Australian Competition and Consumer Commission

ACMA • Australian Communications and Media Authority

ACT • Australian Capital Territory

AEMA • Australian Energy Market Agreement

AEMC • Australian Energy Market Commission

AEMO • Australian Energy Market Operator

AER • Australian Energy Regulator

AGAAP • Australian generally accepted accounting principles

AGL • Australian Gas Light Company

AIFRS • Australian International Financial Reporting Standards

AN • Australian National Railways Commission

ANCID • Australian National Committee on Irrigation and Drainage

ANZIC • Australian and New Zealand Standard Industrial Classification

AOTC • Australian and Overseas Telecommunications Corporation

ARA • Australasian Railway Association

ARTC • Australian Rail Track Corporation

ASR • Australian Southern Railroad

ATRS • Air Transport Research Society

AUSSAT • AUSSAT Pty Ltd

AUSTEL • Australian Telecommunications Authority

AWA • Australian Water Association

AWB • Australian Wheat Board

BAA • British Airport Authority



BCTE • Bureau of Transport and Communications Economics

BIE • Bureau of Industry Economics

BITRE • Bureau of Infrastructure, Transport and Regional Economics

BPR • Basic Postal Rate

BSC • Basic coverage service

CAA • Civil Aviation Authority

CAIDI • Customer Average Interruption Duration Index

Capex • Capital expenditure

Capex • Capital expenditure

CCA • Competition and Consumer Act 2010

CGE • Computable general equilibrium

c-i-c • Commercial-in-confidence

CN • Canadian National Railway

COAG • Council of Australian Governments

COLS • Correct Ordinary Least Squares

CPI • Consumer Price Index

CSO • Community Service Obligation

DEA • Data Envelopment Analysis

DFA • Deterministic Frontier Method

DIER • Department of Infrastructure and Emergency Resources

DNSP • Distribution network service provider

DORC • Depreciated optimised replacement cost

EBIT • Earnings Before Interest and Taxes

EBITDA • Earnings Before Interest, Taxes, Depreciation and Amortisation

ERA • Economic Regulation Authority of Western Australia

ERIG • Energy Reform Implementation Group



ESAA • Energy Supply Association of Australia

ESC • Essential Services Commission

ESCOSA • Essential Services Commission of South Australia

FAC • Federal Airports Corporation

FCA • Federal Airports Corporation

FID • Flight Information Display

FTTH • Fibre-to-the-home

FTTN • Fibre-to-the-node

GBE • Government Business Enterprise

GDP • Gross Domestic Product

GMR • Gas Market Report

GPOC • Government Prices Oversight Commission

GSR • Great Southern Railway

GTE • Government trading enterprise

GTK • Gross tonne kilometres

IBT • Increasing Block Tariff

IC • Industry Commission

ICRC • Independent Competition and Regulatory Commission

IPART • Independent Pricing and Regulatory Tribunal of New South Wales

LICB • Lasting Infrastructure Cost Benchmarking

LSS • Line sharing service

LTIE • Long Term Interests of End Users

MAIFI • Momentary Average Interruption Frequency Index

MCE • Ministerial Council on Energy

MDB • Murray Darling Basin

MDBA • Murray Darling Basin Authority



MMRF • Monash Multi-region Forecasting Model

MTAS • Mobile Terminology Access Service

NBN • National Broadband Network

NCC • National Competition Council

NCP • National Competition Policy

NECA • National Electricity Code Administrator

NEL • National Electricity Law

NEM • National Electricity Market

NEMMCO • National Electricity Market Management Company

NER • National Electricity Rules

NGL • National Gas Law

NGPAC • National Gas Pipelines Advisory Committee

NRC • National Rail Corporation

NRETAS • Department of Natural Resources, Environment, the Arts and Sport

NWC • National Water Commission

NWI • National Water Initiative

OECD • Organisation for Economic Co-operation and Development

Opex • Operational expenditure

Opex • Operating expenditure

ORR • Office of Regulation Review (also Office of Rail Regulation)

OTC • Overseas Telecommunications Commission

OTTER • Office of the Tasmanian Economic Regulator

PC • Productivity Commission

PMFR • Price Monitoring and Financial Reporting

PS • Proscribed Services

PSA • Prices Surveillance Authority



PSTN • Public Switched Telecommunications Network

PTA • Public Transport Authority

PTRM • post-tax revenue model

QCA • Queensland Competition Authority

QR • Queensland Rail

QSM • Quality of Service Monitoring

RAB • Regulatory Asset Base

RAF • Regulatory Accounting Framework

RAPM • Regulatory Accounting Procedures Manual

RIN • Regulatory Information Notice

RIO • Regulatory Information Order

RKR • Record-keeping Rule

RUOC • Real Unit Operating Cost

RUOE • Real Unit Operating Expenditure

SACL • Sydney Airport Corporation Ltd

SAIDI • System Average Interruption Duration Index

SAIFI • System Average Interruption Frequency Index

SCBA • Social cost benefit analysis

SFA • Stochastic Frontier Analysis

SGM • Symmetric Generalised McFadden

TasRail • Tasmanian Railway Pty Ltd

Telecom • Australian Telecommunications Commission

TEU • Total revenue per twenty foot equivalent unit

TFP • Total Factor Productivity

TIO • Telecommunications Industry Ombudsman

TNSP • Transmission network service provider



TPA • Trade Practices Act (renamed Competition and Consumer Act 2010)

TSLRIC • Total Service Long Run Incremental Cost

UC • Utilities Commission

UIC • International Union of Railways

ULL • Unconditioned local loop

URF • Utility Regulators Forum

USO • Universal Service Obligation

WACC • Weighted Average Cost of Capital

WEA • Wheat Exports Australia

WNR • West Net Rail

WSAA • Water Services Association of Australia



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working paper no.5, december 2011

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