1)

THE HONOURABLE CHRIS PEARCE MP Parliamentary Secretary to the Treasurer Federal Member for Aston

17 Jut 2006

The Hon MP Premier ofQueensland Executive Building 100 George Street QLD 4000

Dear Premier t am writing in regard to your Government's application to the National Competition Council (NCC) for a recommendation that the Queensland third party access regime for natural gas pipeline services is an effective access regime under the Trade Practices Act 1974 (TPA).

On 21 November 2002, I received the NCC's final recommendation that the regime should not be certified as effective. I note that, in January 2003, a copy ofthe NCC's final recommendation was provided to the relevant Queensland Minister and made publicly available.

In accordance with Section 44N ofthe TPA, I have decided that the regime is not an effective access regime. Enclosed is my statement ofreasons for this decision and copy ofthe NCe's final recommendation.

CHRIS PEARCE encs

Parliament House, Canberra ACT 2600 • Telephone (02) 62772088 Facsimile (02) 6277 4408

TRADE PRACTICES ACT 1974, SECTION 44N

QUEENSLAND ACCESS REGIME FOR GAS PIPELINE SERVICES

DECISION ON EFFECTIVENESS OF ACCESS REGIME

REASONS FOR DECISION

Introduction

The certification of state access regimes

1. Under Part IIIA of the Trade Practices Act 1974 (TPA), if a State or Territory that is a party to the Competition Principles Agreement (CPA) has established at any time a regime for access to a service, the responsible Minister for the State or Territory may make a written application to the National Competition Council (NCC) asking the NCC to recommend that the Commonwealth Minister decide that the regime for access to the service is an effective access regime (section 44M (1) and (2) of the TPA).

2. The NCC must recommend to the Commonwealth Minister that he or she decide that the access regime is either an effective access regime for the service, or not an effective access regime for the service.

3. Section 44N of the TPA provides:

Ministerial decision on effectiveness of access regime (1) On receiving a recommendation, the Commonwealth Minister must: (a) decide that the access regime is an effective access regime for the service or proposed service; or (b) decide that the access regime is not an effective access regime for the service or proposed service. (2) In making a decision, the Commonwealth Minister: (a) must apply the relevant principles set out in the Competition Principles Agreement; and (b) must, subject to section 44DA, not consider any other matters. (3) The decision must specify the period for which it is in force. (4) The Commonwealth Minister must publish his or her decision. At the same time, the Commonwealth Minister must give his or her reasons for the decision, and a copy of the Council's recommendation, to the responsible Minister for the State or Territory who applied for the recommendation.

4. The (Queensland) has sought certification of its third party access regime (the Queensland regime) as it applies to services provided by natural gas pipelines that are ‘covered’ under the National Third Party Access Code for Natural Gas Pipeline Systems (the National Gas Code), including pipelines specified in Schedule A of

2

the Gas Pipelines Access Law (GPAL), and pipelines that subsequently become covered by the Queensland regime. The Queensland regime does not apply to foundation contracts or other pre-existing contractual arrangements.

5. This document sets out my reasons for the decision that the Queensland regime is not an effective access regime.

History of the application

6. Queensland asked the NCC pursuant to section 44M of the TPA in September 1998 to recommend to the Commonwealth Minister that he or she decide that the Queensland access regime for pipeline services was effective.

7. In February 2001, the NCC forwarded a recommendation on the effectiveness of the Queensland access regime to the Commonwealth Minister. Subsequently, the then Commonwealth Minister notified the NCC that he had received a substantial amount of further material from the Queensland Government and the owners of four gas pipelines subject to derogations under the regime.

8. The NCC withdrew its February 2001 recommendation and informed the Commonwealth Minister that it would forward a fresh recommendation once it had given full consideration to the further materials.

9. In February 2002, the NCC released a draft recommendation for comment from interested parties. Further submissions were received from interested parties.

10. In November 2002, the NCC forwarded its final recommendation to the Commonwealth Minister pursuant to the terms of section 44M of the TPA. The NCC recommended that the Queensland regime not be certified as effective on the basis that it does not satisfy the relevant CPA principles.

11. The Commonwealth Minister provided a copy of the NCC’s final recommendation to the Queensland Government and other interested parties on 6 January 2003. Further submissions were received from interested parties.

Submissions received and considered 12. The following written submissions were received after the making of the recommendation by the NCC in November 2002: — Letter dated 19 February 2003 from the Hon MP, the then , together with copies of: – Queensland’s submission to the NCC dated November 2000; – the original NCC decision, February 2001; – Queensland’s submission to the Commonwealth Minister dated April 2001; and

3

– Queensland’s submission to the NCC dated May 2002. — Joint letter dated 28 February 2003 from Duke Energy, Epic Energy and the Australian Pipeline Trust, together with attached submission. — Email dated 7 May 2003 from Mr Curtis Evans, Queensland Treasury, containing information in response to questions from the Australian Treasury. — Letter dated 12 March 2004, from the Australian Pipeline Industry Association.

13. Oral submissions were also made by representatives of the Queensland Treasury at a meeting with Australian Treasury officials on 28 March 2003, and by representatives of Epic Energy, Duke Energy, the Australian Pipeline Trust and Agility on 2 April 2003.

14. I considered all of these submissions in reaching my decision.

Overview of the Queensland regime

15. The Queensland regime establishes a regulatory framework allowing third parties to negotiate access to services provided by natural gas transmission and distribution pipelines located in Queensland and provides a mechanism for dispute resolution. The basic framework which is applied to pipelines is the National Third Party Access Code for Natural Gas Pipeline Systems (the National Gas Code). The National Gas Code has been applied as a law by the States and Territories. Each jurisdiction has implemented its own jurisdiction-specific features of the Code.

16. The Gas Pipelines Access (Queensland) Act 1998 (Qld) (QGPAA) establishes the Queensland regime and commenced operation in May 2000. The QGPAA applies the GPAL and the National Gas Code, which set out the rights and obligations of parties involved in the Queensland regime.

17. A central feature of the National Gas Code is a requirement that the owner/operator of a covered pipeline submit an access arrangement to the relevant regulator for approval. That arrangement must include ‘reference tariffs’ for ‘reference services’. These are benchmark prices for specified services likely to be sought by a significant part of the market. Third parties are then entitled to access to those reference services on the terms and conditions set out in the (approved) access arrangement. However, parties are free to negotiate access to ‘reference’ and ‘non-reference’ services on terms and conditions other than those set out in the (approved) access arrangement (except in respect of the queuing policy). Any dispute about access can be notified to the relevant regulator to be resolved by arbitration, with the arbitrator being bound to apply the provisions of the relevant access arrangement (including the reference tariffs).

18. Under the National Gas Code, an access arrangement must first be approved by the relevant regulator before it can come into effect. The National Gas Code sets out principles that reference tariffs should be designed around.

