Arbitrating for more efficient shipping channel services at Newcastle Port

Synergies, acting on behalf of Glencore prepared several reports throughout the arbitration for the ACCC setting out the economic rationale and principles upon which the charges should be calculated. This analysis drew on Synergies’ expertise in regulatory pricing with the build up of charges using a building block approach as well as its knowledge of supporting regulatory precedent in other matters.

The ACCC issued a final determination on the dispute in September 2018, finding that PNO’s channel charge should be reduced by approximately 20%. The ACCC’s Determination was appealed to the Australian Competition Tribunal and subsequently to the Federal Court. The appeals are ongoing.

The Issue

Following the introduction of substantially higher channel service charges by PNO in 2015, Glencore successfully applied to the NCC for declaration of the shipping channel services at the Port of Newcastle under the third party access provisions of Part IIIA of the Competition and Consumer Act 2010 (Clth) (CCA). The services were ultimately declared on 16 June 2016.

Declaration means that PNO is required to negotiate and offer access to users (and prospective users) on reasonable terms and conditions. Should parties fail to reach commercial agreement, an access seeker can apply to the ACCC to have the dispute resolved through binding arbitration (which is court enforceable).

In November 2016, Glencore notified the ACCC of an access dispute in relation to the declared shipping channel assets.

In arbitrating the dispute, the ACCC was required to take into account certain matters set out in Part IIIA as well as any other matter it considered relevant.

Key areas of disagreement between PNO and Glencore included the valuation of port assets and the appropriate treatment of user capital contributions.

The Solution

Synergies presented a series of comprehensive reports to the ACCC setting out the framework for how an efficient access charge should be determined.

We provided a ‘bottom up’ approach to building a price based on economic principles. We also worked closely with Glencore’s engineering advisor, Arup, to estimate the replacement value of these unique channel assets using modern technology and standards. This asset valuation was a critical issue in the build up of prices.

Our reports also examined regulatory precedent on a range of matters related to establishing a ‘regulatory’ asset base, including the treatment of user contributions and Interest During Construction. These were key areas of dispute between the parties.

The Benefits

Synergies used its knowledge and expertise in economic regulation and port infrastructure to prepare strong, well reasoned and credible reports as part of the regulatory process.

The ACCC accepted the reasoning that we presented on the single most important issue in the arbitration, being that assets funded by the coal industry should be excluded from the asset based used for the purpose of determining the navigation service charge for coal vessels.

Advancing these arguments was important for Glencore to ensuring access to port infrastructure at Newcastle reflects fair and reasonable conditions.

Contact

A copy of Synergies’ reports (on behalf of Glencore) are not publicly available as Part IIIA arbitration is conducted in private.

However, a copy of the ACCC’s Determination, including references to Synergies’ reports, is available here.