ACCC steers toward effective port regulation

20 October 2016

At the Ports Australia Conference in Melbourne, Australian Competition and Consumer Commission Chairman Rod Sims spoke about ensuring proper regulation of privatised port assets and noted some positive outcomes in the ACCC’s engagement with governments.

Mr Sims said the current preference of governments to implement price monitoring regimes fails to ensure there is an effective constraint on monopoly pricing at Australian ports.

“Take for example the Port of Newcastle. This is the world’s largest coal export port, and it was privatised in 2014 with a sale price of $1.75 billion. Less than a year later, the new owner revalued its port assets to $2.4 billion and increased navigation charges by over 40 per cent,” Mr Sims said.

“There is no effective regulatory regime to constrain monopoly pricing at this port. Instead, there is simply a price monitoring regime. As you may expect, this regime has had no visible impact in dealing with this price increase.”

Mr Sims said a negotiate-arbitrate framework is the minimum for effective regulation of monopoly infrastructure.

“This approach doesn’t impose upfront requirements on the infrastructure owner, so the regulatory burden is minimal. It allows robust commercial negotiations to take place.”

Mr Sims also questioned moves by governments to sweeten deals for port buyers by putting in place arrangements that ensure little to no prospect of future competition.

“To date we have expressed concern about the initial proposal by the WA Government to offer the new owner of the Port of Fremantle the first right to develop a new port south of Fremantle in the future.”

“Allowing the owner of the existing facility the right to develop a new port forecloses the potential for future competition between two Fremantle ports. This limits the competitive constraint on the privatised port operator, to the detriment of users,” Mr Sims said. 

Mr Sims said a core objective in privatising assets has often been to maximise proceeds.

“This is fine if there is a competitive market, or there are sound regulatory arrangements in place to curb monopoly pricing and protect the long term interests of consumers.”

“But as I’ve noted, the ACCC has been concerned that this has not been the case with many privatised port assets.”

However, Mr Sims reported on some examples where governments have shifted the dial towards a more robust regulatory regime to apply post-privatisation.

“We saw some positive results from our engagement with the Victorian Government last year, with important improvements to the regulatory regime applying to the Port of Melbourne.”

“An even more pleasing result has been our recent engagement with the WA Government on the proposed privatisation of the Utah Point Bulk Handling Facility [Port Hedland].”

“After the ACCC pointed out the limits of price monitoring to constrain pricing, the WA Government now proposes to replace the monitoring regime with a negotiate-arbitrate framework.

“We consider that this will provide a credible constraint on monopoly pricing, while still allowing users to commercially negotiate terms of access.”

See also: Speech: Ports: What measure of regulation

 

Release number: 
MR 191/16
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