4

19. In 1997, the NCC undertook a review of the National Gas Access regime, including GPAL and the National Gas Code, to determine whether it was consistent with the relevant principles set out in clause 6 of the CPA. The NCC took the view that the broad framework of the regime satisfied the relevant principles.

20. Subsequently, the NCC has considered the gas pipeline access regimes of several States and Territories. In each case, the state or territory regime was substantially consistent with the terms of the National Gas Access regime the NCC had considered in 1997. The NCC recommended to the Commonwealth Minister in each case that the Minister decide that the regime was an effective access regime, and in each case, the Commonwealth Minister did so.1

21. The NCC considers that generally, the Queensland regime is consistent with the National Gas Code. However, the operation of the Queensland regime is modified for pipelines which are subject to ‘derogations’ by the operation of section 58 of the QGPAA (‘section 58 pipelines’).

Section 58 pipelines 22. Section 58 of the QGPAA provides:

58 Reference tariffs for certain pipelines (1) This section applies to the following pipelines— (a) the pipeline mentioned in pipeline licence no. 2 (Wallumbilla to Brisbane); (b) the pipeline mentioned in pipeline licence no. 24 (Ballera to Wallumbilla); (c) the pipeline mentioned in pipeline licence no. 30 (Wallumbilla to Rockhampton via Gladstone); (d) the pipeline mentioned in pipeline licence no. 32 (Gatton to Gympie);2 and (e) the pipeline mentioned in pipeline licence no. 41 (Ballera to Mt Isa). (2) The local Minister may once only, by gazette notice made within 30 days after this section commences, approve a tariff arrangement for each pipeline. (3) The approved tariff arrangement is taken to be approved under the Gas Pipelines Access Law as the reference tariff and reference tariff policy for the access arrangement to be submitted under the law for the pipeline until the revisions commencement date for the access arrangement.

1 The Commonwealth Minister has certified as effective the gas access regimes of South Australia (December 1998), Western Australia (May 2000), the Australian Capital Territory (September 2000), New South Wales and Victoria (March 2001), and the Northern Territory (October 2001). 2 The NCC notes that this proposed pipeline (no. 32) was covered under a derogation in section 57 of the GPPAA but derogated reference tariffs were never implemented. I understand that this proposed pipeline was not constructed.

5

(4) The revisions submission date and the revisions commencement date mentioned in the reference tariff policy are taken to be the revisions submission date and the revisions commencement date for the access arrangement to be submitted under the Gas Pipelines Access Law for the pipeline.

23. The effect of this provision is to quarantine, for varying periods, four major transmission pipelines from having to comply with tariff-related aspects of the National Gas Code. Instead, alternative arrangements apply. In particular, certain ‘derogated’ reference tariffs and related matters have been approved by the Queensland Minister for Mines and Energy (‘the Queensland Minister’), rather than by a regulator under the National Gas Code. These tariffs are pre-existing tariffs originally approved by the Queensland Minister for these pipelines prior to the implementation of the National Gas Code. These original approvals occurred between 1995 and 1997 under Part 8 of the Petroleum Act (Queensland) 1923 (Qld) (the Petroleum Act). For three pipelines subject to section 58 QGPAA derogations, the pipeline owners are not required to provide information to access seekers on the derivation of their respective reference tariffs.

24. The tariffs that have been determined for the derogated pipelines will remain in force for varying periods, depending on the review date for the access arrangement of each pipeline. These are as follows: – pipeline 2’s derogation terminates on 29 July 2006; – pipeline 24’s derogation terminates on 30 December 2016; – pipeline 30’s derogation terminates on 31 August 2016; and – pipeline 41’s derogation terminates on 1 May 2023.

25. While in one case the derogation will cease in 2006, in the other cases the derogated reference tariffs and other matters will continue to operate for a considerable period.

Can my decision focus on the derogations? 26. Before discussing the substantive question of whether the Queensland regime complies with the relevant principles in the CPA, it is necessary to consider whether I am permitted or required to consider the derogated arrangements in reaching my decision.

27. It was submitted by Queensland to the NCC and to the Commonwealth Minister that the derogated arrangements are transitional arrangements only, adopted in the course of phasing in a regime which will be entirely consistent with the National Gas Code.

28. In my view, the length of the derogations, together with their fundamental relationship with key principles of the CPA (negotiation and independent dispute resolution on access terms and conditions), means that they cannot be regarded as merely transitional measures. I agree with the NCC that section 58 of the QGPAA has the effect of substituting alternative access frameworks for the gas pipelines to which it applies, which are the major gas pipelines in Queensland.

29. It was also submitted by Queensland and the then owners of the section 58 derogated pipelines, to both the NCC and to the Commonwealth Minister, that the derogations were

6

agreed by all governments in the 1997 Natural Gas Pipelines Agreement as being transitional in nature, and necessary in the public interest. It was submitted that it is therefore inappropriate for the NCC or for me to take the view that they are inconsistent with the CPA.

30. However, I note that under clause 12.1 of the 1997 Natural Gas Pipelines Agreement, consideration of the effectiveness of an access regime should not be constrained by the agreement’s provisions on transitional arrangements and derogations. Clause 12.1 of that agreement states that the parties note that the specification of transitional arrangements and derogations in the agreement: does not limit the discretion of a Commonwealth Minister to certify or not certify the access regime embodied in a jurisdiction’s Access Legislation … as an effective access regime under section 44N of the Trade Practices Act or the National Competition Council’s discretion under section 44M of the Trade Practices Act.

I agree with the NCC that while section 58 of the QGPAA derogations was approved by Australian Governments in the 1997 Natural Gas Pipelines Agreement, it was never intended that this approval would act as an exemption from the requirements of Part IIIA of the TPA.

31. I am therefore of the view that I must assess the Queensland regime in its entirety, including the derogations, against principles set out in the CPA.

The principles I must apply in making my decision

32. Section 44N(2) provides that in making my decision, I must apply the relevant principles set out in the CPA; and must, subject to section 44DA, not consider any other matters. Section 44DA provides that when applying the relevant principles, I must treat each individual principle as having the status of a guideline rather than a binding rule.

Consideration of the Queensland regime against the relevant CPA principles Clause 6(3) 33. Clause 6(3) of the CPA provides:

For a State or Territory access regime to conform to the principles set out in this clause, it should: (a) apply to services provided by means of significant infrastructure facilities where: (i) it would not be economically feasible to duplicate the facility; (ii) access to the service is necessary in order to permit effective competition in a downstream or upstream market; and (iii) the safe use of the facility by the person seeking access can be ensured at an economically feasible cost and, if there is a safety requirement, appropriate regulatory arrangements exist.

7

34. The Queensland regime applies to the services of spare and developable capacity in natural gas pipelines that are covered under the National Gas Code.

35. Based on the recommendation of the NCC, it seems to me that the services that are covered by the Queensland regime satisfy the requirements of clause 6(3)(a).

