Chilling case of accessive regulation

Having been a touchstone in Australia’s economic resurgence the national access regime is now a ball and chain around the ankle of growth.

Following the Hilmer report in 1993, major facilities including ports, pipelines, telecommunications systems and railways were declared open. Their mainly government owners were required to allow private businesses to use the assets on fair terms and conditions. This raised the curtain on a new arena of competition and drove improved efficiencies bringing lower prices.

But the Hilmer report itself was uneasy about forcing firms to share their facilities. It recognised that such powers could stymie new infrastructure development by making firms unwilling to spend shareholders’ money on assets. After all, nobody would build a house on the basis that once completed, a regulatory body will determine its spare capacity, to whom it may be leased and the rental price of the lease.

Hilmer also recognised that easy access to others’ facilities might lead firms to focus unduly upon seeking that access rather than making their own investments.

These issues were exacerbated by a reinterpretation of Hilmer by the Keating Government in enacting it as Part IIIA of the Trade Practices Act (there is also a parallel Part XIB and C for telecommunications). Instead of it applying only to facilities that were “impractical to duplicate” the provisions became “uneconomical for another facility to provide the service”. This was much more accommodating to applicants and it prompted Stephen King (who is now an ACCC Commissioner) to write alarmingly that the provision could bring up to 50 different infrastructure facilities within its net.

The Keating Government clearly had similar concerns since it specifically excluded “production processes”, or manufacturing, from the provisions’ reach.

The institutions created to administer competition policy set out to extend its ambit. At the birth of the new policy, the recently created National Competition Council interpreted it as saying that now it was unnecessary for a competitor to build a second network if one already exists.

The newly empowered ACCC decided that it would not release facilities from its dominium unless there were several competing between separate supply and market locations. And the ACCC at the outset sought to reduce the extent of the inviolability of “production processes” by trying to bring gas feeder pipelines within the agency’s ambit.

The current high profile issues concern transport of coal and iron ore and telecommunications facilities.

With coal, the regulatory arrangements have contributed to inadequate rail investment and the downturn in exports in the face of a world boom. With iron ore, the regulators’ aggressive moves to require BHP and Rio to share their rail lines are causing serious reviews of investments for new facilities to feed the growing China demand.

With telecoms, it is resulting in the stand-off on broadband development since Telstra will not spend the required $4 billion plus unless it has assurances about the conditions under which it might be obliged to share the network with its competitors.

Concern about the “chilling” effects of the provisions on investment has mounted. Various Productivity Commission reports (with which the regulators have habitually dissented) have warned against the “regulatory risk” created by the Part IIIA seizure of private property. The May 2005 Exports and Infrastructure Task Force saw real risks to export potential being caused by the operations of the regime.

The more thoughtful politicians have recognised the regime’s deficiencies. ALP spokesman Martin Ferguson said in February this year that it was threatening export industries and creating investment disincentives. Back in 2003, Minister Macfarlane took the unusual step of rejecting the proposed regulation of the Moomba to Sydney gas pipeline, recognising that it was in competition with a rival pipeline from Bass Strait.

Something more purposeful is however required since regulators have built their own agendas with well resourced publicity machines to support them.

Preferably the law should be amended to grant assurances that where there are two or more facilities in competition, they are beyond the reach of the regulatory authorities and where no facility is in place at present, any proposal to build one will not be subject to regulatory control.

Unless measures like this are pursued, we will find investment deferred with serious consequences to economic growth.