EXPLANATORY STATEMENT

 

Select Legislative Instrument 2010 No. 124

 

 

 

Issued by the authority of the Minister for Competition Policy and Consumer Affairs

 

 

Trade Practices Act 1974

 

Trade Practices Amendment Regulations 2010 (No. 2)

 

 

The object of the Trade Practices Act 1974 (the Act) is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

Section 172 of the Act provides, in part, that the Governor‑General may make regulations, not inconsistent with the Act, prescribing all matters that are required or permitted by the Act to be prescribed, or are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The National Access Regime – established by Part IIIA of the Act – provides a mechanism for third parties to seek access to spare capacity in nationally significant monopoly infrastructure facilities. The Regime seeks to promote competition in markets that depend on the use of infrastructure that cannot be economically duplicated. It is not designed to replace commercial negotiations between facility owners and access seekers. Rather, it seeks to enhance incentives for negotiation and provide a means of access on reasonable terms and conditions if negotiations fail.

The Regulations would amend the Trade Practices Regulations 1974 (the Principal Regulations) to give effect to the provisions of Division 2B of Part IIIA of the Act, which implement a recommendation made by the Productivity Commission in its 2001 Review of the National Access Regime.

Division 2B, which was added to the Act in 2006, creates a mechanism for the Australian Competition and Consumer Commission (the Commission) to grant immunity from declaration under the National Access Regime where construction and operation of a government‑owned facility is the subject of a competitive tendering process designed to secure reasonable terms and conditions of access. While a decision of the Commission is in force, the designated Minister cannot declare any service provided by means of the facility (and the National Competition Council cannot recommend declaration). Declaration of a service establishes a right to arbitration of access disputes before the Commission.

The operation of Division 2B relies on the making of regulations specifying certain requirements for approving and reporting on competitive tendering processes. In particular:

•                subsection 44PA(2) of the Act requires that an application for the Commission’s approval must specify the service or services proposed to be provided by means of the facility, and must be in accordance with the regulations;

•                subsection 44PA(4) provides that the Commission may not approve a competitive tender process unless it is satisfied that reasonable terms and conditions of access to any service proposed to be provided will be the result of the process, and that the process meets the requirements prescribed by the regulations; and

•                section 44PB requires that the Commission ask the applicant for a written report on the conduct of an approved tender process, and provides that the report must be in accordance with the regulations.

These Regulations specify the various requirements envisaged by provisions of Division 2B. Details of the Regulations are set out in the Attachment.

The Commonwealth and the states and territories (the states) agreed under the Council of Australian Governments (COAG) Competition and Infrastructure Reform Agreement to work together to develop the criteria for approval of the access‑related elements of competitive tenders. The states were consulted on the Regulations, including through the COAG Business Regulation and Competition Working Group. The Commission was also consulted.

The Act specifies no other conditions that need to be satisfied before the power to make the Regulations may be exercised.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations commence on the day after they are registered on the Federal Register of Legislative Instruments.

 

 

ATTACHMENT

Details of the Trade Practices Amendment Regulations 2010 (No. 2)

Regulation 1 – Name of Regulations

Regulation 1 provides that the name of the Regulations is the Trade Practices Amendment Regulations 2010 (No. 2).

Regulation 2 – Commencement

Regulation 2 provides that the Regulations commence on the day after they are registered.

Regulation 3 – Definitions

Regulation 3 provides that the Trade Practices Regulations 1974 (the Principal Regulations) are amended as provided for in Schedule 1 to the Regulations.

Schedule 1 – Amendments

Item [1]

Division 2B, Part IIIA of the Trade Practices Act 1974 (the Act) provides for exemption from declaration under section 44H of the Act where the construction and operation of a government-owned infrastructure facility is to be awarded by an appropriately constituted competitive tendering process. A competitive tendering process can ensure that access seekers receive more favourable terms and conditions for access to services, and reduce the need for other forms of price regulation.

Item [1] inserts regulations 6FA, 6FB and 6FC into the Principal Regulations, following existing regulation 6F.

Regulation 6FA

Regulation 6FA sets out the requirements for an application for the approval of a tender process as a competitive tender process by the Australian Competition and Consumer Commission (the Commission).

Paragraphs 6FA(2)(a) to (c) require that an application include contact details for the applicant (that is, the relevant Minister), details of the proposed facility (including its nature and proposed location), and details of the proposed tender process.