36. I accept that it would generally be uneconomic to duplicate the services of facilities under the regime, given the high capital outlays and significant economies of scale which can act as a natural barrier to competition (clause 6(3)(a)(i)). However, I note that new technologies and market evolution may cause some existing pipelines to become economically feasible to duplicate in the future. I also consider that access to the services provided by facilities under the Queensland regime creates the prospect of direct negotiation between gas consumers and gas producers, and this may stimulate competition at the production and retail levels (clause 6(3)(a)(ii)).

37. Further, I understand that appropriate safety considerations are built into the Queensland regime (clause 6(3)(a)(iii)). I note that the Queensland regime adopts the National Gas Code’s revocation provisions which enable parties to seek an independent assessment of whether the coverage principles continue to apply to a particular pipeline. These provisions ensure that should clause 6(3) principles no longer apply, coverage may be revoked.

38. I therefore consider that the Queensland regime is consistent with clause 6(3)(a).

Clauses 6(4) (a) - (c) 39. Clauses 6(4)(a)-(c) of the CPA provide:

(a) Wherever possible third party access to a service provided by means of a facility should be on the basis of terms and conditions agreed between the owner of the facility and the person seeking access. (b) Where such agreement cannot be reached, Governments should establish a right for persons to negotiate access to a service provided by means of a facility. (c) Any right to negotiate access should provide for an enforcement process.

40. In my view, clauses 6(4)(a)-(c) are considered together because jointly they establish a framework for negotiations to proceed in an effective access regime.

41. The principle set out in clause 6(4)(a) makes clear that, ‘wherever possible’, third party access to a service should be based on terms and conditions agreed between the owner of the facility and the person seeking access. In my view, this principle applies to terms and conditions relating to price as well as other terms and conditions.

8

Background – the NCC’s approach

42. As mentioned earlier, the NCC has previously recommended to Commonwealth ministers the approval of state access regimes which comply with the National Gas Code, and Commonwealth ministers have decided that such regimes are effective access regimes. Under the National Gas Code, ‘reference tariffs’ for standard ‘reference services’ for covered pipelines are approved by a regulator before any access to the service is negotiated. Once the regulator has approved an access arrangement, including the reference tariffs, third parties have a right to have access to reference services on the terms and conditions set out in the access arrangement. The (approved) reference tariffs can be varied through negotiation but cannot be varied in arbitration. An alternative for new pipelines is for reference tariffs to be determined through a competitive tendering process which has been approved by the relevant regulator.3

43. The NCC stated in its initial decision, in relation to the compliance of the National Gas Code with the CPA principles, that: Clause 6(4)(a) indicates a preference for commercial negotiation to provide the basis for parties to arrive at access arrangements. This is supported by clauses 6(4)(b) and 6(4)(c) which require that access regimes must also establish a ‘right to negotiate’ access accompanied by an ‘enforcement process’. The Council considers that these clauses require that the parties have recourse to an enforceable dispute resolution process where negotiations fail to result in agreement. While clause 6(4)(a) indicates a preference for the commercial negotiation approach (that is, without regulatory intervention), the Council recognises that limiting commercial negotiation can sometimes promote better policy outcomes by constraining market power, reducing uncertainty and producing more ‘workable’ outcomes. For example, whilst a mechanism which incorporates ‘access arrangements’ and ‘reference tariffs’ may reduce flexibility of negotiations, it can also provide greater certainty to all parties, thereby limiting the scope for access disputes and promoting a more stable environment for investment.4

44. Based on these considerations, the NCC concluded that although the arrangements established under the National Gas Code could limit commercial negotiation, they could also result in benefits from providing greater certainty to all parties.

45. However, the NCC went on to say:

The more prescriptive a regime, the more closely the Council will review the processes and bodies by which those limits are imposed. A regime that imposes considerable constraints on commercial negotiation might require checks and balances to protect the rights of affected parties. …

The Council considers that bodies responsible for imposing any limits on commercial negotiation should be independent from all affected parties and have resources sufficient for their task. In this sense, the Council will be concerned with the independence of regulatory bodies from service providers, users, potential users and governments.

3 Sections 3.21-3.36 of the National Gas Code. 4 National Gas Access Regime - Assessment Against the Competition Principles, National Competition Council, Sept 1997, page 17.

9

In addition, any constraints on commercial negotiation and dispute resolution (such as the imposition of reference tariffs or regulated transitional arrangements) should be imposed through transparent or robust competitive processes.5

46. In substance, the NCC has taken the view that it is acceptable to depart from the principle of a preference for commercial negotiation on access terms and conditions, but only where the regime which is put in place to replace that preferable state of affairs is of a sufficiently high standard of independence, and is sufficiently transparent and robust, to justify that departure.

The Queensland regime

47. Under the Queensland regime, parties are able to negotiate access within the regulatory framework of the National Gas Code, except that this framework is modified for section 58 pipelines.

48. Consistent with the NCC’s comments in its initial analysis of the National Gas Access Regime 6, the NCC (in its assessment of Queensland’s regime) considers that independent regulatory guidance to third parties may be needed to provide an environment conducive to effective negotiations for the purposes of satisfying clauses 6(4)(a)-(c). In the NCC’s view: In the absence of such measures, an access regime may establish a right to negotiate in theory, but may put third parties in a position of negotiating blindly with a monopoly provider of or being offered potentially inappropriate prices on a “take it or leave it” basis. The latter may amount to a constructive denial of access, and cannot be viewed as satisfying clauses 6(4)(a)-(c). …. The clause 6 principles recognise the need for an independent arbitration mechanism (clauses 6(4)(g)- (h)) to complement the negotiation/regulatory framework. In considering clauses 6(4)(a)-(c), the Council is conscious that the dispute resolution framework will affect the environment for negotiation. In particular, parties are more likely to engage in genuine negotiations if a robust arbitration mechanism is available to settle disputes.7

49. However, the NCC first considers whether an access regime provides appropriate guidance to market participants so as to be consistent with the relevant CPA principles. In considering whether an access regime provides appropriate guidance to market participants, the Council focuses, in the first instance, on whether the regulatory processes are sufficiently robust to make that guidance credible. In particular, market guidance should be independent, and developed through open and transparent processes that allow stakeholders to participate, and provide them with reliable information to inform their views.

5 Ibid, page 17. 6 National Gas Access Regime - Assessment Against the Competition Principles, NCC, September 1997, page 17. 7 Queensland Access Regime for Gas Pipeline Services, Final Recommendation, November 2002, NCC, pages 42, 43.

10

While the clause 6 principles do not specify particular outcomes, they provide that outcomes should strike a balance between a range of factors including the legitimate business interests of the access provider, the interests of other parties, the delivery of cost-related pricing, the efficient use of infrastructure, and the public benefits arising from competitive markets: clause 6(4)(i).8

50. I agree with this approach of the NCC in the context of assessing a state access regime’s consistency with clauses 6(4)(a)-(c) of the CPA. I also agree that where regulatory processes result in access arrangements that are binding on arbitration processes, such regulatory processes should take into account factors consistent with those set out in clause 6(4)(i) of the CPA.

