Arc Infrastructure
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Table of Contents 1. Introduction ....................................................................................................................................... 4 2. Executive Summary ......................................................................................................................... 4 3. Background ...................................................................................................................................... 7 3.1 Westrail to Arc Infrastructure ......................................................................................................... 7 3.2 Arc’s Regulatory Environment....................................................................................................... 8 3.3 Description of the Arc Network ...................................................................................................... 8 3.4 Today’s Freight Task – A Diverse Commodity Mix ..................................................................... 10 3.5 Rail Operations on the Arc Network ............................................................................................ 11 3.6 Diversity in Rail Operations ......................................................................................................... 11 3.7 Diversity in Terms of Access ....................................................................................................... 14 3.8 Implications for Regulation .......................................................................................................... 14 3.9 Facilitating State Growth ............................................................................................................. 15 3.10 Regulation ................................................................................................................................. 18 4. Response to Issues ....................................................................................................................... 18 4.1 Balance of power in negotiations ................................................................................................ 18 4.1.1 Issue 1: ability to opt out ................................................................................................. 18 4.1.2 Issue 2: Barriers to negotiation ....................................................................................... 23 4.2 Accountability .............................................................................................................................. 27 4.2.1 Issue 1: Railway owner accountability to comply with regime ........................................ 27 4.2.2 Issue 2: Regulator Accountability .................................................................................... 30 4.2.3 Issue 3: Processes relating to Part 5 Instruments .......................................................... 31 4.3 Capacity expansions and extensions .......................................................................................... 32 4.3.1 Issue 1: Level of detail in the Code ................................................................................. 33 4.3.2 Issue 2: Clarity around timing of an expansion proposal ................................................ 35 4.3.3 Issue 3: Uncertainty about recognition of costs in pricing provisions ............................ 36 4.4 Pricing mechanisms .................................................................................................................... 36 4.4.1 Issue 1: Indicative tariffs ................................................................................................ .36 4.4.2 Issue 2: Assessing the capital charge using GRV .......................................................... 39 4.5 Marginal freight routes ................................................................................................................ 51 4.5.1 Issue 1: Coverage of marginal freight routes .................................................................. 52 4.6 Greenfield development .............................................................................................................. 54 4.6.1 Issue 1: Uncertainty relating to greenfield developments ............................................... 55 4.6.2 Issue 2: Treatment of foundation customers .................................................................. 55 4.6.3 Issue 3: GRV asset valuation approach ......................................................................... 56 4.7 Consistency with National Access Regime ................................................................................. 56 4.7.1 Issue 1: Interstate freight routes ..................................................................................... 57 4.7.2 Issue 2: Certification as an effective regime ................................................................... 62 5. ERA Code Review 2014 ................................................................................................................. 65 2 6. ERA Code Review 2011 ................................................................................................................. 67 7. Definitions ....................................................................................................................................... 68 8. References ...................................................................................................................................... 70 Annexure A ......................................................................................................................................... 74 3 1 Introduction 1.1 How to use this document Arc Infrastructure Pty Ltd (Arc) welcomes the opportunity to respond the Review of the Western Australian Rail Access Regime, Issues Paper 2017 as published by the Western Australia Department of Treasury (Issues Paper). Arc’s submission (Submission) is structured to align with the Issues Paper and addresses the “challenges, issues and proposals” as set out by in section 3 of the Issues Paper. As the sole operator of Western Australia’s (WA) dedicated 5,500km freight rail network (the Arc Network), Arc has unique insights into the complex issues associated with contemporary rail operations and Arc believes its Submission will assist in providing a valuable perspective in reviewing the Railways (Access) Code 2000 (Code). The Executive Summary outlined in section 2 below addresses Arc’s key concerns as they may apply to an independent railway manager. It is these concerns in particular that Arc wishes to enter further discussions with Government to ensure the practicalities and repercussions are fully understood before any amendments are made to the Code. To provide context around the regulatory environment within WA and how the Arc Network sits within the WA Rail Access Regime (WARAR), Arc engaged economic experts HoustonKemp to provide an overarching report around the role of regulation in the rail industry (Expert Report). The Expert Report is provided as an annexure to this Submission (refer section 2 of Annexure A)and provides context around the regulatory environment within WA and how the Arc Network sits within the WARAR. A full list of acronyms and commonly used terminology is provided in the definitions section at the back of this Submission for reference. 1.2 Information Workshops In Arc’s view it is critical that all Issues Paper discussions are viewed through the lens of predicted outcomes when applied to an operating, multi-commodity, open access network. To support this process, and given its unique position as a below rail provider, Arc would welcome the opportunity to host an Issues Paper Workshop for key stakeholders across interested Government departments to offer critical insight into the practical nature of the freight rail industry. As current custodians of a critical WA infrastructure asset, Arc further extends an invitation to any interested or invested party to experience the Arc Network through a hosted Network Tour. For more information on Issues Paper Workshop and Network Tour opportunities, please contact us1. 2 Executive Summary 2.1 Arc Infrastructure – A Unique Operation Given the scope of various railway networks across WA that are subject to the Code, the WARAR coverage in WA is broad requiring sufficient flexibility to accommodate the requirements of each network. Arc is a multi-user, open access, commercial rail network manager in Australia that does not operate with subsidies from Government. As such, Arc offers a unique perspective when discussing matters and issues associated with the WARAR. The key purpose of the WARAR is to encourage the main object of the Act being: ‘to establish a rail access regime that encourages the efficient use of, and investment in, railway 1 Contact details are available via our website: http://www.arcinfra.com/contact-us 4 facilities by facilitating a contestable market for rail operations’2. To achieve this purpose the WARAR aims to3: (a) encourage commercial negotiation; (b) prevent misuse of market power; (c) promote competition; (d) target a specific economic problem (ie. lack of competition in markets for significant infrastructure); and (e) promote regulatory certainty. Over the past 17 years of managing the Arc Network, all access agreements have been reached outside the Code apart from one, which is currently pending an arbitrated outcome. This is evidence of the success of the WARAR. While Arc is of the view that the WARAR provides a