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REVIEW OF THE VICTORIAN RAIL ACCESS REGIME: FINAL REPORT
VOLUME III: SUPPORTING MATERIAL
FEBRUARY 2010
An appropriate citation for this paper is:
Essential Services Commission 2010, Review of the Victorian Rail Access Regime − Final Report: Supporting Material , February
Essential Services Commission. This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968 and the permission of the Essential Services Commission.
STRUCTURE OF THE FINAL REPORT
The Commission’s final report on its review of the Victorian rail access regime is set out in three volumes:
• The first volume sets out the Commission’s findings and its recommendations to the Minister for Finance. The volume concludes with a range of observations for future consideration.
• The second volume provides a comprehensive explanation of the Commission’s analysis and its findings. It elaborates on the reasoning behind its recommendations and discusses responses received from stakeholders.
• This volume comprises supplementary material set out as appendices to the report. These appendices provide background information and more technical analysis related to the Review.
CONTENTS
STRUCTURE OF THE FINAL REPORT III
CONTENTS 5
APPENDIX A TERMS OF REFERENCE 7
APPENDIX B CPA CLAUSE 6 PRINCIPLES 11
APPENDIX C SUBMISSIONS RECEIVED 17
APPENDIX D THE VICTORIAN RAIL FREIGHT INDUSTRY 19
D.1 Railway track access providers 19 D.2 Passenger train operators 21 D.3 Freight train operators 22 D.4 Rail terminals and rail terminal operators 25 D.5 Recent developments & government role in the rail industry 31 D.6 Above-rail contestability 31 D.7 Buy-back 33 D.8 Dynon terminals 35 D.9 Rail freight activity 36 D.10 The Metropolitan freight terminal network 39 APPENDIX E DYNON/SWANSON RAIL TERMINALS 43
E.1 Summary of the current rail terminals 43 E.2 Outlook for rail terminals in the Dynon-Swanson precincts 46 APPENDIX F THE VICTORIAN RAIL ACCESS REGIME 53
F.1 Introduction 53 F.2 Statutory framework 54 F.3 General overview of the VRAR 55 F.4 Declaration 55 F.5 Pricing Principles 56 F.6 Commission Instruments 58 F.7 Assessment of Access Arrangements 59 F.8 Dispute resolution 62 F.9 Access provider obligations 63
ESSENTIAL SERVICES COMMISSION LOCAL GOVERNMENT CONTENTS 5 VICTORIA PERFORMANCE ASSESSMENT AND BENCHMARKING FRAMEWORK
F.10 Enforcement 64 APPENDIX G COMPARATIVE RAIL ACCESS REGIMES 65
G.1 Australian rail access regimes 65 G.2 Review of the SA Rail Access Regime 70 G.3 ARTC’s rail access framework 70 G.4 Summary of the comparison of VRAR with other rail access regimes 73 APPENDIX H EXAMPLES OF LIGHT HANDED ACCESS REGIMES 77
H.1 Victorian port services regime 77 H.2 National gas pipeline access regime and light regulation 79 APPENDIX I COSTS OF REGULATION UNDER THE VRAR 83
I.1 Administrative costs 83 I.2 Compliance costs 85 I.3 Arbitration costs 85 I.4 Other stakeholder costs 85 I.5 Impacts on economic efficiency 86 I.6 Costs of certification 86 I.7 Conclusions 86 APPENDIX J REVIEW OF RAIL SUBSIDY ARRANGEMENTS IN OTHER JURISDICTIONS 89
J.1 Queensland 89 J.2 New Zealand 91 J.3 United Kingdom 94 J.4 Melbourne metropolitan rail networks 95 J.5 Considerations for funding the regional rail network 97 APPENDIX K SUPPLY CHAIN COORDINATION IN AUSTRALIAN JURISDICTIONS 99
K.1 Hunter Valley 100 K.2 Port Botany 102 K.3 Dalrymple Bay 104
ESSENTIAL SERVICES COMMISSION LOCAL GOVERNMENT CONTENTS 6 VICTORIA PERFORMANCE ASSESSMENT AND BENCHMARKING FRAMEWORK
APPENDIX A TERMS OF REFERENCE
Essential Services Commission Act 2001
Part 5 Inquiry and Report
Notice of Reference – Victorian Rail Access Regime
Pursuant to section 41 of the Essential Services Commission Act 2001, I, Tim Holding MP Minister for Finance, WorkCover and the Transport Accident Commission, hereby direct the Essential Services Commission (‘the Commission’) to conduct an inquiry into the effectiveness of the Victorian Rail Access Regime.
Background
At the 10 February 2006 meeting of the Council of Australia Governments (COAG), the Commonwealth, State and Territory Governments signed the Competition and Infrastructure Reform Agreement (CIRA), which among other things, requires each jurisdiction to submit all state-based access regimes to the National Competition Council for certification.
In March 2007, the Victorian Government released its response to the Victorian Competition and Efficiency Commission’s final report on transport congestion – Making the Right Choices: Options for Managing Transport Congestion . In its response, the Government indicated that it would ask the Commission (in conjunction with the Department of Transport) to review the rail access regime.
In December 2007, the Victorian Government released the report of the Rail Freight Network Review – Switchpoint: the Template for Rail Freight to Revive and Thrive! – led by Tim Fischer. The review recommended that the Victorian Government simplify its rail access regime and determine the ongoing role of the Commission in rail freight access following the recent changes in lease arrangements.
Responding to this report recently, the Government affirmed its intention to review the rail access regime in Freight Futures: Victorian Freight Network Strategy for a More Prosperous and Liveable Victoria , released on 8 December 2008.
Specific Terms of Reference
The Review will examine, report on, and make recommendations in relation to:
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i. Whether a Victorian rail access regime is still required given the current and likely future structure of the industry, and having regard to the costs and benefits of economic regulation. ii. If continuing the access regime is recommended: a. whether the current objectives for the Victorian Rail Access Regime (VRAR) remain relevant, and if not, what new objectives the VRAR should adopt; b. what services the VRAR should regulate; and c. what form the regulation of those services should take.
In conducting its review, the Commission is to have regard to factors that affect the efficient operation of the Victorian rail industry, including market conditions, the Government’s investment in, and funding of, rail infrastructure and the rail industry and the Government’s policies and priorities for the rail freight network.
In conducting its review, the Commission is to have regard to: i. the objectives set out in section 38F of the Rail Corporations Act 1996 and section 8 of the Essential Services Commission Act 2001 , and the matters which the Commission must have regard to as specified in section 8A of the Essential Services Commission Act 2001 (ESC Act); ii. relevant principles in the Competition Principles Agreement and Part 3A of the ESC Act; and iii. Victoria’s obligations under the Competition and Infrastructure Reform Agreement.
Review Process
The Review will be conducted independently by the Victorian Essential Services Commission (ESC) under s.41(1) of the Essential Services Commission Act 2001 , which requires that: “The Commission must conduct an inquiry into any matter which the Minister by written notice refers to the Commission under this Part”.
In conducting the Review, the Commission will also have regard to the objectives under ss.8 and 8A and Part 3A of the Essential Services Commission Act 2001 .
The specific design and conduct of the Review process will be determined by the ESC and publicised at the outset of the review. However, it is envisaged that the process will include the following key elements: • preparation and dissemination of a discussion/issues paper as a basis for informing stakeholders and the general public about the purpose and nature of the Review and the key matters to be addressed; • invitation and receipt of written submissions; • preparation and dissemination of a draft report for public comment; and
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• preparation and submission of a final report and recommendations to the Minister for consideration by the Government.
Timetable
Review to commence by end June 2009
Draft report to be submitted by end October 2009
Final report to be submitted by end January 2010
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission Date: 26/06/2009
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ESSENTIAL SERVICES COMMISSION REVIEW OF THE VICTORIAN APPENDIX A – TERMS OF 10 VICTORIA RAIL ACCESS REGIME REFERENCE
APPENDIX B CPA CLAUSE 6 PRINCIPLES
6.(1) Subject to subclause (2), the Commonwealth will put forward legislation to establish a regime for third party access to services provided by means of significant infrastructure facilities where:
(a) it would not be economically feasible to duplicate the facility;
(b) access to the service is necessary in order to permit effective competition in a downstream or upstream market;
(c) the facility is of national significance having regard to the size of the facility, its importance to constitutional trade or commerce or its importance to the national economy; and
(d) 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.
(2) 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 this 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.
(3) 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; and
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(b) reasonably incorporate each of the principles referred to in subclause (4) and (except for an access regime for: electricity or gas that is developed in accordance with the Australian Energy Market Agreement; or the Tarcoola to Darwin railway) subclause (5).
There may be a range of approaches available to a State or Territory Party to incorporate each principle. Provided the approach adopted in a State or Territory access regime represents a reasonable approach to the incorporation of a principle in subclause (4) or (5), the regime can be taken to have reasonably incorporated that principle for the purposes of paragraph (b).
(3A) In assessing whether a State or Territory access regime is an effective access regime under the Trade Practices Act 1974, the assessing body:
(a) should, as required by the Trade Practices Act 1974, and subject to section 44DA, not consider any matters other than the relevant principles in this Agreement. Matters which should not be considered include the outcome of any arbitration, or any decision, made under the access regime; and
(b) should recognise that, as provided by subsection 44DA(2) of the Trade Practices Act 1974, an access regime may contain other matters that are not inconsistent with the relevant principles in this Agreement.
(4) A State or Territory access regime should incorporate the following principles:
(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.
(d) 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.
(e) 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.
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(f) Access to a service for persons seeking access need not be on exactly the same terms and conditions.
(g) 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.
(h) The decisions of the dispute resolution body should bind the parties; however, rights of appeal under existing legislative provisions should be preserved.
(i) 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.
(j) 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:
(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.
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(k) 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.
(l) 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.
(m) The owner or user of a service shall not engage in conduct for the purpose of hindering access to that service by another person.
(n) Separate accounting arrangements should be required for the elements of a business which are covered by the access regime.
(o) 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.
(p) 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 legislative 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.
(5) A State, Territory or Commonwealth access regime (except for an access regime for: electricity or gas that is developed in accordance with the Australian Energy Market Agreement; or the Tarcoola to Darwin railway) should incorporate the following principles:
(a) Objects clauses that promote the economically efficient use of, operation and investment in, significant infrastructure thereby promoting effective competition in upstream or downstream markets.
(b) Regulated access prices should be set so as to:
(i) generate expected revenue for a regulated service or services that is at least sufficient to meet the efficient costs of providing access to the regulated service or services and include a return on investment commensurate with the regulatory and commercial risks involved;
(ii) allow multi-part pricing and price discrimination when it aids efficiency;
(iii) not allow a vertically integrated access provider to set terms and conditions that discriminate in favour of its downstream
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operations, except to the extent that the cost of providing access to other operators is higher; and
(iv) provide incentives to reduce costs or otherwise improve productivity.
(c) Where merits review of decisions is provided, the review will be limited to the information submitted to the original decision-maker except that the review body:
(i) may request new information where it considers that it would be assisted by the introduction of such information;
(ii) may allow new information where it considers that it could not have reasonably been made available to the original decision-maker; and
(iii) should have regard to the policies and guidelines of the original decision-maker (if any) that are relevant to the decision under review.
ESSENTIAL SERVICES COMMISSION REVIEW OF THE VICTORIAN APPENDIX B – CPA CLAUSE 6 15 VICTORIA RAIL ACCESS REGIME PRINCIPLES
ESSENTIAL SERVICES COMMISSION REVIEW OF THE VICTORIAN APPENDIX B – CPA CLAUSE 6 16 VICTORIA RAIL ACCESS REGIME PRINCIPLES
APPENDIX C SUBMISSIONS RECEIVED
Business Date received Submissions to Issues Paper Alliance of Councils for Rail Freight Development 11 August 2009 Asciano 14 August 2009 BlueScope Steel 17 August 2009 El Zorro 6 August 2009 Port of Melbourne Corporation (confidential) 14 August 2009 P&O Trans Australia 12 August 2009 Victorian Farmers Federation 19 August 2009 Victorian Freight and Logistics Council 21 August 2009 V/Line Passenger 12 August 2009 Wakefield Transport Group (public) 19 August 2009 Wakefield Transport Group (confidential) 19 August 2009 Submissions to Draft Report Alliance of Councils for Rail Freight Development 3 December 2009 Australian Rail Track Corporation 9 December 2009 Asciano 4 December 2009 El Zorro 6 December 2009 Port of Melbourne Corporation 7 December 2009 QR Freight 4 December 2009 V/Line Passenger 15 December 2009 Victorian Freight and Logistics Council 7 December 2009 Submissions following Stakeholder Workshop Asciano 24 December 2009 P&O Trans Australia 7 January 2010 Victorian Freight and Logistics Council 21 January 2010
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ESSENTIAL SERVICES COMMISSION REVIEW OF THE VICTORIAN APPENDIX C – SUBMISSIONS 18 VICTORIA RAIL ACCESS REGIME RECEIVED
APPENDIX D THE VICTORIAN RAIL FREIGHT INDUSTRY
This chapter provides information on the Victorian freight rail industry and recent industry developments that are particularly relevant to this Review.
The Victorian rail freight industry comprises: • railway track access providers (or 'below-rail' services) • passenger train operators (or ‘above-rail’ passenger services) • freight train operators (or 'above-rail' freight services) • rail terminal operators, such as intermodal terminals and grain loading terminals, and • equipment and infrastructure maintainers and suppliers.
This chapter provides an overview of the main features of the rail industry relevant to this Review.
D.1 Railway track access providers
The Victorian rail freight network comprises three main networks: • the interstate network which is operated by the Australian Rail Track Corporation ( ARTC ) • the metropolitan network which is operated by Metro Trains Melbourne Pty Ltd ( MTM ) since 30 November 2009 1, and • the regional, intra-state network operated by V/Line Passenger ( V/Line ). Interstate network
The Victorian interstate rail network consists of 1,213 kilometres ( km ) of standard gauge track between Albury, Melbourne and the South Australian border (see Map 1). This network is leased by ARTC until 2059. 2 The main interstate lines are used mostly by trains carrying containerised freight between Australian capital cities, and interstate passenger services operated by Great Southern Railway Ltd and CountryLink XPT. Some intra-state freight tasks and V/Line's Albury/Wodonga to Melbourne passenger service also operate on these lines.
1 Premier of Victoria media release (25 June 2009) 'Train and Tram Operators Announcement'. 2 This lease was recently extended by 45 years from 2014 to 2059. See: ARTC media release, ‘Works on Track for Wodonga Rail Bypass’ 9/2/2009.
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ARTC has a voluntary access undertaking approved by the Australian Competition and Consumer Commission ( ACCC ). The interstate railway tracks are not covered by the VRAR and are not part of the scope of this Review.
Some of the regional Victorian rail lines have recently been transferred from V/Line to ARTC 3. These include: • the Portland to Maroona line 4 • northern corridor lines, including one of the two broad gauge rail lines from Donnybrook to Seymour (approximately 75 km in length) and the broad gauge line from Seymour to Wodonga (200 km), all of which ARTC will standardise to duplicate its existing rail line in this corridor, and • the Albion to Jacana line, which ARTC will partially convert to dual gauge (12 km).
The line from Benalla to Oaklands will be maintained by ARTC and is being standardised. 5
The lines transferred to ARTC are no longer covered by the current VRAR Declaration Orders, although some of these lines are not yet covered by ARTC's interstate undertaking with the ACCC. Metropolitan network
The metropolitan network consists of 15 train routes over 400 km of broad gauge track, which are used predominantly for passenger services within Melbourne (see Map 1). Certain lines are also used by regional passenger services terminating at Southern Cross Station and Flinders Street Station, and some lines are used by freight services (see Map 1).
The new franchisee, MTM, will operate the network for a period of eight years, with various extension options. 6 The Infrastructure Lease requires MTM to maintain the network in accordance with an Asset Management Plan which spans the franchise period, and to ensure that it can meet its performance requirements for passenger services. Regional intra-state network
The regional intra-state network consists of 3,442 km 7 of railway tracks, including 1,483 km of track used by passenger services and freight trains (the 'passenger network'), and 1,558 km of track currently used by freight trains only (the 'freight
3 Minister for Public Transport, Media Release: Future of Portland to Maroona Rail Line Secured , 16, July 2008. ARTC holds the Victorian interstate lease until 2059 (ARTC Annual Report 2007/08). 4 ARTC will upgrade this to an 80 kmph standard 5 Minister for Public Transport media release, 1/7/09, ‘Benalla to Oaklands Line Upgrade on Track’. 6 Invitation to Tender: Melbourne Metropolitan Train Franchise, Volume 2, Franchise Overview, October 2008, p.17. 7 Excludes the Portland to Maroona and Benalla to Oaklands lines.
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network'), and a further 401 km of the freight network that is currently booked out of service. Although mostly broad gauge, there are some standard gauge lines 8 and some dual gauge lines. 9
In May 2007 the Victorian Government purchased the regional intra-state rail network lease from Pacific National, together with the below-rail track management business operations, for approximately $134m. V/Line became the network operator and leases the network under the 'Regional Infrastructure Lease' 10 . The majority of the lease is due to expire by 2017, or when V/Line’s franchise to provide regional passenger services expires (see section D.2).
D.2 Passenger train operators Metropolitan
MTM provides all metropolitan above-rail passenger services under a franchise which expires on 30 November 2017, having taking over from Connex on 30 November 2009.
MTM operates more than 1,930 passenger services per day. These services carried approximately 200 million passenger trips in 2007/08. Metropolitan passenger numbers have been increasing at an average rate of in excess of 20 per cent per annum since 2004/05.
To assist in meeting this increasing demand, the Victorian Government announced the purchase of 38 new “X’Trapolis” trains as part of its Victorian Transport Plan, the first of which began services on 30 December 2009 11 .
The terms of the Franchise Agreement require MTM to enter into a range of agreements, including Interoperator Agreements with other rail operators. The Franchise Agreement contains provisions to ensure that Mandatory Interoperator Agreements cannot be amended or terminated without the approval of the Director of Public Transport 12 . Among these is the V/Line Passenger Access Agreement between MTM, the State and V/Line Passenger which provides V/Line Passenger with access rights to the metropolitan network. 13
8 Standard gauge lines which form part of the regional intrastate network include Murtoa to Hopetoun, Dimboola to Yaapeet, and Ararat to Maryborough (which is booked out). The Victorian Government is also converting the Benalla to Oaklands line to standard gauge (see Office of the Minister for Public Transport, media release 1 July 2009, ‘Benalla to Oaklands line upgrade on track’). 9 Dual gauge lines include Maryborough to Dunolly, North Geelong to Gheringhap, the Geelong grain loop and rail lines into the North and South Dynon Terminals and the port of Melbourne. 10 V/Line leases the network from the Director of Public Transport, who in turn leases the network from VicTrack – its owner. 11 Office of the Acting Premier of Victoria, media release 30 December 2009, ‘Melbourne’s new train begins taking passenger’ 12 Franchise Agreement – Train, Clause 11.1. 13 Ibid, Part 1 of Schedule 11.
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Regional
V/Line holds the franchise to provide regional passenger services ( Franchise Agreement: V/Line Passenger ) which is currently under an interim extension until a revised franchise agreement is finalised. The proposed termination date in the current draft agreement is 31 December 2012, with the option to extend for twelve months.
V/Line operates more than 200 passenger services per day to service a range of regional cities and towns. Passenger services have been enhanced in recent years by the introduction of Regional Fast Rail ( RFR ) services to Geelong, Ballarat, Bendigo and Traralgon. V/Line services carried approximately 12 million passengers in 2007/08, an increase of 23 per cent over the previous year. 14 Timetabling and priority
Passenger service timetables and service standards are determined by the Director of Public Transport. On both the metropolitan and regional rail networks passenger trains have priority over freight trains under the Principle of Passenger Priority 15 .
