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Part B: Queensland Rail Declaration Review

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Part B: Queensland Rail Declaration Review Final recommendation Part B: Queensland Rail declaration review March 2020 © Queensland Competition Authority 2020 The Queensland Competition Authority supports and encourages the dissemination and exchange of information. However, copyright protects this document. The Queensland Competition Authority has no objection to this material being reproduced, made available online or electronically but only if it is recognised as the owner of the copyright2 and this material remains unaltered. Queensland Competition Authority Contents Contents 1 INTRODUCTION 1 1.1 The existing declaration 1 1.2 Queensland Rail’s below-rail network 1 1.3 Structure of Part B 3 1.4 Final recommendation 4 1.5 The NCC’s recommendation in the Port of Newcastle matter 4 2 THE SERVICE AND FACILITY 6 2.1 Introduction 6 2.2 Identifying the service 7 2.3 Identifying the facility 11 3 CRITERION (A)—PROMOTE A MATERIAL INCREASE IN COMPETITION 13 3.1 Introduction 13 3.2 The QCA's approach to assessing criterion (a) 14 3.3 Dependent markets for the service as a whole 14 3.4 Comparing a future with and without declaration 16 4 QUEENSLAND RAIL'S DEED POLL AND ACCESS FRAMEWORK 17 4.1 Introduction 17 4.2 QCA approach to assessing the deed poll and access framework 17 4.3 The deed poll as an appropriate counterfactual 18 4.4 Effectiveness of the deed poll and access framework as a constraint on conduct 21 4.5 Conclusion 27 5 CRITERION (A)—THE NORTH COAST ROUTE SERVICE 29 5.1 Part of the existing declared service and the dependent markets 29 5.2 Geographical description of the North Coast Route 29 5.3 Dependent markets 29 5.4 Above-rail freight haulage market on the North Coast Route 30 5.5 Queensland Rail’s ability and incentive to exercise market power 36 5.6 Competition in the above-rail freight haulage market in a future with and without declaration 55 5.7 Conclusion 69 6 CRITERION (A)—THE MOUNT ISA ROUTE SERVICE 70 6.1 Part of the existing declared service and the dependent markets 70 6.2 Geographical description of the Mount Isa Route 70 6.3 Dependent markets 70 6.4 North West Queensland minerals tenements market 71 6.5 Queensland Rail’s ability and incentive to exercise market power 76 6.6 Competition in the North West Queensland minerals tenement market in a future with and without declaration 86 i Queensland Competition Authority Contents 6.7 Conclusion 91 7 CRITERION (A)—THE WEST MORETON ROUTE SERVICE 92 7.1 Part of the existing declared service and dependent markets 92 7.2 Geographical description of the West Moreton Route 92 7.3 Dependent markets 92 7.4 West Moreton region coal tenements market 93 7.5 Queensland Rail’s ability and incentive to exercise market power 97 7.6 Competition in the West Moreton region coal tenements with and without declaration 102 7.7 Conclusion 107 8 CRITERION (A)—THE SOUTH WESTERN ROUTE SERVICE, THE WESTERN ROUTE SERVICE AND THE CENTRAL WESTERN ROUTE SERVICE 108 8.1 Parts of the existing declared service and the dependent markets 108 8.2 Geographical description of the South Western, Western and Central Western Routes 109 8.3 Dependent markets 109 8.4 Above-rail freight haulage markets on the agricultural systems 110 8.5 Queensland Rail's ability and incentive to exercise market power 121 8.6 Competition in the above-rail freight haulage markets in a future with and without declaration 130 8.7 Conclusion 135 9 CRITERION (A)—THE TABLELANDS SYSTEM SERVICE 136 9.1 Part of the existing declared service and dependent markets 136 9.2 Geographical description of the Tablelands system 136 9.3 Dependent markets 136 9.4 Above-rail passenger market on the Tablelands system 137 9.5 Queensland Rail's ability and incentive to exercise market power 139 9.6 Competition in the above-rail passenger market on the Tablelands system 142 10 CONCLUSION FOR CRITERION (A) 143 11 CRITERION (B)—MEET TOTAL FORESEEABLE DEMAND AT LEAST COST 144 11.1 Introduction 144 11.2 The QCA’s approach to assessing criterion (b) 145 11.3 The structure of criterion (b) analysis 145 11.4 The market 146 11.5 Period for assessing total foreseeable demand 148 11.6 Total foreseeable demand over the declaration period 151 11.7 At the least cost compared to any two or more facilities 152 11.8 Conclusion 153 12 CRITERION (C)—STATE SIGNIFICANCE 154 12.1 Introduction 154 12.2 The QCA’s approach to assessing criterion (c) 154 12.3 The structure of criterion (c) analysis 157 12.4 Stakeholder submissions on criterion (c) 157 ii Queensland Competition Authority Contents 12.5 Data on Queensland Rail’s rail systems 159 12.6 Criterion (c)—the facility for the service as a whole 170 12.7 Criterion (c)—the facilities for each part of the service 172 13 CRITERION (D)—PROMOTE THE PUBLIC INTEREST 177 13.1 Introduction 177 13.2 The QCA’s approach to assessing criterion (d) 178 13.3 The structure of criterion (d) analysis 179 13.4 Investment in facilities 179 13.5 Investment in markets that depend on access to the service 185 13.6 Administrative and compliance costs incurred by the provider of the service 195 13.7 Other relevant matters 203 13.8 Conclusions 210 14 DECLARATION PERIOD 213 APPENDIX A: THE HOLD-UP PROBLEM 214 Overview 214 Why does hold-up occur? 