51. I note that, consistent with the comments made by the NCC in its initial analysis of the National Gas Access Regime9, the NCC has previously recommended, and Commonwealth ministers have previously decided, that the broad framework of the National Gas Code is consistent with clauses 6(4)(a)-(c). The NCC considers that the National Gas Code provides credible price guidance for third parties to enter commercial negotiations in the form of enforceable access arrangements, set through independent and transparent regulatory processes or robust competitive tendering arrangements with independent regulatory oversight.

52. In particular, I note that the NCC considers that the National Gas Code’s regulatory processes can address information and market power asymmetry issues to give third parties a workable platform from which to enter access negotiations. The independent regulator approves access arrangements with reference tariffs in accordance with considerations (set out in section 2.24 of the National Gas Code) which the NCC considers closely reflect clause 6(4)(i) factors which must be taken into account for independent arbitration on access terms and conditions. Further, an access arrangement submitted to the regulator for approval must also be accompanied by access arrangement information. This must satisfy certain information disclosure requirements, such as tariff determination methodology, to enable third party users to understand the derivation of the elements of the proposed access arrangement.

53. As mentioned earlier, under the National Gas Code, third parties are entitled to gain access to reference services at these reference tariffs. However, parties are also free to negotiate access to ‘reference’ and ‘non-reference’ services on terms and conditions other than those set out in the access arrangement including tariffs (but with the exception of the queuing policy). Any dispute about access can be notified to the relevant regulator to be resolved by arbitration with the arbitrator being bound to apply the provisions of the relevant access arrangement (including the reference tariffs).

8 Queensland Access Regime for Gas Pipeline Services, Final Recommendation, November 2002, NCC, page 43. 9 National Gas Access Regime – Assessment Against the Competition Principles, NCC, September 1997, page 17.

11

54. Under the National Gas Code, an alternative for new pipelines is for reference tariffs to be determined through a competitive tendering process (sections 3.21-3.36). This tendering process is subject to independent regulatory oversight, with outcomes vetted to ensure compliance with the approved process. The regulator is required to take into account considerations which the NCC regards as closely reflecting clause 6(4)(i) factors.

55. Consistent with the NCC’s view that the broad framework of the National Gas Code is consistent with clauses 6(4)(a)-(c), I agree with the NCC’s analysis that the Queensland regime is consistent with clauses 6(4)(a)-(c) of the CPA except in relation to the access arrangements for the section 58 derogated pipelines.

The derogated pipelines 56. As mentioned earlier, the effect of the derogations in section 58 of the QGPAA is that, rather than having a regulator set reference tariffs in accordance with the process set out in the National Gas Code, the reference tariffs have been set by the Queensland Minister and published in a Gazette notice. The reference tariffs that were set were, in fact, determined by processes that took place under the Petroleum Act, between 1994 and 1997, prior to the establishment of the National Gas Code, and before the regime established by that Code and related legislation was in place. Those reference tariffs for the section 58 pipelines are not able to be reconsidered by a dispute resolution body.

57. As mentioned earlier, clause 6(4)(a) requires that an access regime incorporate the principle that wherever possible, access terms and conditions should be based on commercial negotiations between the parties. I agree with the NCC that appropriate regulatory guidance on matters such as tariffs can create an environment for effective negotiations between parties and can be consistent with clauses 6(4)(a)-(c) of the CPA, provided it can be established that the guidance is the outcome of sufficiently independent and transparent regulatory processes or robust competitive tendering arrangements with independent regulatory oversight.

58. The question for my consideration is, therefore, whether the processes which were used to fix the reference tariffs for section 58 of the QGPAA derogated pipelines satisfy this high standard of independence, transparency and robustness in order to be consistent with clauses 6(4)(a)-(c) of the CPA.

59. As mentioned earlier, I consider that where regulatory processes result in access arrangements that are binding on arbitration processes, such regulatory processes should take into account a range of factors consistent with those set out in clause 6(4)(i). Clause 6(4)(i) lists factors which an access regime’s independent dispute resolution body should take into account in its decision-making. Those factors include the legitimate business interests of the access provider, the interests of other parties, the efficient use of infrastructure, and the public benefits arising from competitive markets.

12

60. I note that the Queensland Government submits that the factors which its Minister was to have regard to under Part 8 of the Petroleum Act when approving the access principles for the section 58 derogated pipelines are similar to the factors set out in clause 6(4)(i).10

61. Although section 58 of the QGPAA provides for the Queensland Minister to set the reference tariffs for the derogated pipelines shortly after the commencement of that Act (in May 2000), the tariffs for those pipelines were established considerably earlier. As the NCC noted, section 58 of the QGPAA preserves the outcome of regulatory processes that occurred several years earlier under the Petroleum Act. In my view, the relevant regulatory processes which have to be considered are the original processes that set the tariffs which then became the reference tariffs by the operation of section 58 of the QGPAA.

62. The NCC examined in detail the processes that were adopted for each of four section 58 pipelines, being Pipeline 2 (Roma to Brisbane); Pipeline 30 (Queensland Gas Pipeline); Pipeline 24 (South-West Queensland Pipeline); and, Pipeline 41 (Carpentaria Gas Pipeline).

63. The NCC in its recommendation raised essentially two concerns with the regulatory processes used for setting the tariffs which eventually became reference tariffs under the QGPAA for these pipelines. These concerns relate to: – the independence of the ‘regulator’ responsible for approving the tariffs (that is, the Queensland Minister); and – the transparency and robustness of the tender and regulatory processes which were used for determining the amount of the reference tariffs.

Independence of the Minister 64. I do not consider that the mere fact that the person making a decision relating to tariffs for access was a government minister necessarily gives rise to a concern about the appropriate degree of independence for the purpose of the access regulation decision-making process. To the extent that the NCC’s decision is based on a conclusion that a minister cannot, by virtue of his or her office, be sufficiently independent to make a decision relating to the pricing of access to a service, I disagree with that reasoning.

Processes for setting tariffs 65. However, I agree with the NCC that the processes adopted for setting the tariffs which were set in relation to the four pipelines referred to above were insufficiently robust and transparent to meet the high standard of transparency and robust competitiveness required of an access regime for the purposes of clauses 6(4)(a)-(c).

66. I understand that the processes for setting tariffs for section 58 pipelines were originally conducted under Part 8 of the Petroleum Act. Under that Part, the Queensland Minister

10 Queensland Treasury’s submission to the NCC, Response to the Draft Recommendation on Effectiveness, May 2002, page 7.

13

was responsible for approving ‘access principles’ for new and existing gas pipelines, taking into account a number of factors set out in the Act. The NCC has noted that Part 8 of the Petroleum Act does not set out specific regulatory processes, such as public consultation, that must be undertaken in the Minister’s process to approve access principles. That Act also does not mandate regulatory processes in relation to determining access principles through a competitive tendering process. Further, the NCC has noted that the owners of three section 58 pipelines (licence numbers 2, 30 and 41) are not required to provide information to access seekers on the derivation of reference tariffs.

