Port of Newcastle: ACT upholds Glencore’s appeal on decision to not declare channel services

Background to application

In May 2015, Glencore applied to the National Competition Council (NCC) for the channel services to be declared under the NAR. This application was made following a significant increase in port charges in January 2015 (of between 40 to 60 per cent for some vessel types). In November 2015, the NCC issued its Final Recommendation that the service not be declared on the grounds that it did not meet declaration criteria (a) that “access (or increased access) to the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service”. All other declaration criteria were satisfied. In January 2016, the Treasurer published a decision not to declare the service on the same grounds as that recommended by the NCC. In January 2016, Glencore applied to the Tribunal for a review of that decision.

‘Promotion of competition’ criteria

The Treasurer (and NCC) had determined that criterion (a) was not satisfied based on a comparison of the situation with and without declaration of the service, where the ‘without access’ scenario referred to the current situation in Glencore has use of the channel (albeit without declaration). On this basis, as the dependent markets were considered to be at least workably competitive and, further, the charges for channel services are a negligible component of coal producers’ costs, it was determined that criterion (a) is not satisfied.

However, Glencore claimed that despite it having usage of the channel service, it did not have ‘access’ to the service in the sense meant by Part IIIA of the Competition and Consumer Act; it had no legal right to use the service. Therefore, the ‘without access’ scenario should refer to the situation where users have no access the channel service.

Based on precedent established by the courts in the context of the Sydney Airport declaration, the Tribunal concluded that this criterion should be assessed by comparing relevant markets under future regulated access to the channel services against the same markets with no access to the channel. This is regardless of whether access is currently being provided voluntarily without declaration. The Tribunal reached this view because:

“….in the absence of access (or increased access), the capacity to service the coal export market is not to be measured against the actual existing usage but the entitlement to usage of the Service (to the extent it may exist).”

On the Tribunal’s interpretation, criterion (a) is clearly satisfied as access to the shipping channel at Port of Newcastle is essential for the export of coal from the Hunter Valley and there is currently no legally enforceable right to access.

‘Not contrary to the public interest’ criterion

Port of Newcastle (PNO) also argued that the Treasurer’s decision should be affirmed on the additional ground that criterion (f) – that access is not contrary to the public interest – is not satisfied, particularly given the existing state-based price monitoring regime and its contractual relationship with the State and that there is a public interest in facilitating and not undermining this light handed regulatory framework.

However, the Tribunal concluded that there are no direct regulatory constraints on PNO’s pricing structures and that any existing practical price constraints on PNO do not provide an effective substitute for access regulation. In balancing the overall costs and benefits, the Tribunal was not persuaded that declaration would not be in the public interest. It concluded that criterion (f) is satisfied.

Conclusions and next steps

This Decision opens the way to declaration of the channel services at Port of Newcastle. This would allow for disputes about the price of access to channel services to be subject to independent and binding arbitration by the ACCC, with the potential for consequent changes in prices and revenue (depending on the outcome of any arbitration).

However, this issue may not be finally settled as it is open to the Port of Newcastle to appeal this decision. Further, the Tribunal’s approach could be seen to differ from the Government’s position in its response to the Productivity Commission/Harper Review in relation to criterion (a) – that is, that it should be a comparison of access under the current situation versus access on reasonable terms and conditions through declaration as this is the most meaningful, realistic measure. A different outcome may result if, in future, the Competition and Consumer Act is changed to reflect this position.

Given this, the Tribunal’s Decision may not be the end of the matter in terms of the interpretation of criterion (a).