KEEPING BUT AMENDING PART IIIA
THE PRODUCTIVITY COMMISSION’S RECOMMENDATIONS ON THE NATIONAL
ACCESS REGIME
What you need to know
In February 2014, the Productivity Commission’s (PC) final report to the Government on the
National Access Regime under Part IIIA of the Competition and Consumer Act 2010 was
released.
The PC has made the following recommendations:
 keep Part IIIA because it provides a sound basis for resolving access disputes, effective
pricing principles to ensure investment incentives are addressed, certainty via the option
to provide undertakings and alignment between national, state and territory access
regimes.
 amend declaration criterion (a) so that it is fulfilled where access to an infrastructure
service on reasonable terms and conditions through declaration (rather than access per
se) would promote a material increase in competition in a dependent market.
 specify a new test akin to the natural monopoly test under declaration criterion (b)
to overturn the High Court’s decision in the Pilbara iron ore railways case that a private
profitability test applies.
 remove and replace declaration criterion (e) with a threshold test that a service
cannot be declared if it is subject to a certified access regime.
 change declaration criterion (f) into an affirmative test that requires an applicant to
show that declaration would promote the public interest and include a non-exhaustive list
of relevant factors not expressly covered by the other declaration criteria such as effects
on investment and compliance costs.
 assess access undertakings against the declaration criteria to ensure they properly
address economic problems and deliver net benefits.
 require the ACCC to publish guidelines on how its power to direct facility
extensions (including capacity expansions) would be exercised in practice in access
arbitrations.
 change the deeming provision for the Minister’s declaration decision so that where no
decision is made, the Minister is deemed to follow the NCC’s recommendation.
What happens next?
Minister Bruce Billson has indicated that the Government will not respond to the PC’s
recommendations until the ‘root and branch’ review of competition law has been finalised
later this year.
Watch this space…
Key issues & recommendations
The PC’s final report largely adopted the key recommendations set out in its draft report of
May 2013.
Retaining Part IIIA
Following an assessment of the costs and benefits of Part IIIA, including the above issues
and recommendations, the PC concluded that on balance, Part IIIA should be retained
because it is likely to generate net benefits to the community.
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Keeping but amending Part IIIA
Authors: Sar Katdare and Pritasha Kumar, February 2014
In the PC’s assessment:
 the framework for negotiating and arbitrating under Part IIIA provides a sound basis for
resolving access disputes;
 the pricing principles provide sufficient scope for the ACCC to consider investment
incentives in its determinations;
 amendments to the CCA made in 2010 and the High Court’s decision in the Pilbara rail
case in 2012 would result in merits review of Part IIIA decisions by the Tribunal being
more confined, taking less time and therefore being less costly, than in the past;
 Part IIIA is likely to improve the quality of state and territory access regimes through a
demonstration role and the formal certification process;
 undertakings can be used to provide certainty to both service providers and potential
access seekers over the terms and conditions of access to the service; and
 in Part IIIA’s absence, governments may adopt ad-hoc approaches to access regulation
that would result in less efficient outcomes than under Part IIIA.
Declaration
Criterion (a) – that access promote a material increase in competition in at least one
market other than the market for the service being considered
The PC considered that the current competition test under the declaration criteria overstates
the potential effect of access regulation on competition to the extent that any existing access
arrangements promote competition in a dependent market. In light of the Federal Court’s
decisions in Sydney Airport Corporation Limited v Australian Competition Tribunal [2006]
FCAFC 146 and the Pilbara rail case, the PC believes that the hurdle for satisfying the
competition criterion needs to be re-raised.
Consequently, the PC has recommended that the competition test be amended so that it is
only satisfied where access to an infrastructure service on reasonable terms and conditions
through declaration (rather than access per se) would promote a material increase in
competition in a dependent market.
The amended criterion:
 would require a comparison of the status quo state of competition against the state of
competition where access is granted on reasonable terms and conditions if the service
was declared;
 would not be satisfied where there is already competition in dependent markets; and
 would not be satisfied where access is already granted to all third parties on reasonable
terms and conditions.
Criterion (b) – that it would be uneconomical for anyone to develop another facility to
provide the service
The PC noted that the interpretation of criterion (b) is controversial due to the three different
tests which have been used by courts in the past to assess the criterion (‘net social benefit
test’, ‘natural monopoly test’ and ‘private profitability test’).
The PC believes that criterion (b) should be used by decision makers to identify facilities
that give rise to an enduring lack of effective competition in markets for infrastructure
services and in its view, none of the tests previously used are suited to perform this
purpose.
The PC has recommended that criterion (b) be amended and applied in a different manner
than in the past, such that it is satisfied where total foreseeable market demand for the
infrastructure service over the declaration period could be met at least cost by the facility.
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Keeping but amending Part IIIA
Authors: Sar Katdare and Pritasha Kumar, February 2014
In its recommendation, the PC outlined that ‘total market demand’ should include the
demand for the service under application as well as the demand for any substitute services
provided by facilities serving that market. The recommendation is to also broaden the
assessment of costs under criterion (b) by including an estimate of any production costs
incurred by the infrastructure service provider from coordinating multiple users of its facility.
Alternatively, the PC recommended that if criterion (b) continues to be applied as a private
profitability test, the term ‘anyone’ should be amended to expressly exclude the incumbent
service provider (contrary to the High Court’s decision in Pilbara rail case).