The matters to be specified in relation to a proposed tender process establish the basis on which assessments of tenders will be made and principal dates for the process. The regulation requires high‑level details about the proposal, in order to provide the Commission with sufficient information to enable it to conduct its assessment. Regulation 6FA does not require applicants to provide final details of the proposal, some of which may be subject to the outcome of the tender process.

In addition, paragraph 6FA(2)(d) requires an application to outline the reasons why the tender process satisfies the requirements specified in subsection 44PA(4) of the Act (that is, the matters of which the Commission must be satisfied in order for the tender process to be approved as a competitive tender process).

Regulation 6FB

Regulation 6FB sets out the requirements which a tender process must meet before being approved by the Commission as a competitive tender process in accordance with paragraph 44PA(2)(b) of the Act.

As suggested by the findings of the Productivity Commission in its 2001 report, Review of the National Access Regime, a tender process is most likely to achieve the objectives of access regulation and reduce the need for subsequent regulatory involvement where:

•                the licence to construct and operate the facility is to be awarded through a competitive process; and

•                favourable terms and conditions of access will be a key consideration in selecting the preferred tenderer.

Subregulation 6FB(2) specifies that the tender process must relate to a proposed facility. The requirement is consistent with the description of the operation of section 44PA of the Act in the Explanatory Memorandum to the Trade Practices Amendment (National Access Regime) Act 2006 as applying to a new facility (that is, not an existing facility).

Subregulation 6FB(3) requires that the tender process specify the arrangements to be followed, including the selection criteria to be used and the minimum requirements which tenderers must meet to be considered. Paragraph 6FB(3)(b) specifies that the process must require tenderers to detail the terms and conditions of access they intend to offer access seekers. A note to subregulation (3) provides examples of the kinds of things that ‘terms and conditions’ may encompass, and includes: pricing; procedures (such as a right for an access seeker to negotiate access); an obligation not to hinder access; an obligation to implement a particular business structure (for example, to remove incentives to discriminate in providing access); and administration of access (such as arrangements for enforcement and monitoring).

Subregulation 6FB(4) ensures that the successful tenderer would not limit the services to which access may be sought, or the construction or operation of other infrastructure which could provide the same services to the market as the facility. This does not preclude the final arrangement between the successful tenderer and the government allowing the facility to be used to supply access services other than those specified by the government in its application.

In addition, subregulation 6FB(5) provides that, subject to the satisfaction of the Commission, the configuration of a facility should not be limited. The purpose of this requirement is to ensure that the rules of the tender are not unnecessarily restrictive or have the effect of reducing the level of competition in the market. However, should the nature of the facility necessitate specifying certain technical specifications or configurations, the Commission may take this into account in considering whether it would be appropriate to do so.

Subregulation 6FB(6) provides that the design of the tender process must be appropriate for ensuring reasonable access arrangements (or the process is capable of being used to arrive at this result). In considering whether a tender process meets this requirement, under subregulation 6FB(7) the Commission is required to have regard to the likely competitors for construction and operation of the facility, and for provision of the services. Importantly, subregulation 6FB(8) ensures that the Commission’s consideration is not limited by subregulation 6FB(7). The Commission may consider other matters, such as whether the request for tender would result in the service provider supplying any incidental services necessary for effective access to the services for which approval is sought.

Subregulations 6FB(9) and (10) relate to the selection criteria to be used to determine the service provider. Consistent with the aims of promoting access and dissipating monopoly rents, the selection criteria are required primarily to ensure the lowest sustainable access prices, or terms and conditions of access most likely to promote the object of Part IIIA of the Act. This does not preclude a tender selection process incorporating objectives other than reasonable terms and conditions of access, for example, environmental objectives. In determining whether the selection criteria would produce reasonable terms and conditions of access, the Commission is to have regard to factors such as the objects of Part IIIA, the legitimate interests of stakeholders, the public interest and matters of procedural fairness.

Proposed Regulation 6FC

In order to ensure that any approval of a tender process remains appropriate, the Commission is required under subsection 44PB(1) of the Act to seek a written report on the conduct of the tender process from the applicant after a tenderer has been selected.

Regulation 6FC sets out requirements for a report on the conduct of a tender process, as envisaged by subsection 44PB(2) of the Act.

Regulation 6FC requires the report to include details of the successful tenderer, the terms and conditions of access that have been arrived at, and evidence relating to the conduct of the tender and the outcome of the process.