AUSTRALIAN COMPETITION TRIBUNAL

Application by Port of Newcastle Operations Pty Ltd [2019] ACompT 1

IN THE AUSTRALIAN COMPETITION TRIBUNAL

THE TRIBUNAL DETERMINES THAT:

The ACCC’s Final Determination made under s 44V of the Competition and Consumer Act 2010 (Cth) dated 18 September 2018, be varied by deleting Clauses 2.1, 2.2 and 6.1 and replacing them as follows:

2.1    The scope of the determination is confined to the terms and conditions of access where Glencore owns or, either directly or by agent, charters a vessel that enters the Port precinct and loads Glencore coal.

2.2    For the avoidance of doubt, the determination does not apply to:

(a)    the terms and conditions of access to apply in respect of vessels carrying coal that are not owned, or have not been chartered, by Glencore;

(b)    the terms and conditions of access for vessels other than those calling at the coal terminals at the Port; and

(c)    any charges imposed by PNO other than the Navigation Service Charge and the Wharfage Charge.

6.1    The Navigation Service Charge payable by Glencore to PNO in accordance with this determination will be $1.0058 as at 1 January 2018.

IN THE AUSTRALIAN COMPETITION TRIBUNAL

THE TRIBUNAL DETERMINES THAT:

The ACCC’s Final Determination made under s 44V of the Competition and Consumer Act 2010 (Cth) dated 18 September 2018, be varied by deleting Clauses 2.1, 2.2 and 6.1 and replacing them as follows:

2.1    The scope of the determination is confined to the terms and conditions of access where Glencore owns or, either directly or by agent, charters a vessel that enters the Port precinct and loads Glencore coal.

2.2    For the avoidance of doubt, the determination does not apply to:

(a)    the terms and conditions of access to apply in respect of vessels carrying coal that are not owned, or have not been chartered, by Glencore;

(b)    the terms and conditions of access for vessels other than those calling at the coal terminals at the Port; and

(c)    any charges imposed by PNO other than the Navigation Service Charge and the Wharfage Charge.

6.1    The Navigation Service Charge payable by Glencore to PNO in accordance with this determination will be $1.0058 as at 1 January 2018.

REASONS FOR DETERMINATION

INTRODUCTION

1    The two applications before the Tribunal concern a dispute between Port of Newcastle Operations Pty Ltd (‘PNO’) and Glencore Coal Assets Australia Pty Ltd (‘Glencore’) regarding the terms and conditions of access to the Port of Newcastle (the ‘Port’).

2    PNO is the operator of the Port and Glencore is a user of the Port. PNO filed its application on 8 October 2018 (ACT 2 of 2018) and Glencore filed its application a day later on 9 October 2018 (ACT 3 of 2018).

3    The Port is subject to the access regime contained in Part IIIA of the Competition and Consumer Act 2010 (Cth) (the ‘CCA’). Pursuant to that regime, and by Glencore’s notification dated 4 November 2016, the dispute between it and PNO was referred to the Australian Competition and Consumer Commission (the ‘ACCC’) for arbitration. As a result of that arbitration the ACCC determined the value of certain charges that PNO could levy on Glencore for access to the Port and the circumstances in which such arbitrated charges could be levied. The ACCC’s determination as to these matters was published in its Final Determination on 18 September 2018.

4    Each application calls on the Tribunal to review the Final Determination by conducting a ‘re-arbitration’ pursuant to s 44ZP. The Tribunal’s function in applications of this kind is not to identify error in the relevant arbitration determination but to re-arbitrate the dispute between access seeker and access provider based on the information, reports and things referred to in s 44ZZOAAA.

5    Whilst there was some disputation as to the material the Tribunal should consider in this re-arbitration, nothing turned upon this disputation in the Tribunal’s deliberations and its ultimate determination. Putting aside the report which Glencore asked the Tribunal to consider (to which we will return) there were a number of documents that were not taken into account by the ACCC, which are set out in an annexure to the ACCC’s submissions in each application, dated 5 April 2019. The Tribunal has not taken these documents into account, but as mentioned nothing turns on this for the purposes of the Tribunal’s deliberations and determination.

6    The Tribunal will be referring to the ACCC’s Draft and Final Determinations as a convenient way to address the issues raised in the re-arbitration. In doing so the Tribunal follows the approach of the parties, although the relevant materials and arguments were strictly set out in the Statements of Reasons provided with each Determination, not in the Determinations themselves. The Tribunal is still undertaking a re-arbitration and not a review or appeal of the ACCC’s Final Determination. However, just as the applications were presented to the Tribunal by the parties, the task of the Tribunal does not require it to ignore the reasoning of the ACCC. In fact a great deal of the reasoning and the Final Determination itself remained non-contentious.

7    For convenience’s sake, the ACCC’s Final Determination is annexed to these reasons as Annexure “A”. A document which identifies aspects of the Final Determination not in dispute, jointly prepared by the parties and the ACCC (at the request of the Tribunal), is annexed to these reasons in summary form as Annexure “B”.

BACKGROUND

8    The Port is a major commercial shipping port and one of the largest coal export ports in the world. It is considered to be the only port from which it is commercially viable to export coal from the Hunter Valley coal fields in New South Wales (‘NSW’). The Hunter Valley coal industry and its associated supply chain is responsible for around 90% of NSW’s coal production and 40% of Australia’s total black coal production.

9    Glencore is the largest exporter by volume of coal from the Port. Approximately 85% of the coal mined by Glencore is exported to global markets including Japan, South Korea, Taiwan, China and Europe. Thermal coal exported from the Port to these destinations competes with coal exported from other countries such as Indonesia.

10    PNO has operated the Port since May 2014. Prior to this, the Port was operated by the State of NSW. In May 2014, the joint venture parents of PNO (Hastings Fund Management and China Merchants Group) acquired a 98 year lease from the NSW Government effectively privatising the Port’s assets. PNO is now jointly owned by The Infrastructure Fund (a wholesale investment fund under the trusteeship of Gardior Pty Ltd) and China Merchants Group. Under the terms of the lease, PNO has the power and authority to, amongst other things, fix and collect port charges pursuant to Pt 5 of the Ports and Maritime Administration Act 1995 (NSW) (the ‘PMAA’). Two such charges are relevant to this access dispute: the Navigation Service Charge (the ‘NSC’) (which is payable in respect of general use by a vessel of the Port and its infrastructure) and the Wharfage Charge (which is payable in respect of the availability of a site at which stevedoring operations may be carried out). After it assumed the role of Port operator, PNO implemented a restructure of its charges with the effect that the price for coal ships using the Port increased by between 40% and 60% for some vessel types. The charges applied by PNO to Glencore (and other users of the Port) were as follows:

    Navigation Service Charge: $0.7286 per gross tonne in its 2015 port pricing schedule, and increased to $0.7553 per gross tonne in its 2018 port pricing schedule; and

    Wharfage Charge: $0.0746 per revenue tonne.

11    We observe that the NSC is applied by PNO at different rates to coal vessels, cruise vessels, and non-coal vessels (other than cruise vessels).

Declaration of services at the Port

12    In the wake of PNO’s restructure of Port charges, Glencore made an application to the National Competition Council (‘NCC’) on 13 May 2015 for certain services at the Port to be ‘declared’ for the purposes of Part IIIA. The NCC issued its recommendation to the relevant Minister on 2 November 2015 which recommended the service not be declared on the grounds that it did not meet the requirement that declaration would promote a material increase in competition in at least one market other than the market for the service. The NCC was otherwise satisfied that all other criteria were met. On 8 January 2016, the Minister published his decision under s 44H(1) in which he decided not to declare the nominated service on the same basis as that recommended by the NCC.

13    On 29 January 2016, Glencore applied to the Tribunal under s 44K for review of the Minister’s decision. The Tribunal set aside the Minister’s decision in Re Application by Glencore Coal Pty Ltd [2016] ACompT 6, and on 16 June 2016 declared the following service:

the provision of the right to access and use the shipping channels (including berths next to the wharves as part of the channels) at the Port of Newcastle (Port), by virtue of which vessels may enter the Port precinct and load and unload at relevant terminals located within the Port precinct and then depart the Port precinct.

     (the ‘Service’)

14    The precise drafting of the description of the Service is important. It is a matter to which we will return later in these reasons.

Notification and arbitration of the dispute

15    Following the declaration of the Service, Glencore made a series of attempts to negotiate with PNO in respect of the terms and conditions upon which Glencore could access the Port. No agreement was reached and on 4 November 2016, Glencore notified the ACCC under s 44S(1) of the existence of an access dispute in relation to the Service. In its notification to the ACCC, Glencore described the dispute as follows:

Although PNO is currently providing access (and maintaining that it will always do so) the terms of access, in particular the navigation service charges for coal vessels, are unreasonable and Glencore is seeking to negotiate with PNO on reducing these charges to approximately their pre-privatisation levels (or pre-2015 levels as 2015 was the point at which PNO increased the charges, shortly after the Service was privatised and assets re-valued from $1.75 billion to $2.4 billion). Glencore submits that, at the very least, an economically efficient charge is likely to be significantly lower than the rates which are currently being applied by PNO.

16    On 22 December 2016, the ACCC advised Glencore and PNO that:

(1)    the pre-conditions for notification of an access dispute under s 44S had been met;

(2)    an access dispute relating to the Service existed between Glencore and PNO; and

(3)    the access dispute had been validly notified by Glencore.

17    The ACCC also established a ‘Commission’ for the purposes of the access dispute arbitration pursuant to ss 44U to 44ZNA of the CCA.

18    Between 22 December 2016 and 20 July 2018, the parties provided the ACCC with a considerable volume of information pertaining to the arbitration, and more specifically information to be used to determine appropriate regulated access prices for the Service.

Judicial review of the notification of the dispute

19    On 9 October 2017, during the course of the arbitration, PNO filed proceedings against the ACCC and others in the Federal Court of Australia seeking judicial review in relation to the conduct of the ACCC’s arbitration. PNO and Glencore agreed to stay the arbitration while PNO’s challenge to the conduct of the arbitration was reviewed by the Court.

20    PNO claimed that the arbitration had not been validly commenced by the ACCC and that pre-conditions for notification of the access dispute had not been satisfied. On 9 November 2017, the Federal Court dismissed PNO’s application and found that the ACCC should be permitted to complete the arbitration process without interference from the Court: Port of Newcastle Operations Pty Ltd v Australian Competition and Consumer Commission [2017] FCA 1330; (2017) 350 ALR 552.

21    The arbitration resumed shortly after the Court’s judgment was handed down.

The ACCC’s Draft Determination

22    On 20 July 2018, the ACCC published its draft determination (‘Draft Determination’) as required by s 44V(4), accompanied by a draft statement of reasons. PNO and Glencore were invited to make further submissions in light of the Draft Determination and did so. In its Draft Determination, the charges payable by Glencore as at 1 January 2018 on access to the Service within the scope of the determination were as follows:

    Navigation Service Charge: $0.4685 per gross tonne; and

    Wharfage Charge: $0.0746 per revenue tonne.

The ACCC’s Final Determination

23    On 18 September 2018, the ACCC issued its Final Determination of the access dispute pursuant to s 44V(1)(b) along with a statement of reasons as required by s 44V(5), and an arbitration report. In its Final Determination, the charges payable by Glencore as at 1 January 2018 on access to the Service within the scope of the determination were as follows:

    Navigation Service Charge: $0.6075 per gross tonne (ie an increase of $0.1390 as compared to the Draft Determination); and

    Wharfage Charge: $0.0746 per revenue tonne (unchanged from the Draft Determination).

24    Relevantly, the scope of the Final Determination was limited to access to the Service:

(1)    where Glencore, either directly or by agent, charters a vessel to enter the Port precinct and load Glencore coal; and

(2)    where Glencore makes a representation to PNO of the kind referred to in s 48(4)(b) of the PMAA that it has the functions of the owner of a vessel, or accepts the obligation to exercise those functions, in order to enter the Port precinct and load Glencore coal.