Criterion (e) – that access to the service is not already subject to a certified access
regime
The PC considered that the administrative costs incurred by infrastructure service providers,
access seekers and the NCC in assessing a declaration application against all declaration
criteria, even if a certified regime is in place, are burdensome and inefficient.
Consequently, the PC recommended that criterion (e) be removed and replaced with a
threshold test which states that a service cannot be declared if it is subject to a certified
access regime. This would remove the unnecessary administrative costs which are currently
imposed.
Criterion (f) – that access would not be contrary to the public interest
The PC outlined that the public interest test in criterion (f) was intended to and should only
be used to deny a declaration application and not to get an application ‘over the line’ if other
declaration criteria cannot be satisfied.
The PC recommended that the public interest test be amended to an affirmative test that
requires the public interest to be promoted as opposed to access being granted on the basis
that it is ‘not contrary’ to the public interest. This will impose a positive obligation on access
seekers to demonstrate how declaration would promote the public interest.
The PC further recommended that the public interest test be amended to require decision
makers to have regard to a non-exhaustive list of relevant factors not expressly covered by
the other declaration criteria. The PC specifically recommended the inclusion of effects on
investment in infrastructure services and dependant markets, and administrative and
compliance costs.
Certification
The PC considered that the assessment of whether there have been substantial
modifications to a certified state or territory regime once a declaration application is
submitted undermines one of the purposes of certification, which is to enhance regulatory
certainty that a service cannot be declared.
In order to improve regulatory certainty, the PC recommended introducing a formal
mechanism to revoke certification following a recommendation from the NCC if there have
been substantial modifications to the certified regime or the competition principles.
The PC has also recommended that Part IIIA be amended to enable infrastructure service
providers covered by the certified regime, access seekers, or the relevant state or territory
government to apply to the NCC to make a recommendation to revoke certification.
Mandatory undertakings
The PC in its report recognised that there are costs associated with mandatory undertakings
and noted that mandating an undertaking may result in some of the safeguards included in
the declaration process being bypassed.
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Keeping but amending Part IIIA
Authors: Sar Katdare and Pritasha Kumar, February 2014
The PC recommended that if mandatory undertakings are to be used, the NCC should
assess the relevant service against the declaration criteria before, and at appropriate levels
after, the mandatory undertaking is place. This will ensure that future mandatory
undertakings are used to target the economic problem and deliver net benefits.
Protection of legitimate business interests of service providers
The PC noted that the applicability and practicality of the safeguard provisions set out in
section 44W of Part IIIA which impose restrictions on access determinations, was of
particular concern.
The PC has recommended that the ACCC develop and publish guidelines on how its power
to direct facility extensions would be exercised in practice, such that it is expected to
generate net benefits to the community. The PC recommended that the guidelines be
developed by the ACCC using a process that includes the public release of draft guidelines,
and is informed by stakeholder consultation.
The PC also recommended that Part IIIA be amended to confirm that the ACCC’s power to
direct extensions, in the context of access dispute arbitrations, also encompasses capacity
expansions to ensure that the safeguards set out in section 44W also apply to directed
expansions.
Deemed ministerial decisions
In order to increase transparency and improve opportunities for review, the PC has
recommended that if the designated Minister does not publish a decision on an access
matter within the 60 day time limit, then the decision should be deemed to follow the NCC’s
recommendation. This is expected to ensure that written reasons are provided for all
declaration decisions, providing a basis for judicial review. In cases where the designated
Minister decides not to follow NCC’s recommendation to declare, the proposed change
would impose a requirement on the Minister to make an active decision not to declare the
service and to provide reasons for that decision.
Terms of reference
The PC was asked to:
 examine the rationale, role and objectives of Part IIIA within the context of Australia’s
overall framework of access regulation;
 assess the performance of Part IIIA in meeting its rationale and objectives;
 report on whether Part IIIA adequately meets its economic efficiency objectives when
implemented;
 provide recommendations which can improve processes and decisions for facilitating
third party access to essential infrastructure;
 review the effectiveness of the reforms outlined in the Competition and Infrastructure
Reform Act (CIRA) and the reforms that have been undertaken by governments to give
effect to the CIRA; and
 comment on other policy measures which can ensure effective and responsive delivery
of infrastructure services both in the short and long term.
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Keeping but amending Part IIIA
Authors: Sar Katdare and Pritasha Kumar, February 2014
For further information please contact:
SAR KATDARE
Partner
JOHN KENCH
Partner
T +61 2 8274 9554
sar.katdare@jws.com.au
T +61 2 8274 9537
john.kench@jws.com.au
ALDO NICOTRA
Partner
MICHELE LAIDLAW
Partner
T +61 2 8274 9536
aldo.nicotra@jws.com.au
T +61 2 8274 9533
michele.laidlaw@jws.com.au
ROHAN MADDERS
Partner
PETER ROSE
Partner
T +61 3 8611 1313
rohan.madders@jws.com.au
T +61 3 8611 1345
peter.rose@jws.com.au
ANTHONY GROOM
Partner
ROXANNE SMITH
Partner
T +61 8 8239 7124
anthony.groom@jws.com.au
T +61 8 8239 7108
roxanne.smith@jws.com.au
Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it
intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice
depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any
responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting
on the basis of any material contained in this publication, we recommend that you consult your professional adviser.
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