The Australian Competition and Consumer Commission today provided a submission in response to the Productivity Commission’s Draft Report on the National Gas Access Regime.
"The ACCC's submission endorses the Productivity Commission's findings that gas pipelines possess special economic characteristics that warrant their continued regulation through an industry specific regime", ACCC Chairman, Mr Graeme Samuel, said.
"However, the ACCC does not support the Productivity Commission's finding that the current regime requires significant adjustment.
"The ACCC submission provides evidence which indicates that the National Gas Access Regime is a successful policy initiative. The regime has delivered substantial benefits for the Australian economy and the gas industry and these benefits are likely to increase in the future.
"The findings in the ACCC's submission are based on a report prepared by ACIL Tasman which is the first quantitative and market-based assessment of the Gas and Electricity Access Regimes.
"The ACIL Tasman report estimates that the current gas framework could increase Australia's gross domestic product by up to $1.1 billion over the next decade. The gas regime also has the potential to stimulate additional gas consumption equivalent to the size of the combined NSW and ACT markets.
"These outcomes are available because the Gas Access Regime successfully restrains the exercise of market power by gas pipeline companies. Importantly, the Gas Access Regime provides a right of access to pipelines for third parties, establishes fair and reasonable tariffs for both providers and users, and enables small companies to compete with vertically integrated gas suppliers.
"Under the current regime there has been important progress in achieving government objectives:
- gas consumption has grown at an accelerating rate
- gas users have a greater choice of supplier
- new gas fields are being developed
- there has been substantial investment in the pipeline sector.
"The Productivity Commission's case for adjusting the current regime is based on conceptual considerations suggesting that the regime is deterring and distorting investment. This theoretical proposition is not consistent with market evidence.
"Under the current framework investment in gas transmission is at unprecedented levels. New gas transmission pipelines with a total length of more than 5,000 kilometres have been built since 1997 and there has been additional investment in gas production fields and in downstream industries. There is no evidence to support the view that investment would have been greater without regulation.
"The ACIL Tasman study finds that the existing gas pipeline network possesses significant reserve capacity suggesting that investment has not fallen behind demand requirements.
"The Productivity Commission has also based its case for change on the suggestion that regulators may not be providing sufficient financial returns to encourage new investment.
"This suggestion is refuted by a study undertaken by the Allen Consulting Group. The Allen study examined a wide range of financial indicators and concluded that there is no evidence to suggest that Australia's regulatory framework is deterring investment, rather the evidence suggests that the Australian regulatory framework is providing adequate scope for companies to earn appropriate returns in the energy infrastructure sector. The Allen study also noted that the sectors strong historical performance and current market fundamentals were likely to see a high level of demand for investment opportunities in energy infrastructure.
"The ACCC considers that the Productivity Commission's proposals for amending the Gas Access Regime pose substantial risks owing to the market power possessed by gas pipeline operators. In particular, there is a risk that:
- Australia's Gross Domestic Product will be diminished
- gas prices will rise significantly, especially for residential customers and small businesses
- energy intensive industries will relocate to States with more highly developed gas markets or to overseas locations
- gas fired electricity generation will be inhibited
- competition will be inhibited in upstream and downstream markets.
"In the absence of evidence to suggest that the current Gas Access Regime is having a detrimental impact, the ACCC recommends a measured and cautious approach to adjusting the current regime. In particular, the Productivity Commission's proposal to introduce price monitoring should be carefully scrutinised as it is not clear that price monitoring will be effective in constraining market power in the context of the gas transport industry.
"More comprehensive reforms could be considered when the gas industry is at a more developed stage.
"The ACCC submission outlines refinements that could be undertaken to improve the operation of the current regime while protecting the substantial benefits on offer".
Links
- Submission on Productivity Commission's draft report - 17 March 2004(item retired)