25    The ACCC determined that the Final Determination did not apply to:

(1)    the terms and conditions of access in respect of vessels carrying coal which have not been chartered by Glencore or in respect of which Glencore has not made a representation of the kind referred to in s 48(4)(b) of the PMAA;

(2)    the terms and conditions of access for vessels other than those calling at the coal terminals at the Port, and

(3)    any charges imposed by PNO other than the NSC and the Wharfage Charge.

26    We will return to this defined scope and to the meaning of a representation of the kind referred to in s 48(4)(b) of the PMAA later in these reasons.

27    The Final Determination also provided for:

(1)    ‘backdating’ provisions to the effect that the charges apply from the period starting 8 July 2016, being the date of declaration of the Service by the Tribunal as contemplated by s 44ZO(4)(b); and

(2)    ‘five-year review’ provisions which contemplate a five-year review of the NSC involving a roll forward of the regulated asset base (the ‘RAB’) including actual capital expenditure which is incurred in the five-year period not funded by users (‘Five-Year Review’).

LEGISLATIVE CONTEXT

Competition and Consumer Act 2010 (Cth)

28    Part IIIA of the CCA is concerned with third party access to certain ‘declared’ services such as the Port. In circumstances where the provider of a service and a user of a service cannot reach a commercial agreement on the terms and conditions upon which the user can access the service, either the user or the provider may notify the ACCC of an access dispute and request that the ACCC arbitrate. To this end, s 44S relevantly provides as follows:

(1)    If a third party is unable to agree with the provider on one or more aspects of access to a declared service, either the provider or the third party may notify the Commission in writing that an access dispute exists, but only to the extent that those aspects of access are not the subject of an access undertaking that is in operation in relation to the service.

(2)    On receiving the notification, the Commission must give notice in writing of the access dispute to:

(a)    the provider, if the third party notified the access dispute;

(b)    the third party, if the provider notified the access dispute;

(c)    any other person whom the Commission thinks might want to become a party to the arbitration.

29    Section 44B contains the definition of ‘third party’ among other terms:

“third party”, in relation to a service, means a person who wants access to the service or wants a change to some aspect of the person’s existing access to the service.

30    Once a dispute has been notified to the ACCC, an arbitration is commenced. Relevantly, s 44U provides:

The parties to the arbitration of an access dispute are:

  (a)    the provider;

  (b)    the third party;

(c)    any other person who applies in writing to be made a party and is accepted by the Commission as having a sufficient interest.

31    And further, s 44V relevantly provides:

(1)    Unless it terminates the arbitration under section 44Y, 44YA, 44ZZCB or 44ZZCBA, the Commission:

(a)    must make a written final determination; …

on access by the third party to the service.

(2)    A determination may deal with any matter relating to access by the third party to the service, including matters that were not the basis for notification of the dispute. By way of example, the determination may:

   (a)    require the provider to provide access to the service by the third party;

   (b)    require the third party to accept, and pay for, access to the service;

(c)    specify the terms and conditions of the third party’s access to the service;

   (d)    require the provider to extend the facility;

…

(2A)    Without limiting paragraph (2)(d), a requirement referred to in that paragraph may do either or both of the following:

(a)    require the provider to expand the capacity of the facility;

(b)    require the provider to expand the geographical reach of the facility.

(3)    A determination does not have to require the provider to provide access to the service by the third party.

32    We should at this juncture comment on the operation of s 44V(2), which was relied upon by Glencore in support of its contention on the scope of the arbitration. In short, Glencore contended that the terms of s 44V(2) were such to permit a determination making Glencore’s terms of access available to persons who access facilities at a berth to load coal onto a vessel, regardless of whether that person is the owner or charterer of the vessel. The Tribunal does not accept the expansive operation of s 44V(2) as contended for by Glencore.

33    Access disputes within the context of Part IIIA are bilateral in nature. The consequence of the declaration of the Service was that a party (ie the person seeking access to the Service) had a right to negotiate with the provider of the Service. If they were unable to agree, then the party seeking access could notify the dispute to the ACCC. Access disputes are not intended to address rights of access by all users of a declared service. Further, the Final Determination under scrutiny in these applications does not deal with the general right of access by Glencore to the Port, but with the terms of access pertaining to that right of access already available. Glencore here is wanting a change to aspects of the existing access to the Service. The contest is thus as to the terms of the access already made available to Glencore, and relating to Glencore’s access as defined in the Service. Subsection 44V(2) allows the ACCC, in making a determination, some flexibility to deal with related matters to the access sought in Glencore’s notification. The inclusory matter mentioned in s 44V(2) suggests this by indicating matters, that were not the basis of notification of the dispute, which must nevertheless be related to the actual dispute between the parties as notified to the ACCC.

34    The provision in s 44V(2)(d), which deals with the provider extending the facility (including expanding its capacity), is within the scope of determining ‘access by a third party’. This is because it deals with the provider needing to act in connection with the circumstances relating to the particular third party, who notifies or who has been notified of the access dispute, which currently existed and which gave rise to the request for the ACCC to arbitrate.

35    In the present case, the Service consists of the provision of the right to access and use the shipping channel at the Port, by virtue of which vessels may enter the Port precinct, and load and unload at terminals within the Port precinct. The only circumstance in which Glencore could be said to be using the Service so defined is where it owns or, whether directly or by agent, charters a vessel to enter the Port precinct and load Glencore coal. We will return to this issue later in these reasons. However, it is important to appreciate that s 44V(2), whilst allowing for certain related matters to be dealt with by the ACCC that were not the basis for notification of the dispute, would not permit a change to the Service as defined and declared by the Tribunal on 16 June 2016.

36    As we have already observed, the applications before us call on the Tribunal to conduct a ‘re-arbitration’ of the access dispute. In this sense, the Tribunal is not required to identify any form of error in the Final Determination having regard to, for instance, the mandatory considerations the ACCC is required to take into account. That said, it is nevertheless helpful to outline the ACCC’s obligations when arbitrating disputes under Division 3 of Part IIIA, particularly as these are also relevant to our determination.

37    Section 44X sets out the matters that the ACCC must take into account in making final determinations in notified access disputes. At the time of the dispute being notified to the ACCC, it provided:

(1)    The Commission must take the following matters into account in making a final determination:

(aa)    the objects of this Part;

(a)    the legitimate business interests of the provider, and the provider’s investment in the facility;

(b)    the public interest, including the public interest in having competition in markets (whether or not in Australia);

(c)    the interests of all persons who have rights to use the service;

(d)    the direct costs of providing access to the service;

(e)    the value to the provider of extensions whose cost is borne by someone else;

(ea)    the value to the provider of interconnections to the facility whose cost is borne by someone else;

(f)    the operational and technical requirements necessary for the safe and reliable operation of the facility;

(g)    the economically efficient operation of the facility;

(h)    the pricing principles specified in section 44ZZCA.

(2)    The Commission may take into account any other matters that it thinks are relevant.

38    We should observe that amendments have been made to the CCA since the time of notification to the ACCC, but the parties agreed that the amendments were of no significance to the dispute before the Tribunal.

39    Relevant to subsection (aa), the objects of Part IIIA are set out in s 44AA:

(a)    promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and

(b)    provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry.

40    Relevant to subsection (h), s 44ZZCA sets out three pricing principles:

The pricing principles relating to the price of access to a service are:

(a)    that regulated access prices should:

(i)    be set so as to generate expected revenue for a regulated service or services that is at least sufficient to meet the efficient costs of providing access to the regulated service or services; and

(ii)    include a return on investment commensurate with the regulatory and commercial risks involved; and

(b)    that the access price structures should:

(i)    allow multi-part pricing and price discrimination when it aids efficiency; and

(ii)    not allow a vertically integrated access provider to set terms and conditions that discriminate in favour of its downstream operations, except to the extent that the cost of providing access to other operators is higher; and

(c)    that access pricing regimes should provide incentives to reduce costs or otherwise improve productivity.

41    Also relevant to the ACCC’s role in arbitrations of access disputes are the statutory restrictions on final determinations. Section 44W provides that a determination of the ACCC has no effect if it would have any of the following effects:

(a)    preventing an existing user obtaining a sufficient amount of the service to be able to meet the user’s reasonably anticipated requirements, measured at the time when the dispute was notified;

(b)    preventing a person from obtaining, by the exercise of a pre-notification right, a sufficient amount of the service to be able to meet the person’s actual requirements;

(c)    depriving any person of a protected contractual right;

(d)    resulting in the third party becoming the owner (or one of the owners) of any part of the facility, or of extensions of the facility (including expansions of the capacity of the facility and expansions of the geographical reach of the facility), without the consent of the provider;

(e)    requiring the provider to bear some or all of the costs of extending the facility (including expanding the capacity of the facility and expanding the geographical reach of the facility);

(ea)    requiring the provider to bear some or all of the costs of maintaining extensions of the facility (including expansions of the capacity of the facility and expansions of the geographical reach of the facility);

(f)    requiring the provider to bear some or all of the costs of interconnections to the facility or maintaining interconnections to the facility.

42    Separately, the Tribunal’s role in re-arbitrations of access disputes is set out in s 44ZP. Relevantly, that section provides:

(3)    A review by the Tribunal is a re-arbitration of the access dispute based on the information, reports and things referred to in section 44ZZOAA.

(4)    For the purposes of the review, the Tribunal has the same powers as the Commission.

(5)    The member of the Tribunal presiding at the review may require the Commission to give assistance for the purposes of the review.

…

(6)    The Tribunal may either affirm or vary the Commission’s determination.

43    Pursuant to s 44ZZOA, the Tribunal is required to make a decision within the ‘consideration period’. The consideration period is ordinarily a period of 180 days from the date of the application for review, but may be extended by written notice to the relevant Minister (see s 44ZZOA(7)), or extended in effect by agreement between the relevant parties (see s 44ZZOA(5)). The consideration period for the Tribunal’s determination of these applications is further addressed below.

44    Pursuant to s 44ZZOAA, the Tribunal must have regard to all of the information that the ACCC took into account in connection with the making of its Final Determination, as well as any information that the Tribunal has requested under the powers set out in s 44ZZOAAA(4) or anything done as mentioned in s 44ZP(5) or any information or report given to the Tribunal under s 44ZP(5A). We address s 44ZZOAAA(4) below in the context of an application made by Glencore for the Tribunal to request and consider additional information that was not taken into account by the ACCC in connection with the making of its Final Determination.

45    At the outset the Tribunal makes the following observations relating to these statutory provisions and their operation in these proceedings, particularly in relation to the important issue of ‘user contributions’ (to which we will return in more detail).

46    It is clear from the mandatory considerations that the Tribunal can and must have regard to a range of matters in a determination. The weight to be given to each matter is a question for the Tribunal depending on the circumstances before the Tribunal. To the extent mandatory considerations pull in different directions, again this is a matter the Tribunal needs to consider and undertake a balancing exercise. It is essentially an evaluative exercise.

47    Legitimate business interests of the provider are a factor to consider, and these need to be carefully considered and evaluated. This consideration is referred to expressly in s 44X(1)(a), the objects of Part IIIA (s 44AA) and the pricing principles (s 44ZZCA).

48    It is important (as one aspect to consider) that the price and terms of access should provide an incentive to a service provider to efficiently (and in a timely fashion) invest in maintaining and improving infrastructure necessary to provide facilities at the Port. Prices that are too low can lead to non-investment or delayed investment, or the non-provision of some infrastructure services.

49    The significance of this consideration is confirmed by the extrinsic materials to the Trade Practices Amendment (National Access Regime) Bill 2005 (Cth), which introduced the pricing principles. The Revised Explanatory Memorandum to that Bill notes (at [22.2]) that the pricing principles were introduced to address concerns that the potential for access regulation would deter investment in essential infrastructure, and that the pricing principles are intended to ensure that ‘the objects clause has more than just symbolic value, by providing effective market signals for the efficient use of existing resources and for future investment in infrastructure’. The Explanatory Memorandum goes on to explain (at [22.7]) that the pricing principle in s 44ZZCA(a)(ii) requires the ACCC to specifically factor in regulatory and commercial risks faced by service providers, to counter the perception that regulation favours service users:

The reference to regulatory risk in Pricing Principle (a)(ii) is intended to refer to the perception that the exercise of regulatory discretion will be undertaken in a heavy-handed, arbitrary or uneven fashion. While such perceptions may deter investment in any dysfunctional market subject to regulation, regulatory risk takes on greater importance for infrastructure investors, due to the length of time and expense required for service providers to respond to changes in a market, perceptions that regulatory decisions tend to be biased in favour of service users rather than service providers/investors, the scale of investment in infrastructure and the sunk nature of the assets. Pricing Principle (a)(ii) requires regulators specifically to factor in regulatory and commercial risks in setting access prices. This may assist to address perceptions that regulatory bias favours service users.