D.3 Freight train operators
Prior to the introduction of the VRAR in 2006, there was only one above-rail freight train operator in Victoria. Currently, there are four above-rail freight train operators handling intra-state freight in Victoria (although some of these operate only on the ARTC standard gauge network): • Asciano and its subsidiaries Pacific National and Patrick Port Link operate a minimum of three grain trains under contract to GrainCorp Operations Ltd (two of these are broad gauge), and operate five container trains (four broad gauge and one standard gauge) servicing localities such as Wodonga (on the ARTC standard gauge network), Shepparton, Mildura, Warrnambool and Gippsland • El Zorro, operates grain trains (one broad gauge and one standard gauge) under contract to AWB Ltd, and hauls containerised mineral sands from south-west Victoria to Melbourne (on the ARTC standard gauge network) • Genesee & Wyoming Incorporated ( GWI ) is contracted to ABB Grain to operate a grain train once harvests recover (standard gauge only), and • Interail, a subsidiary of Queensland Rail ( QR ), operates a container train service to Horsham (on the ARTC standard gauge network). Interstate freight on the ARTC standard gauge network is handled by Asciano, P&O Trans Australia ( POTA ), QR Freight and SCT, with Asciano having a dominant market share.
The main types of freight carried by rail in Victoria are as follows:
14 http://www.railpage.com.au/f-t11343135-previous.htm 15 Section 38H of the RCA. See also s10 of the Transport Act 1983 .
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• Bulk grain – the largest rail freight task in Victoria in non-drought years. Grain is transported from regional receival sites in Victoria and the Murray region in southern New South Wales (NSW) to port or domestic terminals. The region produces approximately 4.8 million tonnes 16 per annum, with more than 85 per cent of the export task and approximately 25 per cent of the domestic grain task moved by rail. 17 However, the rail mode share has decreased drastically, with less than 40 per cent of grain from all of the inland receival sites of the major three Victorian bulk handlers being outloaded by rail in 2008-09 – down from 90 per cent in 2003-04 (see section D.9). In an average harvest year the bulk grain rail task is approximately 2 to 2½ million tonnes. • Containerised freight – consisting mainly of agricultural and processed products such as grain, meat, fruit, wine, rice, pet food and milk products. Paper products from Gippsland are also containerised. Mineral sands are a relatively new commodity to be carried on rail, with El Zorro recently signing an agreement with Iluka Resources to transport mineral sands from Portland to Melbourne in containers.18 Typically, containerised freight is transported to the Port of Melbourne from regional industries in localities such as Wodonga, Merbein, Mooroopna, Mildura, Tocumwal, Warrnambool, Horsham and Gippsland. The total intra-state containerised rail task on the broad gauge network was estimated to be around 120,000 TEU in calendar 2006 19 but is estimated at approximately 70,000 TEU in 2008-09 . • Other freight includes: o Logs railed from Bairnsdale, Wodonga and Warrnambool to the port of Geelong. o Steel products (more than 300,000 tonnes per annum) railed from BlueScope Steel’s mill at WesternPort to a dedicated rail terminal in west Melbourne via the Stony Point/Frankston line. o Cement and crushed rock.
Table D.1 shows a summary of container train services in Victoria and the regional Intermodal terminals (IMTs) which they connect.
16 Essential Services Commission (2009), Review of Victorian Grain Handling and Storage Access Regime: Draft Report , February 2009. 17 AWB submission to the Victorian Rail Access Review, p.5. 18 Lloyd's List DCN, Iluka ready for more after first Portland run , 17 September 2008. 19 PoMC submission to the Fischer Review.
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Table D.1 Container train services Victoria & southern NSW Service Operator Rail gauge Avg. Services per Sites Commodities serviced weeka
Wodonga, Pacific National SG 5 (unchanged) • CRT’s Bandiana IMT – being relocated Chemical, paper, paper products and Riverina to Ettamogah other rural products • Pacific National IMT Griffith • Bowmen IMT Wagga Wagga
Shepparton, Pacific National BG 3 (reduced from 5) • Gray's Container Terminal Tocumwal Rice, grains, dairy products, stock Tocumwal foods, canned and fresh fruits, wines • Pacific National Mooroopna IMT Deniliquin NA BG 0 (reduced from 2-3) Rice, grains
Merbein, Pacific National BG 3 (reduced from 5) • Wakefield Transport IMT Merbien Wines, mineral sands, fresh fruits, Donald, Ballarat grains, stock foods and malt • Pea Growers Co-operative Donald
Horsham Interail (QR) SG 3-4 (reduced from 5) • Wimmera Container Line Grains, stock foods and meat
Warrnambool Pacific National BG 4 (reduced from 5) • WestVic Container Export IMT Dairy products, grains and stock Warrnambool foods
Portland El Zorro SG 2-3 per month • Kalari rail siding Mineral sands
Maryvale Pacific National BG 6 (increased from 5) • PaperlinX paper mill Imported pulp and exported paper products
Morwell El Zorro BG Trial service • Gippsland Intermodal Freight Terminal N/A (GIFT) a Comparison is against information reported by PoMC in its submission to the Victorian Rail Freight Network Review (RFNR) Source: PoMC, other industry sources
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D.4 Rail terminals and rail terminal operators
The interstate and intra-state rail networks are supported by a number of terminals for loading or unloading freight and/or transferring freight between road and rail transport. The major metropolitan terminals are situated in the Dynon precincts and the Port of Melbourne. There are also intermodal terminals in the metropolitan industrial areas of Altona and Somerton, as well as in regional Victorian freight centres. Regional intermodal terminals
Table D.2 shows the Victorian regional intermodal terminals (IMTs). The regional IMTs have an important role to play in accumulating freight for rail services and the modal share of rail in the intra-state freight market will be strongly influenced by their commercial effectiveness.
There are a range of proposed new IMTs in regional areas (Table D.3) – such as the ‘LOGIC’ terminal 14 km south of Wodonga; the Goulburn Valley Freight and Logistics Centre (GVFLC) near Mooroopna; relocation of the Horsham and Ballarat IMTs; a proposed new IMT at Lara near Geelong; and the Gippsland Intermodal Freight Terminal (GIFT), among others. Although the GVFLC and the relocation of the Horsham terminal to Dooen are progressing, most other prospective developments appear to have stalled at the present time and a terminal at Boort has recently closed.
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Table D.2 Regional intermodal terminals Terminal Operator Notes
Bandiana CRT/QR • Closure and relocation to Ettamogah expected in 2009-10.
Donald Pea Growers’ Co-operative • Handles containerised exports of peas, grains and other legumes. • New gantry has been installed recently. Ettamogah (Under Colin Rees Group • Under development. development) • Adjacent to Norske Skog newsprint mill and Melbourne-Sydney rail line. Horsham Wimmera Container Lines • Handles mainly exports of containerised grains and legumes. • Closure and relocation to Dooen expected in 2010-11. Maryvale Privately owned • Part of the Maryvale paper mill complex (Australian Paper). (Australian Paper) • Handles containers for transport to Perth, Brisbane and Darwin.
Mildura/Merbein Wakefield Transport • Used by Wakefield Transport to transport regional produce by rail to Melbourne for export and to capital city markets. Portland Kalari Transport • Handles exports of aluminium products from the Portland smelter and mineral sands for Iluka, among other commodities. Shepparton Patrick/Asciano • Predominantly handles containerised processed food exports. • Plans for redevelopment on a new larger site. Tocumwal Grays Container Terminal • Located in New South Wales, but transport and logistics links are in Victoria, with most containers exported through PoMC. • Predominantly handles grain and rice. Warrnambool West WestVic Container Lines • Handles small volumes of containerised dairy products, meat, mineral sands, among other commodities, mostly for the export market. Source: Sinclair Knight Merz confidential draft report for the Essential Services Commission 2009.
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Table D.3 Proposed regional intermodal terminals Terminal Operator Notes
Dooen Wimmera Container Lines • To replace Horsham terminal. • Under construction, to be completed by mid-2010. • Aiming for 5-6 services per week. Geelong Unknown • Geelong rail terminal options investigated by the Departme nt of Infrastructure in 2006, identifying Heales Road site as preferred. • Geelong rail terminal recommended by Fischer Review. • No development to date. Gippsland Intermodal Unknown • GIFT established in 1998 and closed in 2002. Freight Terminal (GIFT) • Leased by Latrobe City Council, and adjoining site purchased. • Seeking expressions of interest to reopen GIFT and develop site. Goulburn Valley Freight Unknown • Detailed design being developed by the City of Greater Shepparton. Logistics Centre • On the Melbourne-Tocumwal rail line. • Construction expected to commence in 2010. Woodonga (‘Logic’) Unknown • Intermodal terminal was included in the plans for the Logic industrial and logistics park on the Melbourne-Sydney rail line and Hume Freeway, but has yet to be funded or progressed beyond high level concept design. • Ettamogah terminal 30km north has possibly supplanted it. Source: Sinclair Knight Merz confidential draft report for the Essential Services Commission 2009.
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Metropolitan intermodal terminals
Table D.4 summarises the metropolitan intermodal terminals.
In Altona/Laverton there are established intermodal terminals operated by SCT, an interstate rail operator, and CRT (a subsidiary of QR). The SCT intermodal terminal handles interstate containerised and non-containerised goods, and handled approximately 13,000 TEU of containerised, and 408,000 tonnes of non- containerised, rail freight in 2004-05. 20 CRT specialises in the movement of polymer, food, specialty chemicals and industrial products, and its intermodal terminal at Altona previously handled around 35,000 TEU of rail freight in 2004- 05 21 but its current throughput is believed to be significantly lower as it no longer operates a metropolitan port shuttle. A third intermodal terminal in the Altona/Laverton area, adjoining the SCT facility, is under consideration by the Salta/Westgate group. 22
POTA operates an intermodal terminal in Somerton adjacent to a major industrial area. This 100 ha terminal is currently used only as a road-road terminal. However, it has potential to be used as a consolidation point for regional rail services or interstate rail services. 23
Table D.4 Metropolitan intermodal terminals Terminal Operator
Altona CRT(i.e. QR) Altona/Laverton SCT Altona/Laverton (yet to be developed) Salta/Westgate Dynon Intermodal VicTrack/POTA South Dynon Asciano West Swanson POTA East Swanson Asciano Somerton POTA Source: DoT
The major rail terminals in Melbourne are in the Dynon & Swanson precincts and include:
20 Ibid p.36. 21 Ibid. 22 www.salta.com.au/Tempo/versions/v_starting_01/downloads/media/AGE- Salta_poses_rail_solution.pdf 23 www.theage.com.au/news/Business/Somerton-is-on-track-to-join-the-hub- club/2005/05/1116361619104.html.
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• the South Dynon terminal, leased by Asciano until 2031. 24 This terminal is used for interstate domestic freight. Asciano is currently the only user. The terminal handles approximately 35 trains per week, and had a throughput of approximately 410,000 TEU in 2006. 25 • the Dynon Intermodal Terminal is owned by VicTrack, who also operates the rail sidings within the terminal. Lifting and ancillary services are currently provided by POTA. This terminal is used for a mix of intra-state and interstate containerised freight. There are currently two rail operators using the terminal 26 , and current annual throughput is believed to be significantly lower than the 100,000 TEU reported by VicTrack for 2007-08.27 VicTrack also owns and operates the North Dynon Agent's Sidings in the Dynon precincts. These sidings service some small private rail terminals. • Pacific National/Asciano and POTA each operate on-dock rail terminals within the Port of Melbourne at East and West Swanson respectively. These are used to directly deliver export cargoes to the Swanson Dock container terminals. The East Swanson rail terminal, operated by Asciano, handled an estimated 85,000 TEU in 2004-05 28 . The West Swanson rail terminal, operated by POTA, handled approximately 44,000 TEU in the same year. 29
Map 2 shows detail of the Dynon/Swanson precincts including each operator’s terminals and tracks. Table D.5 shows a summary of all of the train services handled at these terminals.
24 Auditor General (Victoria) (2009) 'Buy back of the Regional Intrastate Rail Network' p.25. 25 Essential Services Commission (November 2006), South Dynon Terminal Access Arrangement Variation: Final Decision , pp.41-44 26 The Dynon Intermodal Terminal is being used by QR for interstate services, and by El Zorro for mineral sands. 27 VicTrack Annual Report 2007-08. See also Table 5.2 of this report. 28 Meyrick/ARUP (2006) National Intermodal Terminal Study, p.35. 29 Ibid.
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Table D.5 Dynon/Swanson terminal operations Terminal Rail service operator operator
East Swanson Pacific National Pacific National: • 3 return services per week Melbourne/Adelaide on standard gauge • 5 return services per week Melbourne/Griffith/Leeton/Wagga Wagga/Ettamogah on standard gauge • 3 return services per week Melbourne/Merbein on broad gauge • 3 return services per week Melbourne/Maroopna (Shepparton) and Tocumwal (NSW) on broad gauge • 4 return services per week Melbourne/Warrnambool on broad gauge
South Dynon Pacific National Pacific National: approx. 35 intercapital super freight services per week linking with Sydney/Brisbane/Adelaide and Perth on standard gauge
West Swanson POTA POTA - 3 return services per week Melbourne/Adelaide on standard gauge (services are currently reduced)
Dynon Intermodal POTA/VicTrack QR - two services per week to Perth and Brisbane on standard gauge El Zorro provides intermodal services Melbourne/Portland (services vary based upon customer requirements)
North Dynon VicTrack No regular services. Very small residual use by Australian Paper Agents Sidings
Victoria Dock Westgate Ports Pacific National – 6 return services per week to/from Maryvale on broad gauge Note: Both Adelaide-Melbourne services are normally 5 services per week but currently reduced due to market conditions. POTA previously contracted QR to provide Adelaide service but since 3 October 2009 operates the service itself. Source: PoMC
Access to terminals
In Victoria at present there is a mix of privately operated rail terminals and those operating as “open access” terminals. The term “open access” is sometimes used within the industry to refer to a terminal which will accept freight from any freight owner or freight forwarder, although there may be an exclusive contract for train operations servicing the terminal. This model is common among IMTs in regional Victoria.
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A “multi-user” terminal may refer to a terminal that hosts more than one train operator, but doesn’t necessarily have formal access obligations – such as the Acacia Ridge terminal near Brisbane. In Victoria, terminals with formal access obligations, sometimes referred to as “common user” terminals, include the POTA/VicTrack terminal at Dynon and the Asciano terminal at South Dynon, although the latter currently operates with only a single user. The POTA’s lease with VicTrack for the Dynon obliges POTA to operate the terminal as a “multi user” terminal, and both terminals are covered by the VRAR.
The Victorian government has announced a policy of establishing a Metropolitan Freight Terminal Network ( MFTN ) with possible new major “open access” or “common user” IMTs to be located in areas such as Donnybrook, Wyndham and/or Lyndhurst, in areas earmarked for future industrial development. 30
D.5 Recent developments & government role in the rail industry
Over the last two or three years there have been a number of important market structure changes in the rail industry. This has resulted in important changes to the Government’s roles in the industry, with wider roles for government-owned rail businesses and greater responsibility for Government in supporting the on-going costs of network maintenance and upgrading.
The main recent structural changes to the rail industry have included: • Several entrants into the industry following the introduction of the access regime. The main competitive entrant has been El Zorro, with other operators such as Interrail (a subsidiary of QR) and GWI also emerging as smaller operators in the State. • The Victorian Government’s buy-back of the regional rail network, completed in May 2007, resulted in the government-owned rural rail passenger service provider, V/Line, now managing both the regional rail network and passenger train operations on that network. • Pacific National’s relinquishment of its lease over the North Dynon Intermodal Terminal lease in 2006 placed the terminal in the management of the government-owned rail asset owner VicTrack. In turn VicTrack has granted a concession over the terminal’s freight-handling services to POTA. • The recently completed process for re-franchising the metropolitan rail network and passenger services resulted in a new operator of the Metropolitan railway network and passenger services, MTM.
D.6 Above-rail contestability
Prior to the introduction of the VRAR in 2006 there was only one freight operator on the rail network, Pacific National (which also leased the country rail network infrastructure from the Victorian government). After the VRAR was introduced, El Zorro entered the market with a haulage contract with AWB Ltd, under which
30 PoMC 2009, Port Development Strategy.
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El Zorro would make available 2 to 3 locomotives, while AWB would invest in 84 wagons. 31 The agreement envisaged El Zorro operating one standard gauge and one broad gauge grain train. 32
Subsequently El Zorro also won a contract to rail containerised mineral sands from Portland to Melbourne. It was unsuccessful in retaining a contract to haul containers from Warrnambool to Melbourne.
Pacific National entered into a contract with GrainCorp, the largest grain handler in Victoria, to operate trains in NSW and Victoria. These trains would mostly operate on the broad gauge network. ABB Grain also entered into an agreement with GWI for the operation of one grain train in Victoria.
Pacific National has also retained most of the general freight services. This includes container trains operating between regional Victoria and southern NSW and the Port of Melbourne. However, the increasing scope for competition and choice between rail operators was evidenced by the outcome of Asciano’s decision to withdraw its container train services at Horsham. It was successfully replaced by a competitor, Interrail (a subsidiary of QR).
V/Line’s Network Service Plan indicates that the operators now authorised to operate on its network include Pacific National, El Zorro, GWI, Interail and SCT. Although some of these operators have yet to establish a significant presence on the intra-state network, they represent some potential for competitive entry for rail haulage services within the State.
On the other hand, there also remains the risk that operators may exit the market. In December 2007, Asciano, the parent company of Pacific National, announced that it intended closing its Victorian rail freight business for commercial reasons, most notably heavy losses in grain freight operations. 33 However, although services have been reduced, Asciano has not ceased its Victorian operations, and circumstances may now have changed.
The competitive market environment in Victoria between freight train operators remains uncertain. Although new entrants have emerged, Wakefield suggested that Pacific National retains a dominant position on the broad gauge rail network and retains control of the ‘vast majority of the broad gauge stock’. Asciano indicated that the regime ‘has delivered effective above-rail competition’. 34
In part the contestability of the market depends on the return to more normal climate conditions and grain production levels. ABARE is currently forecasting a
31 Weekly Times, 27 August 2008. 32 http://www.mailtimes.com.au/news/local/news/general/rail-deal-for-grain- freight/1255368.aspx 33 See: Asciano Limited, Investor Briefing, 11 December 2007. http://www.asciano.com/Articles/071211_Amended_presentation.pdf 34 Asciano submission on the Issues Paper , p.7.
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Victorian grain harvest of 5.5 million tonnes in 2009-10 35 , the highest in five years. With three train operators contracted by the major bulk handlers and changed commercial arrangements (take or pay contracts have pushed volume risk from the train operators to the bulk handlers). However, ACRFD has emphasised that there will be a shortage of grain trains.
ACRFD was also concerned that the average age of the rolling stock fleet in Victoria is believed to be 34 years, and thus several years older than that of overseas comparators. In addition to the competitiveness of road transport, other factors inhibiting investment in rolling stock in Victoria – and hence the development of above-rail competition – include the interoperability constraints imposed by broad gauge and the lack of certainty around track standards and line closures.
In its review of Australian grain supply chains, Sd+D noted that in view of forecast export tonnages in coming years, there is expected to be sufficient rail haulage capacity to handle most export volumes under current freight contracts in most years. However, any future heavy seasons would need to be handled by a combination of trucking and trains. 36
D.7 Buy-back Vertical integration
Following the buy-back, regional rail freight operations are no longer vertically integrated as they were under Pacific National. Instead, V/Line is a vertically integrated passenger service provider. Access prices
As part of the government’s buy-back agreement, Pacific National (as access seeker) entered into an access agreement with V/Line which specified new prices for access. These access prices have become the prices offered by V/Line to other train operators using the same services. The newly agreed prices were 25 per cent lower than prices proposed by Pacific National as affordable prices in May 2006 37 , and appear to reflect an assessment of the market bearable prices at the time of the buy-back.
