Importance of competitive infrastructure markets and efficient regulation
Australian minerals companies operate in a global industry where prices are highly transparent and there is intense competition – both from other commodity exporters and from domestic suppliers in customer countries. The timely provision of export infrastructure is critical to the future growth and competitiveness of Australia’s minerals industry. Governments have a responsibility to foster open, transparent and competitive infrastructure markets. Regulation should only be used where a market failure is evident and there is evidence that government intervention can effectively and efficiently remedy that failure.
At the same time, governments must be alert to differing industry characteristics that give rise to differing regulatory challenges and economic consequences. In the Australian minerals industry, an example relates to the structural differences that characterise the vertically integrated, privately owned single-user systems in west coast iron ore operations, in contrast to the multi-owner, multi-user rail and port facilities in the east coast coal industry.
Bottleneck challenges associated with the recent mining investment boom point to greater risk of inefficient outcomes in the case of multi-user, multi-owner infrastructure networks as compared to single-user, single-owner, integrated infrastructure. This underlines the need for careful analysis of the role competition policy can and should play in promoting efficient outcomes.
The Hunter Valley Coal Chain Coordinator (HVCCC) exemplifies how cooperation in the operation of multi-user supply chain infrastructure can enhance efficiency and exports where participants have differing interests. The HVCCC emerged as a voluntary solution to a complex coordination problem by all participants and had to be authorised by the Australian Competition and Consumer Commission. It has achieved significant positive outcomes for the coal industry in the Hunter Valley by ensuring a reliable and efficient supply chain.
A considered approach is also required in the case of formerly government-owned, multi-user assets that have been corporatised or privatised. There is evidence to suggest these risks are greatest where inadequate regulatory systems could buttress the market power of infrastructure providers (often former government monopoly providers) within multi-user networks, providing incentives to restrict access and/or raise access prices unreasonably. The minerals industry’s experience of other infrastructure privatisations, notably in Queensland, reinforces the case for government hastening slowly and evaluating carefully.
As the largest user of coastal shipping services, the Australian minerals industry has a strong interest in competitive and cost-effective coastal shipping. The participation of foreign ships is a longstanding feature of Australia’s coastal shipping trade and is essential to the efficient and timely movement of freight. However, the Coastal Trading (Revitalising Australian Shipping) Act 2012 made retrograde changes to competition rules by replacing single and continuous voyage permits with a tiered licensing system that discriminates against foreign ships. In addition, the Act gives Australian ships the power to contest voyages proposed by foreign ships.
The Coastal Trading Act has increased domestic transport and administration costs and made it more difficult for Australian minerals companies to source coastal shipping services when they are needed. The previous government sought to solve this problem by redefining the objectives of the Act as fostering a competitive coastal shipping services industry that supports the Australian economy, and maximising the use of available shipping capacity on the Australian coast. The previous government also sought to afford Australian and foreign ships equal access rights to carry coastal goods or passengers. Both of these reforms would have improved the efficiency of the Coastal Trading Act and should be reconsidered.
Delays and uncertainty in project approval processes pose a significant risk to the industry’s global competitiveness. In a survey of MCA members, 90 per cent of respondents ranked reforming approval processes as ‘very important’ or ‘important’ to improving productivity. Unnecessarily complex and duplicative processes contribute to lengthy approval timeframes and delays. The Productivity Commission has concluded that overlap and duplication between federal and state processes can be greatly reduced without lowering the quality of environmental outcomes. Parliament should approve a One-Stop Shop for environmental approvals.
Further, it is important that urban development takes adequate account of existing and planned export infrastructure. MCA members have noted that in some cases, the approval of new residential housing near existing coal infrastructure has created problems in renewing mining leases.