50    The other matter to recall is that regulation under Part IIIA is not an end in itself, but rather, the means of promoting effective competition in upstream and downstream markets. In BHP v National Competition Council (2008) 236 CLR 145, the High Court reviewed the background against which the Competition Policy Reform Act 1995 (Cth) (the ‘1995 Act’) introduced Part IIIA to the Trade Practices Act 1976 (Cth) (the ‘TPA’). The Court quoted (at [13]) from the Second Reading Speech in the Senate on the Bill for the 1995 Act, where the Minister said:

The bill inserts a new Part into the [TPA], to establish a legal regime to facilitate third parties obtaining access to the services of certain essential facilities of national significance. The notion underlying the regime is that access to certain facilities with natural monopoly characteristics, such as electricity grids or gas pipelines, is needed to encourage competition in related markets, such as electricity generation or gas production. Access to such facilities can be achieved if a person seeking access is successful in having the service ‘declared’ and then negotiates access with the service provider.

51    Glencore already has access to the Port, and this Tribunal has previously reached the view that it was not satisfied that increased access would promote a material increase in competition in the coal export market, or any other dependent market (see Application by Glencore Coal Pty Ltd [2016] ACompT 6 at [157]). These findings were made in the context of whether the service should be declared but are relevant to pricing and terms of access. For instance, there can be no competition-related justification to deduct $912.0 million from the optimised replacement cost (‘ORC’) for “user contributions” on the basis that the deduction will promote competition in related markets.

52    A number of other matters should be mentioned relating to the statutory provisions under consideration, particularly in respect of ‘user contributions’. As initial observations we make the following comments.

53    We do not see a deduction being made to the RAB for user contributions as consistent with allowing the Port to recover its efficient costs. Undoubtedly, the concepts of efficient costs and efficient operation appear in several provisions: ss 44X(1)(g), 44AA(a) and 44ZZCA(a)(i). However the efficient costs, pursuant to the methodology adopted by the ACCC, are those which a new entrant would incur, the depreciated ORC (‘DORC’) value. The concept of “efficiency” does not explain or justify any deduction of particular assets for historical reasons.

54    Subsection 44X(1)(e) provides that in making a determination the ACCC must take into account the value to the service provider of extensions whose cost is borne by someone else. The Tribunal takes the view this factor is directed at situations where the determination requires the provider to extend the facility (for example by extending a train line to a third party’s mine) and is not applicable here.

55    Then the question arises whether the deduction is justified as being in the interests of those who have a right to use the Service (s 44X(1)(c)) because it will ensure that users do not pay for the same assets twice: once through their initial investment and again through PNO’s charges. This presupposes, however, that the user has made an initial contribution with the expectation of receiving a future price benefit. In the present case, that assumption is not valid. However, we will return later to this issue in more detail.

Ports and Maritime Administration Act 1995 (NSW)

56    Part 5 of the PMAA governs the imposition of various port charges on either the owner of the vessel in which cargo is loaded or the owner of the cargo being loaded. Ordinarily, such charges are payable to the relevant port authority (see s 68), but by virtue of the 98 year lease arrangement, these charges are payable to PNO in the case of the Port.

57    As noted above, two charges are relevant to this access dispute: the NSC and the Wharfage Charge.

58    Section 50 of the PMAA relevantly provides for the imposition of the NSC in respect of the general use by a vessel of the Port and its infrastructure as follows:

(1)    A navigation service charge is payable in respect of the general use by a vessel of a designated port and its infrastructure…

(2)    Unless the regulations otherwise provide, the charge:

(a)    is payable on each entry by the vessel into any designated port, and

(b)    is to be calculated by reference to the gross tonnage of the vessel

…

(4)    A navigation service charge is payable by the owner of the vessel concerned.

59    Section 61 of the PMAA also relevantly provides for the imposition of the Wharfage Charge in respect of the loading and unloading of cargo at the Port as follows:

(1)    A wharfage charge is payable in respect of the availability of a site at which stevedoring operations may be carried out.

…

(3)    The charge is payable:

(a)    in the case of cargo that is unloaded at the site—by the person who, immediately after it is unloaded, is the owner of the cargo, and

(b)    in the case of cargo that is loaded at the site—by the person who, immediately before it is loaded, is the owner of the cargo.

(4)    To the extent, however, that the charge is not paid by the person indicated in subsection (3) as liable for its payment, the charge is payable by the person who, at the time payment is demanded by the relevant port authority, is the owner of the cargo.

60    Relevantly, s 67 of the PMAA provides as follows:

(1)    The relevant port authority may enter into an agreement with a person liable to pay any kind of charge under this Part.

(2)    Such an agreement may make provision for or with respect to:

(a)    fixing the amount of any charge payable by the person to the relevant port authority, and

(b)    any other matter which the relevant port authority is permitted by or under this Part to determine in respect of the charge, and

(c)    any right or privilege which by or under this Part accrues to the person liable to pay the charge, or which the relevant port authority may confer on the person.

(3)    To the extent that provision is so made, the agreement displaces any determinations of the relevant port authority in relation to the charge or to the matter, right or privilege concerned.

61    Importantly, the PMAA defines for the purposes of that Act the term ‘owner’ when used in the context of a vessel or cargo. In this respect, s 48 of the PMAA relevantly provides:

(1)    In this Act, owner of a vessel or cargo means (subject to this section) the person who owns the vessel or cargo.

(2)    A reference in this Act to the owner of a vessel includes a reference to:

(a)    a person registered as the vessel’s owner in the relevant authority under the marine legislation or the National law or other certificate of registry for the vessel, or

  (b)    a person who has chartered the vessel.

…

(4)    A reference in this Act to the owner of a vessel or cargo includes a reference to any person who, whether on the person’s own behalf or on behalf of another:

   (a)    exercises any of the functions of the owner of the vessel or cargo, or

(b)    represents to the relevant port authority that the person has those functions or accepts the obligation to exercise those functions.

…

62    This section, and more specifically s 48(4)(b), formed part of the basis for the scope of the determination defined by the ACCC in its Final Determination, and is a topic of contention between PNO and Glencore in this access dispute.

63    Separately, Division 6A of the PMAA was introduced by amendments made on 26 November 2012. It allows the relevant port authority (PNO in the case of the Port) to levy on port users ‘infrastructure charges’ to fund investment in infrastructure projects such as the acquisition or development of land to be used as part of the port precinct, or the provision of services and facilities by the operator of the Port. As will be seen, this Division is relevant to one of the topics of contention raised in Glencore’s application regarding user contributions.

64    Finally, we mention cl 11 of the Ports and Maritime Administration Regulation 2012 (NSW), which provides as follows relating to the responsibility of an ‘owner’ of a vessel to provide certain particulars to PNO relevant to the NSC:

The owner of a vessel in respect of which a navigation service charge is payable must, at such time as the relevant port authority requires, furnish the relevant port authority with the following particulars:

(a)    the owner’s name and address,

(b)    the name, identifying particulars and relevant voyage number of the vessel,

(c)    the gross tonnage of the vessel,

(d)    the port in respect of which the navigation service charge is payable,

(e)    the date on which, the time at which, and the purpose for which, the vessel entered the port,

(f)    such other information with respect to payment of the navigation service charge as the relevant port authority reasonably requests.

Maximum penalty: 20 penalty units.

PRELIMINARY ISSUES

65    Before embarking on the parties’ submissions regarding the substantive aspects of the access dispute, it is appropriate to briefly address the two preliminary issues that arose as part of the case management of the applications before the Tribunal.

Extension of the statutory timeframe for the Tribunal’s determination

66    As noted above, the Tribunal is statutorily required to make its determination on applications brought before it under Part IIIA within the ‘consideration period’, ordinarily a period of 180 days from the date of the applications save for the effect of any extensions of time or an agreement to disregard certain periods of time (see s 44ZZOA).

67    PNO’s application was made on 8 October 2018 and Glencore’s application was made a day later on 9 October 2018. In the absence of any extension of time or an agreement to disregard certain periods of time, the ordinary application of the consideration period would require the Tribunal to make its determination as early as 6 April 2019.

68    At the initial case management hearing of the applications, it became apparent that the hearing timetable agreed between the parties and the ACCC was such the applications would not – or rather could not, for a want of sufficient time for the parties and the ACCC to prepare – be heard by the Tribunal, much less decided by the Tribunal, prior to the date on which the Tribunal would be required to make and publish its determination. The parties and the ACCC subsequently gave further consideration to the most appropriate means by which to effectively extend the timeframe for the Tribunal’s determination on the applications to a date that afforded time for the applications to be heard and for the Tribunal to make its determination. Ultimately, it was considered that an agreement to ‘stop the clock’ pursuant to s 44ZZOA(5) was the most appropriate means.

69    On 2 April 2019, the Tribunal issued a direction to memorialise its agreement pursuant to that subsection with each of the parties and the ACCC. By that direction, it was agreed that the period between 2 April 2019 and 15 July 2019 would be disregarded for the purposes of calculating the consideration period. The effect of this agreement was that the Tribunal would be required to make its determination on the applications before it by as early as 20 July 2019.

70    Due to a number of factors, including the nature of the disputation between the parties and the complex issues that arose for determination, the Tribunal concluded that it would not be in a position to make its determination on the applications before it by that date. Accordingly, by notice dated 13 June 2019, the Tribunal advised the Treasurer, pursuant to s 44ZZOA(8) of the Act, that it would make its decision by 29 November 2019. In keeping with the requirements of that section, the Tribunal provided a copy of the notice to each of the parties and the ACCC and published a short form notice in The Australian newspaper. A copy of the notice to the Treasurer was also uploaded to the Tribunal’s website.

Glencore’s application for the Tribunal to request further information

71    On 12 February 2019, Glencore made an application seeking that the Tribunal request additional information in the form of an expert report from Baggerman Associates, Marine Dredging Consultants, dated 12 February 2019 (the ‘Baggerman Report’).

72    Pursuant to s 44ZZOAAA(4) the Tribunal may request such information that the Tribunal considers reasonable and appropriate for the purposes of making its decision on a review under Part IIIA.

73    If so requested, that information must be considered by the Tribunal in addition to the information that the ACCC took into account (see s 44ZZOAA(a)(ii)), as noted above.

74    Glencore contended that the Baggerman Report should be requested (and included in the materials considered by the Tribunal) because it would assist the Tribunal to make a fully informed determination in relation to the costs of dredging. Specifically, it was claimed that the Baggerman Report would shed light on whether, as contended by Glencore, dredging of the entrance channel to the Port could be undertaken with modern dredging equipment alone, or whether, as contended by PNO, additional and expensive steps (specifically drilling and blasting pre-treatment) would need to be undertaken before dredging could occur.

75    On 27 February 2019, the Tribunal issued a memorandum to the parties and the ACCC which stated that it would refuse Glencore’s application, but that its reasons for doing so would be provided upon the publication of these reasons.

76    Before proceeding further on this topic, we should mention the way in which Glencore put its request, recalling this is a request for Glencore effectively to rely upon another expert report commissioned by it in respect of issues that were before the ACCC.

77    In support of its application, Glencore submitted:

Access disputes under Part IIIA are difficult matters for access seekers as they face an asymmetry in obtaining data as to the relevant cost structures that the access provider enjoys. The Baggerman Report addresses a critical gap in the material before the ACCC. In Glencore’s submission, its consideration is essential to permit the Tribunal to make a fully informed determination of an important issue in this proceeding, namely whether, as contended by Glencore, dredging of the Entrance Channel to the Port could be undertaken with modern dredging equipment alone (as was done, for example, at Walker Shoal near Darwin) or, as argued by PNO, whether substantial additional costs for pre-treating hard rock with drilling and blasting should be included.

