Port of Newcastle to remain unregulated, but time-frames to be reviewed

By Paul Burton

In a decision that will be welcomed by many of Australia’s port operators, for the second time in less than two years, the Federal Treasurer has decided that the shipping channel service at the Port of Newcastle should not be regulated.

The Treasurer’s decision on 16 February 2021 is in response to an application made by the NSW Minerals Council to the National Competition Council (NCC) on 23 July 2020 for declaration of the shipping channel service at the port under Part IIIA of the Competition and Consumer Act 2010 (Cth) (CCA).  The NSW Minerals Council’s application followed the decision by the Treasurer in September 2019 to revoke the declaration of effectively the same service at the port.

The NCC provided the Treasurer with its final recommendation on 18 December 2020.  The NCC recommended that the service not be declared as it did not satisfy all of the relevant criteria.

The Treasurer adopted the NCC’s recommendation.

The decision confirms that an applicant will need to show that declaration of the service will have a meaningful impact on competition in at least one dependent market.  A monopolists’ conduct must affect competition in those markets rather than just its profits, such that declaration would lead to an improvement in the competitive market conditions.

It is not the role of the National Access Regime to control prices, even those charged by monopolists.  Therefore, it is not enough to merely demonstrate that a particular infrastructure service is provided by means of a bottleneck facility or that the service provider possesses market power in respect of the provision of the service.  In particular, a facility is less likely to be regulated if:

• the owner/operator is not active in markets that use the facility;
• access is provided already provided to users; and
• the facility itself is not capacity constrained nor likely to be in the future.

For coal exporters using the port, they will not be able to seek the ACCC’s assistance to arbitrate any access disputes that arise between them and the port operator, Port of Newcastle Operations Pty Ltd (PNO).  Although, PNO has, under its Vessel Open Access Terms, established its own dispute resolution procedures which may involve private arbitration.

Following the revocation of the previous shipping channel service declaration in September 2019 the ACCC argued there was a need for a new Part IIIB to be added to the National Access Regime. This new part to the Act would address the “gap” in the current regime, being the inability of Part IIIA to regulate the behaviour of non-vertically integrated monopolists who control bottleneck infrastructure and exercise unfettered market power.  In light of the Treasurer’s most recent decision, the ACCC is likely to recommence its campaign.

Reasons for decision

Under section 44H of the CCA, the Treasurer may only decide to declare a nominated service if satisfied that all four access criteria are satisfied.

In this application, two criteria were not satisfied.  Declaration would not have any meaningful impact on competition (criterion (a)) and it was not in the public interest to declare the service (criterion (d)).

No meaningful improvement in competition

The first criteria requires that access on reasonable terms and conditions must promote a material increase in competition in at least one related market.

This criterion will not be satisfied merely by establishing that a service provider is a monopoly provider of the service, possesses market power or is able to charge a price above what would be charged in a competitive market for the service.¹  It is only where declaration promotes a material increase in competition in at least one dependent market that the criterion will be satisfied.²

In determining this criterion was not satisfied, the NCC noted that:

• PNO is not vertically integrated. Therefore, it will not have an incentive either to:
• deny access to firms operating in related markets as they are not its competitors; or
• impose terms that inhibit users competing against one another in those related markets.
• The port is not capacity constrained, and not likely to become so.  Therefore, PNO would not have an incentive to ration capacity or raise prices.
• The port has never denied access to any coal exporters. Instead it has offered an open access arrangement and a 10 year contract to coal exporters wishing to use the port.
• Despite the port being a bottleneck facility with local coal producers having no choice but needing to use the shipping channel, PNO is not entirely unconstrained. For example, whilst there is no immediate alternative for coal producers, one could be developed during the term of PNO’s 98 year lease and that would adversely affect PNO.  In addition, the NSW Government could  intervene, either under its lease with PNO or through the exercise of its statutory powers, if PNO sought to impose excessively high prices or impose access conditions likely to have an adverse impact on competition in dependent markets or harm the public interest.

Finally, even if declaration led to a lower access price, the difference in price would not promote a material increase in competition in the coal export market or the coal tenement market. The access charges themselves are likely to remain only a small proportion of the overall cost of the production of coal for export from the Hunter Valley region so as not to have an material impact on competition in any dependent market.

Public interest not promoted

Criterion (d) requires that access (or increased access) to the service, on reasonable terms and conditions, as a result of declaration, would promote the public interest.

The NCC concluded that declaration is unlikely to significantly affect investment either in the infrastructure used necessary to provide the services or in dependent markets.  In addition, there was not likely to be any material impact on administrative and compliance costs.

Consequently, the NCC concluded that criterion (d) was not satisfied.

No impact on ongoing arbitration case

As noted in an earlier Legal Briefing, in August 2020, the Full Court of the Federal Court remitted back to the Australian Competition Tribunal (Tribunal), the ongoing access dispute between Glencore and PNO for reconsideration.  While the Court’s decision was something that the NCC closely considered in reaching its conclusions, the Treasurer’s decision  will have no legal impact on the Tribunal’s reconsideration of the access dispute. This is because the earlier access dispute was triggered at a time when the service was declared. Therefore, that dispute remains an active dispute despite the subsequent revocation of the service declaration.

Examination of statutory time-frames

Seemingly concerned with the length of time this matter has taken, the Treasurer has tasked the Treasury Department with examining whether the length of time that processes under the regime can take is appropriate and consistent with the regime’s objective.  That examination is expected to occur before 1 July 2021.

Endnotes

1. NCC, Application for declaration of certain services at the Port of Newcastle: Recommendation, 18 December 2020, [7.12].
2. Ibid [7.96].