Crystal ball gazing about infrastructure regulation

Published On 18/10/2013 | By Kim de Kock | Access, Reform

Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims recently addressed the University of Wollongong’s SMART International Infrastructure Symposium. The symposium, in its inaugural year, aims to provide a platform for international research and collaboration on infrastructure planning, sustainability and management.

Mr Sims addressed the role that infrastructure regulation can play in promoting productivity growth and performance and, in the face of the new Commonwealth Government’s proposed root and branch review of competition laws (see our previous post here), made a number of observations on potential and speculative regulatory reform that could nevertheless improve infrastructure efficiency in Australia across a range of sectors.

While highlighting the importance of investment decisions and efficient investment in infrastructure, based on correct price signals and incentives, Mr Sims canvassed the potential for regulatory changes in relation to infrastructure for land transport, shipping, electricity, communications and water.  His observations, some of which are speculative, for enhancing productivity in relation to each of these are outlined below.

Land transport – freight and road congestion could be addressed by:

  • standard regulatory practices that impose user charges on the basis of a future construction and expenditure program;
  • introduction of a congestion charge which could fund new or upgraded roads; or
  • improving the signals for choice between competing modal options, ie whether it is more efficient to use rail or road freight.

Shipping – existing regulatory frameworks appear to facilitate higher freight costs of exports, and this could be addressed by:

  • removing Part X of the Competition and Consumer Act 2010, which provides a partial exemption from the CCA for shipping ‘conferences’ which effectively allows price fixing and allocation of capacity.  In contrast, these arrangements could be authorised under the CCA if it can be shown that they will give rise to net benefits, including lower freight costs both to and from Australia.

Electricity – Mr Sims noted that the electricity sector is one area where fairly poor historic regulation has ultimately cost consumers, as prices have increased, competitiveness has suffered and reforms such as retail price deregulation have been stifled.  Potential reforms for more cost effective electricity supply include:

  • benchmarking networks against each other – this will enable the AER to consider whether a network business is operating inefficiently as compared to its peers when considering forecast expenditure;
  • privatisation of electricity network businesses in the National Electricity Market – there are compelling reasons for this, as demonstrated by the benefits achieved in Victoria through privatisation;
  • improving the manner in which network reliability standards are set; and
  • dealing more effectively with peak demand and investing more appropriately in this respect.

Communications – with the National Broadband Network (NBN) currently being the most significant feature of the Australian communications sector, there is a focus on settling the Special Access Undertaking that will regulate the NBN – it should provide for price caps on NBN products, negotiation of service standards and an ability to rebalance pricing if usage charges become inappropriate over time.

Water – in relation to urban water challenges, as proposed in relation to the electricity sector and as undertaken in the United Kingdom, benchmarking of the various water authorities by regulators could be undertaken when determining efficient costs.

Ultimately, Mr Sims’ message is that sound regulation of infrastructure is important for driving productivity and that implementing reforms now will result in efficient outcomes in the future.

We will keep you updated of all regulatory reform developments.

Authors: Kim de Kock and Christopher Murphy

About The Author

is a Senior Associate in the Sydney office of King & Wood Mallesons where she specialises in anti-trust law, with a focus on mergers and acquisitions, access matters as well as general competition issues. Outside of the office, Kim has recently taken up surfing... but is probably not going to be appearing on the ASP tour any time soon.

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