78    At the outset, we do not accept that the Baggerman Report “addresses a critical gap” in the material before the ACCC. It supplements that material, but there is no critical gap. Further, the consideration of the Baggerman Report is not “essential” to permit the Tribunal to make the informed decision of the issue identified by Glencore. The Tribunal already has material on this topic on which it can make an informed decision.

79    In addition, the context in which it is sought to introduce the Baggerman Report is a factor to take into account.

80    In the lead up to the Draft Determination, Glencore, through its consultant engineers, Arup, contended that modern ‘Cutter Suction Dredgers’ (‘CSDs’) are capable of dredging of the entire Port, including the hardest rock located at the Entrance Channel (referred to as ‘dredging direct’). To support its opinion, Arup referred to the dredging of Walker Shoal in Darwin in 2014 where ‘rock with a greater strength to the Entrance of Newcastle was dredged direct by the CSD, Athena’.

81    PNO rejected this approach and, via its experts, AECOM, argued that the very hard rock at the Entrance Channel could not be dredged by CSDs and ‘would require the mobilisation of additional plant at significant cost’. AECOM also proffered the view that ‘[d]rilling and blasting then double handling with a TSHD [Trailer Suction Hopper Dredger] is also a much slower process than using a CSD’.

82    Glencore and PNO were also unable to agree on the volumes and types of material that were required to be dredged, particularly from the Entrance Channel.

83    In its Draft Determination, the ACCC accepted the position proposed by Arup:

… [B]ased on the evidence before it, the Commission has concluded that Arup’s modelling provides a more robust approach to estimating the volume and type of material to be dredged. This extends to the UCS and RQD figures. The Commission also notes that Arup’s proposed methodology to dredging is based on what it submits has occurred in practice on at least one occasion such that it goes beyond a theoretical exercise. The Commission considers that these two factors suggest that the use of more advanced technology as proposed in Arup’s report is an appropriate assumption for the purposes of a DORC valuation for this arbitration. This also informs the Commission’s consideration of dredging costs below.

84    In response to this finding, on 17 August 2018, PNO provided the ACCC with new expert material to explain why Arup’s proposed dredging methodology was impractical. This included material claiming that the sea conditions at the Port restricted the use of a CSD for much of the year and that the rock type and strengths at the Port were incomparable with those at Walker Shoal. The ACCC was critical of PNO, noting that it could have provided this information earlier in the arbitration as it was aware of Glencore’s position well before the Draft Determination. Nevertheless, the ACCC had regard to the further material.

85    Having received PNO’s additional material, on 17 August 2018, Glencore was required to provide any reply to the additional material from PNO within 10 days.

86    On 3 September 2018, Glencore provided the ACCC with a further report by Arup, responding to PNO’s additional material with as much information as it could obtain in the time available to it. That report included revised geological modelling for the Port but noted that the geotechnical data for Walker Shoal was the subject of confidentiality to a third party and thus could not be disclosed at that time. Arup also sought to address the claim that sea conditions at the Port were not suitable for the economic use of a CSD. Arup pointed out that smaller dredgers had been employed at the Port throughout its history and assessed the ‘operating envelope’ of newer, significantly larger CSDs.

87    In its Final Determination, the ACCC departed from the view it had expressed in its Draft Reasons and instead adopted the position argued by PNO: that pre-treatment of the rock with drilling and blasting was necessary. The ACCC took this view “specifically having had regard to the additional material submitted by the parties following the Draft Determination.”

88    In our determination of whether to receive and consider the Baggerman Report, a number of matters needed to be considered.

89    It is significant that the issues the Baggerman Report addressed were before the ACCC and well-known by the parties at least upon the delivery of the Draft Determination.

90    The Baggerman Report addressed the following questions:

(1)    the extent to which the Entrance Channel at the Port could, as a practical matter and had it not already been dredged, be dredged today using a modern CSD, without a requirement for drilling and blasting pre-treatment; and

(2)    to the extent that a significant portion of the Entrance Channel could be dredged by use of a CSD, the approximate total cost of dredging (including any necessary drilling and blasting pre-treatment).

91    In addressing these questions, Baggerman Associates:

(1)    introduced background information regarding dredging technology, including CSDs and other methods such as drilling and blasting;

(2)    considered the sea (wave) conditions in which modern CSDs can operate and considered independently collected data relating to the actual conditions experienced at the Entrance Channel over many years;

(3)    considered the rock types and strengths that can be dredged by modern CSDs, analysed the geotechnical aspects of the rock at the Entrance Channel by reference to bore hole data, and compared them with rock conditions found at Walker Shoal – a project in which Baggerman Associates was intimately involved; and

(4)    determined an economically appropriate work method for dredging the Entrance Channel and calculated the estimated costs of doing so. Reference was made to the volumes and geotechnical characteristics of the various materials to be removed, along with the specific production rates expected of modern dredging equipment operating at the Entrance Channel; and the real costs likely to be incurred in a commercial project.

92    It cannot be said that any of these questions or issues were only raised by the Draft Determination.

93    When on 17 August 2018, PNO lodged material in response to the Draft Determination, it included reports from Evers Consult on dredging and Akuna Dredging Solutions on dredging methodology and the assessment of hard rock at the Entrance Channel to the Port.

94    Then on 3 September 2018, when Glencore lodged its submissions in reply to PNO’s submission on 17 August 2018, that submission noted as follows:

2.    The PNO Submission repeats a number of arguments already addressed by Glencore in previous submissions made to the ACCC in this arbitration and, in particular, many of these arguments have been addressed in Glencore’s submission dated 17 August 2018. As such, Glencore does not seek to address each argument in the PNO Submission and instead maintains and refers to Glencore’s previous submissions in this matter, and in particular, its submissions to the ACCC dated 17 August 2018…

3.    Enclosed with this submission is a report from Synergies Economic Consulting (Synergies Report) and a confidential report from Arup (Arup Report) which also respond to Direction 2 of the ACCC’s Direction.

95    The Synergies report dated 3 September 2018 (referred to by Glencore) noted:

After considering the suite of reports that PNO has submitted, they, while lengthy, introduce only limited new information. In many instances, PNO’s submission restates material from previous submissions, to which we have previously responded.

96    We accept that it may have been difficult for Glencore to respond to the Draft Determination and material put forward by PNO on 17 August 2018. However, Glencore acted by 3 September 2018 in providing the ACCC with a further report from Arup on the material then obtained and available, and significantly did not request an extension of time to put further material before the ACCC. Presumably, Glencore considered it did not need to put further material before ACCC: after all, the Draft Determination on this issue was in its favour.

97    It was only upon its review of the Final Determination that Glencore wanted to rely on further material, as attested to in the affidavit of its solicitor (Mr Poddar) sworn 12 February 2019:

15.    Upon review of the Final Determination, I formed a view that the ACCC had relied on the Further PNO Material lodged on 17 August 2018 in response to the Draft Determination, and that Glencore had not had an adequate opportunity to address the matters which had impacted on the decisions reached by the ACCC in the Final Determination.

16.    As such, the need for Glencore to seek to engage an expert to provide an expert report in response to the Evers Report and Akuna Report did not become apparent until after publication of the Final Determination on 15 September 2018.

98    As Mr Poddar also attested, to address the PNO material (once the decision had been made to obtain more information after the Final Determination was published) would require time and resources to access information and obtain inputs from wave specialists.

99    Even accepting that Glencore could not reasonably have made available to the ACCC the Baggerman Report in the time limit it proposed, Glencore did not request an extension of time (presumably because it did not think it necessary) and, as we have indicated, the Baggerman Report covered issues well identified during the course of the arbitration before the Draft Determination was published.

100    Then it is important to recall the statutory context.

101    In a review of a final determination under s 44ZP, the Tribunal must only consider specified information. This primarily comprises the information the ACCC took into account in connection with the making of the determination to which the review relates, subject to the application of s 44ZZOAA.

102    There are a limited number of other categories of information or material that the Tribunal must have regard to that provide a potential avenue for “new” material (that is, material the ACCC did not take into account in making the Final Determination) to be considered as part of the review process. Each of these exceptions is only enlivened essentially by the request of the Tribunal.

103    In light of the above, the text and context make clear that s 44ZZOAA operates to limit the material that the Tribunal may consider in a review under s 44ZP. As such, to the extent “new” information is allowed into the review process it may only come via:

(1)    a request from the presiding member of the Tribunal for the ACCC to give assistance to the Tribunal pursuant to s 44ZP(5);

(2)    a request from the presiding member of the Tribunal by written notice requiring the ACCC to give information and to make reports for the purposes of the review pursuant to s 44ZP(5A);

(3)    a request from the Tribunal for ‘such information that the Tribunal considers reasonable and appropriate for the purposes of making its decision on a review’ pursuant to s 44ZZOAAA(4).

104    In connection with s 44ZZOAAA(4), the Tribunal must positively form a view that any information it requests is ‘reasonable and appropriate’ for the purposes of making its decision.

105    As a starting proposition, where a party before the Tribunal urges it to request information that could reasonably have been made available to the ACCC before it made a final determination, it would not be reasonable for the Tribunal to request such information. This is because in order for the arbitration before the ACCC to have meaning, it is critical that the parties place before the ACCC all of the material that they consider to be relevant to the determination of the access dispute.

106    In considering making any request for information, the Tribunal should also keep firmly in mind that the CCA provides for the Tribunal to make a decision within 180 days from when the application for review is made: s 44ZZOA. Although this period can be lengthened, either by agreement of relevant persons or by the Tribunal extending the time in which it has to make a decision, it is an indication that the Tribunal should be able, and should endeavour, to make decisions within that period unless there are exceptional circumstances. In this way, the time period in which it is intended that a decision will be made (referred to as the ‘expected period’ or the ‘consideration period’) should inform whether any request for ‘new’ information is reasonable and appropriate.

107    Therefore, whether it is ‘reasonable and appropriate’ to request information will be necessarily informed by a consideration of the text and context of the ss 44ZZOAAA(4) and 44ZZOAA, including:

    that the primary material on which the review is to be based is that which was before the ACCC when it made the determination, which indicates that the review process before the ACCC is to be a meaningful one, and one in which the parties have every incentive to place the material that they consider to be relevant to the resolution of the dispute before the ACCC; and

    the limited timeframes in which the Tribunal has to make a decision, which indicates that it is not intended that there be any material broadening of the information that was before the ACCC when it made its final determination.

108    Finally, we observe that Glencore submitted that it is in the public interest for the Baggerman Report to be received and considered by the Tribunal because of its ‘broader relevance to future access issues’. Undoubtedly this may be so in that any determination by the Tribunal with the Baggerman Report before it will be made public and so will have some ‘precedent’ value in that regard; but this is but one consideration to be taken into account.

109    We accept that the Baggerman Report does contain information that is of general relevance to the declared services the subject of the arbitration.

110    At a high level, it goes to the optimised replacement cost of the assets required to provide the Service, which as will be seen, represents a significant battleground in this access dispute. However, relevance is not the only focus of the inquiry invited by s 44ZZOAAA(4). Indeed, we consider that requesting the Baggerman Report pursuant to that subsection, and at the behest of Glencore, would not be in keeping with the purpose of the statutory power, keeping in mind the Tribunal’s role as re-arbitrator in applications of this kind is constrained in the material it may consider in this role.

111    In respect of the specific subsection, the purpose of s 44ZZOAAA(4) is for the Tribunal to request information which it has identified as a means to fill a gap in its knowledge. It is not to be used to introduce new information – much less information which is the product of a commission of the party seeking to have it requested – that was not available at the time of the Final Determination. In this respect, the absence of any mechanism designed to be used by a party seeking to adduce new information for the Tribunal’s consideration is telling.

