9 June, 2016
Overview
Glencore Coal Pty Ltd (Glencore) has been successful in its bid to have the shipping channel at the Port of Newcastle (Port) declared under the national access regime in Part IIIA of the Competition and Consumer Act 2010 (Cth) (NAR). The Australian Competition Tribunal (Tribunal) followed the precedent set by the Full Federal Court in Sydney Airport Corporation v Australian Competition Tribunal in relation to one of the key criteria in the NAR and held that ‘declaring’ the shipping channel at the Port would promote a material increase in competition in the coal export market.
This is a significant case in which the Tribunal confirms that, when determining whether services should be ‘declared’, the correct approach is to compare the effect on competition with and without access to those services and to ignore any current access which is being provided to users. This is a lower threshold than the approach originally taken by the National Competition Council (NCC) and the Minister when they refused Glencore’s application for declaration (see our previous article1).
The Tribunal also recognised that, when considering one of the other key criteria in relation to the public interest, the Tribunal ‘would not lightly depart’ from the decision of the Minister who is likely to have an ‘informed and significant perspective’.
Background
On 13 May 2015, Glencore applied to the NCC for a declaration under the NAR to access and use the shipping channels (including the berths next to the wharves as part of the channels) at the Port (Services). The shipping channels at the Port are used by vessels in order to enter the Port, load and unload at terminals and exit the Port.
Infrastructure services can only be declared under the NAR if the five declaration criteria are satisfied. The criteria relevant to the Glencore decision are (a) and (f) which provide that access (or increased access) to the service:
‘(a) would promote a material increase in competition in a least one market (whether or not in Australia), other than the market for the service’, and
‘(f) would not be contrary to the public interest’
The NCC recommended that the Services not be declared because the NCC considered, amongst other things, that competition in the export coal market was unlikely to be materially increased by a declaration because charges for the Services represented a ‘minor component’ of the FOB cost of coal at the Port. The NCC considered that all other declaration criteria were satisfied.
On 11 January 2016, the Acting Treasurer agreed with the NCC’s recommendation and published his decision not to declare the Services.
Glencore’s challenge focused on the interpretation the Minister (and the NCC) had given to criterion (a), while the Port additionally argued that the Minister’s decision should be upheld because criterion (f) was not satisfied.
The Tribunal’s Decision
The meaning of ‘access’ and the promotion of competition
The Tribunal ultimately agreed with Glencore that it was bound to follow the approach to criterion (a) established by the Full Federal Court’s decision in Sydney Airport Corporation v Australian Competition Tribunal (2006) 155 FCR 124 (Sydney Airport FC).
The Tribunal held that criterion (a) requires a comparison of the coal export market without access to the Services and the coal export market with access to the Services. ‘Access’ in this context concerns Glencore’s entitlement to use the Service, with any access provided voluntarily by the Port not being relevant. Glencore argued that although it had ‘usage’ of the Service it did not have ‘access’ to the Service ‘because it had no legal (arguably statutorily enforceable) right to do so’. That is, it could not require the Port to provide it the Service. The Tribunal accepted this argument, finding that ‘without declaration, there is no entitlement to access’.
The Tribunal went on to find that because access to the Service ‘is essential to compete in the coal export market’ providing access to the Service ‘would promote a material increase in competition’ and accordingly, criterion (a) was satisfied.
‘Increased access’ and the promotion of competition
Glencore also made an alternative argument. Glencore argued that, even though it had access to the Service in a ‘conventional sense’ (i.e. it could use the Service on terms determined by the Port), it should be provided with ‘increased access’ to the Service. This would enable it to negotiate the terms of access to the Service and, if negotiation was unsuccessful, it could have the matter arbitrated by the Australian Competition and Consumer Commission.
Glencore argued that:
- while increased charges for Services are only a small component of overall costs, it may affect coal producers’ capacity to export coal, ultimately reducing competition,
- the uncertainty created by unregulated future price increases would hinder investment in the market and ultimately lessen competition, and
- the ownership structure of the Port meant that it was vertically integrated with a company which operated coal shipping vessels which may provide the Port with an incentive to influence the type and cost of vessels accessing the Port.
The Tribunal considered that the relevant test required a comparison between a future where a declaration had been made and reasonable terms imposed and a future where only limited access to the Service was provided. The Tribunal rejected Glencore’s arguments and found that:
- although the Port would have the incentive to increase charges for the Services, it also had an incentive to maximise coal volumes exported through the Port. If the Port imposed price rises which made some coal producers uncompetitive, the volumes exported through the Port would be lower and the Port would receive less revenue. This imposed a practical constraint on the Port raising prices,
- uncertainty caused by unregulated prices is likely to only be a minor consideration compared to the uncertainty caused by changes in the coal price. As a result, ‘removing the uncertainty about Port access charges is not likely to promote a material increase in competition’, and
- while one of the lessee’s of the Port had a remote vertical relationship with a coal shipper, the joint ownership structure of the Port meant that it was unlikely that any steps would be taken to offer favourable subsidies to a coal shipper related to only one of the lessees.
The Tribunal held that increased access to the Services would not promote a material increase in competition in the coal export market (or any other dependant markets).
Public interest
As an alternative basis for supporting the Minister’s decision, the Port contended that the Acting Treasurer was wrong in finding that criterion (f) was satisfied.
The Port argued that:
- the prices that the Port could charge for Services were already subject to independent monitoring;
- there is a public interest in facilitating a light handed regulatory approach and not interfering with arrangements made between the State and the Port, and
- the Minister did not consider that the costs of declaring Services may outweigh the benefits.
The Tribunal did not agree with the Port’s arguments. The Tribunal explained that it was mindful of the High Court’s comments in the Pilbara Infrastructure v Australian Competition Tribunal (2012) 246 CLR 379 that, in relation to the public interest, ‘the Minister is likely to have an informed and significant perspective’ and would not ‘lightly depart from a Ministerial conclusion about whether access or increased access would not be in the public interest.’
What next?
An aggrieved party (like the Port) has 28 days from the decision to challenge the Tribunal’s decision and test this approach to the law.
In any event, the law may change in the future anyway. The Productivity Commission and the Harper Review committee have recommended that criterion (a) should be amended to effectively align the test with the approach adopted by the NCC and the Minister. That is, to compare access under the current situation against access on reasonable terms and conditions through declaration.
Both the Productivity Commission and the Harper Review also recommended that criterion (f) should be amended so that a declaration would have to promote the public interest, rather than simply not be against the public interest.
These recommendations were accepted by the current Federal Government and, if implemented, would raise the threshold for obtaining declaration.
Endnotes
Glencore channels access efforts into Tribunal challenge.
For further information, please contact:
Matthew Bull, Partner, Herbert Smith Freehills
matthew.bull@hsf.com