The Fischer Review expressed concern about access prices and recommended the adoption of the lower charges applying on the NSW rural rail network owned by the Rail Infrastructure Corporation ( RIC ). The Commission notes that the Fischer report did not contain any analysis supporting this view.
35 ABARE ‘Crop Report’, September: http://www.abare.gov.au/publications_html/crops/crops_09/9_2_grains.pdf 36 Sd+D, Grain Supply Chain Pilot Study, Stage 1 Final Report, National Transport Commission, p42. 37 Pacific National (May 2006) ‘revised proposed access arrangement’.
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Maintenance funding
The Auditor-General’s May 2007 report Maintaining Victoria’s Rail Infrastructure Assets contains a comprehensive discussion of the adequacy of track maintenance on the Victorian rail network. 38 While the report found that the maintenance arrangements for the metropolitan infrastructure and the interstate infrastructure linking Victoria with New South Wales and South Australia were satisfactory, it found that the arrangements for the regional intra-state infrastructure did not provide for adequate maintenance and renewal. 39 The Auditor-General found that:
DoI should seek to strengthen the current arrangements so that it provides clear assurance that the infrastructure is being adequately maintained and renewed. 40
The Fischer Review recommended that the regional rail freight network be maintained at a ‘fit-for-purpose’ level and at a reasonable cost. It prioritised lines, and maintenance on the freight rail network into Platinum, Gold, Silver and Bronze. The only intra-state freight line designated as Platinum was the Geelong to Mildura line, which is being upgraded to an 80 km/h standard with Auslink funding. Gold were the core grain lines to be maintained at a class 4 or 5 standard. 41 Silver lines were only to receive funds for major maintenance if there were co-commitments by grain bulk handlers (if so they should be maintained to class 4 or 5 standard). Bronze lines were those that should not have major maintenance carried out.
Following the Fischer Review the Government adopted two streams of funding for rail freight: • Transitional funding to rail freight users through a two-year program of rebates paid to industry participants. These rebates are paid to grain bulk handlers and regional Intermodal terminals operators, and the package amounted to $21.4m. • Specific funding of freight network projects as summarised in Table D.6.
Table D.6 shows that the Victorian government earmarked approximately $115 million for upgrading and rehabilitating the regional freight-only rail network. Of this amount, approximately $72 million has been spent representing 77 per cent of the works completed. Out of this V/Line was allocated approximately $40 million and 47 per cent of the works are completed.
38 Victorian Auditor General’s Office (2007), op. cit. 39 The Primary Infrastructure Lease did not require Pacific National to maintain or renew rail infrastructure under its control until the last five years of the lease. 40 Victorian Auditor General’s Office (2007), op. cit., p.55. 41 The class of rail line is defined by the speed that trains are allowed to operate i.e. classes 1 and 2 are >80 km/h; class 3 is 65 to 80 km/h; class 4 is 50 -65km/h; and class 5 is < 50km/h.
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Table D.6 Victorian government funding – freight network Projects Funds made V/Line Status/% Actual available Budget completed Cost to June 09 ($m) from DOT ($m) DOT projects: Gehringhap-Mildura 53.0 NA 100 53.0 V/Line projects: Rehabilitate Gold lines a 23.7 15.6 74 11.5 Rehabilitate Silver lines - Quambatook – Manangatang 7.4 7.3 59 4.3 - Charlton – Sea Lake 5.1 5.1 18 0.9 - Warracknabeal – Hopetoun 4.2 4.2 45 1.9 - Ouyen – Murrayville 5.0 7.3 0 0 V/Line sub-total 45.4 39.5 47 18.6 ARTC projects: - Benalla - Oaklands 17.0 NA NA NA Total 115.4 NA 77 71.6 a Korong Vale – Quambatook; Korong Vale – Charlton; Murtoa – Warracknabeal; Shepparton – Tocumwal; Swan Hill – Piangil; and Mildura – Yelta. Source: V/Line
D.8 Dynon terminals
As part of the Toll Holdings acquisition of Patrick Corporation, Pacific National (now part of Asciano) relinquished the lease over the North Dynon Intermodal Terminal in 2007. The two Dynon terminals (North and South) are now operated by different businesses. Terminal services within the North Dynon Intermodal Terminal are now managed by POTA, which also operates the West Swanson rail terminal, and is 50 per cent owned by stevedore DP World.
Following that divestment, Pacific National/Asciano gradually shifted their operations so that the intra-state container trains previously terminating at North Dynon Intermodal Terminal were instead unloaded at Asciano’s East Swanson terminal.
At the South Dynon Terminal, Asciano indicated in its first submission there have been no applications for access to the terminal over the three years its access arrangement has been in place. However, during the course of this Review it has received an access application.
To date, competing interstate rail operators have tended to favour constructing their own terminal infrastructure, or using the North Dynon Intermodal Terminal. This raises the question as to whether there is a market for the South Dynon terminal’s services. This may be constrained in the short-term by the fact that Asciano currently retains a dominant market share on the intra-state rail corridors. The market for the terminal services in the Dynon precincts will in part depend on
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the extent to which competitors can gain market share in the interstate rail freight market. The limited interest to date by third parties wanting to use the terminal is not necessarily a good guide to potential demand over the next five to ten years.
D.9 Rail freight activity V/Line data
Notwithstanding the prospective developments, at the present time the Victorian rail industry is experiencing a significant reduction in rail freight quantities. Table D.7 presents summary information on the V/Line intra-state freight task measured in gross tonne kilometres ( GTK ). There are limitations to this data 42 , however, it should be sufficiently reliable to draw broad conclusions regarding the trends. The data supports recent concerns about declining intra-state rail freight volumes. 43
Table D.7 V/Line regional freight task Million GTK 2000-01 2004-05 2007-08 2008-09
Grain 1,954 1,405 228.7 187.8 Containers, general & other 1,818 1,547 875.9 716.2 bulk Total 3,772 2,951 1,104.6 904.0 Sources: ESC (2006) ‘Pacific National Rail Access Arrangement Final Decision’ (p.60), V/Line data reported to ESC
The information in Table D.7 suggests: • Grain volumes have decreased considerably and have been heavily affected by drought. The scale of the decline and the longer-term trend suggests that other factors may also be at work, such as the timeliness and reliability of rail freight services. • Over the four years up to 2004-05, non-grain freight decreased at an average annual rate of 4.0 per cent. Over the four years to 2008-09 it declined at approximately 38.9 per cent per annum. Given its importance to containerised agricultural products the climate conditions will have been one of the factors that have impacted container freight volumes.
42 There may be some inconsistencies in the data provided by Pacific National to 2004-05, and the 2008-09 data provided by V/Line. Furthermore, in November 2008 some rail lines were transferred to ARTC, which would have affected the amount of GTKs on the V/Line network. 43 News Weekly 2 February 2008, ‘End of the line for rail freight?’.
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Grain industry data
Figure D.1 shows the rail mode share for grain outloaded from all of the inland receival sites of the major three Victorian bulk handlers. The rail share has steadily fallen since around 2003-04 from over 90 per cent to less than 40 per cent over the three years to 2008-09.
Figure D.1 Rail mode share grain freight Victoria
100% 3.0 90% 2.5 80% 70% 2.0 60% 50% 1.5 40% 1.0 30%
20% millions of tonnes 0.5 10% 0% 0.0 Per centof total inlandtotal Per centof receivals 3 5 8 -04 06 2-0 5- 7-0 0 03 0 0 0 0 0 0 2001-02 2 2 2004-0 2 2006-07 2 Share of grain outloaded by rail, moving 3 yr avg (LHS) Total grain inland receivals, moving three year average (RHS)
Data source: ABA, AWB & GrainCorp Port-related containerised rail freight
Total rail-based containerised freight at the port of Melbourne has decreased considerably since 2006 as shown in Table D.8. This data includes freight transferred from the Dynon terminals.
Table D.8 Port-related containers on rail - breakdown Calendar 2006 2008-09 Annualised % change
Interstate 212,000 167,000 –9.1 Intra-state 122,000 69,000 –20.4 Total 334,000 236,000 –13.0 Source: PoMC
Intra-state containerised rail freight has almost halved since 2006 and is declining at an average rate of over 20 per cent per annum.
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Data published by the Bureau of Industry, Transport and Regional Economics (BITRE) also shows a significant recent decline in port-related containerised rail freight volumes at the Port of Melbourne (see Figure D.2). This data is concentrated on the on-dock terminals, and largely represents intra-state freight and Adelaide-Melbourne freight. It shows that much of the recent decline in containerised freight on rail occurred in late 2007.
Figure D.2 Trend in port containers on rail a
180 9.0
160 8.0
140 7.0
120 6.0
100 5.0
80 4.0 Percent 60 3.0
40 2.0 TEU TEU per annum (annualised) 20 1.0
- - Sep'06 Dec'06 Mar'07 Jun'07 Sep'07 Dec'07 Mar'08 Jun'08
Annualised TEU on rail (est) rail share % a includes only containers handled at on-dock terminals Data source: Bureau of Industry, Transport & Regional Economics, ‘Waterline’ 45 Future outlook
Since total Victorian intra-state freight increased by 47 per cent between 1996 and 2005 44 , or approximately 4.4 per cent per year, the decline in rail freight indicates a substantial modal shift to road freight. Intense competition from road freight and the relatively poor reliability and track speeds for freight trains are to be considered as important factors behind these trends. 45
This has in turn impacted the economics of freight rail as highlighted by the Fischer taskforce:
The lack of regular volume is the single most important factor to rail operator viability.
44 BITRE Yearbook 2007. 45 Meyrick (2006), Rail Freight Task – Victoria , p.7.
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Victoria's rail task is projected to double over the period from 2000 to 2020 46 but it is uncertain how much of this growth will be captured by rail.
D.10 The Metropolitan freight terminal network PoMC’s wider supply chain role & the MFTN
Direction 17 of Freight Futures is a strategy to extend the role of PoMC beyond the port gate so that it participates in and influences the efficiency of the port-related container freight supply chain. There are a wide range of strategies within Freight Futures which may be relevant to a wider PoMC supply chain role. One of the key strategies is the Government’s commitment to establish a Metropolitan Freight Terminal Network ( MFTN ). This will include: • a new Melbourne International Freight Terminal north of Footscray Road • a series of major ‘open access’ terminals located in the west, north and south-east industrial areas of Melbourne, and • an integrated system of high capacity transport links (possibly rail or large trucks) to connect these terminals to the port. It is intended that the new outer urban freight terminals will accommodate many of the non-port related freight activities to be relocated out of the Port of Melbourne, and will serve as collection and distribution points for freight in each of the major industrial areas. Freight Futures indicates certain directions and expectations on some aspects of the MFTN: • it ‘must be planned, implemented and managed as an integrated system of terminals and high capacity connecting transport services, with appropriate involvement from both Government and the private sector, and’ 47 • it should be ‘accessible to all carriers (i.e. ‘open access’) and operate on a 24/7 basis’. 48 Freight Futures also gives emphasis to the aim of private sector participation, for example, through Public-Private Partnerships (PPPs). It states that the role of Government is ‘to establish appropriate policy settings and create the right governance and regulatory environment to ensure effective co-ordination of the network as a whole’, enabling the private sector (and for that matter, State-owned enterprises) to invest and participate with confidence. 49
46 National Transport Commission (NTC) 2006, Twice the Task, SKM, Meyrick and Associates, Melbourne and BTRE (2006), Freight Measurement and Modelling in Australia , Report 112, p.220. 47 DOI 2008, Freight Futures , p.35. 48 Ibid,, p.34. 49 Ibid,, p.35.
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Implementation of the MFTN The key steps for implementing the MFTN, as outlined in Freight Futures , are: • establishing appropriate governance arrangements and responsibilities to drive planning and implementation activities • strategic and detailed business planning • facilitating the development of a Stage 1 Terminal Network, based around existing sites and infrastructure in the Altona/Laverton, Somerton and Dandenong areas • planning and protecting options for a longer term Stage 2 Terminal Network by identifying and acquiring sites and/or establishing appropriate zonings in the statutory planning system • detailed planning for the reconfiguration of the Dynon precinct to provide for the decentralisation of non-port related activities to external sites, the establishment of the Melbourne International Freight Terminal on vacated land between Footscray and Dynon Roads and its effective integration with the port stevedoring terminals and the MFTN, and • facilitating the relocation of the South Dynon interstate rail terminals to a new location in the Donnybrook/Beveridge area, to the north of the metropolitan area, by acquiring a suitable site and commencing investment in base infrastructure.
In its recent Port Development Strategy, PoMC has outlined a vision for a future MFTN which it will elaborate more fully in a Port System Plan it is currently developing – see Figure D.3.
PoMC stated it:
regards the planning and development of an effective “Port System”, including adequate capacity and efficiently operated metropolitan freight terminals, as essential to the achievement of the Government’s objective of encouraging a greater share of port- related traffic by rail. PoMC also believes that ensuring appropriate access to these terminals is likely to be required to promote effective competition in the port-focussed rail services. 50
50 PoMC August 2009, ‘Port Development Strategy: 2035 Vision’, p.28.
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Figure D.3 Port system conceptual diagram
Data source: PoMC
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APPENDIX E DYNON/SWANSON RAIL TERMINALS
The Government’s Melbourne Port@L and Freight Future s strategies envisage significant changes for rail terminal infrastructure in the Dynon/Swanson precinct. To ensure that the recommendations of this Review are relevant to the future shape of the industry, the Review needs to consider the present operations and potential future configuration of the Dynon/Swanson rail terminals precincts over the next five to ten years.
The Dynon precinct has long been a hub of Melbourne’s rail freight operations. Most of the land is crown land, managed by VicTrack under numerous leases to companies and organisations including the Australian Rail Track Corporation (ARTC), the Director of Public Transport (who sub-leases to V/Line), Asciano Ltd (the parent of Pacific National and Patrick), and P&O Trans Australia Pty Ltd (POTA). The Swanson precinct is on land managed by the Port of Melbourne Corporation (PoMC). Its role in rail freight is relatively recent. Only in 2005 were the East and West Swanson rail terminals established.
The next section describes the main facilities and terminals in the Dynon/Swanson precincts. Following this, a number of relevant recent studies, policy and strategy documents relating to the future of the precincts are reviewed. Finally, the implications for this Review are summarised.
E.1 Summary of the current rail terminals
E.1.1 South Dynon terminal
The South Dynon, or Melbourne Freight Terminal is operated by Asciano/Pacific National under a lease to 2031. Asciano also has a lease over significant parts of the Tottenham Yard in Sunshine, which is a train marshalling facility integral to the efficient operation of South Dynon.
This terminal was established in its current form in 1975 by National Rail. Aside from some work undertaken in the early 1990s to accommodate more standard gauge rail operations resulting from the gauge standardisation of the Melbourne- Adelaide rail track in 1995, and the conversion of the northern part of the terminal for reach-stacker operations to increase throughput capacity, the terminal remains substantially as devised in the mid 1970s.
South Dynon is generally regarded as Melbourne’s largest and best container rail terminal, although with its age, it has pavement condition and container storage limitations. There is also a road access constraint due to the level crossing on Dock Link Road. The terminal has six rail paths, four of which are 850m and are served by two rail mounted gantry cranes and two of which are 1200m with up to
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three rubber tyre gantry cranes. Asciano also has leasehold over marshalling yards to the south of the terminal (and south of the ARTC standard gauge passenger line) and refuelling points at the south west perimeter of the terminal.
South Dynon is the main Melbourne terminal for interstate domestic rail container operations. Container movements to and from interstate locations are by rail, with Melbourne metropolitan pick up delivery by road truck. Truck movement surveys have suggested that there are few movements between this terminal and Swanson Dock.51
The terminal currently handles around 450,000 TEU per annum and is believed to be near capacity under its current configuration. The major limitation is space for interim container storage, but the length of rail sidings, ability to handle long trains in a single rake and complicated nature of train shunting and marshalling given the track layout also impose constraints. Nevertheless, more capacity may be possible at the terminal through incremental extensions to the west or south-east (as discussed below), or by employing additional equipment.
E.1.2 Dynon Intermodal Terminal
The Dynon Intermodal Terminal (DIT) is a smaller terminal of 9.5 hectares (ha) to the north of Dynon road. It has ten rail paths approximately 500m long. It is believed to have a theoretical capacity of over 200,000 TEU, although there is significant pavement degradation and the actual capacity may be more limited.
DIT has traditionally been an intra-state rail freight terminal for non-bulk country rail operations, which are predominantly export focused. In the 1990’s it was leased to Freight Australia; Freight Australia was subsequently acquired by Pacific National in 2004. 52 In 2006, Pacific National relinquished the lease over this terminal as part of an undertaking to the Australian Competition and Consumer Commission (ACCC) by Toll Holdings. VicTrack subsequently leased most of the terminal operations to POTA.
The current operation employs forklifts only (generally 2 to 3, varying according to throughput) – there are no gantry cranes.
Following Pacific National’s departure, most of the export focused containerised freight trains were redirected to the Patrick East Swanson rail terminal – established in 2005 and now part of the Asciano group. The throughput of DIT terminal was previously around 100,000 TEU per annum, but is currently only a fraction of that level. The two main users of the terminal are QR Freight and El Zorro.
51 Eg PoMC 2008 Port precinct truck utilisation study, November 2007 52 Office of the Premier of Victoria, media release 16 August 2004, ‘Sale of Freight Australia to Pacific National
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E.1.3 North Dynon – VicTrack’s Agents’ sidings
The North Dynon Agents’ Sidings is a 1.9 ha site, managed by VicTrack on an open access basis. It is capable of handling trains up to 1500 metres in a single rake, although not all parts of the train are accessible for loading and unloading operations. In the past, QR has used these sidings for interstate trains of 1200 m by splitting into two 600 m rakes. Its highest throughput was around 20,000 TEU per annum (however QR now uses DIT instead). The Agents’ Sidings are also used for splitting interstate trains for shunting into DIT.
Road access to this terminal is circuitous, and is limited to standard B-doubles of capacity up to 3 TEU. There are two bridges over Lloyd Street which impose truck height restrictions.
The Agents’ Sidings is separated from Dynon by two sites: • the “Fast Track” intra-state parcel service site of 3.8 ha. Although once a rail- based service, the Fast Track site is now largely unused. • the Australian Paper rail terminal – a 4.2 ha site. Recently Australian Paper has redirected most of its freight to Westgate Ports’ Victoria Dock facility, although it retains a 3 year lease at North Dynon.53
E.1.4 Swanson Dock
Rail terminals have long been a feature of Swanson Dock, but their use declined from the 1980s when V/Line Freight determined that operations with longer trains at Dynon were more cost effective than the short rakes that could be handled at the port terminals, and applied pricing that reflected these costs.
Patrick established a new rail terminal on the Appleton Dock boundary of the East Swanson Dock terminal in 2005. The rail siding was previously established to service the grain terminal. Prior to its closure in the 1990’s, East Swanson had a rail terminal which was more centrally located. The current rail terminal has three dual gauge sidings − two of 650 m and one of 520 m. Trains are worked by four reach-stackers and two forklifts (for empty containers), which transfer containers to and from road vehicles for the short journeys to and from the stevedore terminal.