112    The ACCC recognised in its Final Determination that although the arbitration was between Glencore and PNO and conducted on the basis of the issues and materials put forward by the parties, the Final Determination and the supporting statement of reasons may be relevant to other users in their future negotiations with PNO. Similar observations could be made about this review process undertaken by the Tribunal. Nonetheless, the benefit of the Tribunal’s consideration of the information for any future negotiations or arbitrations needs to be balanced against the intent of the regime: that the parties to an arbitration put all relevant information before the ACCC as the original decision-maker.

113    Nevertheless, as we have already mentioned, this access dispute is bilateral in nature. It is open to the ACCC (and the Tribunal) to determine different terms and conditions of access to the Service for different users of the Service. We also mention that the Tribunal is not aware that any other user of the Service has notified any access dispute to the ACCC in relation to the Service.

114    Further, any pricing methodology adopted in one arbitration may change in a later arbitration, particularly if changes in future events suggest different assumptions may be appropriate to adopt in any pricing approach.

115    Therefore, whilst many considerations needed to be evaluated in determining whether it was reasonable and appropriate to request the Baggerman Report, in the end the proper approach was not to make any such request.

116    Finally, it bears noting that the Tribunal was aware of the contents of the Baggerman Report and its relevance to the issues between the parties in this re-arbitration at the time it made its decision on the issue. The Tribunal did not consider it was reasonable and appropriate to request the Baggerman Report in view of the ACCC process, the information already before the Tribunal and the statutory context of the Tribunal’s task. We also observe that assuming the Tribunal has the power to request the Baggerman Report now it has had a hearing and considered the submissions of the parties, the Tribunal would still not consider it reasonable and appropriate to request (on its own motion) the Baggerman Report for the same reasons. The Tribunal still considers that it does not require the Baggerman Report to assist it in the re-arbitration and does not consider that any request for such information is reasonable and appropriate for the purpose of making its determination in this re-arbitration.

TOPICS OF CONTENTION

117    PNO and Glencore identified seven topics of contention for the Tribunal’s consideration. In support of their positions, each made a series of written submissions (received between 1 March 2019 and 15 April 2019), presented oral argument before the Tribunal over six days between 6 and 13 May 2019, and provided subsequent documentation to the Tribunal.

118    The ACCC also made submissions regarding each of the applications in accordance with the Tribunal’s directions dated 6 December 2018 and subsequent requests, which in effect required the ACCC to give assistance for the purposes of the Tribunal’s review pursuant to s 44ZP(5).

119    The seven topics of contention are summarised below:

(1)    the scope of the Final Determination;

(2)    the ACCC’s deduction of user contributions from the RAB;

(3)    the costs of channel dredging;

(4)    the inclusion in the RAB of $145 million for the importation of reclamation bunding material, and the associated issue of user-funded reclamation bunding works;

(5)    the length of the construction period and the associated issue of the amount of interest during that construction period;

(6)    whether prices should be permitted to be set at a higher level than what represents an appropriate return on coal-related assets; and

(7)    the true-up in respect of forecasted capital expenditure, and any difference between forecast capex and actual capex within each five-year period.

SCOPE OF THE FINAL DETERMINATION

120    As noted above, the ACCC concluded that the regulated prices set out in its Final Determination would only cover access to the Service:

(1)    where Glencore, either directly or by agent, charters a vessel to enter the Port precinct and load Glencore coal; and

(2)    where Glencore makes a representation to PNO of the kind referred to in s 48(4)(b) of the PMAA that it has the functions of the owner of a vessel, or accepts the obligation to exercise those functions, in order to enter the Port precinct and load Glencore coal.

121    For ease of reference, we will refer to the above as the first and second inclusive limbs, as appropriate, of the determination scope adopted by the ACCC.

122    The ACCC also expressly excluded certain matters from the scope of its Final Determination. As noted above, these matters were:

(1)    the terms and conditions of access in respect of vessels carrying coal which have not been chartered by Glencore or in respect of which Glencore has not made a representation of the kind referred to in s 48(4)(b) of the PMAA;

(2)    the terms and conditions of access for vessels other than those calling at the coal terminals at the Port, and

(3)    any charges imposed by PNO other than the NSC and the Wharfage Charge.

123    Again, for ease of reference, we will refer to the above as the first, second and third exclusive limbs, as appropriate, of the scope adopted by the ACCC.

124    PNO and Glencore both challenged this scope of the Final Determination. PNO contended it was too broad, while Glencore contended it was too narrow. Further, and as we will indicate later, the ACCC suggested a revised scope different from that in the Final Determination.

PNO’s submissions

125    PNO’s primary contention was that, having regard to the provisions of Part IIIA, the ACCC had no statutory power to extend the scope of its Final Determination to the circumstances described in the second inclusive limb. In the alternative, PNO contended that even if it was within the ACCC’s statutory power (which PNO denied), the inclusion of the second inclusive limb would reveal a failure by the ACCC to have had proper regard to the mandatory considerations set out in Part IIIA.

126    PNO first turned to the description of the Service. It argued the focus of that description was access to and use of the Port’s shipping channels, including its berths. On PNO’s submission, that meant from both a practical perspective, and from the perspective of a proper construction of the description of the Service, that the only persons who could conceivably access or use the Service are persons that control a vessel (whether through direct ownership or a charter arrangement) for the purposes of loading or unloading at a terminal. This formed the foundation of PNO’s arguments against the ACCC’s adoption of the second inclusive limb in its determination scope.

127    PNO then referred to a number of provisions of Part IIIA including ss 44S, 44U, 44V, 44W, 44ZO(4), 44ZV, 44ZY and the definition of ‘third party’ in s 44B. PNO also referred the Tribunal to a decision of the Full Court of the Federal Court of Australia, which held that in the context of Part IIIA the word ‘access’ should be given its ordinary meaning, being ‘a right or ability to use a service’: Port of Newcastle Operations Pty Ltd v Australian Competition Tribunal [2017] FCAFC 124; (2017) 253 FCR 115. The net effect of the provisions and the authority referred to was said to be that the ACCC (and indeed the Tribunal) has statutory authority to make access dispute determinations only in respect of the ‘third party’ who sought to access the Service and who had notified the access dispute to the ACCC in accordance with the provisions of the CCA. In other words, the ACCC and the Tribunal only have the power to arbitrate a bilateral dispute between the relevant access provider and a (single) access seeker, not the power to arbitrate general terms of access between an access provider and all other persons.

128    PNO then referred to s 48 of the PMAA which among other things, deems for the purposes of that Act a person to be an ‘owner’ of a vessel, where that person makes a representation that it has the functions of the owner or accepts the obligations of the owner through its conduct. On PNO’s submission, the purpose of this deeming provision was to assist the relevant port authority in recovering charges for use of port infrastructure.

129    PNO submitted that the provisions of the PMAA (a State Act) were not intended to, and in any event could not for constitutional reasons, broaden the powers of the ACCC or the Tribunal to make access dispute determinations under the CCA (a Commonwealth Act). In other words, representations made pursuant to a section of the PMAA could not change who is in fact the owner of a vessel (when the word ‘owner’ is used in its ordinary sense) or alter the identity of the person who is in fact accessing or using the Service. It was on this basis that PNO contended that the second inclusive limb exceeded the ACCC’s power under Part IIIA to make a determination dealing only with the terms and conditions of access by the ‘third party’ that originally notified the dispute to the ACCC.

130    PNO also identified certain unintended and undesirable consequences of the second inclusive limb. First, by allowing Glencore to take advantage of the ACCC’s arbitrated prices whenever a s 48(4)(b) declaration was made, Glencore could engage in a form of arbitrage. For example, Glencore could represent to PNO that it had undertaken to pay another user’s fee for accessing the Service thereby permitting that user, who was not a party to the ACCC’s arbitration, to take advantage of the regulated prices PNO must provide to Glencore. Second, and relatedly, if the second inclusive limb of the ACCC’s determination scope were allowed to stand without intervention from the Tribunal, PNO would have no certainty as to whom it is required to provide Glencore’s arbitrated terms of access which, on PNO’s submissions, would, contrary to s 44X(1)(a) of Part IIIA, fail to take account of the service provider’s legitimate business interests. This consequence, as it was described by PNO, was also argued as illustrative that – in the alternative world where the ACCC had statutory power to extend the scope of its determination in the manner identified in the second inclusive limb (which PNO denies) – the ACCC had, in any case, made its determination beyond power because it had plainly not taken into account PNO’s legitimate business interests by extending the scope to the second inclusive limb.

Glencore’s submissions

131    Glencore contended that the scope for the ACCC’s determination was unduly restrictive on account of the first exclusive limb which expressly excluded the arbitrated NSC from applying in respect of vessels carrying coal which have not been chartered by Glencore or in respect of which Glencore has not made a representation of the kind referred to in s 48(4)(b) of the PMAA. Glencore sought for the first exclusive limb to be excised from the scope.

132    Glencore advanced this contention from two fronts. On one front, Glencore argued that in order to fulfil the purpose of declared services regime in Part IIIA, the Tribunal needed to approach the matter from a practical and commercial point of view. This meant taking a ‘substance over form’ approach by ensuring that no matter the precise manner in which Glencore and its customers choose to contract with one another, the arbitrated terms and conditions of access to the Port should apply when Glencore is exporting its coal from the Port. On the other front, Glencore urged the Tribunal not to take an overly restrictive view of what the Service actually is. It argued that whenever Glencore uses the Port and its associated facilities and infrastructure to load coal onto a vessel for export, it was ‘using’ or ‘accessing’ part of the Service within the meaning of Part IIIA, and therefore should be able to enjoy its arbitrated prices.

133    Taking each of the fronts advanced by Glencore in turn, its primary submission in respect of the first was that because Glencore bears the ultimate economic cost of port charges in circumstances where vessels that are using the Service are chartered by Glencore’s customers and carrying Glencore’s coal, in order to effect the Final Determination, this practical and commercial reality should be recognised by excising the first exclusive limb, thereby extending the scope accordingly.

134    In support of this, Glencore submitted that its coal is sold to export customers under a number of different contract types, but that no matter the type, Glencore seeks to sell coal at the most competitive price on a delivered basis. In some cases, Glencore will arrange for the transporting vessel, and in other cases, the customer will make those arrangements. Glencore submitted that in either case, market structure and dynamics are such that Glencore bears the ultimate economic burden of the NSC imposed by PNO for use of the Service in the form of lower delivered coal prices. It claimed that for the Final Determination to only to apply to circumstances where Glencore arranges for the delivery of coal to its customers – and to ignore instances where Glencore’s customers make such arrangements – risks undermining the utility of the application of the Part IIIA regime to the Port.

135    On the second of Glencore’s two fronts, Glencore sought to emphasise that in circumstances where vessels using the Service are chartered by Glencore’s customers and carrying Glencore’s coal, Glencore is still a third party accessing or seeking access to the Service for the purposes of Part IIIA. It was said that by using or accessing the berthing boxes and the revetments associated with the berthing boxes for the purposes of loading coal into vessels, Glencore is accessing the Port’s infrastructure facilities which are a critical component of the Service as declared. Conversely, using the berthing boxes was not simply a matter of using an area of water otherwise unconnected with the Port infrastructure. In other words, once Glencore is using part of the Service (by loading coal onto vessels), the rest of the Service is incidental and likewise being used as a necessary incident of the loading of coal. Glencore willingly conceded that the relevant service is defined by the declaration of the Service, but pressed that it should be understood as including, consistent with the provisions of Part IIIA and in the context of the Tribunal’s determination in which it declared the Service, the facility and associated infrastructure by means of which the Service is provided.

136    Glencore also pointed to the fact that it was subject to and liable to pay the Wharfage Charge no matter whether Glencore or its customers were responsible for chartering the relevant vessel. It effectively inferred from this that Glencore was using, or PNO was providing access to, the Service. On this basis, Glencore contended that it should have the benefit of its arbitrated prices in both the circumstances outlined in the ACCC’s determination scope, as well as in respect of vessels carrying coal which have not been chartered by Glencore or in respect of which Glencore has not made a representation of the kind referred to in s 48(4)(b) of the PMAA.

