Australia: Port of Darwin: Too much discretion for the regulator?

EXECUTIVE SUMMARY

The proposed regulatory framework for the Port of Darwin is set out in the Ports Management Bill 2014 (NT). In principle the draft Bill draws on approaches adopted in Victoria and South Australia. In doing so, it vests a significant amount of discretion in the Northern Territory Utilities Commission, a notionally independent regulator1 to make determinations about the appropriate level of regulation and potentially to set up front charges and terms and conditions. To that extent, it has the potential to be significantly more intrusive than the approach adopted in New South Wales in respect of the Port of Botany (for example), although it is not clear from the draft Bill whether price regulation is intended to displace commercial agreements.

However, much will turn upon regulations made by the Government once the Bill is passed and, even more importantly, the approach the Utilities Commission takes to its task. If the Government elects to limit the categories of regulated services to those in, Victoria, the risk faced by the port operator will be significantly less than were it to regulate the entirety of services at the port. As a result, a potential bidder would be well advised to obtain assurances regarding the proposed regulations.

In addition, it may be worth lobbying for:

  • a provision to clarifying that price regulation imposed by the Utilities Commission does not displace a private agreement made between the port operator and an access seeker;
  • an additional provision which reaffirms the Government's preference for light handed regulation which appears to be intended;
  • the guidelines discussed in section 0 to be issued in draft prior to the sale (to give potential investors more certainty).

WHAT IS SUBJECT TO REGULATION?

Only "prescribed services" will be subject to regulation pursuant to Parts 10 and 11 of the Bill and the Utilities Commission Act (NT). However, the Bill does not define what a prescribed service is, leaving this to be specified by regulations promulgated by the NT Government. Typically, the following port services have been regulated when provided by private operators (e.g. in Victoria, South Australia):

  • port access via channels;
  • provision of port facilities for loading or unloading vessels; and
  • berthing (including the provision of berths, buoys and dolphins).

It may be in bidders' interests to seek guidance from the NT Government whether a similar approach will be taken here (if indeed any services are to be prescribed at the Port of Darwin). In this regard, it may be relevant that the current Utilities Commissioner, Dr Pat Walsh, is also the Chairperson of the Essential Services Commission of South Australia.2

HOW IS CHARGING CONSTRAINED?

The port operator may publish reference tariffs and it may also enter into commercial agreements with particular access seekers on different terms3 (subject to the non-discrimination obligations discussed below). However, the Utilities Commission has extremely broad powers to regulate charges for prescribed services.4

Prescribed services provided by the port operator can be regulated by the Utility Commission through regulation of the following functions:

  • prices for goods and services;
  • standards and conditions of service and supply;
  • licensing;
  • market conduct; and
  • other economic regulatory matters.5

There is no doubt that this gives the Utilities Commission significant power. For comparison, it goes beyond what was implemented by the NSW Government at the Port of Botany.

In exercising its power to set prices, the regulator must have regard to a fairly standard list of factors concerned with ensuring that pricing is reflective of the costs of providing access and that monopoly rents are not extracted.6 Prices must be reviewed at least every three years.7 Whilst this approach is well accepted (and similar to Victoria) it requires an experienced and well resourced regulator to ensure that robust and reasonable decisions are made.

To that end, bidders may wish to inquire of Government the extent to which the regulator will be adequately resourced and treated as independent. In addition to the Commissioner who is an economist with significant expertise in energy regulation and reform, the two assistant Commissioners have expertise in electricity and the public sector.8

OTHER REGULATORY OBLIGATIONS

Standard non discrimination provisions apply to the port operator. The non-discrimination provisions apply to arrangements between the provider and its customers9 and between different access seekers with the provider.10 However, price discrimination appears to be permitted.11

The port operator must develop a draft access policy in compliance with guidelines issued by the Utilities Commission, the relevant Minister and the regulations.12 The Utilities Commission has 60 days to approve or reject the draft policy.13 As set out above, it would be useful to have a copy of these guidelines before the sale proceeds.

The port operator may act reasonably in refusing alter or add to port facilities, address emergencies (comprising threats to public health and safety, property and the environment) and comply with its access policy.14

APPEAL RIGHTS AND INFORMATION GATHERING POWERS

There are extremely limited review rights from a determination of the Utilities Commission. An application for review by the Utilities Commission of its determination can only be made by the Minister or licensed entity.15 A decision may only be appealed to the Supreme Court for bias or material misinterpretation of the facts within 14 days of the decision being made or not made.16 The Supreme Court may only have regard to material before the Utilities Commission when making (or failing to make) the original decision. Given that the powers of the Utilities Commission are broad and the Utilities Commission is a relatively new regulator,17 this may be problematic. However, most of the operative provisions concerned are in the Utilities Commission Act (NT) and unlikely to be changed as part of the sale process, as they are of more general application.

In addition, it is worth noting that the regulator has broad information gathering powers,18 as well as specific information gathering powers under the Bill relating to the mandatory annual report on instances of non compliance (clause 129) and the non-discrimination obligations (clauses 123 and 124).19 However, the mere existence of those powers does not necessarily mean that the Commission will routinely exercise them as a matter of practice.

Footnotes

1While the Commissioners are independent, the Commission is staffed by the Northern Territory Department of Treasury and Finance and is an administrative unit of that Department

2 See here

3Clause 110(3)

4 By regulation, on recommendation of the regulator and following a public inquiry together with certification of cost/benefit analysis by the Minister, the following forms of price regulation may be imposed: price monitoring; pricing policies or principles; fixing the price or the rate of increase or decrease in such a price; fixing a maximum price; fixing a maximum revenue in relation to a specified prescribed service; applying an average price cap; revenue yield control and/or any other form of economic regulation used by an independent regulatory body (clause 133).

5Section 20 Utilities Commission Act (NT)

6Clause 132

7 Clause 131(4)

8See here

9 Clause 123

10Clause 124

11 Clause 132

12Clause 126

13 Clause 126(3)

14 Clause 123

15 Unless the Bill declares a decision to be final, then no review is available: section 27 Utilities Commission Act (NT)

16 Section 28 Utilities Commission Act (NT)

17 The Utilities Commission was established in 2000, the current Commissioner was appointed in 2011 and the current Assistant Commissioners in 2009, details here

18Clause 135

19 Clause 130

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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