At West Swanson Dock, P&O had decommissioned and removed their rail terminal by the mid 1990s, which ran north-south near the middle of the West Swanson Dock terminal. P&O Ports and PoMC re-established a rail terminal adjacent to Footscray Rd on the northern boundary of the site in 2003. 54 Transfers of containers to the stevedore terminal stacks are undertaken by shuttle road vehicles.
The main operations at both Swanson Dock rail terminals are receipt of intra-state containerised exports and despatch of empty containers to country-based exporters for filling. The POTA and Pacific National Adelaide −Melbourne trains,
53 http://www.westgate.com.au/pages/news/latest/w_item1_301009 54 Minister for Public Transport media release, 24 February 2003, ‘Rail access returned to Swanson Dock West as trade record annouced’
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and the trains servicing southern NSW, are also handled at the on-dock rail terminals.
Containers railed to or from the port are handled more times than those roaded, due to the use of road vehicles between the rail terminals located at the edges of the stevedore terminal and the main container stacks. This imposes additional costs of typically $40 – $60 per box which stevedores generally recoup from containers moved by rail to the Swanson Dock rail terminals.
The two Swanson Dock rail terminals have in the past handled a combined 120,000 to 160,000 TEU per annum, but over the last two years intrastate containerised freight and Adelaide–Melbourne freight volumes have been significantly weaker.
E.1.5 Westgate Ports
Westgate Ports recently established a rail terminal at its 17 ha Victoria Dock site with two dual gauge rail sidings (650 m and 580 m). In October 2009 it entered into an arrangement to handle the Australian Paper train that operates from Maryvale to Melbourne. 55 This task may be in the order of 10,000 to 15,000 TEU per annum.
Westgate Ports plan to develop intermodal terminals at Lyndhurst and Altona and to run rail shuttles to the Victoria Dock terminal.56
E.1.6 Other interstate rail terminals outside the Dynon/Swanson precincts
SCT has an intermodal terminal in Altona for handling its interstate freight trains. This terminal is designed for its specialised rail van operations for railing palletised (non-containerised) freight. SCT has concentrated its operations in this segment of the interstate rail market rather than containerised freight. Its terminal is designed for loading/unloading under cover and does not have sufficient siding length for efficient handling of container freight on a large scale. 57
E.2 Outlook for rail terminals in the Dynon-Swanson precincts
E.2.1 Projected demand growth
The National Transport Commission (NTC) has forecast long haul rail freight tasks between Perth and the Eastern States and between Melbourne and Brisbane to grow at 3.65 per cent and 4.10 per cent respectively per annum over the period 2000-2020. 58 These are typical of the tasks handled at the South Dynon or Dynon terminals. On the other hand, NTC forecast shorter haul rail tasks, such as
55 http://www.westgate.com.au/pages/news/latest/w_item1_301009 56 ibid 57 Dynon Terminals Masterplan (uppublished) 58 NTC (2006) ‘Twice the Task’, SKM & Meyrick and Associates, p.81
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Adelaide–Melbourne would be static or decline over the same period. This is relevant to the on-dock terminals.
In summary, the longer haul rail tasks are expected to increase by approximately 50 per cent over the next decade. Beyond that, significant further increases are projected by ARTC if its proposed inland Eastern rail corridor is developed.
The use of the on-dock terminals will depend crucially on the success or otherwise of the Government’s strategy of seeing the development of urban rail shuttles between outer urban rail terminals and the port container terminals.
E.2.2 Precinct Strategic Planning
The most recent substantial planning for the Dynon precinct was undertaken by VicTrack in 2005. 59 Prior to this, a detailed investigation and assessment of development options for the Melbourne Freight Hub and inner western rail corridor was undertaken by George Deutsch Consulting for the Department of Infrastructure in 2002.60 Most of the possible developments and plans outlined in these reports have not been implemented, for a variety of reasons. Section E.2.3 summarises some of the identified initiatives.
Melbourne Port@L and Freight Futures have also indicated the Government’s strategy to develop a new rail terminal on the site of the wholesale fruit and vegetable market. The concept development for such a terminal is at a very early stage. Other outer urban terminals, which may also serve as interstate terminals, are being contemplated in the north or western industrial zones. Again, the concept development for such terminals is at an early stage. PoMC, which has a key role in supply chain development, is currently in the process of developing its “Port System Strategy”, which includes further planning concepts for the Dynon/Swanson rail precincts. 61 These Government strategies and PoMC’s preliminary concepts are discussed in section E.2.4.
E.2.3 Options for enhancing capacity of Dynon and South Dynon terminals DIT & the Agents’ Sidings
The Dynon Terminals Masterplan identifies the following key initiatives that would enhance capacity at the DIT and the Agents’ Sidings: • Relocating the Fast Track and Australian Paper activities and integrating these facilities and the Agents’ Sidings (which together are 9.9 ha) with DIT to form a larger terminal – twice its current size – and greatly increase its operational flexibility
59 VicTrack (December 2005) ‘Dynon Terminals Masterplan: Development Options’, SKM (unpublished report) 60 Department of Infrastructure (2002) Melbourne Freight Hub and Inner Western Rail Corridor Development Options Assessment, George Deutsch Consulting. 61 PoMC (2009) “Draft Port System Strategy”
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• Building a new access road into DIT at the western end of the terminal.
Figure E.1 DIT & the Agents’ Sidings
Data source: Dynon Master Plan South Dynon
The Dynon Terminals Masterplan and the George Deutsch report identify the following initiatives that could enhance capacity at South Dynon: • Relocating a range of existing activities in the fragmented leasehold areas to the south east of the terminal, including: locomotive maintenance; turntable; and passenger rolling stock temporary stabling areas. Similarly, relocating the ARTC standard gauge passenger line further south. These changes would enable part of the area to be integrated with South Dynon to extend the southern sidings to a similar length as its northern sidings. (These changes would depend on Asciano meeting the costs). Part of the same area could be used for improving broad gauge access from the east to the port; and for the re-aligned ARTC standard gauge passenger track. • Incorporating the area immediately to the west of South Dynon, including developing a new rail access and re-aligning Dock Link Road, to permit longer rail sidings within the terminal.
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Figure E.2 South Dynon
Non- rail uses
Maintenance, refueling, passenger wagon parking etc
Data source: Dynon Master Plan
E.2.4 Broader strategies for the Dynon/Swanson precincts Melbourne Port@L
The Victorian government released the Melbourne Port@L strategy in August 2006 62 , which sets a long term vision for the development of the Port of Melbourne and nearby precincts. Port Futures reinforces many of the development goals and strategies advanced in Melbourne Port@L. Some of the more important strategies and developments include: • Focussing import/export containers in the Swanson/Dynon precinct, and encouraging relocation of activities which do not need to be close to the port • Redevelopment of the wholesale fruit, vegetable, flower and fish markets sites, to provide space for a Melbourne International Freight Terminal (MIFT) • Implementation of the Dynon Port Rail Link, including grade separation of the Footscray Rd rail level crossing, now completed, and • Improving road and rail links to the port, both to nearby and outer metropolitan locations.
Planning for the relocation of the Wholesale Fruit and Vegetable Market and National Flower Centre to Epping is well underway, with construction commencing in 2009 and relocation by the end of 2011.63 Freight Futures
The Freight Futures strategy indicates the key long term visions for the Dynon precincts include:
62 Department of Infrastructure (2006) Melbourne Port@L Consultation Draft. http://www.transport.vic.gov.au/Doi/Internet/Freight.nsf/AllDocs/A7EC27DEA25F9D3FCA2 56E050004ABC2?OpenDocument 63 http://www.diird.vic.gov.au/CORPLIVE/STANDARD/PC_65560.html
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• developing the MIFT north of Footscray Road as the ‘central hub’ of the proposed Metropolitan Freight Terminal Network (MFTN). This terminal would only handle port-related freight, including rail shuttles. • relocating the South Dynon terminal to an outer area such as Donnybrook. PoMC’s Draft Port System Strategy
The Freight Futures strategy also envisages that PoMC will play a key role in developing port-related supply chains. PoMC has developed a Draft Port System Strategy which evaluates a number of alternative supply chain development options, and also sets out its preliminary views on the future roles of the rail terminals in the Dynon/Swanson precincts in future, when urban rail shuttles are established.
PoMC’s draft strategy examines alternative options for the Dynon precincts. This analysis indicates that there are a range of alternative development options under active consideration. Comment
The strategy for future development of the Dynon precincts remains under active consideration and analysis. The early stage of the conceptual development of the MIFT suggests that, if it is developed, it would be outside the timeframe for consideration in this Review. This in turn suggests that enhancements to existing terminal capacity in the precincts are likely to be important to handle the growing long haul interstate freight rail task.
However, there remains uncertainty in relation to the long-term future of Dynon intermodal terminal, in part due to current low volumes and the as yet unresolved plans for the Dynon precincts as a whole. VicTrack’s regulatory accounts indicate that its net profit on access activities in 2008-09 represented a return on shareholder’s equity employed in access activities of 0.3 per cent. VicTrack could face funding constraints in relation to expansion of the DIT. Nevertheless it has recently invested in new pavement at DIT and is intending to extend the standard gauge lines to enable more efficient positioning of consists within the terminal and reduced shunting costs. VicTrack is continuing to make improvements to the terminal which will enhance its competitiveness with South Dynon.
E.2.5 Other development options and implications Swanson Dock extension
There have been a number of proposals to extend Swanson Dock northwards to provide increased berth capacity for the increasing number and size of container ships visiting Melbourne. The general intention is set out in the Port of Melbourne Planning Scheme 64 although the most recent planning statement 65 is not specific about the extent or timing of this project:
64 Port of Melbourne Planning Scheme, Port Strategic Statement clause 21.04, 10 January 2008 http://www.dse.vic.gov.au/planningschemes/portofmelbourne/ordinance/21_mss04_pmel. pdf
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PoMC is also proceeding with detailed planning for the expansion of the Swanson Dock container terminals and the ultimate extension of the Swanson Dock wharves. The decision to proceed and timing of the various stages of construction of this project will involve negotiations with the incumbent stevedores and will be subject to a satisfactory business case and all necessary Government approvals.
If the extension proceeds, it may impact on the operation of the POTA West Swanson dock rail terminal depending on the length of the extension. Residential developments – Steel Terminal, “E” Gate area
A number of sites closer to the Melbourne CBD have been suggested for residential, commercial or mixed use redevelopment. This includes the Steel Terminal, between Footscray and Dynon Roads, which is currently used to transfer steel from standard gauge to broad gauge for rail transport to Hastings. It is possible that once existing leases expire, these uses may be relocated to a suitable site on less valuable land.
65 Port Futures
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APPENDIX F THE VICTORIAN RAIL ACCESS REGIME
This appendix sets out the main features of the current Victorian rail access regime (VRAR ).
F.1 Introduction
The Victorian Government legislated for its first rail access regime in 1999. 66 However, the access regime was not activated until 2001 when declaration orders, which identified the infrastructure subject to access, were proclaimed.
This first VRAR was a negotiate/arbitrate regime. However, concerns in relation to its workability arose due to: resistance to the imposition of the regime by Freight Australia, who had purchased the Victorian government's above-rail freight operations and entered into a long term lease over the Victorian regional rail network and Dynon Intermodal Terminal in 1999 67 costly and time consuming dispute resolution processes adopted by the regulator, and lack of progress in the development of above-rail competition.
For these reasons, at around the time that Freight Australia was purchased by Pacific National in July 2004, the Victorian government decided to redesign the access regime, leading to the introduction of the current VRAR on 1 January 2006.
In moving to reform the VRAR, the Victorian Government released a number of discussion papers and sought submissions from stakeholders. 68 The government decided to adopt a framework in which each access provider is required to have, at all times, an approved access arrangement. An access arrangement sets out the terms and conditions upon which an access provider will offer or negotiate access to a declared service with an access seeker (i.e. a train operator). This framework
66 See Rail Corporations Act 1996 version 010 dated 29/4/1999 at: http://www.dms.dpc.vic.gov.au/ . 67 Freight Australia argued that the Pricing Orders did not allow it to recoup its investment or be compensated for risk, and allowed its above-rail competitors to obtain the benefit of its investment and operate more cheaply than its own above-rail operator. 68 See, for example, Victorian Department of Infrastructure (DOI), Options for reform of the Victorian Rail Access Regime July 2004; Victorian DOI, Reform of the Victorian Rail Access Regime: proposed legislative Framework Reforms December 2004; Victorian DOI, Victorian Intra-state Rail Access Pricing Options Paper, April 2005.
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was aimed at narrowing the circumstances that could lead to disputes and improving transparency and efficiency of the negotiation process by specifying access terms and conditions for reference services and the processes for negotiation in advance.
F.2 Statutory framework
The VRAR is established in Part 2A of the Rail Corporations Act 1996 ( RCA ); in certain Orders-in-Counsel which declare the services subject to the regime and the pricing principles; in Gazetted regulatory instruments; and in several guidelines produced by the Commission.
The statutory framework has a number of elements that are designed to guide the Commission in its role as economic regulator, including: • the rail-specific objectives contained in the RCA • the Commission’s general regulatory objectives set out in its Act, and • other matters identified in relevant regulatory instruments.
The relevant objectives were set out in section 1.2, Volume II of this report.
In addition, the Commission is required to give consideration to a range of matters. These include: • section 38ZI of the RCA, which requires the Commission to have regard to a range of matters, including: o the access provider’s legitimate business interests and investment in the rail network owned or operated by that access provider o the costs to the access provider of providing access, and o the interests of users • the 2005 Rail Pricing Order and the 2006 Rail Access Pricing Guidelines (made pursuant to that Order), which specify the principles an access provider must apply when determining access prices; and • finally, other matters of relevance for the Commission include: o relevant government policies such as its objective of increasing the percentage of the freight transported to Victoria’s ports by rail; 69 o ensuring that access fees are sufficient to recover the access provider’s efficient costs, to the extent possible, so as to avoid the need for the government to provide supplementary contributions, and to ensure that where government contributions are made that the benefits flow to the intended beneficiaries; and o reports and analysis specific to the rail industry, most notably, the recent COAG National Reform Agenda, the recommendations of the Fischer Inquiry and the Auditor General’s report.
69 In its Growing Victoria Together Statement, the government announced a target to move 30% of port-related freight by rail by 2010.
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F.3 General overview of the VRAR
The main elements of the legislation establishing the VRAR provides for the following: processes and principles by which transport infrastructure can become covered by the access regime and therefore made available for access the processes for making a Pricing Principles Order which establishes the pricing principles to which all rail access prices must conform procedural requirements for making the Commission Instruments, which are rules and guidelines to be made by the Commission to facilitate the access process and ensure access providers act in a non-discriminatory way an obligation on all access providers to submit an access arrangement to the Commission for approval. An access arrangement sets out the terms and conditions upon which an access provider will provide and negotiate with an access seeker. The RCA also sets out the contents of what an access arrangement must contain. the processes the Commission must follow in assessing and approving access arrangements processes to vary an approved access arrangement processes for access seekers to interconnect their own private sidings and/or railways to the declared track processes for resolving access disputes between access providers and access seekers obligations to which an access provider must adhere to, for example, compliance with the Pricing Principles Order, the Commission Instruments and a binding access arrangement, and enforcement procedures in the event an access arrangement is breached. These elements of the regime are discussed in more detail below.
F.4 Declaration
The range of services the access regime applies to is determined by the Declaration Orders made by Order of the Governor in Council under s.38I of the RCA.
There are currently three Declaration Orders in place, all of which came into effect on 1 January 2006. 70 They are: the Freight Network Declaration Order 2005 , which declares the below-rail services provided to freight operators on the regional and metropolitan intra-state rail networks. This right of access is subject to the principles of passenger priority (s.38H of the RCA)
70 Victoria Government Gazette, Special Gazette Number S259, 16 December 2005, pp. 1- 33.
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the Passenger Network Declaration Order 2005 , which declares the rail services provided to V/Line Passenger (in its capacity as a user of railway tracks for regional passenger operations) on the regional and metropolitan rail networks, and the Dynon Terminal Order 2005 , which declares terminal services at the South Dynon and Dynon Intermodal terminals. Terminal services are defined broadly in the RCA to include most services provided within the terminal precincts, including ancillary services.
F.5 Pricing Principles
A Pricing Principles Order may be made by Order of the Governor in Council (s38J), and the Rail Network Pricing Order (the ‘Pricing Order’) was made by the Government in October 2005 and came into effect on 1 January 2006. The Pricing Order prescribes the pricing principles that an access provider must apply when charging for access. The Commission must also observe these principles when carrying out its regulatory functions. The Pricing Order also authorises the Commission to determine a methodology for the calculation of access charges.
F.5.1 General pricing principles
Section 4.1 of the Pricing Order sets out the following general pricing principles: prices charged by an access provider, including internal transfer prices, must be set with the objective of generating revenue such that across all declared rail transport services the expected revenue is equal to a reasonable forecast of the access provider's efficient cost of providing those services (taking account of the amount of any capital contributions from third parties) having regard to the standard and quality of those services, including the reasonably estimated financing costs associated with efficient capital expenditure incurred by that access provider since 30 April 1999 (hereafter 'Cost Reflectivity') the structure of prices may allow for multi-part pricing and price discrimination when it aids efficiency the framework for setting prices must seek to provide an access provider with incentives, including within an Access Period and between Access Periods, to incur an efficient level of costs for providing declared rail transport services the framework for setting prices must seek to avoid volatility in prices arising by reason of volatility in freight traffic, and where an access seeker or a user, or a third party on behalf of an access seeker or a user, makes any contribution towards capital or maintenance expenditure incurred in relation to the provision of declared rail transport services to that access seeker or user, the prices for the provision of those declared rail transport services must be reduced so that the revenue to be derived from the provision of those services is to be adjusted to take account of the contribution and any outgoing capital or maintenance savings.
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F.5.2 Revenue Cap
Section 4.2 of the Pricing Order requires that an access arrangement must incorporate a revenue cap. The revenue cap is to be set equal to the level of revenue that is expected to be consistent with the Cost Reflectivity pricing principle stated above adjusted for any subsidy contribution from government towards the costs of maintaining and renewing the network.
In subsequent Access Periods the prices must be set to adjust for the under and over recovery of revenue in the preceding Access Period against the revenue cap applying in that period. This is the 'under and over-recovery adjustment mechanism' (clause 4.2(c)).
The Pricing Order also provides for other mechanisms for adjusting the revenue cap, including an efficiency carry over mechanism and a service and quality standard adjustment mechanism.
A revenue cap does not apply to terminal services and consequently there are no 'under and over' adjustments, but prices must still be set so that projected revenue from all services is equal to projected efficient costs in accordance with the Cost Reflectivity principle.
F.5.3 Freight and passenger cost allocation
Under section 4.3 of the Pricing Order, the costs allocated to passenger services include: • Firstly, the efficient costs directly attributable to passenger services arising from the requirement to maintain the rail infrastructure to a higher standard than would be required if only freight trains operated on the infrastructure, and specifically to meet the quality and service levels and standards specified by the Secretary or Director of Transport. • Secondly, a share of the efficient indirect costs (i.e. not directly attributable to either passenger or freight services), proportionate to the use of the rail infrastructure for passenger and freight services.
Prices for freight services are to be set with the objective of recovering the forecast efficient costs of providing all declared rail transport services minus the costs allocated to passenger services.
F.5.4 Floor and ceiling prices
The prices for terminal services and for railway track non-reference services must be set with respect to a floor and ceiling so that these prices have the objective of setting a forecast revenue that: • at least covers the directly attributable or incremental costs of providing the service, and • does not recover more than the stand alone cost of providing the service.
These floor and ceiling constraints do not apply to railway track reference services.