137    Glencore then proceeded to advance its first alternative submission, which we briefly canvassed above: that even if Glencore is not a user or access seeker of the Service when it loads its coal onto vessels at the terminal by virtue of s 44V(2), Glencore is still utilising the Service by using facilities which depend on the berthing box infrastructure. Glencore argued that the effect of this subsection was to open up any other matters relating to access such that, once it is accepted that Glencore is using certain facilities to load its coal onto vessels, and those facilities are supported by the berthing box facilities (which are, on Glencore’s submissions, expressly included within the Service), it follows that Glencore is a user of the Service whenever it is loading its coal onto vessels at the Port.

138    Glencore then proceeded to advance its second alternative submission. Glencore began by observing that under the ACCC’s scope, PNO must charge the NSC at the regulated price when Glencore is the owner or charterer of the vessel transporting Glencore’s coal but may charge a higher unregulated NSC when someone else is the owner or charterer of the vessel transporting Glencore’s coal. Glencore then referred to the pricing principle found in s 44ZZCA(b)(i), which must be taken into account by the ACCC by virtue of s 44X(1)(h):

that the access price structures should … allow multi-part pricing and price discrimination when it aids efficiency …

139    Glencore then submitted that the sort of price discrimination brought about by the ACCC’s scope, and more specifically the first exclusive limb of that scope, was not the sort that aided ‘efficiency’ as required under the pricing principle in s 44ZZCA(b)(i).

140    Finally, Glencore made a submission directly in respect of s 48(4) of the PMAA. It contended that s 48(4) of the PMAA served as a useful mechanism to determine in what circumstances a person is accessing the Service. It was submitted that both when a formal representation is made pursuant to that section, and even when no such representation is made but Glencore is loading its coal onto another person’s vessel (with the implicit authority to do so, lest the tort of trespass be committed by Glencore against the ship owner), it is apparent that Glencore is using or accessing (within the meaning of Part IIIA) the Service. On that basis, Glencore contended that the ACCC was right to include the second inclusive limb as part of its defined scope.

ACCC’s submissions

141    In its written submissions, the ACCC responded to the PNO and Glencore challenges to the scope of the Final Determination.

142    In respect of PNO’s submissions, the ACCC contended that the imposition of legal liability to pay for a service is a strong indicator that the service is or will be supplied to that person, or is at least for their benefit. On this account, when Glencore makes a representation of the kind referred to in s 48(4)(b) – thereby making itself liable to pay the NSC – this suggests that Glencore is a user of the Service. The ACCC also dismissed PNO’s concerns about the implications of preserving the second inclusive limb of the determination scope. On the risk of creating an arbitrage opportunity, the ACCC submitted that the concern was overstated because it only applies where the representation is made in order for a vessel to enter the Port to load Glencore coal, meaning it only applies where Glencore coal is loaded. The ACCC considered it was unlikely that Glencore would deploy its potential arbitrage opportunity to grant its coal export competitors what would be, in essence, a reduction to those exporters’ cost base. On the spectre of there being uncertainty as to whom PNO would be required to offer Glencore’s arbitrated prices, the ACCC dismissed this on the basis that PNO would presumably be in a position to know when another person makes a representation of the kind referred to in s 48(4)(b) and therefore the circumstances in which Glencore will be considered to have made such a representation.

143    However, the ACCC did at the hearing endorse PNO’s characterisation of the Service. Counsel for the ACCC said that the Service did not itself directly involve the loading and unloading of coal – it involved the accessing of the shipping channels and berths, a purpose of which was the loading and unloading of coal. Counsel for the ACCC also expressed support for PNO’s view that the Service, being relevantly described as ‘the right to access and use the shipping channels (including berths next to the wharves as part of the channels)’ did not strictly include use of or access to the wharves.

144    In respect of Glencore’s submissions, the ACCC took issue with Glencore’s assessment that the determination scope would permit PNO to engage in price discrimination between economically identical transactions, that is, transactions for the sale of coal that are identical save for who of either the vendor or customer arranges for the transportation of the coal. The ACCC denied that the scope permitted such price discrimination and that such transactions are in any case economically identical. The ACCC contended that s 44ZZCA, which contains the pricing principle referred to by Glencore, only ever prevents price discrimination where a price falls within a determination. So to that extent, alleging price discrimination between a regulated price (which, as is apparent, falls within a determination) and an unregulated price (which falls outside of a determination) is circular.

145    The ACCC also dismissed Glencore’s reliance on its liability to pay the Wharfage Charge as demonstrative of it using the Service. Counsel for the ACCC clarified that the question of whether or not the Wharfage Charge (and thereby the use of ‘sites’ for which it is levied) falls within the Service was not a live issue before the ACCC. Rather, before the ACCC, the parties had provided an agreed model of charges and the Wharfage Charge was fixed (that is to say, agreed).

146    Separately, at the hearing before the Tribunal, the ACCC stated that, on further reflection, certain amendments should be made to clarify, but not substantively change, the meaning of the first inclusive limb of the determination scope. In response to this indication the Tribunal invited the ACCC to set out its proposed amendments to the scope, and it did so by a separate written document provided to the Tribunal following the hearing. That document explained that the ACCC considered the following amendments to clause 2 of its Final Determination were appropriate:

2.1    The scope of the determination includesis confined to the terms and conditions of access:

a.    where Glencore owns or, either directly or by agent, charters a vessel tothat enters the Port precinct and loads Glencore coal, and / or

b.    where Glencore falls within the extended definition of “owner of a vessel”makes a representation to PNO of the kind referred to in section 48(4)(b) of the Ports and Maritime Administration Act 1995 (the PMAA) that is has the functions of the owner of a vessel, or accepts the obligation to exercise those functions, in order toin respect of a vessel entering and using the Port precinct andin order to load Glencore Coal., as a consequence of which Glencore:

(i)    is liable to pay the navigation service charge under section 50(4) of the PMAA; and

(ii)    as a person liable to pay that charge, has the authority under section 67 of the PMAA to negotiate with the relevant port authority with respect to: fixing the amount of any charge payable by the person to the relevant port authority, and any other matter which the relevant port authority is permitted by or under Part 5 of the PMAA to determine in respect of the charge, and any right or privilege which by or under Part 5 of the PMAA accrues to the person liable to pay the charge, or which the relevant port authority may confer on the person.

2.2    For the avoidance of doubt, the determination does not apply to:

a.    the terms and conditions of access to apply in respect of vessels carrying coal that have not been chartered by Glencore or in respect of which Glencore has not made a representation of the kind referred to in section 48(4)(b) of the PMAA,

ba.    terms and conditions of access for vessels other than those calling at the coal terminals at the Port, and

cb     any charges imposed by PNO other than the Navigation Service Charge and the Wharfage Charge.

147    Counsel for the ACCC claimed that redrafting the scope in this manner would assist in making clear that whenever a person falls into the definition of ‘owner’ under the PMAA, then the determination applies.

Consideration

148    Each of PNO, Glencore and the ACCC were in agreement that in determining the appropriate scope for the application of the determination, the starting point is the description of the Service, as declared by the Tribunal on 16 June 2016. We agree. To repeat it, the Service declared by the Tribunal on that date was:

the provision of the right to access and use the shipping channels (including berths next to the wharves as part of the channels) at the Port of Newcastle (Port), by virtue of which vessels may enter the Port precinct and load and unload at relevant terminals located within the Port precinct and then depart the Port precinct.

149    Put simply, the debate between the parties and the ACCC regarding the scope of the determination is resolved by answering the question what it means to access or use the Service. No one suggested the phrase ‘right to’ altered or impacted on the proper construction of the Service. PNO says that to use or access the Service means to navigate the shipping channels of the Port. Because of this, only a person controlling or in charge of a vessel is able to use or access the Service, which means that Glencore is only using or accessing the Service when it owns or charters a vessel to transport its coal. On the contrary, Glencore says that to use or access the Service means using any part of facilities or infrastructure of the Port, including loading of Glencore coal onto a ship. In reaching this view, Glencore relies on the language which follows ‘by virtue of which’ and say that the activity of loading and unloading at relevant terminals is so central to the economic exercise that is the subject of the Service declaration, that to construct the Service in any other way would be unduly narrow. On the back of this approach, Glencore says that it is accessing or using the Service whenever it loads its coal on vessels (regardless of who controls them) because it uses or accesses part of the Port infrastructure to do so.

150    Looking first to the terms of the Service, the primary focus of the declaration is on ‘the provision of the right to access and use the shipping channels’. The parenthetical language that follows is inclusive: ‘(including berths next to the wharves as part of the channels)’. It helps to clarify, almost in a ‘for the avoidance of doubt’ fashion, that the ‘right to access and use the shipping channels’ is not limited to the thoroughfares of those shipping channels which are used by vessels to navigate the Port. In other words, when reference is made to the shipping channels, it extends to the areas of those shipping channels that lie adjacent to the wharves.

151    However, the crux of debate between PNO and Glencore as to the scope of the Service lies in the meaning given to the connecting phrase ‘by virtue of which’. In the Tribunal’s view, this connecting phrase describes the function of the shipping channels (as was contended by PNO), not the purpose of the Service (as was contended by Glencore). When one, as an exercise in interpretive analysis, substitutes ‘by virtue of which’ with other synonymous connecting phrases in the context of the description of the Service, such as ‘as a result of which’ or ‘through which’ or ‘by reason of which’, the language that follows (‘vessels may enter the Port precinct and load and unload at relevant terminals…’) strikes the reader as secondary to the primary thrust of the description of the Service, being access and use of the shipping channels. On our view, it describes the function of such access and use of the shipping channels. Glencore’s construction requires a reading which substitutes ‘by virtue of which’ with ‘in order for’ and replaces the modal verb ‘may’ with the preposition ‘to’. The effect of Glencore’s construction is to qualify access and use of the shipping channels by reference to the apparent purpose of such access and use, being to load and unload at relevant terminals. In this sense, Glencore calls for a construction whereby the words which follow ‘by virtue of which’ work to expand the meaning of the words which precede it. We do not consider this to be the correct manner in which to interpret the Service from a textual perspective, and favour PNO’s construction as a result.

152    Looking second to the context of the declaration of the Service, PNO submitted in reply that notwithstanding the clear textual support for its interpretation in the definition of the Service, further support could be found in considering the original application made by Glencore for the Service to be declared. That document, dated 13 May 2015, made a series of references to the NSC (which, as already mentioned, is levied on the ‘owner’ within the meaning of the PMAA) and that otherwise placed the shipping channels as the physical infrastructure that is being used and accessed at the centre of Glencore’s application:

The Council has previously found that Australian shipping channels are natural monopolies in the certification of the Victorian Access Regime for Commercial Shipping Channels…

…

Access to the shipping channels at the Port of Newcastle is a natural “bottleneck” monopoly that it is submitted should be subject to Pt IIIA.

…

The uncertainty of future pricing for accessing the shipping channels also affects the competitive dynamics in operations in shipping and cargo.

…

The facilities used to provide the Service are the shipping channels and vessel berth areas (as described above) identified in the plan attached…

…

A navigation service charge is payable by the owner of a vessel or cargo in respect of the Service…

…

The Applicant appreciates that the current increase in navigation service charges may appear marginal in terms of initial percentages given the significant costs involved in large scale coal exports…

153    Whilst certainly not decisive, we agree with PNO’s submission that these passages illustrate that the focus of Glencore’s initial application was on the shipping channels and the need to access those shipping channels by vessels. If, on the contrary, the focus of Glencore’s application and the Service as declared was not on the shipping channels and their use by vessels, a peculiar situation could arise whereby both the loader of the coal and the person in control of the transporting vessel could each amount to a ‘third party’ under Part IIIA. If that were so, both could claim to be using or accessing the same Service, which could give rise to circumstances where there is confusion as to which arbitrated terms of access to apply. An example was given by PNO to illustrate the point: assume that one of Glencore’s customers, which has chartered its own vessel to pick up Glencore’s coal from the Port, and assume further that that customer wants to negotiate terms and conditions of access with PNO that permit the customer to obtain preferential berth treatment. In that scenario, Glencore would advise its customer that Glencore has already arbitrated terms of access with PNO, and the customer would have no independent right to negotiate (and arbitrate, if need be) with PNO directly. The effect of this would be that Glencore’s arbitrated terms of access would bind other potential users of the Port so long as Glencore’s coal was being shipped.