Pipeline 2

67. For Pipeline 2 (Roma to Brisbane), the tariffs were originally approved in 1996 and 1997 under the Petroleum Act. Queensland has provided submissions containing details of the consultation which took place in the process of approving the access principles for that pipeline, and I have considered those submissions. Queensland has submitted that these processes were transparent, and that the process adopted allowed opportunities for stakeholders to comment on draft access principles before those principles were approved.

68. The NCC, however, has concerns that while consultation took place, the process followed may not have given stakeholders sufficient opportunity to make informed comment. Based on the evidence available to the NCC, and to me, there appears to have been very limited disclosure to users as to how proposed cost allocations had been developed. Of greater concern is the NCC’s conclusion, based on the Australian Competition and Consumer Commission’s (ACCC) investigations, that the approved average tariff appears to have been negotiated between the Queensland Government and the Australian Gas Light Company (AGL) (which the NCC notes then held an 85 per cent interest in this pipeline) prior to the development of the draft access principles.

69. I have drawn no conclusions as to whether the processes adopted were sufficient to satisfy the requirements and obligations imposed on the Minister by the Petroleum Act. However, assuming that those processes were sufficient for that purpose, it does not follow that they are sufficient to satisfy the requirement of compliance with the relevant CPA principles.

70. I note that for pipeline 2, when approving its reference tariffs, the Queensland Minister was required to take into account matters set out in section 112(3) of the Petroleum Act (which commenced in July 1995). While the NCC considers that those matters take reasonable account of the clause 6(4)(i) factors, negotiations on pipeline 2’s tariffs appeared to pre-date the commencement of section 112(3).

71. It seems to me that the serious concerns identified by the NCC suggest that the process adopted was not one which made sufficient allowance for potential users’ views to be taken into account, or which allowed users to make informed contributions to the process. It seems to me that the process of setting the tariffs could well have reached a different

14

conclusion had those processes been adopted. Certainly, the deficiencies identified by the NCC in the process used suggest to me that there is insufficient basis to depart from the principle set out in clause 6(4)(a) that, wherever possible, access should be provided on the basis of terms and conditions negotiated between the parties. I have therefore concluded that those processes were insufficiently transparent for the purposes of satisfying clauses 6(a)-(c) of the CPA.

Pipelines 24, 30 and 41

72. For Pipelines 24, 30 and 41, reference tariffs were approved by the Queensland Minister following tendering arrangements conducted by the Queensland Government. Although the Petroleum Act was amended in December 1996 to insert a provision (section 70A) providing legislative support for the use of competitive tendering processes, the tendering processes for pipelines 24 and 41 were completed in December 1994 while the tendering process for pipeline 30 was completed in April 1996. The tendering processes for pipelines 24 and 41 were also completed prior to the commencement of Part 8 of the Petroleum Act.

73. Moreover, other provisions were inserted into the Petroleum Act in December 1996. A new section 151 provided that the decision to approve access principles for pipelines 30 and 24 cannot be challenged in any court. A new section 152 provided that the Queensland Minister’s decision to approve access principles for pipeline 41 was deemed to have occurred under section 70A, and declared that the Minister was satisfied that a competitive tendering process was completed.

74. Queensland has made submissions in relation to those pipelines where tariff principles were developed as part of competitive tendering processes (conducted by Queensland government departments and approved by the Queensland Minister). I note that, in its submissions, Queensland has suggested that consultation with potential users in relation to pipeline 30 involved draft access principles being made available to any interested party for comment, but that this was preceded by consultation with stakeholders by the bidders as part of the preparation of their bids in a competitive tender process. I note that Queensland has also suggested that consultation with potential users in relation to pipelines 24 and 41 was more limited because ‘the tender process had been competitive and that the bidders had necessarily undertaken consultation with existing and potential customers as part of the preparation of their respective bids.’11 Queensland has suggested in material provided to my department in May 2003 that: … the competitive tender processes conducted for pipelines 24 and 41 should be regarded as a proxy for consultation on the tariff principles. The regulatory processes in this regard concentrated on ensuring the Access Principles requiring approval were consistent with those proposed in the winning tender.

11 Queensland Treasury’s Submission to the NCC, Response to the Draft Recommendation on Effectiveness, May 2002, page 8.

15

It appears that that consultation which did take place in relation to pipelines 24, 30 and 41 was directed at this result.

75. It is therefore necessary to consider whether the tender processes adopted were sufficiently transparent and robust to support the setting of reference tariffs consistent with the requirements of the CPA principles. In this respect, I note that section 70A, which required that a tendering process be competitive, was inserted into the Petroleum Act after access principles had been approved for pipelines 24 and 30, and section 152 deemed the process for pipeline 41 to have occurred under that section.

76. I note that, for pipelines 24, 30 and 41, Queensland has informed the NCC that the Queensland Minister approved those pipelines’ reference tariffs under the Petroleum Act. This regulatory process included an assessment of the tariffs against section 112(3) of the Petroleum Act, the provision of which the NCC regards as a reasonable reflection of clause 6(4)(i). I also note that the NCC is concerned that the regulatory processes for pipelines 24 and 41 were significantly progressed prior to the commencement of section 112(3) of the Petroleum Act.

77. As far as the tendering for pipeline 30 is concerned, the NCC has raised concerns about the fact that the Queensland Government was both the seller of the pipeline and responsible for conducting the tender. I note that the NCC has identified issues relating to the tender process which suggest that the tender was not conducted on a robust, competitive and transparent basis. In particular, there appears to have been little consultation with market participants on the tender process, and a lack of detailed information provided to interested parties during consultation on draft access principles from which they could develop comments. Further, it is not clear from the material provided to the NCC that the successful tenderer was selected on the basis of the distributed selection criteria.

78. I therefore consider that the process of fixing the tariffs which subsequently became the reference tariffs for pipeline 30 and binding in arbitration was not carried out at the level of transparency and competitive robustness sufficient to justify a departure from the principle of a preference for commercial negotiations for the purposes of clauses 6(4)(a)-(c). I therefore consider that the access arrangements for pipeline 30 are not consistent with these CPA principles.

79. Regarding the tendering process for pipelines 24 and 41, the NCC has identified a number of concerns, particularly in relation to: the way in which the selection process was developed as it proceeded; a lack of detailed information provided to interested parties on proposed access principles; some apparent anomalies in the shortlisting process; and, the lack of any certainty about the selection criteria.

80. I agree with the NCC that the process reflects a lack of clarity and transparency. Moreover, I consider that the process adopted was not carried out at the level of transparency and competitive robustness sufficient to justify a departure from the principle of a preference for commercial negotiations (particularly over pricing matters).