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F.5.5 The Rail Access Pricing Guideline
The Commission issued a rail access pricing methodology − the Rail Access Pricing Guideline Version 2.0, 2009 71 − to be used by access providers when preparing their access arrangements. It includes the methodology for calculating the revenue cap and the mechanisms for adjusting it over time. The Pricing Guideline adopts a ’hybrid revenue cap’ whereby over recovery of revenue stemming from above forecast volumes within an access period (other than the volatility of grain harvests) are able to be retained by the access provider in order to provide an incentive for the access provider to attract more volume or modal share for rail.
F.5.6 Non-discriminatory pricing
In addition to the foregoing pricing regulations, section 38ZZY of the RCA requires that an access provider will not calculate prices differently for different access seekers if the services provided are the same. The question as to whether services in question are ‘the same’ would be a matter the Commission may be called upon to form a view in the context of approving an access arrangement or resolving an access regime dispute.
F.6 Commission Instruments
The RCA requires the Commission to make certain regulatory Instruments to help guide and facilitate the process of access and its regulation. 72 The ‘Commission Instruments’ are as follows: • Account Keeping Rules — which require access providers to keep and maintain accounting records and to prepare accounts in relation to access activities and other activities regarding the provision of access. The rules are designed to ensure that the Commission has available to it audited information that can be used to assist in assessing the basis of prices submitted to it in the context of an access arrangement approval process or an access dispute. • Ring Fencing Rules — which previously required the holder of the Primary Infrastructure Lease (i.e. Pacific National when it operated the regional rail network) to separate its access activities from its other activities, and to provide declared transport services to itself or a related body corporate on an arm's length basis. Since the buy-back, the Ring Fencing Rules do not apply to any access provider. • Capacity Use Rules — which regulate an access provider's activities of assessing and allocating the capacity of a rail network and allocating train paths. The rules require access providers and users to surrender certain unutilised or under-utilised train paths, and require access providers to prepare certain protocols for the allocation of the capacity of a network.
71 This superseded an earlier guideline issued in 2005. 72 The Commission Instruments were published in the Victoria Government Gazette on 4 January 2006 and came into effect from that date.
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• Network Management Rules — these rules regulate an access provider's rail network management activities, such as train service scheduling and planning, train control services, management of the interaction of rail infrastructure and rolling stock and management of incidents that affect the operation of a rail network. The rules require access providers to prepare certain protocols for the management of a rail network. • Negotiation Guidelines — which specify the information that an access provider must provide to an access seeker (including information in relation to the management of the capacity of a rail network, the availability of train paths and timetabling), the procedure by which an access seeker can apply for access, the procedure, method and timeframes in which an access provider will assess applications for access, and requirements for an access arrangement to contain a negotiation protocol incorporating an alternative dispute resolution process, as well as the principles and processes governing applications for interconnection.
F.7 Assessment of Access Arrangements
An access provider must submit to the Commission for approval a proposed access arrangement (or arrangements) in relation to its declared rail transport services (s.38W).
An access arrangement aims to facilitate access to the rail network of an access provider by setting out the processes to be followed by the access provider for assessing access applications from an access seeker and negotiating access agreements. In the event that a dispute arises during the negotiation of an access agreement, the process and principles contained within the access arrangement may be relevant to the determination of that dispute.
The RCA (s.38X) sets out the following matters that an access arrangement must contain:
• a description of the reference service(s) to which the access arrangement relates
• information as to whether that service is being provided by the access provider to itself or a related body corporate of the access provider
• the terms and conditions for the provision of each reference service
• the price, or methodology for the calculation of the price, to be charged in respect of the provision of each reference service
• information on the availability and the indicative terms and conditions for the provision of declared rail transport services that are not reference services
• the procedure for making an access application
• the procedure and method the access provider will use to assess and determine an access application, and
• a date for the expiry of the access arrangement.
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The access arrangement provides clear guidance in relation to access provider conduct that is consistent with the Pricing Order and the Commission Instruments. Any dispute resolution decision made by the Commission must not be inconsistent with the terms and conditions contained in a binding access arrangement.
F.7.1 Confidential information
In addition, the RCA requires each access provider to develop a system and business rules for handling confidential access seeker and user information, to be approved by the Commission (s 38ZZZB).
F.7.2 Reference services
The access arrangement must contain standing offer terms and conditions for reference services, but is only required to have indicative terms and conditions for non-reference services. Hence, the degree to which terms and conditions must be approved by the Commission ex ante – and hence the overall prescription of the regulatory framework – will depend on the definition of reference services.
Reference services are defined in s.38A of the RCA to include not only those services likely to represent a significant proportion of demand by access seekers of declared rail transport services, but also all services provided by an access provider to itself or a related body corporate. In 2006, Pacific National was a vertically integrated service provider and all freight services were operated by Pacific National. Hence at that time, the definition of reference services was necessarily broad. However, now that the access provider on the regional rail network is not a freight operator, the definition of reference services could be narrowed, which would change the balance between the 'ex ante' and 'ex post' aspects of the regulatory framework. That said, in recent applications for renewal of access arrangements in 2009, access providers have not sought to change the definition of reference services.
F.7.3 Criteria for Assessment
In assessing proposed access arrangements, the Commission must take account of the matters set out in s38ZI of the RCA. These matters include whether the proposed access arrangement is consistent with the Commission's statutory objectives s38F of the RCA and other criteria mirroring clause 6(4)(i) of the CPA.
F.7.4 Timeframes and process for Decisions
The Commission has 90 days within which to make its Final Decision to approve or reject a proposed access arrangement (s38ZG). On receiving a proposed access arrangement, submissions must be invited within 21 days of the publication of the access arrangement. The Commission must have regard to the submissions received and make its Draft Decision, and the Commission is required to call for written submissions and comment on the Draft Decision and consider all submissions in making its Final Decision.
Where the Commission does not approve an access arrangement in its Draft Decision, it must specify any amendments or matters to be addressed by the
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access provider in order for the Commission to approve the arrangement (s38ZC). Access providers have 14 days upon receiving a copy of the Draft Decision to submit to the Commission revisions to the proposed access arrangement that address the matters identified by the Commission in its Draft Decision.
The Commission may not approve a revised proposed access arrangement unless all of the matters it has identified in its Draft Decision, as needing to be rectified or addressed, have been addressed (s38ZE). In making a Final Decision the Commission must set out its reasons for approving or not approving the proposed access arrangement, taking into account the matters in s.38ZI. These include the matters specified in paragraph (i) of clause 6(4) of the CPA.
Where the Commission's Final Decision is to not approve a proposed access arrangement, the Commission must make an access arrangement for the declared services within 30 days of making the Final Decision (s38ZJ). The Commission must also make the access arrangement where an access provider does not submit a proposed access arrangement, or does not submit an application for renewal of an existing access arrangement (in each case within a 90 day period).
F.7.5 Current rail access arrangements in place
In May and June 2006, a number of access arrangements were established and approved by the Commission for the Victorian rail access providers. Some of these rail access arrangements have recently be renewed for a further term: VicTrack's access arrangement initially covered the North Dynon Agent's Sidings and miscellaneous other sidings, but was amended in July 2007 to incorporate the rail sidings within the Dynon Intermodal Terminal. It has subsequently been renewed for the period to 2012. The Pacific National access arrangement established in 2006 for the regional intra-state rail network was substituted to V/Line Passenger in 2007, and has recently been renewed for the period to 2012. Connex's access arrangement made in 2006 covers the metropolitan rail network until June 2011. The new franchisee MTM is required to apply to the Commission to have the access arrangement substituted to prior to commencing its operations (s.38ZQ). Pacific National's access arrangement covering the South Dynon Terminal was established in June 2006 and the reference prices were revised, and the terminal management protocol approved, in November 2006. This access arrangement has subsequently been renewed for the period to 2012.
F.7.6 Variations
The VRAR provides a process for varying an access arrangement during an Access Period. Under s.38ZO, an access provider can apply to the Commission to vary its binding access arrangement, and the Commission can decide whether to consider the application, and whether or not to vary the access arrangement. Section 38ZP allows the Commission to vary an access arrangement on its own initiative. For any material variation the process and timeframes are the same as
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those that apply to access arrangement approval. In each case, any proposed variation must not relate to the expiration date of the existing access arrangement.
F.7.7 Interconnections
Interconnections are provided for under the VRAR (s.38ZT) whereby access seekers who own or operate, or intend to own or operate, railway track or sidings, may connect that infrastructure to the access provider's declared railway track. Under s.38ZT(2), the access provider must do all things reasonably necessary to enable the access seeker to connect the track or siding.
Section 7 of the Negotiation Guidelines sets out a detailed framework for negotiation of railway track interconnection. However, under s38ZT(3) of the RCA, the access provider may refuse to provide a connection if the access seeker, within the time specified (if any) in the negotiation guidelines: • has not provided reasonable evidence that it has obtained every relevant statutory approval for construction of the connection, or • has not agreed in writing to:
o pay the reasonable construction costs faced by the access provider, and
o comply with any reasonable requirements of the access provider during construction of the connection.
If the parties cannot agree with the terms and conditions for the connection or the nature of the construction requirements, either party can apply to the Commission to resolve the dispute (s38ZT(4)).
F.8 Dispute resolution
The dispute resolution framework in s38ZV of the RCA provides a 'last resort' mechanism to resolve access disputes. These disputes could include: • where an access provider and access seeker are unable to agree on the terms and conditions of access to the access provider's declared rail transport services or rail infrastructure or • where an access seeker or user alleges that an access provider is hindering access or is not complying with its access provider obligations under the RCA or • disputes related to rail infrastructure such as interconnection disputes or extensions to rail infrastructure in order to provide a declared service.
The access arrangements approved by the Commission all incorporate alternative dispute resolution procedures that may be employed by the parties prior to referring a dispute to the Commission.
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F.8.1 Decision making process
If a dispute arises, an access provider, an access seeker or a user may notify the Commission of an access regime dispute. 73 The Commission has released a Rail Access Regime Dispute Resolution Guideline to describe how the Commission intends to carry out its function of making decisions in respect of access regime disputes.
The Commission must make a decision on the dispute within 45 days of receiving the notification. However, under s.38ZZ, the Commission can apply to the Minister administering the RCA for an extension of the time. If the Minister agrees, a date may be specified not more than six months after the original notification. The Dispute Resolution Guideline indicates certain circumstances in which the Commission expects it may seek Ministerial approval for an extension of the timeframe, for example, in the interests of facilitating a mediated outcome, or in order to obtain expert reports. 74
The Commission may also choose not to make a decision under s.38ZZA if it considers the notification received was vexatious or the subject-matter of the dispute is trivial, misconceived or lacking in substance.
Decisions made by the Commission must be consistent with the rules and principles established under the VRAR. In addition, a decision must be consistent with the binding access arrangement currently in place. The Commission must also consult with the Secretary and Director of the Department of Transport if it is required to make a decision which involves requiring the access provider to: • provide the declared service which is the subject of the dispute • provide an interconnection, and • extend, or permit the extension of, rail infrastructure controlled by the access provider. 75
Under s.38ZZQ, parties can appeal a decision of the Commission.
F.9 Access provider obligations
Under s38ZZS, an access provider must not hinder or prevent: • access by an access seeker to a declared rail transport service • an access seeker from entering into an agreement for the provision of a declared rail transport service • the provision of a declared rail transport service to which a person is entitled under an agreement or a dispute resolution decision, and • interconnection.
73 RCA, s.38ZV. 74 Rail Access Regime Dispute Resolution Guideline (August 2007), pp.16 and 34. 75 RCA, s.38ZZF.
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An access provider must at all times have an approved access arrangement in place and must comply with that access arrangement, and must also comply at all times with the Commission Instruments and the pricing principles.
An access provider must not use confidential access seeker information except for the relevant purpose (s.38ZZZ) and must not disclose that information.
F.10 Enforcement
The Commission has a compliance enforcement role which is separate from, and additional to, the Commission's role in dealing with rail access disputes.
Division 8 Part 2A of the RCA sets out the mechanism for the enforcement of the statutory provisions and regulatory decisions. For example, in respect of a contravention of a penalty provision (for example, non-compliance with an access arrangement), the Commission may apply to the Supreme Court for a pecuniary civil penalty, an injunction or declaratory relief directing the party to cease the contravention, remedy it or prevent its reoccurrence.
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APPENDIX G COMPARATIVE RAIL ACCESS REGIMES
It is relevant for this Review to consider the rail access regimes applying in other Australian jurisdictions. Among other things, COAG has agreed to implement a simpler and nationally consistent system of rail access regulation. This chapter provides a brief comparison of existing regimes, firstly by outlining some of the key features of rail access regimes around Australia. The ARTC undertaking model is then considered in greater detail.
G.1 Australian rail access regimes
Almost all railway tracks in Australia are subject to an access regime. 76 In most cases these access regimes have been imposed through legislation or intergovernmental agreement, with the exception of the recent declarations of the Tasmanian and Pilbara rail lines. In most instances the State-based rail access regimes have not yet been certified.
G.1.1 Manner in which access is established
Rail access regimes in Australia differ with regard to how they have been established. In NSW, Queensland and federally, rail access is established through undertakings submitted by rail access providers. In South Australia and Western Australia the rail access regimes are largely set out in legislation as negotiate/arbitrate frameworks (NSW also has a default regime of this type). The VRAR combines a legislated access regime with requirements for rail network operators to have access arrangements, which resemble an undertaking.
Victoria is not the only example of a compulsory undertaking approach. ARTC was obliged to submit an access undertaking to the ACCC under the intergovernmental agreement through which ARTC was established. On the other hand, in NSW and Queensland the rail infrastructure was first declared under state legislation which gave rail access providers the opportunity to submit undertakings post-declaration. However, the Queensland Competition Authority ( QCA ) also has the ability to require QR to submit an access undertaking or can impose an undertaking in some circumstances.
76 In October 2008 the Federal Treasurer declared BHP Billiton's Goldsworthy rail line and Rio Tinto's Hamersley and Robe rail lines under Part IIIA of the TPA. Prior to that, these were the only major railway lines in Australia not covered by an access regime.
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G.1.2 Ex-ante and ex-post regulation
The negotiate/arbitrate regulatory model is in principle an ex-post regulatory model in which the regulator (or other appointed arbitrator) will resolve access disputes after they arise. However, the regulator can issue guidance in relation to pricing methodologies and other terms and conditions of access, and the extent of detail in this guidance can change the character of regulation from ex-post toward ex-ante regulation.
An undertaking may involve ex-ante approval of reference prices for reference services, but references services may be broadly or narrowly defined. For example in the QR undertaking, reference services are limited to coal haulage on the heavy haul rail networks. Reference prices may also be standing offer prices or simply indicative prices. The ARTC undertaking uses the latter approach, with indicative reference prices subject to negotiation. Hence the undertaking framework may have varying degrees of emphasis on ex-post dispute resolution.
In principle, an undertaking need not contain any approved prices ex-ante . For example, in the National Competition Council's ( NCC ) 'light regulation' model for certain gas pipelines and in the Western Australian rail access regime, there is no ex-ante approval of reference prices.
The VRAR has a comparatively high emphasis on ex-ante price determination because reference services have been defined broadly, and because an access arrangement must include standing offer prices for all reference services. Finding an appropriate balance between ex-ante and ex-post regulation will require consideration of a range of factors, many of which will be specific to the particular market circumstances and access environment, including: • Transaction costs (i.e. the costs of negotiating and executing an access agreement); • Compliance costs (i.e. the up front costs of developing and approving ex-ante terms and conditions); • Flexibility (i.e. the potential loss of flexibility to meet changing market conditions); and • Transparency and certainty (i.e. the benefits of more transparent and certain terms and conditions of access).
G.1.3 Price regulation
One of the most important aspects of an access regime is the form of price regulation. The degree to which a regulatory regime is considered prescriptive depends to a large extent on the manner in which prices are regulated. There are various forms of price regulation, but it is useful to draw a distinction between the constraints applied to the pricing behaviour of regulated entities, and the processes employed in giving effect to those constraints.
Australian jurisdictions have a considerable degree of commonality, as well as some important differences with respect to the regulation of rail access prices. The main types of constraints are: • pricing principles which must be adhered to, and/or
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• parameters to be used when setting prices, or • quantitative controls such as revenue caps or price caps.
Pricing principles, and parameters to be used when calculating ceiling prices, are used within negotiate/arbitrate frameworks, but have a much more prescriptive application if the same principles are employed within an e x ante framework with a price approval process.
Most rail access regimes have pricing principles that are broadly consistent with those in clause 6(5)(b) of the CPA, which provide for prices to generate an appropriate amount of revenue, permit multi-part pricing and price discrimination when it aids efficiency, but prohibit certain forms of price discrimination between like-for-like services provided to parties competing in the same upstream or downstream market. One exception is that on some rail networks revenue adequacy is only achieved, if at all, through subsidies provided by government. For example, ARTC, the NSW and Queensland non-coal regional networks and the Victorian regional networks are in this category.
Almost all Australian rail access regimes have, in addition to the foregoing principles, floor and ceiling pricing principles to ensure there are no cross subsidies between different services or services provided on different parts of a rail network. The VRAR is exceptional in not having floor and ceiling bounds for rail track services (instead applying an average pricing approach and a revenue cap to prevent any cross-subsidies) but does apply floor and ceiling pricing principles to rail terminal services and non-reference services.
Although there are small differences between regimes, the floor and ceiling prices are typically defined as follows. The floor price is the cost that would be avoided if a service were not provided (i.e. the avoidable or incremental cost). The ceiling price is the full economic cost of providing the service (or a group of services) on a stand-alone basis. In the ARTC undertaking, the ceiling revenue limit for each segment is based on the full economic cost of the segment.
In the negotiate/arbitrate regimes in SA and WA (and NSW in its default form), the regulators have the responsibility for issuing certain guidelines, including guidelines to assist in the calculation of certain parameters for determining floor and ceiling prices (e.g. cost of capital or the regulatory asset base).
The VRAR has a revenue cap which requires access prices to be set no higher than would provide for full cost recovery, where full cost recovery in this case does not include a return on the government’s sunk investments and is net of government subsidies.
Outside of the coal networks and some of the high density freight lines in Western Australia, actual access prices are set well below the ceiling prices, providing a broad scope within which actual access prices may be determined.
G.1.4 Other elements of rail regulation regimes
Other elements of rail access regulation include:
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• transparency requirements, including publication of prices and/or standard access agreements • the process of offering of terms and conditions to access seekers, and negotiation and dispute resolution frameworks • protocols for network management and capacity allocation • reporting of information to the regulator, and • 'fit for purpose' track standards.
Some of these elements apply only to regimes that require regulated entities to provide access undertakings. For example, transparency obligations in relation to access prices generally apply only to reference services within undertakings. The negotiate/arbitrate regimes in WA, SA and the default regime in NSW do not have transparency provisions.
In some cases the same elements are treated differently under undertakings and legislated negotiate/arbitrate models. For example, rail access undertakings often provide detailed timeframes and information exchange requirements associated with making a formal access offer to an access seeker, and they also commonly include alternative dispute resolution methods, such as mediation, prior to an access regime dispute being referred to the regulator for determination. Legislated negotiate/arbitrate models, on the other hand, may have broadly defined timeframes for negotiations but may not require an access provider to provide information guidelines to access seekers.
On the other hand, some elements are treated the same under the different regimes. For example, all regimes require access providers to maintain protocols for network management and capacity allocation. Within undertakings, such as QR's and ARTC's, these are incorporated within the undertaking, whereas in WA, for example, they are separate guidelines that the access provider must issue to the regulator for approval.
Table G.1 shows a comparison of rail access regimes in different jurisdictions.
