with illustrations from railway regulation

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REGULATING TRANSPORT INFRASTRUCTURE?HOW LIGHT A
TOUCH?
with illustrations from railway regulation
2
Railways have become more heavily regulated

• safety and investigation
• economic
• structural (vertical separation and ring-fencing)

• pricing (access charges)
• access?mandated, not voluntary

3
Trade-off between utilisation (mandated access
regulations) and production
Consumption(utilisation)
Production(investment)
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and given Australia has little experience with
railway regulation?
How do we know when we are over-regulating?
Perhaps lessons from the USA can guide us
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US rail regulations focused on protecting
shippers

• fixed rates
• banned contracts with shippers
• made line closures difficult
• discouraged railway mergers
• rejected productivity-boosting strategies

but the eye was taken off the need for the
railways to be viable
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so, in the early 1970s, more than 20 of the
railways went into administration
Brought on USAs largest corporate bankruptcy
(PennCentral)
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So what was the policy response?
Following these bankruptcies, government
recognised that the existing regulations
were a hodgepodge of inconsistent and often
anachronistic regulations.
(US Department of Transportation)
8
Impact of 1980 Staggers Act deregulation was
dramatic
USA freight railway performance
Investment/km of track 28 Track
length-37 Mode shareup from 38 to 42
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Since Staggers, policy has focused on production
rather than consumption/usage

• emphasises revenue adequacy
• rejects mandating access

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What does this mean for Australia?
National Competition Policy (NCP) regulation
aimed at achieving

• lower rates
• higher track utilisation
• facilitating upstream activities (eg mining) that
  would otherwise not justify new infrastructure

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but at what cost?

• Regulation may
• discourage and distort timely investment
• inhibit long run cost-recovery pricing options
• undermine productivity of railway operations

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Mandated access can threaten railway and shipper
productivity?particularly mining railways

• Notable access cases are
• Hamersley Iron vs Robe River (Sept 1998?June
  1999)
• BHP vs Hancock Mining ( ?Nov 2003)
• BHP vs Fortescue (June 2004?May 2006)
• Application to National Competition Council
  Application to WA Supreme Court

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In summary
Mandated access aspirations
Investment downside

• lower freight rates
• improves shippers ability to access markets eg
  iron ore exporters

• expropriates risk-takers assets, undermining
  investment strategies
• can compromise productivity of operations

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To conclude we need to ensure that regulation
does not pull railway owners into the abyss
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Thank you
www.btre.gov.au