16

I therefore consider that the process adopted for pipelines 24 and 41 is not consistent with clauses 6(4)(a)-(c).

81. I note that these section 58 derogations lock in tariffs for the section 58 pipelines for periods of up to 25 years. I note that Queensland submits that the lengthy review periods for the section 58 pipelines are ‘justifiable in the context of facilitating infrastructure investment and the development of a gas market’.12 However, I agree with the NCC that given concerns as to deficiencies in the underlying regulatory processes, the duration of these section 58 derogations could adversely affect, for an unacceptable period of time, the capacity of third parties to negotiate access for the purposes of clauses 6(4)(a)-(c).

82. Finally, I note that, as I have discussed below in relation to clause 6(4)(e), it appears that the information available to users in relation to the fixing of reference tariffs for the section 58 derogated pipelines is limited, based on the analysis of the NCC. I consider that a process which departs from the principle of a preference for commercial negotiations and fixes tariffs for arbitration processes should provide sufficiently clear information to users of the service as to how the reference tariffs have been set. I therefore consider that the lack of provision of this information (in respect of pipelines 2, 30 and 41) is not consistent with the relevant CPA principles.

83. In conclusion, I consider that the processes for setting reference tariffs which have been adopted in relation to the section 58 derogated pipelines under the Queensland regime were not processes consistent with the CPA principles 6(4)(a)-(c).

84. I note that, in reaching this view, I have not considered the tariff outcomes that were determined by the processes used in Queensland for the derogated pipelines. I do not consider that the tariff outcomes reached are relevant for my consideration of whether the Queensland regime complies with the CPA principles.

Clause 6(4)(d) 85. Clause 6(4)(d) of the CPA provides:

Any right to negotiate access should include a date after which the right would lapse unless reviewed and subsequently extended; however, existing contractual rights and obligations should not be automatically revoked.

86. I agree with the NCC that the intent of this principle (clause 6(4)(d)) is to provide for a periodic review of the need for access regulation to apply to a particular service, without disturbing existing contractual rights. For example, while it might not be economically feasible to duplicate a facility at present, technological innovation may make it feasible to do so in the future and might therefore remove the need for access regulation.

12 Queensland Government’s Application for Certification of Queensland’s Gas Pipeline Access Regime: Submission by the Queensland Government to the Minister for Financial Services and Regulation (2001), page 6.

17

87. Under the Queensland regime, any person can apply to the NCC for the coverage of a particular pipeline to be revoked. The NCC would then undertake a public process to determine whether the pipeline satisfied the coverage criteria set out in the National Gas Code and would make a recommendation to the relevant Minister, who would make a decision on the matter.

88. A decision to revoke coverage would not result in any existing contractual rights or obligations being automatically revoked.

89. Given these provisions within the Queensland regime, I agree with the NCC that the regime is consistent with clause 6(4)(d).

Clause 6(4)(e) 90. Clause 6(4)(e) of the CPA provides:

The owner of a facility that is used to provide a service should use all reasonable endeavours to accommodate the requirements of persons seeking access.

91. Clause 6(4)(e) aims to ensure that an access regime requires the use of ‘all reasonable endeavours’ on the part of facility owners to accommodate the needs of access seekers.

92. As mentioned earlier, I consider that, where a regime provides for reference tariffs to provide guidance for commercial negotiations and those tariffs are binding on arbitrations on access terms and conditions, a high standard of transparency in relation to the methodology for setting those tariffs should be adopted. I agree with the NCC that this is needed to address market power and information asymmetry issues in the context of negotiations. I consider that, under those circumstances, it is appropriate for one of the ‘reasonable endeavours’ which is required by clause 6(4)(e) to be the provision of information in relation to that methodology.

93. I note that the Queensland regime generally incorporates the provisions of the National Gas Code on this matter. The National Gas Code’s information disclosure package requirements seek to enable prospective users to understand the derivation of the access arrangement, including the reference tariffs. I agree with the NCC that the Queensland regime, to this extent, is consistent with clause 6(4)(e).

94. However, I also note that the Queensland regime derogates some of the section 58 pipelines (2, 30 and 41) from the National Gas Code’s provisions on information disclosure. In particular, those pipelines’ owners are not required to provide information about the derivation of reference tariffs to prospective users.

95. Given this insufficient transparency in relation to those section 58 pipelines, I agree with the NCC’s analysis that the Queensland regime is not consistent with clause 6(4)(e).

18

Clause 6(4)(f) 96. Clause 6(4)(f) of the CPA provides:

Access to a service for persons seeking access need not be on exactly the same terms and conditions.

97. The Queensland regime requires service providers of covered pipelines to submit access arrangements which include terms and conditions on which a service provider will supply each reference service. Parties may, however, negotiate terms and conditions outside those specified in the access arrangement.

98. Given these considerations, I agree with the NCC that the Queensland regime is consistent with clause 6(4)(f).

Clause 6(4)(g) 99. Clause 6(4)(g) of the CPA provides:

Where the owner and a person seeking access cannot agree on terms and conditions for access to the service, they should be required to appoint and fund an independent body to resolve the dispute, if they have not already done so.

100. The Queensland regime provides for a dispute resolution process. However, the arbitrator is constrained in its ability to resolve a dispute, as the arbitrator must apply the provisions of the access arrangement and therefore is not permitted to make an independent ruling on tariffs for reference services. I agree with the NCC that binding the arbitrator to predetermined tariffs makes it essential that those tariffs have been rigorously determined through sufficiently robust regulatory processes.

101. Setting aside the derogated pipelines, the Queensland regime generally requires that reference tariffs be approved by an independent regulator through a series of open and transparent processes, taking account of a list of matters that closely reflect clause 6(4)(i). I note that the Queensland regime alternatively provides that reference tariffs may be determined through a robust competitive tendering process vetted by an independent regulator. The NCC has concluded that although these tariffs could not be altered in arbitration, this is not unreasonable in the context of the regulatory design of the Queensland regime as a whole, and I agree with that conclusion.

102. However, I also agree with the NCC that the tender and regulatory processes used to derive the reference tariffs for the section 58 pipelines were not sufficiently robust, or transparent, for reasons I have set out earlier.

103. Given these concerns with the regulatory processes used to derive the reference tariffs for the section 58 pipelines, I agree with the NCC that the Queensland regime unreasonably constrains independent dispute resolution from examining the predetermined tariffs for these pipelines and, as such, I consider that the regime is not consistent with clause 6(4)(g).

19

Clause 6(4)(h) 104. Clause 6(4)(h) of the CPA provides:

The decisions of the dispute resolution body should bind the parties; however, rights of appeal under existing legislative provisions should be preserved.

105. I note that the Queensland regime generally embodies the National Gas Code’s arbitration and appeals framework and that no concerns regarding this matter were raised with the NCC.