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Table G.1 Australian Rail Access Regimes
State & Regulator Relevant legislative Services access applies to Information Negotiation Ex-ante Floor ceiling Network mgmt Capacity A/c Access regime instruments and Access guidelines timeframes reference tariffs price limits rules allocation keeping/ring certified? Regime rules fencing Victoria Rail Corporations Act Below-rail intra-state Yes Yes Yes Limited largely Yes Yes Yes No ESC 1996 (Vic) network, metro network to terminals and Declared terminals and non- (North and South Dynon) reference services NSW Transport Administration Below-rail coal network, Yes Limited No Yes Yes (operations No No No – however IPART Act 1988 (NSW) and grain and metropolitan protocol) was certified in NSW Rail Access passenger rail networks, 2002 but since Hunter valley coal rail Undertaking lapsed network Qld Queensland Competition Yes, Yes up to Yes Yes Yes Yes Yes No Schedule D QCA Authority Act 1997 (Qld) Below-rail coal network indicative (coal only) (ring fencing) in and QR Access Undertaking active Undertaking proposal SA Railways (Operations Below-rail network Yes, must Limited No Yes No No Yes No ESCOSA and Access) Act 1997 provide (SA) Information Brochure with prescribed information Tarcoola to Australasia Railway Below-rail network Yes Limited No but Yes No No Yes Yes Darwin (N.T) (Third Party Access) Act prescriptive (account ESCOSA 1999 (NT) pricing rules keeping) WA Railways (Access) Act Below-rail network No Yes No Yes Yes Yes Yes, separate No ERA 1998 (WA) and Railways published in subsidiaries (Access) Code 2000 selected cases (WA) Commonwealth Trade Practices Act Interstate below-rail Yes Yes Yes Yes Yes Yes No n/a (ARTC) 1974 (Cth) Part IIIA network. ACCC and ARTC Interstate Access Undertaking
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G.2 Review of the SA Rail Access Regime
The Essential Services Commission of South Australia ( ESCOSA) has recently completed an inquiry into the Access Regime that applies to the major intra-state railways in South Australia. The Final Report for the inquiry was released in December 2009. The inquiry focused on whether the Access Regime is consistent with certain principles of CIRA, particularly the clause 2 principles seeking to establish a simpler and consistent national approach to the economic regulation of significant infrastructure. In addition, ESCOSA reported on whether or not the Access Regime could otherwise be generally improved.
With respect to CIRA, ESCOSA provided a number of relevant observations: • ESCOSA does not interpret the desire for a consistent national approach to mean that a uniform access regime should be applied to all significant railways in Australia • although ESCOSA acknowledged the SA Access Regime to be more light handed than that of Victoria or the ARTC, this in part reflected largely shorter- haul, bulk transport lines with fewer users relative to the interstate networks, and • ESCOSA found no persuasive arguments for the introduction of price regulation, including price monitoring, to the SA intra-state rail network. ESCOSA did however recommend some changes to the objects of the Act to more explicitly provide for economic efficiency, the introduction of additional principles that need to be taken into account by an arbitrator, the introduction of timeframes for decision making by the regulator and various other minor changes.
G.3 ARTC’s rail access framework
G.3.1 ARTC’s Interstate Access Undertaking
In 1997 the Australian Transport Ministers entered into an agreement over the management of access and investment on the interstate rail network, and from that agreement ARTC was established as a national “one-stop-shop” for national rail operators. It was also agreed that an undertaking would be submitted to the ACCC to define the terms and conditions on which train operators could obtain access to the interstate network.
ARTC’s first interstate undertaking was approved on 1 May 2002 and in July 2008 the second ARTC undertaking was approved for a period of 10 years.
The ARTC Interstate Access Undertaking sets out the principles and processes under which ARTC as a below-rail infrastructure provider is obliged to provide access to operators wishing to run trains on ARTC's interstate rail network. The 10 year term seeks to provide regulatory certainty to encourage above and below-rail investment in interstate rail transport.
ARTC was originally established as a 'one stop shop' for rolling stock operators seeking access to the interstate rail network that operates between Brisbane and
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Perth. ARTC maintains and manages over 10,000 route kilometres of standard gauge track in New South Wales, Victoria, South Australia and Western Australia. ARTC owns some rail corridors and directly manages the interstate network in South Australia. It has also taken long term leases over the standard gauge interstate networks in Victoria and NSW. The scope of its current Interstate Access Undertaking covers its interstate network linking: • Kalgoorlie in Western Australia, Adelaide, Wolseley and Crystal Brook in South Australia • Melbourne and Wodonga in Victoria, and • Broken Hill, Cootamundra, Albury, Macarthur, Moss Vale, Unanderra, Newcastle (to the Queensland border) and Parkes in New South Wales.
ARTC also manages access to the connection from the interstate mainline network to the Appleton and Swanson Dock precincts in Melbourne.
ARTC maintains a wholesale agreement with WestNet Rail to allow it to facilitate access for interstate train operators to WestNet's network from Kalgoorlie to Perth – although operators are believed to mainly deal direct with WestNet. Operators seeking access to the Sydney to Brisbane corridor for interstate services are required to deal separately with QR for access from the Queensland border into Brisbane. Parts of the NSW rail network under ARTC control which are not covered by the Interstate Access Undertaking are covered under the NSW Rail Access Regime, including the Hunter Valley coal networks and regional freight lines.
The Interstate Access Undertaking provides for: • clear negotiation and dispute resolution processes • defined access prices for indicative (reference) services • ability for access seekers to negotiate away from defined prices within floor and ceiling bands • a detailed indicative or standard access agreement to provide certainty to ARTC and access seekers about their rights and obligations • capacity and network transit management rules • public reporting of service quality indicators, and • a review of the Undertaking after five years to ensure it continues to meet the needs of access seekers, industry and ARTC.
The Undertaking contains pricing principles that support differential or market- based pricing within floor and ceiling limits, having regard to the characteristics of the service and a range of commercial factors. Some additional limits are placed on the degree of price discrimination, including charging the same price for the same service to access seekers operating in the same end market.
The Undertaking also contains approved indicative access prices for the operation of intermodal train services across the ARTC network. The prices vary by route segment and are broken into a variable component (per gross tonne kilometre) and
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a flag-fall (per train kilometre) 77 . Approximately 60 −65 per cent of access revenues are contracted at the indicative intermodal prices. These indicative prices are varied annually according to a prescribed escalation formula.
ARTC publishes reference tariffs for two types of passenger service (Express Passenger and Passenger) and several types of freight service (Express, Regular, Super and Standard) which also vary over the different segments of the interstate network. The rate for the Super freight service is set at the approved intermodal indicative rate with other rates set by ARTC having regard to the pricing principles, the approved intermodal indicative prices, the characteristics of the services and other commercial factors.
ARTC is required to make certain information available to access seekers and publishes detailed information on its website, including: • network maps and a description of the network, including route standards, indicative sectional running times and performance indicators • network management principles and committed capacity • indicative prices and contract terms, and • actual prices negotiated for services not covered by the indicative prices.
To assist with access negotiations, ARTC is also obliged to make detailed capacity and operating information available on request. With respect to capacity, ARTC is obliged to publish an indication of available network capacity and to present the results of a capacity analysis with its Indicative Access Proposal. Should additional capacity be required, then ARTC is obliged to provide an indicative cost where available or otherwise outline the requirements for an investigation into the additional capacity needed.
In approving ARTC's access undertaking, the ACCC noted the difficulty of promoting network interfacing across networks that are controlled by separate entities 78 . The ACCC also noted that clause 3.1 of CIRA does not require the ACCC to develop the national system of rail access regulation or to consider whether the ARTC Undertaking should be a future 'model' for national rail access regulation 79 .
A number of stakeholders to this Review, including train operators Asciano and El Zorro, saw the ARTC undertaking as an appropriate form of regulation for Victorian rail infrastructure managers.
77 The pro-forma structure of access charges also includes an 'excess network occupancy' component, which accounts for any excessive capacity consumption of the access seeker's proposed use of the network. 78 ACCC, July 2008, Final Decision: Australian Rail Track Corporation Access Undertaking – Interstate Rail Network, p.27. 79 Ibid, p.28.
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G.3.2 The ARTC Hunter Valley Undertaking
In 2004, the ARTC leased the NSW Interstate and Hunter Valley Rail Assets from the NSW Government for a period of 60 years. Under the terms of the lease, ARTC is required to submit an access undertaking or undertakings to the ACCC for approval in relation to the NSW leased network. On 23 April 2009, the ARTC lodged a draft undertaking with the ACCC for the Hunter Valley rail network. (The NSW interstate networks are covered by the Interstate Access Undertaking).
The Draft Hunter Valley Undertaking is still under consideration by the ACCC and until the undertaking is approved, the Hunter Valley rail network is subject to the 2004 NSW Rail Access Undertaking. The NSW undertaking is essentially a negotiate/arbitrate model.
The draft Hunter Valley Undertaking contains a number of provisions tailored to the needs of the coal system (focus on optimising coal export throughput, recognition of the role of the Hunter Valley Supply Chain Co-ordinator, option to directly contract with the customer rather than the train operator). ARTC may also require the access seeker to demonstrate that it has sufficient “exit” capability (i.e. export capacity at the Port of Newcastle).
Pricing is negotiated with each access seeker between floor and ceiling limits, the latter being economic cost of the segments of the network utilised. The definition of economic cost includes a loss capitalisation component that allows the ARTC to capitalise economic losses incurred over time (on new investment) and to recover those losses in future revenues such that it earns an economic return over the life of the assets. This approach provides an incentive for ARTC to bring forward investment in new capacity in efficient increments without the need to raise prices for existing users to cover the full costs of capacity that might be initially under- utilised.
For coal services, indicative access charges are to be developed for indicative services with certain characteristics. Actual access charges are to be negotiated and may be structured on the basis of actual usage (a function of distance and gross mass for a pricing zone) and a take-or-pay component (based on contracted access rights irrespective of whether the access holder uses any or all of those rights).
G.4 Summary of the comparison of VRAR with other rail access regimes
Although each jurisdiction is unique in some respects, it is apparent that the VRAR differs in some ways more fundamentally from other rail access frameworks in Australia. These differences include: • the scope of the ex ante arrangements. The Victorian regime is more prescriptive than most other state-based regimes. As well as having more regulatory instruments than the other regimes, the instruments seek to regulate the activities of access providers and access seekers more closely than regimes in Western Australia, South Australia or Queensland. Even in Queensland, where there is a vertically integrated below and above-rail operator, the arrangements do not appear to be any more extensive or prescriptive than in Victoria
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• unlike other jurisdictions, the majority of declared services (terminals aside) under the VRAR are not priced by reference to a 'floor-ceiling test' as in other regimes (although efficient price discrimination is still encouraged, subject to the constraint contained in s.38ZZY(1) of the RCA), and • the requirement that reference prices be set so as to recover a 'reasonable forecast of the access provider's efficient costs of providing the declared rail transport services' (that is, prices are set with respect to a 'revenue requirement') is not found elsewhere. Although other jurisdictions (including in Queensland) specify a notional 'revenue requirement' this is generally to produce the relevant ceiling price.
G.4.1 Proportionality to the degree of market power
A variety of regulatory regimes have developed for rail access in Australia, reflecting the distinct nature of the different rail markets as well different objectives, priorities and approaches of the jurisdictions.
The degree of market power of rail access providers ultimately depends on the competitiveness of trains against road transport for the freight tasks using each rail network. Rail is highly competitive against road transport for heavy haul and high volume freight tasks such as bulk minerals like coal and iron ore. It is also competitive with road transport for intermodal freight over long distances such as Melbourne to Perth or Sydney to Perth, but only marginally competitive over shorter distances such as Melbourne to Sydney or Sydney to Brisbane. Rail is generally uncompetitive with road for lower density and shorter distance freight tasks, including grain haulage, in the absence of subsidies. 80
Vertical integration of the rail track operator with above-rail operations will also be important to the case for, or design of, access regimes. A vertically integrated provider has incentives to restrict access which are not present for an unintegrated access provider.
The brief survey of Australian rail regimes above showed that the existing Victorian regime is significantly wider-reaching than most other state-based regimes and encompasses more regulatory instruments and a broader scope to also cover rail terminals. Even in Queensland, where there is a vertically integrated below and above-rail provider, and a substantial long distance heavy haul coal freight task, the arrangements are comparable to those in Victoria.
Including (some) container terminals (as opposed to rail yards which may be considered part of the main line rail infrastructure) within the scope of the VRAR is unique amongst Australian rail access regimes. Whilst terminals are generally able to be developed and duplicated economically, certain facilities may become bottleneck facilities which limit rail competition because of their location and characteristics. This is a matter to be tested in this Review.
80 A number of submissions to the Review indicated a concern about the equity and consistency of cost recovery principles for the use of roads and railway tracks by trucks and trains respectively.
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To assist in considering the appropriate form of rail access regulation to apply in different market circumstances, ARTC devised a market power matrix shown in Table G.2. The appropriate regulatory response is characterised as a function of the degree to which control of the rail infrastructure confers market power on the access provider, and whether the access provider is vertically integrated. Under this scheme, a vertically integrated access provider with substantial market power will face the most prescriptive economic regulation, while a non-vertically integrated access provider with little, if any, market power will face the lightest form of economic regulation.
Table G.2 ARTC’s market power matrix
Source: ARTC submissions to Productivity Commission ‘Review of National Competition Policy Arrangements’
The fact that the VRAR differs significantly from frameworks in comparable markets elsewhere is not necessarily symptomatic of a need for change. Indeed, diversity in ownership, industry structure and operational environments mean that regulatory arrangements must be tailored to some extent.
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APPENDIX H EXAMPLES OF LIGHT HANDED ACCESS REGIMES
This Appendix reviews two examples of light-handed access regimes in Australia from industries other than rail.
H.1 Victorian port services regime
Division 4 of Part 3 of the Port Services Act 1995 (Vic) establishes an access regime for port users to obtain access to declared channels. The access regime (which has not been activated through declaration of channels at this time) sits alongside a price monitoring framework, which covers a range of port services in addition to shipping channels, such as berthing, buoying, short term storage and cargo marshalling facilities. (i) Regulation of access providers and requests for access
The access regime in the Port Services Act applies to channels declared by the Governor in Council (section 58). Channel operators must be licensed in order to provide prescribed services (section 63A). Channel operators must provide access to those services on fair and reasonable terms and conditions (section 59). In addition, channel operators must: • use all reasonable endeavours to meet the requirements of persons seeking access (section 59(2)(a)); • give a formal proposal of terms and conditions must be given within 30 business days of receiving a request (section 59(2)(b)); and • not hinder access to persons exercising a reasonable right of access (section 61(1)).
However, a channel operator may vary terms and conditions of access according to the actual and opportunity costs to the channel operator (section 59(3)). (ii) Access undertakings ('general access determinations')
Like access providers under the Victorian grain handling regime, channel operators can submit an access undertaking ('general access determination') governing access to one or more prescribed channels to the Commission for approval (section 63). If the Commission accepts the proposed access undertaking it creates a standard set of terms and conditions on which the channel operator provides access to the services described in the undertaking. Under the price monitoring regime, the channel operator must publish a Reference Tariff Schedule that contains a 'standing offer' of terms and conditions upon which the channel operator will make prescribed services available to port users. Port users may
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purchase port services on the terms and conditions in the Reference Tariff Schedule, or seek to negotiate other terms and conditions with the channel operator according to their requirements. (iii) Dispute resolution
The Commission has similar dispute resolution powers in relation to the channel access regime as it has under the Victorian grain handling and storage regime. The Commission has the power to resolve disputes between access seekers and channel operators if: • the channel operator has not made a formal proposal within the specified time (section 60(1)); • the parties cannot agree on the terms and conditions of access (section 60(2)); or • the access seeker considers that the channel operator has engaged in conduct that has the purpose of hindering access (section 61(2)).
The Commission may refuse to hear access disputes in certain circumstances (section 60(8)) and a party aggrieved by that decision may appeal as if the decision were a determination under section 55(1)(c) of the ESC Act (section 60(8A)). If the Commission agrees to hear the dispute, the Commission must determine the dispute within 90 days after receiving the application, although this period may be extended by up to 45 days (section 60(7) and (7A)). The Commission must not make a determination if the Commission considers that the determination would substantially impede the rights of access of another person (section 60(4)).
In hearing an access dispute, the Commission may give directions in relation to the dispute, including in relation to confidential or commercially sensitive information (sections 63AB and 63AC). An aggrieved party may appeal against certain requirements issued by the Commission during the dispute resolution process (section 63AD).
The channel operator and the access seeker must bear the Commission's costs of hearing the dispute equally (section 60(9)).
The Commission's power to hear and determine disputes is limited if a general access determination or access undertaking is in force in respect of the channel operator (section 63(5)). Where such an access undertaking is in force, the Commission's dispute resolution role is limited to instances where the Commission determines that the access undertaking does not deal with the matters in dispute or where the access undertaking confers specific powers on the Commission (section 63(5)).
Although the Commission is not required to consult with any third party when making a dispute resolution determination, the Commission has memoranda of understanding with certain port operators under which the Commission undertakes to consult with those port operators when making such a determination. (The intention of the MOUs is to provide for co-ordination between the Commission’s regulatory functions relating to channel access, and the regulatory functions of the Harbour Masters in the control of shipping movements in port waters.)
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(iv) Commission's general powers and channel operators' obligations
Under Part 3 of the Port Services Act the Commission has a general power to make price determinations (section 54). The Commission also has the power to specify standards and conditions of service and supply in respect of prescribed services, after, in respect of some services, consulting with the Director of Maritime Safety (section 55).
Channel operators must prepare and maintain financial and business records in respect of their channel and related services and make those records available to the Commission as and when the Commission requires (section 56).
H.2 National gas pipeline access regime and light regulation
The national gas pipeline access regime, established under the National Gas Law and National Gas Rules, contains a light-handed access regime for gas pipelines. It also contains a full regulation access regime. Some pipelines are 'designated pipelines' and, as a result, are subject to the full regulation regime. Other pipelines can be made subject to the light-handed regime. (i) Light regulation of pipelines
The regime establishes a process for access providers (called 'service providers') to apply to the National Competition Council (NCC) for a determination that the pipeline should be subject to the light-handed access regime (called 'light regulation') (sections 110, 111 and 112). When making a determination whether a particular pipeline should be subject to light regulation, the NCC must consider matters such as the effect of light regulation on the likely costs to be incurred by an efficient access provider (called a 'service provider'), efficient users and prospective users and the likely costs of end users (section 122). Point-to-point transmission pipelines with a small number of users who have countervailing market power are more likely to be made subject to light regulation. (ii) Access arrangements
An access provider of a pipeline that is subject to light regulation may, but is not obliged to, submit a limited access arrangement to the Australian Energy Regulator (AER) for approval (section 116). A limited access arrangement must contain non- price terms and conditions of access such as capacity requirements, expiry dates and key performance indicators, but is not required to contain price terms (section 2; rule 45). The access arrangement must be accompanied by access arrangement information, that is, information reasonably necessary for access seekers and users to understand the background to the access arrangement and to understand the basis and derivation of the various elements of the access arrangement (rule 42). Light regulation pipelines are not subject to upfront regulation of reference tariffs. (iii) Regulation of access providers
Limited access arrangements may include an expiry date (rule 45(1)(i)).
Regardless whether a pipeline subject to light regulation has an access arrangement or not, the access provider must not:
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• engage in conduct with the purpose of hindering or preventing access of another person to a pipeline service by means of the access provider's pipeline (section 133); • engage in price discrimination unless it is conducive to efficient service provision (section 136); and • enter into or give effect to associate contracts that have an anti-competitive effect or that are inconsistent with the competitive parity rule (sections 147 and 148).
