The Australian Competition and Consumer Commission will not object to GrainCorp Operations Limited’s proposal to offer long-term agreements (LTAs) to users of its bulk grain export facilities on the East Coast of Australia. GrainCorp will allocate up to 60% of its port capacity via LTAs to exporters who are willing to commit to minimum export volumes over a three-year period. At least 40% of capacity per port, per month will remain available to all exporters on an annual basis.
GrainCorp’s revised Port Terminal Service Protocols will come into effect on 27 December 2012. GrainCorp intends to invite nominations for long-term capacity in February 2013.
“The ACCC considers there are benefits in allowing longer-term bookings, including allowing greater certainty for users in planning their long-term grain export programs and aiding supply-chain planning,” ACCC Chairman Rod Sims said.
“The ACCC welcomes GrainCorp’s revisions to its initial proposal (published on 26 November 2012) where it has significantly lowered the minimum export volumes needed to participate in LTAs and made several other changes to address concerns raised by industry.
“The ACCC considers that GrainCorp’s revised proposal will allow a significant number of exporters to enter into LTAs. Further, the ACCC notes that exporters not likely to enter into LTAs will still be able to access GrainCorp’s port capacity on an annual basis, as they do currently,” Mr Sims said.
The ACCC oversees port access arrangements for wheat exporters as part of the deregulation of the bulk wheat export industry. Access undertakings are intended to ensure that third party exporters are able to access ports operated by vertically integrated port terminal operators, ensuring competition in the market for the export of bulk wheat.
For further information see: GrainCorp Operations Ltd 2011.
Background
The ACCC’s ability to object to GrainCorp’s proposal to vary its Port Terminal Service Protocols is set out in GrainCorp’s 2011 Access Undertaking. The ACCC’s explanation for not objecting is specific to GrainCorp’s Undertaking and the particular circumstances of the market in which GrainCorp operates. In deciding whether to issue an Objection Notice under GrainCorp’s Undertaking, the ACCC needs to have regard to, amongst other things, whether the proposed variations amount to a breach of the Undertaking obligations that require GrainCorp not to discriminate in favour of its own trading arm and not to hinder access to its port terminal services.
In addition to considering written submissions received by GrainCorp, the ACCC consulted with exporters regarding GrainCorp’s revised proposal. In deciding not to issue an Objection Notice, the ACCC considered the interests of GrainCorp, the interests of port terminal users, the public interest and also the objectives of Part IIIA of the Competition and Consumer Act 2010 (under which GrainCorp’s Undertaking was accepted by the ACCC).
The LTA minimum tonnage criteria set by GrainCorp requires exporters to book at least 30,000 tonnes of capacity each month for 10 months per year at one port (three months for smaller ports 1). The ACCC accepts that the minimum criteria will facilitate exporters spreading LTA bookings over the year and securing only a base-load portion of their total capacity needs. The criteria are designed to ensure that exporters securing LTA capacity are not able to ‘cherry pick’ high-demand months of the shipping year, and that exporters that do not have an LTA will have reasonable access to capacity offered on an annual basis.
Exporters will be able to ‘top up’ their LTA capacity and move it to different ports and into different months when remaining capacity becomes available to all exporters via the existing annual first come, first served system. Under GrainCorp’s proposal, capacity booked via the LTA process will be treated in the same way as capacity booked via the annual process.
That is, the LTA process is a way to ‘pre-book’ annual capacity. LTA capacity will be subject to the same terms and conditions as capacity booked after the annual shipping stem opens, except that LTA capacity will not be subject to a partial refund of the booking fee if it is forfeited.
GrainCorp’s LTA proposal involves systemic changes to way capacity is allocated. In having regard to whether GrainCorp’s LTA proposal amounts to a breach of its obligation not to discriminate in favour of its own trading arm, the ACCC considered it important to look at GrainCorp’s capacity allocation system as a whole.
The ACCC recognises that some exporters may not be able to enter into LTAs (as GrainCorp’s own trading arm will) because it may not be commercially viable for those exporters to commit to the minimum tonnage requirements. However, the ACCC accepts that the minimum criteria will aid other exporters being able to access capacity under the annual arrangements, as customers accessing LTA capacity will be encouraged to secure only baseload requirements and to spread their bookings over the shipping year. Therefore, the ACCC does not consider it appropriate to object to the proposal on the grounds that it would amount to a breach of the anti-discrimination provision.
The ACCC gave detailed consideration as to whether the LTA arrangements have the purpose of preventing or hindering access to GrainCorp’s port terminal services. In considering GrainCorp’s rationale for having minimum tonnage requirements, the ACCC considers the LTA proposal is unlikely to have the purpose of preventing or hindering access to its port terminal services. The ACCC considers that exporters not likely to enter into an LTA will still have reasonable access to GrainCorp’s port terminal services. The ACCC has had regard to the views of exporters as well as historical export data provided by GrainCorp.
The ACCC notes that exporters who indicated they would be likely to take up an LTA have historically accounted for over 90% of exports from GrainCorp’s ports. Other exporters will have access to at least 40% of port terminal capacity (possibly more) at each port, in each month. Based on historical export data and views of exporters, the ACCC considers that this level of capacity is likely to allow non-LTA exporters to continue to have a similar ability to access port terminal services as they currently do. The ACCC recognises the evolving nature of the wheat export industry, and notes GrainCorp’s change to its initial proposal to reduce the term of LTAs from five years to three years. On this basis, the ACCC has decided not to object to GrainCorp’s protocol variations on the basis of preventing or hindering access.
In deciding whether to object to GrainCorp’s proposal to allow for longer-term access to its port terminal services, the ACCC also took into account the degree of competitive constraint faced by GrainCorp. In particular, GrainCorp faces competition from other bulk-grain port terminal operators, domestic use of wheat and containerised (non-bulk) wheat export. In addition, the ACCC took into account the degree of overall capacity constraint at GrainCorp’s port terminals and the existing method of capacity allocation.
Footnote
[1] ‘Smaller ports’ are defined as Mackay, Gladstone and Portland. The other ports are Fisherman Islands, Carrington, Port Kembla and Geelong. Exporters must commit to at least 300,000 tonnes per shipping year (which runs from 1 October to 31 September).