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Alliance of Councils for Rail Freight Submission to the Essential

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Alliance of Councils for Rail Freight Submission to the Essential Alliance of Councils for Rail Freight Submission to the Essential Services Commission of Victoria Review of the Victorian Rail Access Regime August 2009 2 Executive Summary In this Submission, the Alliance of Councils for Rail Freight submits the following key points to the Essential Services Commission’s 2009 Review of Rail Access Charges: • The Alliance supports in principle that road and rail freight should operate within a regime that reflects the costs of providing underlying infrastructure is accepted; • Where mature and well established rail freight businesses are established across Australia, it is appropriate that predictable and rational rail access charges that transfer infrastructure costs from access providers to access seekers should operate, within an efficient regulatory framework that takes account of externalities and the social and environmental benefits associated with the use of rail freight in various contexts; • The Alliance submits the Objectives under which the Victorian Rail Access Regime has been established should be revised; and that the VRAR has not delivered the critical objective of promoting intrastate rail freight in Victoria but that instead the role of rail freight has declined during the period of regulation. The Alliance submits that while this decline reflects several factors, excessive access charges under VRAR have been one factor contributing to decline, while other factors endorsed by the regime, such as Performance Bond conditions for metropolitan access, have impeded competition; • The Alliance further submits that the Objectives of the regime do not support the environmental objectives for Victoria set down in Our Environment Our Future, and do not recognize the social and community impacts that narrow economic regulation has in promoting modal shift away from rail and imposing the externalities of road freight on communities; • The Alliance submits that the rail access charges framework applied over the next five years in relation to the intrastate rail freight network in Victoria needs to allow for four Exceptional Circumstances, namely- 3 -unprecedented drought has so impacted the level of wheat production in the state that expected wheat traffic will again be so low as to fall short of providing the revenue streams needed to maintain adequate below rail and above rail businesses and infrastructure in Victoria; -the intrastate rail freight network in Victoria has just been retrieved from the brink of physical collapse by very significant government infrastructure investment following the buy back of the network, and time is needed to allow rail freight businesses using this infrastructure to redevelop before full rigor in access charge costs is applied to them; -the wheat industry is undergoing great structural change consequent on the ending of the single desk policy and the emergence of multiple operators, with the associated tendency for a disaggregation of grain receival points that can result in an alteration of the economies of scale in wheat transport, and the rapid transfer of infrastructure costs from the rail system to council roads and state highways as grain forwarders develop diverse collections points and forwarding strategies; -the Victorian Government in Freight Futures has identified a range of future freight outcomes desired by business and the community that may be frustrated at birth unless a regulatory framework is in place for the time being that allows an infant resurgent intrastate rail industry to survive; • The Alliance therefore submits that the Commission should set access charges for Victorian intrastate rail freight lines at the lowest possible rate, for example, it is suggested that the Commission set access prices at a level no higher than twice road access prices, and that the charges should be approximately 50% of those currently in place; • During the period in which this access charge regime might operate (for example five years), the ESC should continue to require detailed reporting of traffic, tariffs and revenue, and a reset of the access regime should occur at the end of this period. The Alliance concedes that it is possible that the outworkings of the current unprecedented period of change may show at the end of this period that not all those freight lines in the silver and bronze categories continue to be viable. However the Alliance believes that during this period there is the opportunity for 4 freight governance and marketing to be enhanced, and for viable rail freight businesses to consolidate and better delineate stable markets and customers if the proposed five year developmental period is adopted; • The Alliance represents over 30 municipalities in districts served by the intrastate rail freight network. These Councils do not have the capacity to fund the rebuilding of the road network to support the number and size of road freight vehicles that would be needed if the rail freight task were transferred to road. It is important to ensure that regulatory decisions do not further encourage a modal shift of this kind; • In the body of this Submission, the Alliance addresses those of the questions posed by the ESC in its Issues Paper that are relevant to it. 5 Part I of Submission: Exceptional Circumstances The Alliance of Councils for Rail Freight submits to the ESC that Exceptional Circumstances currently exist in the environment for Rail Freight in Victoria that require a specific Regulatory Response for a time period sufficient for these circumstances to be allayed in an orderly manner. The Regulatory Response needs to be reflected in the Access Regime and in Access Charges. The Exceptional Circumstances are: • Drought; • Repurchase and Reinstatement of below-rail infrastructure by the Victorian Government; • Restructure and disaggregation of grain handling; • The emergence of new Government policy in Freight Futures. As well as these Exceptional Circumstances there is the Over-Riding Imperative of achieving a modal share in transport less dominated by road. Since the original commencement of the VRAR, the issue of transport sustainability has become a pressing concern that must be an over-arching consideration in any regulatory framework. The Victorian Government has, since the VRAR was implemented, recognized this through its policy document Our Environment Our Future, while another Victorian Government process, the Fischer review, has documented the very poor level of comparative environmental sustainability of road versus rail transport. These factors support a regulatory regime that does not price or regulate rail transport out of those markets it best serves. The Alliance expects that ESC would be familiar with these issues, but also believes that these issues should be at the forefront of any submission on future access regulation and access pricing for rail freight. Each issue will be briefly referenced. Drought While drought affects all rural industries in some way, it particularly affects wheat production, and the transportation of grains has been for many years the largest task of the Victorian intra-state rail freight system. 6 In other parts of Australia, the drought has broken or been mitigated by useful rains this season, however in the Wimmera and Mallee poor rains have contributed to ongoing low harvests. The Bureau of Meteorology in its Special Climate Statement No 14 summed up the position as the driest on record, as follows:1 “…for Australia’s cropping zones (as defined by the Grains Research and Development Council, which include cropping areas in both eastern and western Australia), this six- year period was more than 80 mm drier than the record 1939-45 drought, and clearly the driest on record. In terms of just the April to October crop and pasture growing season, 2007 was the 21st driest on record, with only 220 mm in the cropping zones compared with the long-term average of 273 mm, and the 2002 and 2006 cropping seasons both ranked in the six driest on record. Mean temperatures were also the highest on record for the crop zones for the past six-year period, some 0.6°C above average…”. According to the Australian Bureau of Statistics 2007 Survey, 88.7% of agricultural businesses in Victoria were experiencing adverse seasonal conditions, and 40% had changed their cropping response as a result and 27.7% had accepted Exceptional Circumstances assistance.2 As these figures indicate, there is no doubt that Exceptional Circumstances exist in Australia’s grain industry; they are recognized and named as such by the Commonwealth Government. It is therefore submitted that Exceptional Circumstances also exist in relation to those parts of the Victorian intrastate rail freight industry that are integrally part of the grain industry – namely most grain lines. The Regulatory Framework needs to be framed accordingly, and steps that would lead to the destruction of rail freight services or infrastructure as a result of regulatory actions need to be carefully avoided. In short, the economic assumptions that might be applied in average agricultural seasons must necessarily be suspended until full recovery of relevant agricultural businesses has occurred. Repurchase and reinstatement of below-rail infrastructure by the Victorian Government The Victorian intrastate rail freight industry suffered a double blow when the above driest on record conditions for agricultural production were accompanied by an approach to privatisation that resulted in investment and maintenance in country freight infrastructure stalling; 1 Bureau
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