Access providers must comply with ring fencing obligations. In particular, an access provider must not carry on a 'related business', that is, the business of producing, purchasing or selling natural gas (section 139). However, a related corporation to the access provider may do those things. The AER may require access providers to comply with additional ring fencing requirements and may exempt certain access providers from ring fencing requirements (sections 142– 146). Access providers must also prepare and keep separate accounts for each covered pipeline (section 141). (iv) Dispute resolution
The AER may hear and determine access dispute for both price and non-price terms and conditions of access in relation to pipelines the subject of light regulation (whether or not the pipeline is covered by an access arrangement). This includes disputes where the access seeker and access provider are unable to agree one or more aspects of access to the pipeline service provided by the access provider (sections 181 and 182).
If the AER considers that the resolution of the access dispute requires another person to do something, or if another person applies to be joined to the dispute (and the AER agrees that that person has sufficient interest), those persons are also a party to the access dispute (sections 183).
The AER may decline to hear or determine a dispute in certain circumstances, for example, where the AER considers that the matter the subject of the dispute is expressly or impliedly dealt with under an access agreement or other agreement between the access seeker or prospective access seeker and the access provider (section 186).
When hearing an access dispute, the AER may require the parties to engage in alternative dispute resolution, such as mediation or conciliation (section 185). Hearings are conducted in private unless the parties agree that all or part of it may be conducted in public (section 196). In hearing the access dispute, the AER is not bound by the rules of evidence and may inform itself about any relevant matter in any way it thinks appropriate (section 198). The AER may also give directions and orders, take evidence on oath and make costs orders (parties are otherwise required to bear their own costs) (sections 199–207). The AER also has the power to consolidate the hearing of joint access disputes (sections 208–212).
As mentioned in section 3.2(c) above, when deciding disputes, the AER may determine price and non-price terms and conditions of access, which may include setting revenue and prices for pipeline services (section 193). The AER may agree
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to vary a dispute resolution determination on application by any party to the determination (section 194) and may enforce a determination through injunctions (section 271).
When hearing an access dispute, the AER is not bound by the rules of evidence, but has the power to compel witnesses to attend and answer questions and can require evidence to be given on oath (sections 198, 200, 201, 202 and 203).
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APPENDIX I COSTS OF REGULATION UNDER THE VRAR
An assessment of the costs of regulation depends in part on the form of regulation being considered. There are some forms of regulation which impose higher costs than others – a key aspect of the distinction between ‘light-handed’ and ‘heavy- handed’ regulatory frameworks. Therefore the costs need to be considered for each of these two broad alternatives approaches.
The Commission’s approach to identifying the costs of the VRAR is to seek to quantify each of the following types of costs: 81 • administrative costs for Government and compliance costs for business • constraints on the scope for infrastructure providers to deliver and price their services efficiently • reduced incentives to invest in infrastructure facilities, and • inefficient investment in related markets.
I.1 Administrative costs
The Commission’s administrative costs are associated with designing, administering and enforcing the regulation framework. These costs include staff hours of employees of the Commission, technical experts and other consultants, and advertising and publication costs associated with stakeholder consultation.
The administrative costs shown in Table I.1 are estimated from the Commission’s costs allocation system, but do not include allocated corporate overheads.
81 Productivity Commission, September 2001, Review of the National Access Regime, Inquiry Report.
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Table I.1 ESC administrative cost estimates Year Cost ($) 2005-06 1,184,693 2006-07 409,431 2007-08 167,820 2008-09 300,605 Average 515,637 Source: ESC
Table I.1 shows the Commission’s costs in each year of the VRAR. Over the four year period of the administrative costs averaged approximately $515,000 per annum (excluding any allocated overheads). There were a number of special factors that increased the costs associated with administering the VRAR: • high initial implementation costs of the VRAR in 2005-06, associated with establishing regulatory instruments and guidelines and approving initial access arrangements for several access providers • further implementation costs in 2006-07 with the approval of certain operating protocols, accounting templates and the establishment of a dispute resolution guideline, and • approval of several variations to access arrangements, over the period from 2006-07 to 2007-08 and renewal of several access arrangements in 2008-09.
If the implementation costs of the VRAR in 2005-06 are excluded, then the average annual administration costs were approximately $300,000 per annum in the following years.
These costs of administering the VRAR are considerably higher than the administration costs of the Grain Handling and Storage Access Regime (GHSAR) and the ports price monitoring framework – both of which have been assessed in recent reviews carried out by the Commission. • the average annual costs of administering the GHSAR were estimated at $80,000 over a four-year period. The Commission’s adjusted estimate, including only one review every five years, was approximately $60,000 per annum. 82 • in the ports price monitoring framework the average costs of administration over a four year period were estimated to be $60,000 per annum. 83
82 Essential Services Commission 2009, Review of Victorian Grain Handling and Storage Access Regime: Final Report, May, pp.68-69. 83 Essential Services Commission 2009, Review of Victorian Ports Regulation: Final Report, June, p.121.
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Notwithstanding these special factors, the underlying reason for the much higher administrative costs of the VRAR when compared to the ports or grain handling regulation regimes is that it is a much more heavy-handed form of regulation.
I.2 Compliance costs
The Commission does not have any estimate of regulatory compliance costs for rail access providers available to it. An indicative estimate would be: • in 2005-06, similar costs in total to those incurred by the Commission • in subsequent years, total costs for all access providers in the order of $200,000 per annum.
These compliance cost estimates may be compared to compliance costs for ports under the ports monitoring framework which have been estimated to be approximately $140,000 per annum in total for five port bodies .84 The compliance costs for bulk handlers under the GHSAR have been estimated to be zero. 85
I.3 Arbitration costs
The costs associated with resolving access disputes include the costs borne by each of the parties to the dispute, as well as the costs incurred by the Commission, which are recovered from the parties to the dispute at its conclusion. To date no disputes have occurred under the VRAR, so there is insufficient basis for assessing these costs. Furthermore, although these costs are potentially a cost of regulation, it is difficult to separate them from the conduct of parties or from other commercial dispute-related costs that might otherwise have been incurred. For these reasons, dispute resolution costs have not been included in this assessment.
I.4 Other stakeholder costs
Stakeholders, including access seekers and government, incur costs making submissions to the Commission in its periodic consultations. In the recent review of ports regulation, the Commission estimated such costs to amount to approximately $20,000 per annum in total based on an assumed cost of $100,000 every five- yearly review. These costs may be somewhat higher in the rail regulation framework due to the greater number of consultation processes. Since the typical cycle of access arrangement renewal is three-yearly, these costs are assumed to be approximately $30,000 per annum under this regime.
84 Essential Services Commission 2009, Review of Victorian Ports Regulation: Final Report, June, p.121. 85 Essential Services Commission 2009, Review of Victorian Grain Handling and Storage Access Regime: Final Report, May, p. 69.
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I.5 Impacts on economic efficiency
Regulation may impact on economic efficiency by distorting business strategies, constraining the ability of infrastructure providers to deliver and price their services efficiently, reducing incentives to invest in regulated infrastructure, or distorting investment incentives in related markets.
For example, the regulatory framework may have discouraged V/Line or Connex from pursuing more innovative or market-oriented terms and conditions, for example they might have adopted a more economically efficient pricing structures. This kind of efficiency loss cannot be quantified because the existence or extent of possible efficiencies that could have been captured is unknown.
It is less likely that the regulatory framework has discouraged investment because: • Asciano indicated in its submission that its investment decisions have not yet been affected by the access regime, and • investments on the regional rail network are directly funded by the State and/or Commonwealth governments, and this funding is presumably unaffected by the access regime.
Looking forward there are risks that investments in infrastructure may be impeded or delayed if heavy-handed forms of regulation continue to be employed, or if there were a considerable degree of uncertainty regarding changes to the regulatory rules. For example, an important uncertainty for V/Line is the risk that Asset Management Plans ‘approved’ by the Department of Transport may be inconsistent with track standards in the access arrangement approved by the Commission.
I.6 Costs of certification
The cost of obtaining certification of the VRAR also needs to be included. This would involve the cost of amending the existing regime (over and above the cost of repealing it), the cost of preparing the application to the NCC and a follow-up submission to the NCC’s draft decision, as well as the opportunity cost of Victorian Government staff in managing Victoria’s application and of NCC staff involved in conducting the process. In the Commission’s 2009 review of the Victorian Grain Handling and Storage Access Regime, the total cost of $350,000 was assumed, and the same estimate may be relevant in the present context. The Commission annualised this estimate to approximately $30,000 per annum.
I.7 Conclusions
The overall quantifiable costs of the VRAR for both the Commission and access providers, if regulation were to continue in its current heavy-handed form, are estimated to be approximately $560,000 per annum. In addition there are unquantifiable costs associated with the risk that investment may be deterred or inefficiently prioritised as a result of the regulatory regime.
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To put the costs in context, $560,000 per annum is slightly less than 20 cents per tonne or between 3 and 4 per cent of intra-state access revenues 86 .
If light handed regulation were to apply to the same number of businesses, the overall quantifiable costs would be approximately halved. Furthermore, the risk of efficiency losses arising from distortions to investment or maintenance activity would be considerably reduced. If fewer access providers are covered under the regime, the costs will be further reduced.
86 Based on assumed intrastate access revenues of $15 million and a task of around 3 million tonnes in an average year.
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APPENDIX J REVIEW OF RAIL SUBSIDY ARRANGEMENTS IN OTHER JURISDICTIONS
In order to draw insights with respect to optimal rail subsidy arrangements, three geographies were evaluated: Queensland, New Zealand and the United Kingdom. Queensland has the most extensive and transparent system of rail subsidies in Australia administered through transport service contracts with government. Like Victoria, New Zealand and the United Kingdom have relatively recently transitioned from private ownership of below rail assets to state ownership, or quasi-state ownership in the case of the UK 87 . Policy makers and rail managers face similar challenges of investment prioritisation and incentive alignment.
This Chapter outlines some of the relevant features of public funding of rail services, covering Queensland, New Zealand and the United Kingdom. For comparison, the present funding arrangements that apply to the Melbourne metropolitan network is also discussed.
J.1 Queensland Background
Prior to the introduction of the CSO framework, the Queensland Government did not attach any output requirements to its funding. Queensland Rail acted as a ‘government department’ under the Financial Administration and Audit Act. Its operating deficit was financed from the Consolidated Revenue Fund (CRF) on a cash basis. No consideration was given to the relative contributions made by the different business areas within QR. The lack of accountability and transparency and the resulting inefficiency led the Queensland government to progressively commercialise Queensland Rail and in the mid-1990s QR was corporatised.
A review carried out several years after corporatisation recommended that the Government fund QR for the service delivered, not resources consumed. This output-based funding approach is also known as a purchaser-provider model in which the government acts as the purchaser and the track manager or rail operator acts as the provider of the rail services. Governments in Australia and overseas have adopted a range of variations of the purchase-provider model for both departments (providing services such as health, education and roads) and
87 Control of the rail network transitioned from a publicly-listed corporation to a state backed “not for dividend” company
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commercial entities (providing services such as electricity, water and telecommunications).
The purchaser-provider model aims to clarify government’s role as purchaser. When applied effectively, purchaser-provider arrangements can promote the following benefits: • Improved accountability: By providing clear delineation of responsibilities, performance monitoring and accountability regimes can be strengthened. • Transparency: With the introduction of formal contracts between the government and its providers, the community can potentially have access to improved information on the cost of and quality requirements of the services purchased. • Efficiency and resource allocation: Purchaser-provider arrangements can permit more output for a given level of resources, or reduce unit costs for a given output. This is because the provider is given greater freedom and incentives to seek new ways of delivering the service.
In implementing the purchaser-provider model, the Review made a number of recommendations with respect to QR’s funding framework: (a) Queensland Transport (QT ) to complete an audit of transport services it currently purchases against agreed and stated transport objectives (e.g. externalities). This process should complement the development of an enhanced policy on land transport (b) QT to move towards making transport service contracts contestable, on both an inter and intra-modal basis (c) responsibilities for outcomes that do not relate to a specific transport objectives (e.g. employment) should be moved to an appropriate department/agency (d) the purchase of services be encapsulated in a formal contract between QT and the provider and be based on ‘best practice’ prices (e) contracts for purchase of transport services specify required outputs, with inputs remaining the responsibility of the provider, and (f) the Director-General of QT to consider organisational issues, such as skills and structure, to ensure it is an effective purchaser of transport services.
The recommendations were implemented for the most part, the exception being the contestability of the Transport Service Contracts (TSCs) and the non-transport outcomes remained with Queensland Transport albeit in a separate agreement (see below). Institutional and funding arrangements
QT and Translink purchase transport and infrastructure services on behalf of government through TSC arrangements. There are currently five TSCs in place: • Traveltrain (long distance passengers) • Citytrain (urban passenger services) • Rail infrastructure (non-commercial regional network) • Regional Freight (non-commercial freight services)
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• Non-rail/non-operational services (mothballed or closed rail corridors).
In addition, there is additional funding provided through a shareholders agreement which is intended to fund non-commercial costs retained by QR (e.g. surplus staff) rather than fund the purchase of services.
The Rail infrastructure TSC covers about 70 per cent of the QR network, including the standard gauge connection to the NSW border, and is for a seven year term. Key features of the TSC arrangements for rail infrastructure are: (a) Fit-for-purpose standards determined by QR Network Access in consultation with QT (b) Government payments structured to cover a return on assets and depreciation over 30 years (c) payments underpinned by an asset maintenance plan and forecasting model over the 7 year period (d) efficiency adjustment by negotiation, and (e) an output performance regime with potential financial consequences.
Performance based service levels are established for each track section, with quarterly monitoring of: • Overall Track Condition Index • Temporary Speed Restrictions • Below Rail Delays, and • Below Rail Track Availability.
J.2 New Zealand Background
Like many national railways, the NZ rail system was highly protected before the 1983 decision to deregulate in response to widespread customer dissatisfaction with poor service. The rail system was corporatised in 1982 which together with the pressures from deregulation led to substantial efficiency improvements through the introduction of new technology, improved work practices and reduced staff numbers.
Despite the relative success of these reforms under government ownership, in 1993 the New Zealand Government decided to take the next step, to privatise the railway system. This decision was intended to lock in the gains that had been achieved, to enable the business to operate most effectively in a competitive market, to reduce financial risk (the railways were still not earning economic profits) and to raise funds for the government.
The system was privatised as a single entity (and renamed TranzRail) covering the freight and passenger businesses, including all infrastructure, buildings, rolling stock, inter-island road/rail ferries and other assets (only the land was retained in government ownership, but leased on a long-term basis). The sale conditions imposed minimal obligations on the new owner, in part to maximise the sale price:
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no access provisions were stipulated, so the owner/operator had an effective monopoly over rail transport in New Zealand, but faced strong competition from road and/or sea-based transport across almost all its markets.
No explicit funding arrangements were put in place for any social obligations of the railway system. Consistent with the prevailing views of government at the time, the rail businesses (freight, passenger, inter-island ferry) were to be operated commercially. The exception was the urban railways where subsidy funding fell to the regional governments. This was not a particularly satisfactory arrangement as the regional governments were left to negotiate funding levels for an important social service with a monopoly supplier.
Despite an early period of relatively strong performance under private ownership, the private operation went into decline and from about 2000 onwards, TranzRail’s financial position seriously deteriorated. Increasing debt and declining returns combined to undermine the company’s value and sustainability. Increasing maintenance deficits also began to affect operational performance and reliability further reducing the company’s competitiveness.
Finally, in 2004 the Government bought back the below rail infrastructure and established a company called TrackCo (now ONTRACK) and managed (in consultation with shareholders) the sale of the train operating arm of the business to Toll Holdings. This part of the business comprised assets such as a trucking fleet, warehousing and distribution centres, rolling stock and the inter-island ferries. When the sale agreement with Toll was concluded the Government agreed to invest $200 million to upgrade the rail network − i.e. $100 million immediately and $25 million per year over four years. Toll was obliged to spend $100 million on rolling stock.
The Government and Toll entered into an agreement regarding track access charges which were to be set to recover ONTRACK’s costs, including on-going capital costs – it was a full cost recovery model. From the date of the agreement access charges were to be set every three years and adjusted by a movement in an agreed index for the two years following the agreement date. In return Toll was to have exclusive rights to the network to transport freight until 2070. This was subject to a bonus and penalty regime: measured through a set of agreed KPI’s. The Government could “step in” if volumes fell below 70 per cent of the initial usage on a particular line. Conversely, if Toll increased its volume growth on certain lines then it was proposed those lines would receive an “access charge holiday”.
In 2008, the Government purchased the above-rail operations from Toll and brought the entire NZ rail system back into public ownership. Unable to reach agreement over access charges and having been in negotiations since 2004, the Government paid toll $665 million for its assets (Toll retained the trucking arm of the rail business). Institutional and funding arrangements
Figure J.1 summarises the organisation and governance framework for rail in New Zealand. Funding and oversight is undertaken by the Ministry of Transport in conjunction with the Treasury.
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Figure J.1 The organisation and governance for rail in New Zealand
Funding and Strategic Oversight
New Zealand MINISTRY OF TRANSPORT Treasury
New Zealand Rail New Zealand Corporation Transport Authority
ONTRACK KiwiRail Below Rail Above Rail
Access/Operations
Infrastructure Statutory owned government corporation
Government management and oversight Safety management and oversight Source: Booz & Company analysis
The National Rail Strategy of 2005 set out guidelines regarding how ONTRACK would retain and build upon its assets in the future. In the strategy document ONTRACK was charged with developing a 10-year rail development plan which included investment in branch lines and new lines to support growing industries and increased rail passenger patronage. This was predicated on the assumption there would be track access charges for freight operators and some of the investment could be recouped from access revenues.
Since the State regained ownership and management of freight above-rail and below-rail, the asset management function has focused on annual requirements, with a target to upgrade the rail assets to more competitively serve transport needs. Most recently the Controller and Auditor General has issued recommendations for freight rail asset management in its 2008 report Maintaining and Renewing the Rail Network , which sets forth the basis for prioritisation and funding, as well as the incentives and penalties in place to achieve given outcomes.
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ONTRACK has four sources of funding: • Government payments for deficits • Government backed debt • access fees, and • private arrangements for asset prioritisation.
The first three sources are determined through Treasury, the Ministry of Transport, and arrangements with KiwiRail, the above-rail operator. Private arrangements have been successful for major asset replacement or renewal. For example, ONTRACK entered into one such arrangement with Solid Energy (a coal producer) over the replacement of a new bridge on a freight only coal line. Solid Energy is repaying the cost of this bridge through an annual charge over a 30 year period.
J.3 United Kingdom
British Rail was privatised in a major restructuring of the UK Rail system in the early 1990s, following passage of the British Coal and British Rail (Transfer Proposals) Act 1993 and the Railways Act 1993 . The operations of the British Railway Board were broken up and sold off, including the rail network into a separate private company Railtrack. Public funding for the passenger rail system was administered through the Office of Rail Passenger Franchising (and subsequently through the Strategic Rail Authority and now the Secretary of State for Transport). Subsidies for prescribed minimum service levels were paid to train operators which allowed them to pay commercial access fees to Railtrack.
Railtrack was placed into administration in the aftermath of the Hatfield rail disaster in 2001 and subsequently replaced by Network Rail, a “not for profit” company with its borrowings guaranteed by government.
J.3.1 Institutional and funding arrangements
Subsidy payments for passenger services are paid directly to train operators through franchising agreements. For rail freight, there are no on-going subsidies but there are two types of grant support available for rail freight: the Freight Facilities Grant and the Rail Environmental Benefit Scheme. Freight Facilities Grants (FFG)
It is recognised that in order to transfer freight from road to rail, companies may need facilities or equipment that would not be necessary for road-only operations. The additional capital cost of providing this equipment may make mode shift to rail, and inter-modal traffic, non-viable even though the operational running of a rail- based service is more economic. FFGs are therefore designed to offset the additional capital costs of rail based operation. As public money is involved, there are some key criteria that determine how much grant can be paid. These are: • the environmental benefit, which is a measure of the environmental benefits of taking trucks off road, and
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• the 'financial need', which is the difference in total cost to the transporter between the rail and road options.