154    We should also indicate that for the reasons identified by PNO in its submissions and set out above, even if there was the power to determine the scope as defined by the ACCC or Glencore, the Tribunal considers it inappropriate and not consistent with the purpose of a declaration of a service under Part IIIA.

155    We should also mention that the revised scope put forward by the ACCC during the hearing before the Tribunal and referred to above does not address the submissions raised by PNO. It also introduces a further uncertainty as to how PNO would determine whether Glencore exercises any of the functions of the owner of the vessel within the meaning of s 48(4)(a) of the PMAA. Therefore, even if the ACCC could have so defined the scope as it did, the Tribunal would now vary the scope in line with the reasons advanced by PNO.

156    Finally, as to Glencore’s argument that its responsibility for paying various charges (including the Wharfage Charge) indicated that Glencore was an access seeker, no matter the precise circumstances of who chartered the vessel upon which coal was loaded, the Tribunal considers this to amount to ‘letting the tail wag the dog’. It is of little significance who is liable to pay, for instance, the Wharfage Charge. That is merely the product of the terms of the PMAA and the pricing schedule issued by PNO from time to time. The Wharfage Charge relates to different services and facilities, and reflects the level of facilities and services provided at a particular berth – such as berthing boxes, site offices, wharf sheets, pavements and worker amenities. On their own, the requirement to pay says nothing about whether or not the payee of a charge has access to and is the user of the Service. This must be determined in the context of the Part IIIA and the actual service declared thereunder. The only thing that matters in this respect is whether the use of certain infrastructure at the Port – whether it be the shipping channels, the berths, the wharves, or ‘sites’ within the meaning of the PMAA – equates to access and use of the Service.

157    With this is mind it becomes apparent that there is no significance at all to be drawn from the fact that the Wharfage Charge (for instance) is levied on Glencore when it occupies sites at the Port under the provisions of the PMAA.

158    In light of the above reasoning, we consider the scope of the application of the determination should be confined to where Glencore is the actual owner of the vessel, or either directly or by its agent charters a vessel that enters the Port precinct and loads Glencore coal. This is the access and use of the shipping channels that is properly the subject matter of the access dispute between PNO and Glencore, and the physical infrastructure that is being accessed and used.

USER CONTRIBUTIONS

159    We have already touched upon this important area of the dispute before the Tribunal. Before setting out each of the parties’ submissions on the topic of user contributions, it is first necessary to explain the approach used by the ACCC in calculating the value of the assets required to provide the Service.

Overview of the calculation of the DORC

160    Part IIIA does not mandate a particular pricing model to be applied when calculating charges that a service provider can charge users for accessing a declared service.

161    In the present case, the ACCC calculated the appropriate charges for the Service using a Building Block Model (‘BBM’) produced by the parties to the arbitration with contents substantially agreed between them. Specifically, the parties agreed to use a modified version of the Australian Energy Regulator’s publicly available Post-Tax Revenue Model (‘PTRM’). As described by the ACCC in its Final Determination, the BBM is a ‘widely-recognised and relatively standard regulatory pricing model’. It is used to assess the maximum allowed revenue (the ‘MAR’) of a provider of a declared service as being equal to the sum of underlying components (or building blocks) consisting of:

(1)    the return on capital (based on the value of the regulated asset base (‘RAB’) and the weighted average cost of capital (‘WACC’));

(2)    the return of capital (or depreciation);

(3)    the operating expenditure; and

(4)    tax and various other components.

162    In order to determine the RAB, the parties agreed for the ACCC to use the DORC methodology to value the assets required to provide the Service. A DORC valuation uses optimised replacement cost as its starting point. In essence, in assessing ORC one asks: what would be the cost of replacing the asset using the latest technology and methods of construction, and a design which is optimised to construct the asset and provide the required service in the most efficient way possible? To calculate the DORC, the ORC is adjusted to reflect the remaining useful life of the asset (in this case, the Port).

163    The rationale for using the DORC methodology is that it is thought to mimic the pricing of a competitive market for the purposes of promoting competition in a related market. In a competitive market, incumbent firms are constrained by the threat of new entry to charge no more than the minimum efficient cost of their production. If any incumbent firm charges excessive prices, a new efficient operator can enter the market and replace the higher priced incumbent. Although the provider of a declared service is unlikely to face actual entry, its costs should not exceed the costs that would be incurred by an efficient hypothetical entrant. It is assumed that the hypothetical new entrant would build a competing facility in the most cost-efficient and optimised manner possible (or else itself be replaced by a more efficient rival), and seek to recover its costs and return on investment on that basis.

164    In the case of the Port, and indeed in all cases, the application of the DORC methodology is a hypothetical exercise. A new entrant would not be able to build a competing facility to the Port, and in any case, the Port was not built with the latest technology and was not optimised in the manner conceived of by the DORC methodology. The methodology serves as a mere tool to calculate the RAB which is used as part of the BBM to arrive at the appropriate access charges for the Service.

165    Using the DORC methodology, the ACCC calculated the optimised cost of replacing the Port, as at 1 January 2018, to be $2,169.5 million.

166    Having calculated the optimised costs of replacing the Port, the ACCC then adjusted that figure downwards to take account of five instances in which improvements to the Port (specifically various dredging projects) had been funded or undertaken by third parties. The rationale for excluding the value of these projects from the asset base of the Port (or any other declared service) is that the relevant service provider should not be permitted to generate revenue from parts of an asset for which it was not responsible or did not pay. As a result of this exercise, the ACCC deducted $912.0 million from ORC. This reduced figure was used, together with an assessment of the remaining useful life of the port assets, to calculate the DORC. That, together with the other inputs, was then used to calculate the MAR, from which the access charges for the Service were derived. As a result of the deduction of the identified user contributions, PNO could not obtain any revenue in respect of approximately 42% of the value of assets of the Port.

167    Before canvassing the submissions put to the Tribunal, it is useful to go into greater detail as to what the ACCC decided in respect of the deduction of user contributions and the approach that it adopted.

What the ACCC decided and its approach

168    As explained earlier in these reasons, the ACCC set the NSC so as to recover the maximum allowed revenue, and it set the MAR by using an agreed modified version of the Australian Energy Regulator’s PTRM. A key building block in the PTRM is the RAB, valued at DORC.

169    In its Final Determination, the ACCC wrote:

The parties have agreed to the use of a DORC methodology for the initial valuation of assets required to provide the Service, with depreciation to be assessed on a straight line over the useful life of the asset.

The asset value is an important input to the BBM as it informs the calculation for return on capital and depreciation. As such, the asset value will directly affect the MAR and, ultimately, prices.

The DORC methodology involves valuing an asset at the cost of replacing it with a technologically modern equivalent asset (MEA) that is:

•    optimised’ to provide the required service in the most efficient way possible

•    adjusted to reflect the remaining useful life of the asset.

Given the agreement between the parties, the Commission adopts the DORC methodology for the purposes of this arbitration. The Commission notes that there are several approaches that can be taken for the valuation of assets, and the DORC methodology is among the methods used by various regulators.

As discussed below, the DORC methodology values assets at the costs of a hypothetical efficient entrant to the market who will optimise the use of, operation of and investment in the asset. That is, it corresponds to the efficient costs of replacing the existing infrastructure with their modern equivalent to supply a given quantity and quality of output as would be expected in a perfectly contestable market.

The Commission therefore considers the use of the DORC methodology for valuing assets that then form the initial asset base contributes to ensuring that prices reflect efficient costs (sections 44X(1)(h) and 44ZZCA(a)(i)) while also ensuring that PNO is able to earn an appropriate return on its investment (sections 44X(1)(h) and 44ZZCA(a)(ii)). This is in the legitimate business interests of PNO (section 44X(1)(a)) and is also in the interests of those who have a right to use the Service (section 44X(1)(c)). This is also consistent with promoting the economically efficient operation of, use of and investment in in the facility (the objectives of Part IIIA and also having regard to section 44X(1)(g)).

170    In the arbitration before the ACCC, PNO and Glencore each submitted estimates of DORC prepared by their respective consultants, AECOM and Arup.

171    Glencore argued that the value of user funded or user contributed assets should be deducted from the DORC value to establish PNO’s initial RAB. PNO opposed this deduction. The ACCC ultimately made the deductions sought by Glencore and that is the decision in dispute in this re-arbitration.

172    The amount that the ACCC deducted was $912.0 million, reducing the ORC by 42 per cent from $2,169.5 million to $1,257.6 million. Although other costs are recovered through the MAR, the relatively large share of capital costs meant that this had the effect of reducing arbitrated NSC by almost 40 per cent from the level that would otherwise have arisen.

173    Before the ACCC, the parties identified the projects undertaken by State and non-State entities at the Port. These were set out by the ACCC in Table 22 of its Final Determination:

174    In its Final Determination the ACCC stated relevantly:

    User funded capital contributions should be recognised and deducted from the DORC value that is used to establish PNO’s initial RAB and to calculate prices to ensure that PNO is able to reasonably recover its efficient costs.

    PNO’s efficient costs for the provision of the Service do not include capital costs that have been funded by users. Additionally, including user contributions in PNO’s initial RAB would result in users paying for the same assets twice: once through their initial investment and again through PNO’s charges: see Final Determination, page 130.

    In order for any adjustment for user funded contributions to be considered, there needs to be information showing a commercial agreement between the service provider and the contributor of funds.

    Alternatively, there needs to be sufficient information demonstrating the nature of user funded works undertaken, including any identifiable value of the user funded capital contributions. It was the latter that was predominantly presented to the ACCC as evidence of the nature of user funded contributions in the course of the arbitration: see Final Determination, page 130.

    In order for any adjustment to be considered, user funded contributions must be identified in the form of capital assets included in the asset base that are the subject of the DORC valuation (ie they are PNO’s owned and leased assets).

    The ACCC accepts Glencore’s submission that user funded or combined user and State funded contributions to assets have increased port capacity. The port assets Glencore claims are subject to user funded contributions (channels and berth boxes, riverwalls and revetments) continue to provide value to users in perpetuity.

    The ACCC disagrees with one of the principles identified by PNO that ‘bygones should be bygones’ in relation to the history of the construction of the assets. The ACCC is of the view that asset costs that have already been funded by users cannot reasonably be said to form part of the costs to PNO for providing the Service, and users should not bear those costs again for using the Service.

    Therefore, the ACCC considers that the DORC value used to establish PNO’s initial RAB should be adjusted to reflect user funded contributions to assets. This is in the interests of those who have a right to use the Service (s 44X(1)(c)) and also takes into account the value to PNO of extensions where the cost has been borne by users (s 44X(1)(e)). However, the size of the adjustment is also informed by consideration of the other issues raised by PNO and Glencore in relation to any mitigating factors and also estimation approaches.

175    We make an initial observation about the ACCC’s statements in the Final Determination. Nowhere in its reasoning with respect to user contributions did the ACCC use the term “monopoly profits”. The ACCC repeatedly stated that deducting user contributions is necessary to prevent users paying twice. The Final Determination only refers to monopoly profits once, when the ACCC discusses Section 44X(1)(a), which provides that in making a final determination the ACCC must take into account the legitimate business interests of the service provider. It commented that “[t]his includes allowing PNO ‘…to recover the costs of efficient investment in the facility, including having regard to its binding contractual obligations and relevant commercial risk’. This approach does not extend to PNO receiving compensation for loss of any ‘monopoly profits’.”

176    However, the ACCC did consider certain ‘mitigating factors’ raised by PNO.

177    First, PNO had argued that in the past the State made major contributions to each user funded project, such as environmental planning approvals. PNO also argued that numerous benefits accrued to users, such as not paying the State for the material dredged from the State’s landholdings that was subsequently used in their own works.

