Major Queensland rail infrastructure has been re-declared this week, following a long-running process.
On 31 May 2020, the Queensland Treasurer, in his capacity as Minister administering the Queensland Competition Authority Act 1997 (Qld) (the Act), decided to declare:
- the coal handling service at Dalrymple Bay Coal Terminal (DBCT) for a period of 10 years;
- the Aurizon-owned Central Queensland Coal Network (CQCN) for a period of 20 years; and
- six routes within the Queensland Rail service for a period of 15 years.
The rail routes covered by the decision are critical monopoly infrastructure in Queensland used, in large part, to transport coal from pit to port. Access to the service on reasonable terms is therefore important to that industry and others. The above mentioned services are already declared but those declarations will expire on 8 September 2020.
On 4 April 2018, the Queensland Competition Authority (QCA) commenced the declaration review process by issuing notices of review and investigation in order to make a recommendation to the Minister whether or not to declare the whole or part of each service.
The QCA and the Minister each considered whether or not the declaration criteria set out in section 76(2) of the Act are satisfied. The declaration criteria for consideration are:
- Criterion (a): that access (or increased access) to the service, on reasonable terms and conditions, as a result of a declaration of 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;
- Criterion (b) – that the facility for the service could meet the total foreseeable demand in the market over the period for which the service would be declared, and at the least cost compared to any two or more facilities;
- Criterion (c) – that the facility for the service is significant, having regard to its size or its importance to the Queensland economy; and
- Criterion (d) – that access (or increased access) to the service, on reasonable terms and conditions, as a result of declaration of the service would promote the public interest.
A service (or part of a service) can only be declared under the Act if all of the declaration criteria are satisfied.
The QCA sought submissions from stakeholders, and consulted extensively with the owners and users of the relevant facilities.
Declaration is significant. A facility subject to declaration must comply with the processes contained in the Act, including by providing access. QCA-approved access undertakings have historically determined with a high degree of specificity the terms of access for declared services in Queensland, including the terms of access and the prices that may be charged by infrastructure owners for use of the declared services.
The QCA recommended to the Minister that:
- the CQCN be declared for a period of 20 years;
- part of the Queensland Rail service be declared for a period of 15 years, being the:
- the North Coast Route service — which is the use of the North Coast Line and the Metropolitan system;
- the Mount Isa Route service — which is the use of the Mount Isa Line and those parts of the North Coast Line that interconnect the Mount Isa Line and the Port of Townsville;
- the West Moreton Route service — which is the use of the West Moreton system and the Metropolitan system
- the Central Western Route service — which is the use of the Central Western system, the Metropolitan system, and those parts of the North Coast Line that interconnect the Central Western system and Metropolitan system and the Port of Mackay;
- the Western Route service — which is the use of the Western system, the Metropolitan system and those parts of the West Moreton system that interconnect the Western system and the Metropolitan system; and
- the South Western Route service — which is the use of South Western system, the Metropolitan system and those parts of the West Moreton system that interconnect the South Western system and the Metropolitan system;1 and
- the coal handling service at DBCT not be declared.
The Minister’s decision reflected the recommendations made by the QCA in respect of the CQCN and the Queensland Rail service. However, the Minister ultimately came to a different conclusion in respect of the coal handling service at DBCT.
The QCA determined that criteria (a) and (d) were not satisfied in respect of the coal handling service at DBCT. Although the QCA accepted that the owner of the service would have an incentive to exert market power, without declaration, a proposed deed poll and access framework provided by the owner of the service during the declaration review process would be sufficient to ensure that there was no discretion on the service provider to impose excessive access charges. Despite acknowledging that access seekers and new users of the service would expect to receive higher access charges and generally enjoy less favourable terms of access than existing users, the QCA was ultimately not satisfied that access as a result of declaration would promote a material increase in competition in a dependent market.
The Minister decided that criteria (a) and (d) were satisfied in respect of the coal handling service at DBCT. The Minister concluded that declaration was likely to result in the promotion of a material increase in competition in the market for development-stage coal tenements in the Hay Point catchment (being the catchment in which the majority of the mines which supply DBCT are located).
Unlike the QCA, the Minister found that the threat of declaration where declaration had been removed was unlikely to curb the exercise of market power by the service provider. Further, the Minister also determined that the voluntary access framework provided by the service provider was insufficient to support competitive outcomes. Specifically, the price differential for access between new users and existing users of the service was likely to materially impact the ability for those participants to compete on a level playing field. As such, the Minister found that declaration would result in a material promotion of competition in the market for development tenements in the Hay Point Catchment, and that such a promotion of competition would promote the public interest (satisfying both criterion (a) and criterion (d)).
The lengthy declarations for each of the services determined by the Minister should provide some certainty for resources companies as to the availability of access to the services.
Nonetheless, the outcome is provocative due to the varied approach to the declaration criteria taken by the QCA and the Minister. It is also the first time the declaration criteria have been tested in a Queensland context and under the Act. There is therefore a risk of applications to revoke the declaration or for judicial review being made by the service providers.