Other factors that may be considered include the financial viability and previous record of the applicant.
FFGs, as administered by the Department for Transport in England, are normally only available up to a maximum of 50% of the eligible cost of the scheme. Rail Environmental Benefit Procurement Scheme (REPS)
Assists companies with the operating costs associated with running rail freight transport instead of road (where rail is more expensive than road). The scheme is a direct replacement for the Track Access Grant ( TAG ) and Company Neutral Revenue Support ( CNRS ) schemes in Great Britain.
REPS operates in two parts: • REPS (Intermodal) for the purpose of intermodal container movements by rail (replaces CNRS), and • REPS (Bulk) for the purpose of other freight traffic by rail (replaces TAG).
J.4 Melbourne metropolitan rail networks Background
In 1999, the Victorian Government franchised its tram and passenger train services. The Government awarded the two train franchises to Connex and National Express and the two tram franchises to Yarra Trams and National Express. National Express was also awarded the contract to operate regional passenger services (V/Line Passenger). After incurring financial difficulties, the operators commenced renegotiation of the franchises with the Government and in December 2002, Connex and Yarra signed Interim Operating Agreements reducing the term of the franchises from 2014 to the end of 2003 or 2004. National Express and the Government failed to reach an acceptable settlement and National Express decided to terminate their franchises.
In early 2003, the Government entered into direct negotiations with Connex and Yarra for one train and one tram franchise, and subsequently in February 2004 new franchises were awarded to Connex and Yarra. V/Line Passenger was retained by the Government.
The metropolitan contracts have recently been retendered and in June 2009 the contract to operate Melbourne’s metropolitan rail network was awarded to MTM, a consortium consisting of Hong Kong rail operator MTR, John Holland and United Group. A French consortium KDR consisting of Keolis and Downer EDI was chosen to operate the tram network. The new contracts took effect in December 2009.
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J.4.1 Institutional and funding arrangements
The franchisee has direct control of the train operations and the maintenance of the network, albeit the latter delivered through a joint venture company. Income is received from two major sources:
i. a fixed proportion of farebox revenue, which is divided between rail, trams and buses; and
ii. an operating subsidy from the Government, which includes leasing costs and compensation for community service obligations.
Under the renegotiated 2004 franchise agreement, farebox revenue was to be divided as a fixed proportion between public transport modes, i.e. Train/Tram/Bus being split 40:40:20. The Government also incorporated a “cap and collar” revenue risk sharing mechanism by making up a portion of any revenue shortfall and taking a proportion of any over recovery in profits.
The operating subsidy from the Government has both fixed and variable components. Fixed components include payments for the lease of rolling stock, subsidies to provide specified levels of service and capital grants for additional infrastructure construction and other capital works. Variable components include adjustments for inflation, concession fare top up, patronage growth, service alterations and operational and performance criteria.
The franchisees are required to comply with load standards and timetables on tram and train routes. The franchisees must also comply with customer service charters and meet customer service standards. The franchise agreements also afford the franchisees some flexibility in responding to changes in demand during the course of the franchise agreement, in particular, through the Network Development Partnership with the Director of Public Transport. In addition, the franchise agreements contain a series of incentives and penalties, including: • the Operational Performance Regime, which measures the punctuality and reliability of services, and • the customer experience performance regime, which measures customer satisfaction levels with respect to issues such as personal safety around platforms and cleanliness of platforms and rolling stock.
The cost of the operation and maintenance of the infrastructure is covered by the franchisee (and a nominal lease payment made back to government via the Director of Public Transport). The franchisee is required to maintain Asset Management Plans (AMP) (agreed with the Director of Public Transport), which set out how the infrastructure assets are to be maintained to a prescribed standard. Franchisees are required to place part of the funds for maintenance of infrastructure planned under their AMP in an escrow account. Funds are released each month for planned maintenance to be undertaken. However if works are not completed to the required standard funds can be withheld in the account.
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J.5 Considerations for funding the regional rail network
The various funding models in other jurisdictions provide a number of considerations for Victoria: • long term funding contracts for the network are used to provide greater certainty • absent the contestability of inputs, some efficiency adjustment is generally required • holding in escrow the agreed maintenance funding under an asset management plan may provide government greater assurance that the appropriate work is being carried out • payments may include a return on assets to cover the full economic cost of future investment (and allow some flexibility in establishing financial penalties in the key performance indicators (KPI) regime), and • a bias towards capital or grant funding limits government’s exposure to on-going revenue support.
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APPENDIX K SUPPLY CHAIN COORDINATION IN AUSTRALIAN JURISDICTIONS
Supply chains are dynamic multi-function systems involving a complex process of planning, implementing and controlling the effective flow and storage of goods and related information from the point of origin to the point of destination. A characteristic of supply chains is that each component of the chain can materially affect other components and thereby affect the operation of the entire system.
There is increasing recognition in Australian and internationally that multi-user transport infrastructure requires the establishment of coordination mechanisms, either voluntary or mandatory, to facilitate user access and ensure the full productive capacity of the supply chain associated with the infrastructure is realised. The associated economic benefits can include: • improved efficiency (static and dynamic); • lower costs (transaction and financing); • better risk management (operational and investment); and • reduced costs of road congestion, delivering improved environmental outcomes.
There is significant discretion in terms of the governance arrangements that can be implemented to facilitate coordination between the infrastructure owner/s and users within a logistics chain, including: • contracting - where there is different ownership of each element of the supply chain, contracts between chain participants determine commercial relationships and supply chain performance, with no explicit coordination mechanism used by supply chain participants; • joint ventures – where a separate entity, such as an Independent System Operator, is established to perform planning and/or scheduling functions for the supply chain on a voluntary or compulsory basis, with contracts between chain participants determining commercial relationships but having less influence on supply chain performance; or • vertical integration – where common ownership of infrastructure across the supply chain allows co-ordination of supply chain performance to be managed internally through internal agreements not contracts.
In order to demonstrate the application of and associated benefits/costs of the alternative governance arrangements, the following case studies of Australian logistics chains have been chosen: • NSW Hunter Valley (coal); • NSW Port Botany (containers); and
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• Queensland Dalrymple Bay (coal).
It was judged that these supply chains were likely to be of most relevance to the operational circumstances facing the rail transport supply chain in Victoria, while recognising that no two supply chains are exactly alike.
On the continuum of potential governance frameworks, the coordination occurring on these supply chains can be characterised as voluntary joint venture arrangements.
K.1 Hunter Valley
The Hunter Valley Coal Chain takes metallurgical and thermal coal from mines in the Hunter, Western, Gunnedah and Newcastle coal fields and moves the majority by rail to the port of Newcastle for export. Coal volumes are currently around 100 Mt per annum, with export coal accounting for around 90 per cent of this traffic task.
K.1.1 Background
The Hunter Valley Coal Chain Logistics Team (HVCCLT), established as a trial in 2003, was a cooperative (voluntary) organisation responsible for co-ordinating all coal exports from the Hunter Valley coal industry. HVCCLT did not have the power to override decision-making by member organisations.
In June 2009, an application by Port Waratah Coal Services Limited (PWCS), Newcastle Coal Infrastructure Group Pty Limited (NCIG), and Newcastle Port Corporation (NPC) was submitted to the Australian Competition and Consumer Commission (ACCC) seeking authorisation of what are known as the Capacity Framework Agreements (CFA). The CFA were proposed as one element of the long-term solution to the ongoing capacity constraints at the Port of Newcastle and Hunter Valley supply chain more broadly that was required by the ACCC.
In December 2009, the ACCC granted authorisation to the proposed CFA until 31 December 2024.
As part of the long term solution for the Hunter Valley supply chain, the HVCCLT has become a legal entity known as the Hunter Valley Coal Chain Coordinator (HVCCC) to facilitate information sharing between the coordinator and supply chain participants and so enhance coordination of the supply chain.
K.1.2 HVCC membership
Created in 2003 and formalised in 2005 with the signing of a Memorandum of Understanding, membership of the HVCCC includes all organisations responsible for the transport of coal from the Hunter Valley mines to the port and onto ships for export.
Membership of the HVCCC is open to any entity that meets the eligibility criteria. These are any rail infrastructure provider, companies that provide logistics for coal movement where that activity is its main business, coal terminal operators and entities that carry coal by road or rail to export terminals.
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HVCCC’s members are as follows: • rail track access providers - Australian Rail Track Corporation (rail infrastructure lessee) and Railcorp (rail infrastructure owner); • the operator of the cargo assembly and ship loading terminal – Port Waratah Coal Services; • train operators - Pacific National and QRNational; and • the port authority - Newcastle Port Corporation.
The new coal terminal operator, Newcastle Coal Infrastructure Group, is also expected to become a member in due course.
A broader group of stakeholders, including mine producers and buyers and sellers of coal, participate in the HVCCC in an advisory capacity through an Industry Working Group.
The HVCCC is staffed by people seconded from member organisations but operates on an independent basis. The General Manager is not employed by, or connected to, any of the member organisations. .
K.1.3 HVCCC functions
HVCCC’s two main functions are to: • perform daily train planning and scheduling to maximise daily coal export volumes; and • coordinate planning for the provision of future coal chain infrastructure.
HVCCLT operates as a 24-hour, 7 day per week scheduling service to fulfil exporters’ orders. A minimum of 14 days notice is received for the arrival of a vessel at the Port of Newcastle. HVCCC coordinates vessel berthing, stockpile layouts and train sequencing so as to fulfil customers orders in the shortest possible timeframe.
The evaluation of investment requirements and assessment of system capacity was carried out centrally within the HVCCC. This enables member organisations to see the impact of their investment programs on overall system capacity, through the formulation of system-wide capacity modelling tools. However, it does not provide the HVCCC with the right to require a third party to conduct the investment.
The HVCCC also has a capacity management forum involving Chief Executives of members. The purpose of the forum is to provide an opportunity for senior industry leaders to consider the operation of the HVCCC and capacity requirements into the future.
K.1.4 Impact of Greiner Review
The 2008 Greiner Review of the Hunter Valley coal chain identified that the HVCCLT required greater access to information in order to effectively perform its planning and coordination functions. Consequently, it was recommended that the HVCCLT be incorporated as an independent entity.
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The Hunter Valley Coal Chain Coordinator (HVCCC) was incorporated in August 2009 and will take over the work of the HVCCLT in 2010.
The key function of the HVCCC will be to continue to plan and coordinate the daily operation of the coal chain in order to maximise the volume of coal transported, but in accordance with the proposed new rail and port contractual arrangements. Contractual alignment across the below rail and port links of the supply chain has been a critical element of the Long Term Solution to the capacity problems of the Hunter Valley coal chain.
The HVCCC will also provide a centralised and coordinated forward delivery plan and an annual coal chain capacity plan.
In addition to coordinating both long-term and short term planning functions, the HVCCC will perform a key role in monitoring and recording system performance against the performance standards which form the basis of contracts across the coal supply chain.
The HVCCC does not have the right to require a third party to conduct investments.
K.2 Port Botany
The Port Botany Rail Team (PBRT) was formed in 2008 following a recommendation by IPART to establish a cooperative body of rail-oriented industry organisations to improve the efficiency of the container supply chain centred on Port Botany. 88 The Hunter Valley Coal Chain Logistics Team (HVCCLT) was the model for the PBRT, although the different operational circumstances of coal and container supply chains necessitated some differences in approach.
K.2.1 Background
Several coordination forums involving port infrastructure providers and users existed prior to the establishment of the PBRT, including the Joint Working Group and the Sydney Port Users Consultative Group.
The JWG comprises ARTC and the stevedores Patrick and DP World. It was established in November 2005 through a Memorandum of Understanding for the purpose of identifying potential improvements in infrastructure and operating practices to optimise the rail interface at Port Botany. However, the JWG does not have any scheduling or train management functions and its scope of interest is confined to the Port Botany rail precinct.
While using the HVCCLT as a model for the proposed PBRT, IPART identified a number of features of the Port Botany supply chain that were not found in the Hunter Valley coal supply chain including 89 :
88 IPART, Reforming Port Botany’s links with inland transport, Other Industries – Final Report, March 2008. 89 IPART, p 116
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• highly fragmented road transport as an alternative to train transport; • a high degree of horizontal separation and vertical linkages across functional stages of the supply chain; • a high degree of interaction between rail freight and passenger services; • numerous and diverse importers and exporters; • both import and export traffic must be accommodated; and • Australian Quarantine and Inspection Service (AQIS) and Australian Customs Service (ACS) constraints apply, particularly in relation to imports.
These features are also prevalent for the Victorian rail supply chain.
In proposing the establishment of the PBRT, IPART considered that its most likely mission statement would be to minimise total logistics costs subject to two constraints 90 : • that the overall level of container traffics as determined by importers and exporters must be serviced; • shippers’ requirements for quality of service are met.
IPART recommended that the HVCCLT approach to membership should be used for the PBRT.
K.2.2 PBRT’s membership
Consistent with the HVCCLT approach, PBRT’s membership is as follows: • Rail access providers (Australian Rail Track Corporation, RailCorp) • Train operators (Independent Rail, Patrick PortLink, POTA, SouthSpur, Freightliner) • Stevedores (DP World, Patrick) • Port authority - Sydney Ports Corporation (SPC).
In contrast to the HVCCC, the PBRT does not have an independent chief executive, with SPC acting as a leader/facilitator for the team.
PBRT has its own Reference Group to formally consult with on any planned reforms. Representatives of the Reference Group provide input as and when required to the deliberations being undertaken by PBRT. The PBRT Reference Group is composed of: • Australian Logistics Council • Infrastructure Australia • Ministry of Transport (MoT) • AQIS.
90 IPART, p 119
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Subject Matter Experts, who also participate in an advisory capacity in the PBRT are: • Border control / Cargo Clearance (ACS) • Stevedore Information Services (1-Stop).
Road transporters and shippers (importers and exporters) are not members of the PBRT.
K.2.3 PBRT’s functions
The primary function of the PBRT currently is reporting on supply chain performance, including on time train running, weekly rail volumes handled and stevedore lift productivity. The PBRT meets every two weeks to discuss performance issues.
PBRCT does not perform any scheduling, train management or planning functions. It has no coercive powers, with members responsible for implementing improvements and developing supply chain rules.
SPC is currently developing an overarching performance framework with suitable Key Performance Indicators. On-time-running of trains is the foremost priority for measurement, followed by utilisation and capacity measures. 91
SPC is also drafting a business rules document for PBRCT.
K.3 Dalrymple Bay
The Dalrymple Bay coal chain takes metallurgical (coking) and thermal coal from mines in the central Bowen Basin coal fields and transports it thorough the electrified Goonyella rail system to the Dalrymple Bay and Hay Point Coal Service Terminals for export.
K.3.1 Background
The Dalrymple Bay Coal Terminal (DBCT) is located at the Port of Hay Point, 40 kilometres south of Mackay in Queensland. The terminal opened in 1983 as a common user coal export facility, servicing mines in the Goonyella system of the Bowen Basin coal fields. The terminal has since been significantly expanded to service the growth in demand for coal. The terminal operates constantly and, as of June 2007, has a capacity of 60 mtpa. 92 The terminal is the largest coal export facility in Queensland.
The Hay Point Coal Services Terminal (Hay Point) is adjacent to DBCT and has a throughput capacity of about 44 mt per annum. In contrast to DBCT, Hay Point is a single user terminal.
91 PBRT, Rail Taskforce Meeting No 16, October 2009, p 2. 92 DBCT is currently being expanded in two stages, with capacity at completion of the second stage in late 2008 expected to be 85 Mtpa.
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Participants in the Goonyella export coal supply chain include: • two train operators – QRNational and Pacific National; • one rail track provider - QR; • two operators of cargo assembly and ship loading terminals – Babcock and Brown Infrastructure (DBCT) and BHP Billiton Mitsui Alliance (BMA)(Hay Point); • the port authority, which manages all vessel movements – Ports Corporation of Queensland; and • mine producers.
In terms of governance frameworks, the Goonyella supply chain is predominantly disaggregated, with contractual arrangements the most important determinant of supply chain performance given there has been no coordination of the whole supply chain until recently (as discussed further in section 1.4.2). However, the above and below rail elements of the chain are integrated and BMA controls a number of mines and has a dedicated terminal facility at Hay Point.
Recognition of the need for coordination of the whole supply chain has been a relatively new development, stemming from the recent high profile rail and port infrastructure bottlenecks in the supply chain, reflected in significant ship queues from 2005. However, the infrastructure bottleneck has been more apparent at the common user port facility of DBCT as opposed to the dedicated Hay Point terminal.
An independent review, jointly commissioned by the Queensland Government and the Queensland Resources Council in late May 2007 made three key recommendations in relation to the Dalrymple Bay (Goonyella) supply chain: 1. A central coordination role be created to oversee and, if necessary, coordinate all activities which span the whole of the Goonyella supply chain. 2. QR National to immediately commence a process to purchase additional train sets to allow it to meet projected volumes. 3. A business improvement program be commenced across the supply chain, starting immediately with rail operations as this is the current bottleneck.
In July 2007, the Queensland Government, QR and Queensland Resources Council committed to endorse all three recommendations of the independent review report.
K.3.2 Dalrymple Bay Coal Chain Long Term Solution
In accordance with independent review recommendation, a Central Coordinator was established for the Goonyella supply chain. The Central Coordinator’s focus has been on short-term operational planning and performance.
In 2009, a process was undertaken to develop and implement a more comprehensive Long Term Solution (LTS) to coordination problems in the supply chain, along the lines of the process that was undertaken in the Hunter Valley. The scope of the supply chain was limited to the Dalrymple Bay coal supply chain as the Hay Point coal terminal did not want to participate in any formalised supply chain coordination.
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The first phase of this process has been the development and agreement of a set of principles that will govern the implementation of the LTS. These principles address: • the objectives of the LTS • the definition of the supply chain and any expansions to it • contractual alignment • assessing supply chain capacity • master planning • accountability for capacity consumption • governance structure.
The focus of contractual alignment is the below-rail and port access contracts. Because above-rail haulage is contestable it is assumed that alignment of these contracts will naturally occur.
The principles have been documented in an Implementation Memorandum, which will be signed by all participants in the Dalrymple Bay Coal Chain. This document essentially commits participants to negotiate the detailed implementation of the principles in accordance with the Implementation Plan, which is contained in an annexure to that document. At the date of writing this report, the Implementation Memorandum had not been executed however it is expected to occur shortly.
Integrated Logistics Company
The Central Coordinator will be responsible for managing the LTS in the longer term. In parallel with the development of the LTS, the roles and responsibilities of the Central Coordinator have been enhanced with its establishment as a separate company, the Integrated Logistics Company (ILC). All supply chain participants (including service providers) will be shareholders in this company.
It will be governed by a Board of Directors, which will replace the existing Coal Chain Board. The scope of the ILC’s responsibilities includes: • facilitating integrated short and long term operational planning • the development of a System Master Plan • the creation and management of intellectual property (or confidential information); • the operation of an Integrated Logistics Centre, which is a co-located team comprising representatives of the key service providers • monitoring and reporting performance • identifying and facilitating initiatives to improve performance, and • other responsibilities that may emerge from implementation of the LTS.
At the date of writing this report, the ILC Shareholder’s Agreement had not been executed (however, should also be close to execution). Most of the activities identified above have already been initiated, including the establishment of a co- located team.
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