106. The owner/operator of a covered pipeline is bound by the arbitrator’s decision under section 6 of the National Gas Code. The access seeker is also bound by the decision unless they notify the arbitrator within 14 days of the decision being made that they do not intend to be bound. Under the Queensland regime, the determinations of arbitrators are enforceable under Part 5 of the GPAL. The arbitrator’s decision is subject to appeal on a question of law (Part 4 of the GPAL) and subject to judicial review.13

107. On this basis, I consider that the Queensland regime is consistent with clause 6(4)(h).

Clause 6(4)(i) 108. Clause 6(4)(i) of the CPA provides:

In deciding on the terms and conditions for access, the dispute resolution body should take into account: (i) the owner’s legitimate business interests and investment in the facility; (ii) the costs to the owner of providing access, including any costs of extending the facility but not costs associated with losses arising from increased competition in upstream or downstream markets; (iii) the economic value to the owner of any additional investment that the person seeking access or the owner has agreed to undertake; (iv) the interests of all persons holding contracts for use of the facility; (v) firm and binding contractual obligations of the owner or other persons (or both) already using the facility; (vi) the operational and technical requirements necessary for the safe and reliable operation of the facility; (vii) the economically efficient operation of the facility; and (viii) the benefit to the public from having competitive markets.

109. The Queensland regime applies the National Gas Code framework with regard to clause 6(4)(i). I also note that the National Gas Code incorporates a list of matters set out

13 The NCC refers in its recommendation at page 105 to sections 20-21 of the QGPAA, however, these provisions were repealed in 2001; see Federal Courts (Consequential Amendments) Act 2001 No. 27, section 35.

20

in section 6.15, which must be considered by an arbitrator in making a decision (other than a dispute over the price of a reference service). I agree with the NCC that these matters are broadly consistent with clause 6(4)(i).

110. Under the Queensland regime, in a dispute over the price of a reference service, the arbitrator is bound to apply the reference tariffs previously established through regulatory processes or competitive tender processes (section 6.13 of the National Gas Code). I agree with the NCC that a restriction such as this needs to be considered in the context of the overall design of an access regime. As mentioned earlier, I consider that this constraint would be acceptable provided that an independent regulator has approved the tariffs and the tender process and outcomes through sufficiently robust regulatory processes against clause 6(4)(i) factors.

111. The NCC notes that the Queensland regime generally requires such an assessment, except that this is modified for the section 58 pipelines. That is, the Queensland regime generally requires that an independent regulator, through independent and transparent processes, take account of a list of factors (set out in section 2.24 of the National Gas Code) that the NCC regards as closely reflecting clause 6(4)(i) factors when deciding whether to approve proposed reference tariffs. Alternatively, the Queensland regime generally requires that an independent regulator, when considering whether to approve a competitive tender process and its outcomes, take into account considerations that the NCC regards as closely reflecting clause 6(4)(i)’s matters (sections 3.21 – 3.36 of the National Gas Code which also refer to section 8.1 of that code). In both cases, while there are a number of wording differences between those matters listed in the National Gas Code and clause 6(4)(i), these differences do not amount to a departure from the intent of clause 6(4)(i). As the NCC has noted, these requirements mean that clause 6(4)(i) matters are already reflected in the reference tariffs that bind the arbitrator, and as such, will also be reflected in the arbitrator’s decision.

112. However, for the reference tariffs for the section 58 pipelines in the Queensland regime, I consider for reasons I have already set out, that the tender and regulatory processes used were not sufficiently robust, or transparent. Further, as I have noted earlier, the NCC questions the extent to which the regulator’s decisions for the section 58 pipelines, which bind the arbitrator with respect to tariffs, could have taken into account clause 6(4)(i) considerations (at paragraphs 70 and 76 above).

113. Given my concerns with the tender and regulatory processes used to derive the reference tariffs for the section 58 pipelines, I agree with the NCC that the Queensland regime unreasonably constrains independent dispute resolution such that the regime is not consistent with clause 6(4)(i).

Clause 6(4)(j) 114. Clause 6(4)(j) of the CPA provides:

The owner may be required to extend, or to permit extension of, the facility that is used to provide a service if necessary but this would be subject to:

21

(i) such extension being technically and economically feasible and consistent with the safe and reliable operation of the facility; (ii) the owner’s legitimate business interests in the facility being protected; and (iii) the terms of access for the third party taking into account the costs borne by the parties for the extension and the economic benefits to the parties resulting from the extension.

115. The Queensland regime applies section 6.22 of the National Gas Code, which states that the arbitrator may require an owner/operator of a covered pipeline to expand its capacity to meet the requirements of an access seeker, subject to certain conditions. These conditions include considerations set out in clause 6(4)(j)(i) to (ii) and some limitations such as that the arbitrator may not require an owner/operator to extend the geographical range of a covered pipeline. I am satisfied that under the Queensland regime, the arbitrator may hear a dispute over the right to interconnect with a covered pipeline and on what terms and conditions, and the arbitrator may require interconnection. The arbitrator may also require capacity expansion of a pipeline.

116. I note that section 58 of the QGPAA does not explicitly limit the application of section 6.22 of the National Gas Code and that no issues were raised in regard to whether section 58 of the QGPAA raises issues under 6(4)(j). I therefore consider that the Queensland regime is consistent with clause 6(4)(j).

Clause 6(4)(k) 117. Clause 6(4)(k) of the CPA provides:

If there has been a material change in circumstances, the parties should be able to apply for a revocation or modification of the access arrangement which was made at the conclusion of the dispute resolution process.

118. The Queensland regime applies the principles of the National Gas Code on this matter. The Queensland regime does not specifically allow a party to seek revocation or modification of a contract or arrangement due to a material change in circumstances. However, parties may determine in advance what constitutes a material change in circumstances in drawing up contracts/arrangements for access. Where parties cannot agree on terms in this regard, the issue may be referred to dispute resolution. I note that the Queensland regime does not preclude the application of common law principles (such as the doctrine of frustration) to matters of this nature once contracts have been entered into. I also note that the Queensland regime applies the principles of the National Gas Code with regard to this matter.

119. Given these considerations, I agree with the NCC that the Queensland regime is consistent with clause 6(4)(k).

Clause 6(4)(l) 120. Clause 6(4)(l) provides:

22

The dispute resolution body should only impede the existing right of a person to use a facility where the dispute resolution body has considered whether there is a case for compensation of that person and, if appropriate, determined such compensation.

121. I note that the Queensland regime incorporates the provisions of section 6.18 of the National Gas Code on this matter whereby an arbitrator cannot impede the existing rights of a person to obtain the services of a covered facility (existing prior to the notification of the dispute), other than exclusivity rights arising on or after 30 March 1995.

122. I further note that because the regulator’s decision under the Queensland regime relates to the terms and conditions of access to spare capacity in a pipeline, the existing right of a person to use a facility is unlikely to be impeded by the regulator.

