The Queensland Supreme Court has dismissed Aurizon Network’s application for judicial review of a draft decision by the Queensland Competition Authority on rail access, with costs awarded in favour of the QCA. Former QCA Chair and now Chair of the Port of Newcastle Professor Roy Green comments.
The decision of State governments to maximise the sale price of major infrastructure assets at the expense of the professed goal of productivity-enhancing competition has come back to bite its beneficiaries. Not all the beneficiaries, mind you, given that the lawyers and advisers will keep their eye-watering fees. But the newly privatised behemoths are now under scrutiny as in the absence of competition they feel entitled, indeed encouraged by executive bonuses, to pursue price-gouging strategies on behalf of their shareholders to the detriment of customers and the wider community.
Let’s take Aurizon Network (AN) for example, which is now in the news. In 2010 the lucrative Central Queensland Coal Network (CQCN) operated by Queensland Rail was privatised in such a way that a vertically integrated public monopoly was simply replaced by a vertically integrated private one, whereby an above rail competitor was permitted to own the below rail network. Up to then, the CQCN had been a cash cow for the Queensland Government at least from the Bjelke-Petersen era, performing the role of a resource rent tax with access charges based as much on mining profits as the efficient cost of running a rail network. It seems that this was a habit hard to break under the new owners.
Last December, the Queensland Competition Authority (QCA) handed down a draft decision on the maximum allowable revenue for AN over the period of the access undertaking, UT5. Already this decision had been delayed, primarily as a result of opportunities sought by AN, granted by the QCA, to influence the outcome, particularly around the contentious issue of the Weighted Average Cost of Capital (WACC). As with previous such decisions, the QCA applied its own well established regulatory principles to consideration of the stakeholder submissions, based on assessments of risk, efficient provision of a service and a reasonable rate of return for the regulated entity. However, the proposed revenue of $3.9 billion fell $1 billion short of AN’s target figure of $4.9 billion.
Remarkably, instead of addressing the substance of the draft decision, AN chose to pursue a time-wasting and expensive judicial review application in the Queensland Supreme Court, alleging ‘apprehended bias’ by the QCA Chair on grounds that seemed to change on a monthly and then almost daily basis. This was combined with a media campaign presumably designed to sway the court and intimidate the regulator, while reassuring shareholders that the matter was in hand. Essentially, because the QCA Chair had also taken up the role of Chair of the Port of Newcastle, it was claimed there must be a conflict of interest given that coal is exported from both Queensland and the Hunter Valley of NSW.
The QCA response, accepted by the court, was that there is no obvious and tangible link between the coal operations of the CQCN and the Hunter Valley, mainly but not exclusively because they have a different coal mix and different markets. Even if there was such a link, a lower rail access charge for Queensland coal producers would be more likely to improve the competitive position of those producers than reduce it. And if AN felt pressured to limit the throughput of coal as a result of a lower access charge, it was still a ‘long bow’ to suggest the slack would be taken up by Hunter Valley exporters. The much later claim that concern at the Port of Newcastle about opening up the Adani mine in the Galilee Basin represented a further conflict of interest was also dismissed, first because if it did affect coal exports in a flat market it would apply to everyone, second it may not apply in reality due to different qualities of coal, third Adani was even not intended to be part of the CQCN until Aurizon proposed its own rail connection just before the court hearing, and finally it was all completely hypothetical anyway.
Aurizon’s aggressive strategy may not entirely have failed if minor concessions are made in the QCA’s final decision, such as a revised allowance for maintenance. But more fundamentally it must be concluded that the privatisation of monopoly infrastructure assets on favourable terms to over-mighty purchasers has created a situation of almost impossible complexity for regulators. Before the end of the year, the ACCC will announce its decision on a ‘substantial lessening of competition’ inquiry into the privatisation of the three NSW ports. Here again, the NSW Government’s sale price for the Port Botany-Port Kembla monopoly was maximised by restricting the development of a commercially viable container terminal at the Port of Newcastle, about which I have written previously https://johnmenadue.com/roy-green-world-class-container-terminal-for-newcastle-and-the-investigation-by-the-accc/ You don’t have to be a fan of neoliberalism to hope that the ACCC will join the Queensland Supreme Court in pricking the balloon of crony capitalism.
Professor Roy Green is Chair of the Port of Newcastle.