Synergies, acting on behalf of Glencore prepared a series of submissions in 2018 and 2019 setting out the economic rationale for continued declaration of Newcastle Port’s shipping channel. Glencore, is a major user of shipping channel services at Newcastle as a major coal producer and exporter in the Hunter Valley. As such Glencore depends on access to the shipping channel based on reasonable terms and conditions.
Between mid 2016 and September 2019, third party access to the shipping channel at Newcastle was regulated under Part IIIA of the Competition and Consumer Act 2010 (Clth) (CCA). Under the regime, If Port of Newcastle Operations Pty Ltd (PNO) failed to reach a commercial agreement with access seekers on reasonable terms and conditions, the Australian Competition and Consumer Commission (ACCC) could be called upon to resolve the dispute through binding arbitration. In July 2018, PNO applied to the National Competition Council (NCC) to have the declaration revoked. Synergies presented submissions to the NCC outlining the economic rationale for maintaining the existing declaration on the basis that competition in markets that are dependent on shipping channel services would be weakened in the absence of any regulatory constraint on PNO’s ability to increase prices.
In July 2019, the NCC made a final recommendation to the Treasurer that the declaration be revoked. On 24 September 2019, the Treasurer issued a media statement noting that a decision was deemed to be taken to revoke the declaration. This means that access to the shipping channel is no longer regulated.
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 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 2017, Part IIIA was amended to clarify how the declaration criteria established under the CCA should be applied. Following the passage of these legislative amendments, in July 2018, PNO applied to the NCC for revocation of the declaration.
PNO claimed that the declaration of the channel services no longer met the amended declaration criteria, namely that ongoing declaration would not promote a material increase in competition in any markets dependent on the shipping channel.
Synergies presented a comprehensive submission to the NCC on behalf of Glencore in August 2018 that provided a sound rationale for demonstrating why declaration should not be revoked.
Synergies examined the legislative tests for declaration. It also assessed the extent to which a decision to revoke the existing regulation would be inconsistent with the objects of Part IIIA.
Our analysis demonstrated that, absent regulation, PNO would have a clear incentive and unconstrained opportunity to substantially increase port charges. Our report demonstrated that this would be likely to lead to a material loss of competition in at least one of the dependent markets, namely the market for coal tenements (i.e. mining authorities). This market is critical for ensuring future coal reserves are well placed to meet demand. Any loss of competition in this market is likely to result in adverse effects including weakened incentives for investment and lower coal resource values.
Our submission also concluded that continued declaration will promote the public interest, having regard both to the incentives that it will create for increased efficiency, particularly in the use of and investment in supply chain infrastructure (including rail, coal handling terminals and port) and to enhanced growth in the NSW and Australian economies resulting from enhanced incentives for investment in coal production. Moreover, revocation will lead to a public detriment and is not in the public interest where it undermines public confidence in the regulatory arrangements for preventing infrastructure owners being able to unreasonably exercise their market power.
Following its public consultation period, the NCC release its preliminary view in December 2018. The Council considered that declaration would not have any appreciable effect in promoting the economically efficient operation of, use of, or investment in the infrastructure by which the Service is provided. It therefore determined the declaration criteria were not met. As such, the NCC proposed to recommend to the Minister that the declaration be revoked.
Synergies, on behalf of Glencore, provided a responsive submission to the NCC in early 2019.
In our submission, we reviewed the NCC’s preliminary view on the relevant declaration criteria against our earlier evidence submitted to the NCC, as well as other stakeholder submissions and relevant regulatory precedent.
We disagreed with the NCC’s assessment based on several key aspects:
the NCC had not properly considered the manner in which and extent to which PNO will be incentivised to maximise profits in a future without declaration;
we considered that the NCC had placed insufficient weight on the ACCC’s recently published arbitration determination in the Glencore-PNO access dispute matter when assessing the risk that materially higher prices will most likely prevail in an unconstrained environment; and
the NCC did not have sufficient regard for how continued declaration will facilitate increased investment and output from the Hunter Valley and how this outcome advances the public interest in the context of the CCA objective
Our submission drew upon earlier regulatory precedent set by the QCA in its draft recommendation to continue declaration of the Dalrymple Bay Coal Terminal (DBCT) in Queensland. Synergies argued that this decision was relevant as it considers the same legislative criteria and similar issues in similar dependent markets (i.e. coal tenements) to those being assessed by the NCC. While both regulatory decisions consider very similar issues, the regulators have reached different conclusions.
In July 2019, the NCC forwarded its final recommendation on PNO’s application to the Minister. On 24 September 2019, the Minister (in this case, the Treasurer) published a statement indicating that the 60 day period to make a decision on the revocation application had expired, and so it was taken that a decision had been made to revoke the declaration.
Synergies applied its knowledge and expertise in economic regulation and port infrastructure to prepare strong, well reasoned and credible submissions as part of the regulatory process.
Advancing these arguments was important to promoting access to port infrastructure at Newcastle based on fair and reasonable conditions and preserving the benefits associated with investments in the Hunter Valley’s future coal reserves.
A copy of Synergies’ submissions (on behalf of Glencore) are publicly available from the NCC’s website at: http://ncc.gov.au/