Infrastructure inadequacies are seen by many as economic choke points, but where problems have occurred they stem from governments.
Congested road networks, gas pipelines, rail lines and the telecommunications network -- all suffer from government intervention.
But an unlikely political constellation offers hope. While regulators try to maintain and extend their empires, constraining the creation of necessary infrastructure, two or three of the most important federal politicians in this field are showing great foresight. Energy Minister Ian Macfarlane took the lead in refusing to regulate gas pipelines where competition already provides the discipline. ALP energy spokesman Martin Ferguson shares that understanding and is offering tacit support.
Macfarlane is now pushing through reforms allowing greenfield gas pipelines to be free of regulation. Legislation will allow new pipeline proposals to ask the minister, through the National Competition Council, for an upfront 15-year regulatory holiday. Seeking to maintain control over these facilities, the Australian Competition and Consumer Commission has vigorously opposed this. Yet there is no economic or public policy case for such opposition. No new pipeline can be a monopoly essential facility -- life went on before it was built and those using it cannot lose by it being built.
If facilities are to be regulated, their owners need prior assurance their property won't simply be socialised by a regulator to please other users. Pipeline owners have bitter experience of the ACCC's inability to understand the nature of business risk and the need for its adequate recompense.
The reforms represent solid progress. They need to be built on to ensure the regulatory holiday becomes automatic. They need to be extended to allow the removal of regulatory oversight from existing gas pipelines already subject to competition.
There is also progress on privately operated rail lines. In the Pilbara, the NCC has long sought to require the purpose-built lines of Rio Tinto and BHP Billiton to be opened to third parties. There are (arguably legitimate) grounds for opening up the lines on the basis that the companies agreed to this some two decades ago, but the NCC has relied on the argument that the lines have monopoly powers.
Treasurer Peter Costello declined to confirm this view. He, with Ferguson concurring, has recognised that the firms will readily open their lines to third parties if adequately compensated. Rio and BHP have no iron ore monopoly and thus every interest in earning more revenue, even from a competitor. What they don't want is a leadfooted regulator setting the price and service levels they must afford other users on lines vital to their costs in a highly competitive market. Nor does the nation want to risk valuable exports being impeded by regulatory control of its transport system.
Progress has been slower in telecommunications. Much to the bafflement of Communications Minister Helen Coonan, Telstra chief Sol Trujillo says he simply cannot build a $3 billion optic system and leave the terms of its operation to a regulator. Basically he is saying that if the government sees the facility as vital, it should build it itself and not with private shareholders' money.
The current approach to infrastructure is conditioned by the 1993 Hilmer report. Great progress has been made by smashing the monopolies that once enjoyed protection. But it is time to move on.
Competition and innovation are now sufficient to regulate all but a handful of services. Beyond these, regulation creates a chemistry of conflict rather than commercial deal-making. The party seeking to use the facility will see little downside in demanding better terms than could be negotiated. This creates an asymmetry -- the owner can never obtain such better terms as the applicant can always opt out. The process focuses on litigation rather than the creation of joint value.
We are inching towards a less interventionist framework assisted by a rare display of political consensus. While this is to be welcomed, progress remains too slow, particularly in telecommunications.
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