Port of Newcastle a ‘monopolist without constraint’
Allowing Newcastle port to set its own prices opens the way for a misuse of market power, says ACCC.
Competition tsar Rod Sims says the Port of Newcastle is now a “monopolist without restraint” and has called for reform to Australian competition laws in the wake of the National Competition Council’s decision to free the coal port from pricing oversight.
Mr Sims said the NCC’s decision to allow the port to set its own prices for customers using its shipping channel, waved through by federal Treasurer Josh Frydenberg last week, potentially opened a path for the owners of airports and railways to challenge declarations restricting their pricing power.
The NCC decision, he said, has paved the way for misuse of market power.
Speaking at the Australasian Transport Research Forum in Canberra on Monday, the Australian Competition and Consumer Commissioner chief said the decision, if allowed to stand by the courts, demonstrated the need for new laws that can regulate prices charged to users of privately-owned transport infrastructure.
“It is bad for the economy when bottleneck infrastructure, at the end of a crucial value chain, is in the hands of a company with unfettered market power. A monopolist in that situation will always use its power; the question is only by how much and how often,” he said.
The NCC last week revoked the “declaration” of the Port of Newcastle’s shipping channel, effectively allowing the privately-owned port - run by the Infrastructure Fund and China Merchants Port Holdings on a 99-year lease, after a bidding war in 2014 handed the NSW government $1.75 billion - to set prices without the oversight of the ACCC.
The revocation came after a bitterly-fought legal battle by Glencore on behalf of Hunter Valley coalminers, for whom the port is the only export option, over price hikes at the port when it moved into private hands.
The port’s owners argued that charges through its shipping channel had remained relatively static for decades under government ownership, and it was merely returning them to an economic level that would allow reinvestment in its facilities.
The NCC agreed, saying the Port of Newcastle had every incentive to maximise export volumes and no reason to put the squeeze on its biggest users, and last week overturned the declaration based on 2017 changes to competition laws, softening the section of the law governing access to critical infrastructure.
The NCC’s decision overturns successive court rulings won by Glencore under the old legislation and, while welcomed by the Port of Newcastle - which described the ruling as a “victory for a commonsense approach to regulation” - sparked outrage from users, with Glencore again believed to be considering its legal options.
Mr Sims told transport policy figures on Monday the ruling also paveds the way for natural monopolies that were not vertically integrated - that were not also engaged in the same core business as their customers - to be freed from pricing oversight.
“A monopolist that controls this type of bottleneck infrastructure, operating without any regulation, has a clear incentive to maximise profits by raising prices even if this means reduced volumes or less use of their service,” he said.
“If, as any legal processes play out, the revocation stands, which I hope does not happen, this will mean the Port of Newcastle is now a monopolist without constraint.”
Mr Sims said transport infrastructure needed the same protection against the abuse of private monopolies as existed for electricity networks and gas pipelines.
“The broader risk now is that other non‑vertically-integrated monopolists will no longer consider declaration as any credible threat. Further, currently regulated monopolies, such as rail tracks, will seek to have their regulation removed. As a society, is this what we want?” he asked.
“For vertically separated infrastructure we may need a ‘market power’ test. Just as we do not want vertically integrated monopolies denying access to their competitors, we do not want non-vertically integrated infrastructure exercising their market power to raise prices to users and so damage the economy.”
Mr Sims hinted a light-handed regulation system could work on a voluntary basis, particularly in relationship to the ownership of airports, which he also characterised as a regulation-free zone on pricing.
“We need a new approach to deal with monopoly airport charges. We have not argued for price regulation that can apply to other monopoly infrastructure in Australia, or to airports in other jurisdictions,” he said.
“Rather, we have proposed a solution under which airlines or airports can seek independent arbitration over airport charges if commercial negotiations between the two parties break down.
“This very light-handed and flexible solution promotes effective commercial negotiations between airports and airlines. It encourages the party with market power to reach agreement, or else it would face the threat of an independent arbitrator determining the prices and terms of access.”
A spokeswoman for the Port of Newcastle again defended the NCC decision on Monday, saying the competition regulator had “undertaken a thorough legal and economic analysis and has found that there is no case for channel services at the Port of Newcastle to continue to be regulated under the national access regime”.
“In relation to Mr Sims’ address at the Australasian Transport Research Forum, PoN agrees with his comments with respect to the appropriateness of light handed economic regulation of airports, and believes there are considerable parallels with maritime ports, with which airports share many of the same infrastructure and service attributes.”