ACCC decision leads to more efficient rail services

The Australian Competition and Consumer Commission has issued its final decision on a rail track access undertaking lodged by the Australian Rail Track Corporation (ARTC). The Undertaking sets out terms and conditions on which trains can access that part of the interstate rail lines in Victoria, South Australia and part of Western Australia operated by ARTC.

"The ACCC's decision to accept the Undertaking will give train operators greater certainty when seeking access to the interstate mainline standard gauge track network which links Kalgoorlie, Adelaide, Wolseley, Crystal Brook, Broken Hill, Melbourne and Wodonga", ACCC Chairman, Professor Allan Fels, said today. "It spells good news for businesses moving passengers and freight across borders and also for the environment.

"The ACCC's decision continues a process of reform in the rail industry that grew from an agreement between all Australian Governments in 1997. Clarifying the terms on which train operators can get access to the ARTC's network should make the operation of interstate trains easier and more efficient. It reinforces the ARTC's role as a one-stop-shop for train operators who operate interstate train services in the southern States".

The decision is in response to an initiative by the Commonwealth-owned ARTC to seek ACCC endorsement of an enforceable commitment that clarifies the terms and conditions on which prospective train operators can use its track. It has chosen to do this by offering an access undertaking for the ACCC's approval. The ACCC's decision accepts the access undertaking submitted by the ARTC.

An access undertaking is a legally binding commitment, given by an owner of a nationally significant facility, such as rail tracks, that sets the terms under which access to the facility will be granted. The ACCC assesses the undertaking against the criteria set out in the Trade Practices Act 1974. These criteria impose an obligation on the ACCC to ensure that the undertaking achieves an appropriate balance between the interests of the infrastructure owner and access seekers and the public interest.

ARTC's main business is managing interstate rail track. ARTC operates rail lines from Wodonga in Victoria, across South Australia to Kalgoorlie in Western Australia, as well as up to Broken Hill in New South Wales. It does not operate trains.

In its application to the ACCC, ARTC pledged a public commitment on the quality of rail lines in its network. It also aimed to give train operators greater certainty with regard to cost and quality of service. Key features of the Undertaking include:

• increases in indicative access charges are limited to a proportion of CPI
• ARTC will not discriminate between alike services competing in the same markets
• access charges will fall between a floor limit and a ceiling limit
• there is scope for flexibility in individual agreements between ARTC and access seekers
• a significant amount of information on capacity and performance will be made publicly available
• the ACCC has been given the role of arbitrator in any disputes that may arise
• various provisions will ensure that quality and performance standards will be achieved and maintained.

This is the first rail undertaking made under Part IIIA of the Trade Practices Act 1974 to be accepted by the ACCC. The ACCC issued a draft decision in November 2001 and conducted extensive consultations with interested parties. In response to comments by the ACCC and others, ARTC revised its proposed undertaking. In particular, ARTC clarified its commitment to providing a quality service and amended the dispute resolution processes.

The ACCC has accepted the final undertaking which is consistent with legislative and policy requirements.

Appendix

ARTC was established in 1998 as part of the process of reform of rail services aiming to achieve a more commercially focussed and economically efficient industry. ARTC’s role is to manage the infrastructure and access to the standard gauge rail network connecting the mainland capital cities between Brisbane and Perth. Currently ARTC only has control over tracks in South Australia, Victoria and part of Western Australia. It is a public company owned by the Commonwealth of Australia.

The access undertaking was made pursuant to the Inter-Governmental Agreement signed by all Australian Governments in 1997. It was submitted to the ACCC under Part IIIA of the Trade Practices Act 1974.

Part IIIA of the TPA was inserted into the TPA in 1995 to ensure access to essential facilities where those facilities exhibit natural monopoly characteristics. It includes the process for approval of an undertaking which, once accepted, enables access to the services. Once accepted the services covered by the undertaking cannot be declared.

If there is no undertaking in place, access seekers have the option of seeking declaration of rail track services. Declaration gives users the right to negotiate terms of access and if the negotiations prove unsuccessful, the opportunity to have the ACCC arbitrate the access dispute.

The ARTC Undertaking provides a framework for the conduct of negotiations between ARTC and train service operators who wish to obtain access to the Network. Specifically, it covers the process of negotiation for access, pricing principles, quality and performance indicators and a range of issues relating to management of the Network. It also includes an Indicative Access Agreement that forms a basis for an agreement between ARTC and an access seeker.

In reaching its final decision, the ACCC assessed the proposed Undertaking on the basis of the statutory criteria set out in section 44ZZA(3) of the Act. These criteria impose an obligation on the ACCC to ensure that the Undertaking, among other things, achieves an appropriate balance between the interests of the infrastructure owner and access seekers and the public interest. The ACCC formulated a number of principles to assist the assessment process. These address three broad issues: pricing for access to ARTC’s rail track that focuses on efficient outcomes; processes for gaining access including negotiation and dispute resolution provisions that provide for timely, commercially negotiated outcomes; and providing clear conditions that allow enforceability of the Undertaking.

A number of provisions in the Undertaking may act as constraints to the misuse of market power. These include ARTC's intention to commit to ongoing reductions in real prices charged to users and a proposed curb on price discrimination. The conditions underscore dependence on growing the amount of traffic on the Network and on greater operating and cost efficiency to ensure future profitability.

The following is a summary of some of the key features of the Undertaking:

• access charges will fall between a floor limit and a ceiling limit. The floor limit is defined as the charge for access to a segment which would generate revenue sufficient for ARTC to cover the incremental cost of that segment. The incremental cost excludes depreciation and a return on investment. The ceiling limit would generate revenue sufficient to cover the total economic cost of that segment.
• in formulating charges, ARTC will not discriminate between alike services where access seekers are operating in the same market.
• the Undertaking includes indicative access charges for access to segments of the Network. The way in which these charges may be varied is also specified. Increases are limited to the greater of either the CPI minus 2% or 2/3rds of the CPI.
• the Undertaking, which includes an Indicative Access Agreement, is the basis for negotiation between parties to an access agreement and ARTC can only depart from the provisions of the Indicative Access Agreement if that is agreed by both parties. This allows for negotiation of aspects of an agreement including access charges and gives access flexibility to assume certain risks or costs itself.

The Undertaking also includes provisions affecting ARTC's non-price conduct as follows:

• ARTC has committed itself to providing a significant amount of information on capacity and performance. This will enable operators to independently assess the extent of spare capacity on the Network and to monitor performance. The Indicative Access Agreement provides for a process whereby specific performance indicators, including financial incentives or penalties pertaining to the achievement of these indicators, can be negotiated between ARTC and individual operators. As with pricing issues, particular outcomes are not prescribed but the provisions in the Indicative Access Agreement impose an obligation on ARTC to discuss and negotiate on service levels.
• the ACCC has been given the role or arbitrator under the Undertaking. It agreed to this role on condition that the Undertaking allows for the appointment of a conflict manager if agreed by both parties; the publication of arbitration decisions (subject to consideration of commercial confidentiality); and allowance for joint hearings of arbitration where appropriate.
• quality and performance standards will be achieved through various provisions. The Undertaking requires ARTC to maintain the Network in a fit for purpose condition. This, together with provisions in the Indicative Access Agreement which make ARTC and an operator strictly liable for any loss or damage to the track, the other party or to third parties to the extent that it caused or contributed to that loss, would preclude or deter ARTC from reducing maintenance work and running down the Network in order to maximise profits. The provisions provide an inbuilt incentive for ARTC and the operators to minimise foreseeable and unforeseeable losses by maintaining and using the Network at an appropriate standard. They also ensure that the Network is used at an economically efficient level.