215 Case study: General Motors–Fisher Body 223 APPENDIX B: SERVICE AND FACILITY DEFINITIONS 225 iii Queensland Competition Authority Introduction 1 INTRODUCTION 1.1 The existing declaration The use of Queensland Rail's below-rail network, as specified in s. 250(1)(b) of the QCA Act, is taken to be declared under Part 5, division 2 of the QCA Act (see Box 1). The regulatory framework for the existing declaration is governed by the QCA Act, as well as Access Undertaking 11 (AU1), which was approved by the QCA on 11 October 2016 and expires on 30 June 2020. AU1 sets out the terms and conditions under which Queensland Rail provides access to its service. AU1 also addresses the process required for an access seeker to negotiate access to the service, and the way in which any disputes in relation to access are to be resolved. Box 1: The declared service Section 250(1)(b) of the QCA Act provides that the following service is taken to be a service declared under Part 5, division 2 of the QCA Act: the use of rail transport infrastructure for providing transportation by rail if the infrastructure is used for operating a railway for which Queensland Rail Limited, or a successor, assign or subsidiary of Queensland Rail Limited, is the railway manager The meaning of ‘railway manager’ and ‘rail transport infrastructure’ are defined in the Transport Infrastructure Act 1994 (Qld), schedule 6. 1.2 Queensland Rail’s below-rail network Queensland Rail manages a rail network that extends more than 6,600 kilometres across Queensland and is used by freight and passenger trains.2 Queensland Rail provides the below-rail service as well as above-rail passenger services on its network. Pacific National, Aurizon Operations, Linfox and Watco (from December 20193) provide above-rail freight services on various parts of the network. A map of Queensland Rail’s network is in Figure 1.4 1 Queensland Rail, Access Undertaking 1, approved by the QCA 11 October 2016, https://www.queenslandrail.com.au/business/acccess/Access%20Undertaking%20and%20related%20documents/ Queensland%20Rail%20Access%20Undertaking%201%202016.pdf. 2 Queensland Rail, sub. 8, p. 2. 3 Watco Companies, Rail Services: Australia, accessed 7 February 2020, https://www.watcocompanies.com/services/rail/australia/. 4 This map is a simplified representation of the main railway track, and it does not show all rail transport infrastructure as defined within the meaning of the existing declaration. 1 Queensland Competition Authority Introduction Figure 1 Queensland Rail network Source: QCA website, https://www.qca.org.au/Rail/Queensland-Rail/Qld-Rail-rail-systems. Queensland Rail describes its network as comprising seven regional 'systems' and the Metropolitan 'system'.5 These systems are highlighted in Figure 1, and based on Queensland Rail information, can be summarised as follows: Tablelands system (dark blue on the map above)—comprises two corridors from Cairns to Forsayth and Normanton to Croydon. The system is currently used exclusively by tourist services.6 North Coast Line (purple)—extends between Nambour (north of Brisbane) to Cairns.7 It services major population centres in Brisbane, Bundaberg, Gladstone, Rockhampton, Mackay, Townsville and Cairns as well as various ports along Queensland’s eastern coastline. The line primarily transports intermodal/containerised freight, agricultural products and various regional passenger services.8 Mount Isa Line (dark green)—extends from Stuart (near Townsville) to Mount Isa, and includes the Flynn to Phosphate Hill branch line. The line carries bulk minerals from the North West Minerals Province east to the Port of Townsville and carries mining and 5 Queensland Rail, sub. 8, p. 2. 6 Queensland Rail, sub. 33, p. 73. 7 The Parana to Rocklands and Kaili to Durroburra sections of the North Coast Line (in the Central Queensland Coal Network region) are currently managed by Aurizon Network. 8 Queensland Rail, sub. 33, pp. 63–64. 2 Queensland Competition Authority Introduction industrial inputs west into the Mount Isa region. It also carries a small amount of livestock as well as four one-way passenger services per week.9 Central Western system (orange)—comprises the main line from Nogoa to Winton and the Clermont branch (from Emerald to Clermont).
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