Chairman Rod Sims delivers the opening address to the ACCC / AER Regulatory Conference in Brisbane. Mr Sims introduces the conference theme and outlines the challenges of regulating for efficient infrastructure outcomes. The Chairman also proposes five areas of microeconomic reform covering privatisation, roads, congestion pricing, shipping and water.
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Welcome to the 2014 ACCC/AER Regulatory Conference. This is a key event on our calendar where, with the help of many international speakers, we all get to catch up with new ideas about economic regulation. And possibly also some old ideas, but now applied to new problems.
During the next two days we will hear the insights and views of academics, consultants, regulatory rule makers and representatives of regulated businesses. Apart from the next 15 minutes you won’t have to listen to us regulators.
More efficient use of, and investment in, infrastructure is essential to improve national productivity. Indeed, it is clear that recently in Australia some poor infrastructure investment decisions, by commission and omission, have harmed national productivity.
The broad theme of this year’s conference is, therefore, regulating for efficient infrastructure outcomes.
Within this theme there are many significant regulatory challenges and questions.
First, how do we get the right price signals, and encourage greater use of other demand-management techniques, so that consumers make the best use of existing infrastructure, and businesses invest in efficient new infrastructure?
Many of the sessions address this question, especially the energy, water and transport breakout sessions tomorrow.
Second, how should regulators and regulated businesses deal with declining demand for particular assets? For example, in Australia more than one in eight household rooftops have solar PV panels, the highest penetration rate in the world.
Even with a reduction in the past huge subsidies, the uptake of embedded solar panels could continue; especially so if the cost of storage batteries significantly decreases. This will have a significant impact on the use and revenue of the electricity networks businesses.
Similarly, physical mail volumes are significantly falling in Australia, as they are around the world, with real implications for providing postal services.
Third, and closely linked, how do we allow for competition between different technologies to be promoted in markets that had previously appeared to be natural monopolies? In today’s opening session and tomorrow’s transport and communications sessions we will hear about the opportunities to lift efficiency in these industries.
At this conference we will also be taking a step back from thinking about how to regulate to consider how reforms to regulatory policy and frameworks are achieved.
One simple strategy to achieve reforms that I strongly believe in is to take advantage of every opportunity to push the agenda along, as I will do now.
The ACCC recently made its submission to the Competition Policy Review being chaired by Professor Ian Harper. There are five areas of reform that I would like to briefly discuss today.
The first area is privatisation, which is of significant interest to the ACCC as Australia’s competition and infrastructure regulator. A number of governments in Australia have foreshadowed significant asset sale programs over the next few years, including ports, electricity and possibly railway assets.
Like most things in life privatisation can either be done well, or badly.
The reason to privatise assets is to promote economic efficiency, as governments seek to sell assets to the “right owner”. Privatisation can cause problems when the principal objective is to maximise sale proceeds through, say, poor industry structures or inadequate regulation; the immediate financial benefit comes at a cost of an effective ”tax” on future generations.
Having been closely involved with many government-owned infrastructure businesses, especially in rail and electricity, but also in other sectors, I am personally a strong advocate of privatisation. With sound regulation the private sector will operate these businesses more efficiently as they will have better incentives for, and impose fewer constraints on, performance.
An example of this is the proposed partial long term lease of the NSW electricity network assets. In my view such a sale can benefit NSW electricity consumers as network costs and therefore prices can be lower than otherwise.
Indeed, in my personal view, NSW electricity prices would now be significantly lower had the NSW electricity network assets been privatised, say, five years ago.
An improved regulatory regime for electricity network assets is now in place, and we understand the NSW Government will not seek to constrain this, now or in the future, as a result of the privatisation.
In the submission to the Harper Review the ACCC urged governments to have efficiency as the objective of privatisation, and to avoid selling into anti-competitive structures or privatising monopolies with inadequate regulation to boost one-off sale proceeds.
While there seems to be no such issues with the NSW lease of electricity networks, the ACCC will continue to express its concerns in relation to poorly structured or regulated asset sales whenever they arise. As Australia’s competition regulator, if we do not do this then who will?
Second, despite their key role, roads have not been subject to the level of microeconomic reform that has occurred in other industries since the 1990s.
Current road charging mechanisms and structural arrangements fail to promote efficient decisions by road users and funding bodies because of three main disconnects:
- the prices faced by road users do not reflect the economic costs of using roads, sometimes by a very long way;
- there is no link between the prices charged to road users and the revenues received by road providers; and,
- decisions about funding for investment in roads are often made via political processes rather than by an independent assessment of the relative costs and benefits of a proposed investment.
Australia now has an opportunity to engage in structural reform of road provision and charging, leading to considerable productivity benefits.
3. Congestion pricing
This leads on to the third area; congestion pricing. All Australians understand why it costs more to rent a beach house in January than July. We just don’t call it congestion pricing.
The most efficient way to ration or allocate limited capacity, and for businesses and governments to receive the right signals about the need for new infrastructure, is for users to face prices that vary according to the supply and demand conditions at their time of use.
There are opportunities to enhance the productivity of certain key infrastructure assets such as roads, electricity, ports and airports by greater use of congestion pricing. This includes peak period pricing for trucks accessing container terminals, allocation of airline take-off and landing slots, and encouraging electricity users to reduce consumption during critical peak demand periods.
Given the importance of shipping to the Australian economy, with approximately 99 per cent of Australian imports and exports transported by sea, our fourth reform area is shipping.
For international shipping, cartel immunity to certain international shipping lines registered under Part X of the CCA should no longer be automatically available. Instead, cooperative arrangements between shipping competitors should be subject to the same threshold as all other industries; which is do they deliver net public benefits to the Australian community?
In the domestic shipping sector, there are a number of legislative restrictions on competition, including in relation to temporary licences and labour conditions, that result in higher freight costs for Australian businesses. These regulations should be reviewed and abolished where appropriate.
Water reform is the fifth area. The water sector has gone through a series of reforms and water markets now exist in many areas throughout Australia. There is no doubt the development of these markets has helped many farmers mitigate recent droughts.
However, there is scope for further reforms to better define the types of rights available, and to extend the reach of water trading in a range of ways; for example, in more rural areas, between rural and urban regions, and between different water users.
Overall, the Harper Review provides an ideal opportunity to reinvigorate Australia’s competition and reform culture. And this clearly needs a significant boost.
My fifteen minutes is up and it is time for the conference to commence. I would like to thank all the speakers for their efforts in preparing their presentations and travelling to Brisbane. For those coming from abroad, a much larger thank you for enduring the long journey to Australia. We are extremely grateful that you, together with all delegates, are able to be part of this conference.