123. Given these considerations, I agree with the NCC that the Queensland regime is consistent with clause 6(4)(l).

Clause 6(4)(m) 124. Clause 6(4)(m) provides:

The owner or user of a service shall not engage in conduct for the purpose of hindering access to that service by another person.

125. I note that the Queensland regime applies section 13 of the GPAL, which addresses the issue of hindrance of access to a service provided by a covered pipeline. I note that under the Queensland regime, the regulators (the ACCC and the Queensland Competition Authority (QCA)) may seek pecuniary penalties where access to a pipeline has been hindered.

126. Given these provisions in the Queensland regime, I consider that the regime is consistent with clause 6(4)(m).

Clause 6(4)(n) 127. Clause 6(4)(n) provides:

Separate accounting arrangements should be required for the elements of a business which are covered by the access regime.

128. The Queensland regime applies the ‘ring-fencing’ provisions set out in section 4 of the National Gas Code, which the NCC considers address the requirements of clause 6(4)(n) appropriately. In addition, the regulator may require the service provider to meet additional ring-fencing requirements or waive any of the service provider’s minimum obligations. I note that such decisions by the regulator are subject to review by the appeals body.

129. Given these provisions, I consider that the Queensland regime satisfies clause 6(4)(n).

23

Clause 6(4)(o) 130. Clause 6(4)(o) of the CPA provides:

The dispute resolution body, or relevant authority where provided for under specific legislation, should have access to financial statements and other accounting information pertaining to a service.

131. The Queensland regime applies Part 7 of the GPAL, which confers powers on the regulator to require any person to provide it with information or documents which the regulator reasonably believes will assist it in carrying out its functions under the Queensland regime. The Queensland regime also applies Part 4 of the GPAL, which provides the arbitrator with broad information-gathering powers. I note that failure to comply without lawful excuse with the requirements of the regulator or the arbitrator in this context can attract a fine or imprisonment. I understand that section 58 of the QGPAA does not override these information-gathering powers.

132. Given these provisions, I agree with the NCC that the Queensland regime is consistent with clause 6(4)(o).

Clause 6(4)(p) 133. Clause 6(4)(p) of the CPA provides:

Where more than one State or Territory access regime applies to a service, those regimes should be consistent and, by means of vested jurisdiction or other cooperative legislation scheme, provide for a single process for persons to seek access to the service, a single body to resolve disputes about any aspect of access and a single forum for enforcement of access arrangements.

134. In the context of considering clause 6(4)(p), it is also relevant to consider clause 6(2) of the CPA, which provides:

The regime to be established by Commonwealth legislation is not intended to cover a service provided by means of a facility where the State or Territory Party in whose jurisdiction the facility is situated has in place an access regime which covers the facility and conforms to the principles set out in the clause unless: (a) the Council determines that the regime is ineffective having regard to the influence of the facility beyond the jurisdictional boundary of the State or Territory; or (b) substantial difficulties arise from the facility being situated in more than one jurisdiction.

135. While the Moomba-Sydney pipeline passes through south-west Queensland, that entire pipeline is listed in Schedule A of the National Gas Code as being covered in NSW, which means that the pipeline is not covered by the Queensland regime.

136. I note that the Queensland regime has processes to streamline access regulation of cross-border pipelines, including mechanisms for dispute resolution and enforcement of

24

access arrangements. In particular, by adopting the National Gas Code as the central framework of the Queensland regime, the regime provides for a single regulatory process for access to cross-border transmission pipeline services, while cross-vesting provisions should ensure that a single, unambiguous regulatory process applies to the services of a cross-border distribution pipeline.

137. I note that, under the Queensland regime, the ACCC is the regulator of transmission pipelines, including those which cross borders, and the QCA is the regulator for distribution pipelines. The Queensland regime incorporates a process for determining whether a pipeline is classified as a transmission or distribution pipeline. In the case of distribution pipelines that cross borders, Part 3 of the GPAL sets out a process to establish the jurisdictional regulator and appeals body, based on which jurisdiction has the ‘closest connection’ with the facility. I note that sections 14, 16 and 55 of the QGPAA give effect to cross-vesting arrangements in Queensland.

138. The Queensland regime applies the National Gas Code, under which disputes can be referred to the regulator or an agent appointed by the regulator. I understand that the Australian Competition Tribunal is the administrative appeal body in relation to decisions made by the ACCC, and the Queensland Gas Appeals Tribunal is the administrative appeal body for decisions made by the QCA and the relevant Queensland Minister.

139. Given these features of the Queensland regime, I consider that the regime is consistent with clause 6(4)(p).

Period for which this decision is in force

140. According to section 44N(3) of the TPA, my decision must specify the period for which it is in force. I have decided that my decision should remain in force until such time as I make a further decision in relation to the effectiveness of the Queensland regime for access to natural gas pipeline services under section 44N of the TPA.

Other submissions received

141. Queensland and the pipeline owners made a number of submissions to me as to why I should make a decision that the Queensland regime is an effective regime, including the following: – The derogations under section 58 of the QGPAA are justified on public policy grounds, including the need to address sovereign risk and to promote investment and economic development. – There would be significant compliance costs if the principles in the National Gas Code were applied to the derogated pipelines. – It would be anomalous if the Queensland regime was not subject to the ‘industry-specific’ access regime, but to Part IIIA of the TPA.

142. As I have already noted, in considering my decision whether the Queensland regime is an effective access regime, I must apply the relevant principles in the CPA, and I am not

25

permitted to consider any other matters. I have therefore not taken the submissions made on these points into account in reaching my decision.

143. Even assuming I may and should take account of these submissions, none of the considerations set out in these submissions would lead me to alter my view that the Queensland regime is not an effective access regime to the extent indicated above.

26

ATTACHMENT

Abbreviations used in this statement of reasons

NCC National Competition Council

TPA Trade Practices Act 1974 (Cth)

ACCC Australian Competition and Consumer Commission

CPA Competition Principles Agreement

Queensland Queensland Government

QGPAA Gas Pipelines Access (Queensland) Act 1998 (Qld)

Section 58 pipelines Pipelines which are subject to ‘derogations’ by the operation of section 58 of the QGPAA

The Queensland regime The Queensland Third Party Access Regime for Gas Pipeline Services

The Queensland Minister The Queensland Minister for Mines and Energy

The Petroleum Act Petroleum Act (Qld) 1923

GPAL Gas Pipelines Access Law which is Schedule 1 to the Gas Pipelines Access (South Australia) Act 1997 (SA) and applies as a law of Queensland by operation of section 8 of the QGPAA and as so applying, is knows as the Gas Pipelines Access Law (Queensland).

National Gas Code National Third Party Access Code for Natural Gas Pipeline Systems which is Schedule 2 to the Gas Pipelines Access (South Australia) Act 1997 (SA) and applies as a law of Queensland by operation of section 8 of the QGPAA.