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The Australian Rail Track Corporation is considering its options after haulage companies told the competition watchdog the government-owned entity could use its natural monopoly powers to raise prices on the interstate rail network.
The Australian Competition and Consumer Commission rejected a new access undertaking put forward late last month by the ARTC for the rail network, saying it was "not acceptable".
The rail network, which runs between Kalgoorlie in Western Australia and Acacia Ridge near Brisbane, transports bulk freight such as grain, sand, limestone and iron ore, as well as passengers on trains such as the Indian Pacific.
Train operators are worried the ARTC will raise fees for companies who move goods and people on the interstate rail line. Steven Siewert
Its largest user is Pacific National, which transports grain and container goods, followed by SCT Logistics. The rail network is also used by Qube, NSW Trains, Genesee & Wyoming and Southern Shorthaul Rail.
Currently, access to the interstate rail network is governed by a 2008 agreement that restricts the fees charged by the ARTC, with fees based on "indicative tariffs" published on the ARTC's website. However, the agreement is due to expire next month.
The ARTC wants to remove the current indicative tariffs and introduce a "banded negotiate-arbitrate model" that allows prices for access to the rail network to be negotiated directly between the ARTC and its customers, within a specified range.
However, rail users are worried the ARTC could keep raising fees to use the network, making it harder for them to compete with trucking companies.
The ARTC has argued that rail-haulage companies are "an oligopsony" (representing a small number of buyers) and have "countervailing" buying power that would constrain its market powers as a monopoly.
But the ACCC says that "oligopsony" market power cannot be exercised in this situation, since offering the natural monopoly – the ARTC – a lower price would be "inconsistent with cost recovery".
Acting strategicallyIt also says that, as a natural monopoly, the ARTC can act strategically, pointing out that the ARTC has failed to provide cost-benefit analyses for many of its capital spending projects and that it has engaged in "double counting" of track asset costs.
"The ACCC does not consider ARTC's costs to be transparent," the regulator said. "It is unlikely that above-rail operators would be in a position to determine ARTC's efficient costs, given they have less access to relevant information.
"Therefore, the degree of information asymmetry between ARTC and its customers is likely to be considerable, with the effect that ARTC can act strategically under its 2018 Interstate Access Undertaking proposal by negotiating prices above its efficient costs."
The ARTC said it was in talks with the ACCC and would respond to the regulator's draft decision in "the coming weeks". The ACCC had asked the ARTC to respond by mid-January.
The ARTC has also argued that its prices are constrained by competition from shipping and trucking companies, and that it needs to increase rail volumes to improve the rail network's competitiveness.
But the ACCC said the rail market is "segmented" and certain types of freight cannot be transported competitively by either road or sea.
The interstate rail freight network generated $282.4 million in revenue in 2017-18, accounting for about 40 per cent of ARTC's total access revenue, down from $285.7 million in 2016-17, according to the ACCC.
Volumes of goods moved on the network have been hurt by Aurizon's exit from the intermodal market in late 2017, although Pacific National and SCT have picked up some volumes. Pacific National is trying to expand its intermodal business by buying Aurizon's Queensland intermodal business and its Acacia Ridge terminal, but the ACCC has taken legal action in the Federal Court to try to block the acquisitions.
Hearings for the ACCC case started in Melbourne in November but have been adjourned until Monday, and are scheduled to continue until February 20.
This article first appeared on www.afr.com
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