178    On this point, the ACCC agreed with Glencore that any costs incurred by the State in planning, facilitating and accommodating user funded capital would be captured in the ‘pre-adjusted’ DORC value. This is because both users and the service provider would incur the same overhead costs in the construction of assets they have funded, and such overhead costs are included in the DORC value. The ACCC did not accept that there is a direct connection between benefits accruing to users as a result of not having to pay the State for dredged material and the user funded amounts.

179    Second, PNO had argued that historical user funded contributions that are excluded from the DORC value should be balanced against the Port’s past economic losses, and when balanced against such losses no adjustment is required. PNO had also claimed that the value of the contributions had already been returned in the form of past low prices and no further adjustments are justified.

180    In response to this point, while the ACCC acknowledged that PNO had presented information showing that there had been historical losses, the ACCC did not accept that there was a direct connection between past losses of the Port operators and owners with the user funded amounts. In particular, the ACCC concluded that it had not been presented with evidence that the State intended to recover any past losses through future prices. The ACCC did not consider it appropriate to form a judgment in relation to the past decisions of the Port operators and owners, including about their pricing policy. The ACCC considered that governments have many competing objectives, which may mean that profit maximisation or cost recovery are not always the priority, and that, by contrast, there is a clear case that users would expect a future pricing benefit in instances where they have contributed to the cost of the asset, and would most certainly not expect to pay for the same assets twice.

181    Third, PNO argued before the ACCC that it is only Glencore’s contributions that are relevant for the consideration of any adjustment to the DORC to determine the prices charged to Glencore, and that Glencore had not made any such contributions.

182    In response to this point, the ACCC considered it to be an incorrect approach: the existence per se of user funded assets in the DORC valuation, not the source of the user funding, informs the adjustment. PNO’s initial RAB needed to reflect its efficient costs for providing the Service. This necessarily excluded any capital costs funded by users, regardless of the identity of the contributor and the amount of their contribution.

Submissions to the Tribunal

PNO

183    We give a brief overview of the approach taken by PNO before detailing some specific matters by reference to the Final Determination.

184    PNO contended that the ACCC miscarried its statutory task in making any deductions of the value of user contributions from the asset base of the Port.

185    Relying on the decision in Re East Australian Pipeline Ltd [2004] ATPR 42-006 at [18], cited with approval in East Australian Pipeline Pty Ltd v ACCC (2007) 233 CLR 229, [27], PNO described the DORC methodology as a forward-looking methodology in the sense that it considers the replacement cost of the asset using modern technology under modern conditions.

186    PNO then referred to the ACCC’s justification of its approach. In its Draft Determination (no equivalent section in the Final Determination was referred to, but this approach has been argued before the Tribunal), the ACCC stated that:

an efficient entrant as assumed under the DORC framework would seek to avoid any capital cost it need not incur for the provision of the service, which would include any capital costs that were funded by users – regardless of the identity of the contributor and the amount of their contribution.

187    PNO claimed that, in fact, there was no basis to conclude that a hypothetical entrant seeking to replace the Port (as is assumed under the DORC methodology) could reasonably avoid the costs the ACCC had excluded. The only basis on which the user contributions could be deducted from the asset base is by having regard to historical considerations which are irrelevant to the forward-looking quantification exercise required by the DORC valuation. Moreover, the ACCC also did not explain why user contributions are relevant to the DORC assessment but other historical matters, such as historical losses incurred by the Port, were not.

188    PNO submitted that to apply a DORC methodology, but to adjust it by reference to historical considerations such as actual user contributions in the past, would amount to applying a ‘blended’ approach of the sort denounced by the High Court in East Australian Pipeline Pty Ltd v ACCC (2007) 233 CLR 229. PNO went on to submit that there was no legislative support for the ‘blended’ approach adopted by the ACCC. Specifically, if the ACCC’s determination meant that PNO would not be permitted to generate revenue from 42% of the assets over which it acquired a 98 year lease, that determination would not have properly taken into account PNO’s legitimate business interests. PNO also rejected the ACCC’s stated bases for finding that the deduction of the value of user contributions from the DORC would enhance competition in upstream and downstream markets.

189    Consistent with the approach taken in other regulatory pricing decisions, PNO accepted that the value of user contributions should be deducted in circumstances where those users made capital contributions with the express intent of obtaining future price benefits. However, on its submission, none of the evidence supported a finding that users’ capital contributions were made with the promise or expectation that their contributions would be reflected in future prices, and that meant that the contributions ought not to be deducted from the RAB upon which PNO may generate revenues.

190    In the alternative, PNO submitted that even if the evidence was sufficient to establish an expectation that user contributions would be recognised in future prices, those contributions were not made by Glencore and so it has no legitimate expectation that the value of the contributions would be reflected in its access prices.

191    We now look to specific matters that require our attention.

192    PNO submitted that the ACCC calculated the DORC in an orthodox manner, but that having done so, it proceeded to adjust the DORC by reference to historical considerations which PNO regarded as improper. PNO couched some of its criticism of the ACCC’s decision, to adjust the DORC value, in terms of what costs a hypothetical new entrant would incur in building an optimised replacement port. It said that the ACCC had not explained why it made such an adjustment.

193    The ACCC’s Draft Determination had said that an efficient entrant, as assumed under the DORC framework, would seek to avoid any capital cost it need not incur in the provision of the Service, which would include any capital costs that were funded by others. On this, PNO argued that the whole purpose is to calculate what it would cost to replace a facility and that such an exercise would be defeated if it were assumed that a hypothetical new entrant could avoid certain costs.

194    As we have alluded to already, PNO submitted that both the ACCC and Glencore were incorrect to assert, as a general proposition, that in a competitive market a service provider could not charge a user for assets that the user (or any user) had funded, without the threat of being displaced by an efficient entrant. Instead, PNO submitted that, in actual fact, if a person were to provide a competitive service, that person would need to build the whole of the facility, equivalent to the facility used by PNO to provide the Service. In other words, in order to constrain PNO, the rival facility would have to be of the same quality as the PNO facility, and a rival could not constrain PNO by building just some parts of the facility (ie those parts which were not the subject of some user funding or contribution).

195    In its submissions, PNO pointed out that the present case was not one where the provider of the Service does not own or control the whole facility, or is not entitled (either pursuant to statute or contract) to charge for the use of some part of the facility. On the contrary, in this case PNO leases the whole facility, and is not subject to any constraint (other than the application of Part IIIA itself) in charging Glencore for access to the entire facility, and each part thereof. XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXXXXXXXXXXX XX XXX XXXXX XXXX.

196    PNO contended that the large deduction made by the ACCC for user contributions would deprive it of its ability to make a proper return on the investment it has made in the Port. That investment included paying for the long-term lease of the assets that were the subject of the ACCC’s deduction and were leased without adjustment for any obligation not to seek a return on these assets (because there is no such obligation). To make such a deduction would be, on PNO’s view, inconsistent with having regard to its legitimate business interests. It would mean that Glencore, which has no interest in the assets in question and made no contribution to them, would be free to obtain access to 42% of the assets free of charge (and well below the competitive price), whilst PNO which acquired these assets for value and with no notice of any prior entitlement to them, is forced to make them available without charge. That result, it was said, would not promote competition in any market: it would lead to fewer coal shipments and would have a chilling effect on investment and the incentive to acquire such assets. That, it was contended, was not an outcome that would be in keeping with the objects of Part IIIA.

197    In response to the ACCC’s justification (that the deduction is consistent with allowing the Port to recover its efficient costs), PNO contended that the efficient costs, pursuant to the methodology adopted by the ACCC, are those which a new entrant would incur; in other words, the DORC value.

198    To recap, PNO submitted that the approach of the ACCC and Glencore confuses historical costs and forward-looking costs. Unless it is a new asset, an asset such as a port would usually represent the work of different construction activities with different technologies over time, in a way that would not be replicated if the Port was constructed afresh. The DORC methodology, it was said, involves a hypothetical exercise rather than a modelling of steps in fact taken: steps funded by a user might not be taken at all, or in the same way, if the Port was reconstructed again as the DORC methodology assumes. PNO contended that the efficient replacement cost is likely to involve a hypothetical construction of the Port, as a whole, in a way that departs in significant respects from the way in which the Port was originally constructed. Though it is possible to undertake a historical analysis, or a forward-looking hypothetical analysis, it is not appropriate to mix the two PNO says.

199    The ACCC also sought to justify its approach by reference to s 44X(1)(e), which provides that in making a final determination the ACCC must take into account the value to the service provider of extensions whose cost is borne by someone else. However, PNO contended that the ACCC’s reliance on this factor was misplaced. This factor, it was said, was directed at situations where the determination requires the provider to extend the facility (for example by extending a train line to a third party’s mine): s 44V(2).

200    The ACCC also justified the deduction as being in the interests of those who have a right to use the Service (s 44X(1)(c)) because it will ensure that users do not pay for the same assets twice: once through their initial investment and again through PNO’s charges. PNO submitted, however, that this presupposes that the user has made an initial contribution with the expectation of receiving a future price benefit and in the present case, in respect of Glencore, that assumption is not made out.

201    In relation to this last point, PNO referred to decisions by the Queensland Competition Authority (‘QCA’). The gravamen of PNO’s argument is that the QCA set out principles for the treatment of user contributions, and that the ACCC should have followed the QCA’s approach but did not.

202    The QCA, responding to a direction by the Premier and Treasurer, assessed certain matters relating to gazetted prices for channel and river irrigators receiving water infrastructure services, provided by SunWater within the Burdekin River Irrigation Area. Part of that investigation involved user contributions. The QCA:

(1)    noted that there is no legal requirement for the Queensland Government to recognise any payments as capital contributions;

(2)    concluded that the Scheme should be viewed as an integrated development with payments from many sources contributing towards its overall capital cost;

(3)    found that available evidence indicates that there was an understanding within the Queensland Government, and an expectation on behalf of irrigators, that irrigators’ payments for land, water and cane assignments were intended as an offset against the capital costs of the Scheme, and that this would be taken into account in future price setting;

(4)    accordingly, considered that payments for the land, water and cane assignments should be recognised as capital contributions; and

(5)    considered that prices should not include a return on these capital contributions, as this would represent an unwarranted impost on growers.

203    Summarising its conclusions, the QCA considered that a capital payment should be regarded as a capital contribution if it was the intention and expectation, of the relevant parties at the time, that the capital payment would be recognized for pricing purposes. Furthermore, a capital contribution should be recognized for pricing purposes unless past price reductions have fully compensated the contributor for the contribution, or the asset towards which the contribution was made has been consumed.

204    The QCA also recommended that, once recognised, users’ capital contributions should be included in the capital base for the purpose of determining prices, with rebates incorporated in the prices for relevant users, equivalent to the return on capital. This pricing methodology was preferred to the alternative of excluding the capital contribution from the regulated asset base of the entity, for the purposes of calculating prices.

205    In arguing that the ACCC had failed to apply these or any similar principles, PNO stated that the ACCC had instead proceeded on the erroneous basis that it is sufficient to show:

a commercial agreement between the service provider and the contributor of the funds [or] [a]lternatively there needs to be sufficient information demonstrating that nature of user funded works undertaken, including any identifiable value of the user funded capital contributions.

206    PNO then made the following propositions by reference to principles applied by the QCA.

207    First, that it was common ground that there is no record of any agreement that capital contributions would be recognised in future price reductions.

208    Second, consistent with the absence of any agreement, the historical records did not support a finding that any of the dredging works were undertaken in the expectation that the parties’ contributions would be recognised in future price setting.

209    Third, the parties who contributed to the dredging projects received benefits at the time. These benefits included the ability to use larger, more efficient vessels, access to clean dredging spoil used in land reclamation to construct terminals, connection between the shipping channel and the terminals, and assistance in the form of pre-construction activities and coordination (including the State obtaining the necessary development approvals). The ACCC considered that any costs incurred by the State in planning, facilitating and accommodating user funded capital would be captured in the ‘pre-adjusted’ DORC value. In response, PNO argued that the deduction made by the ACCC already included these costs and, more fundamentally, the ACCC had failed to grapple with the significance of these contributions – the fact that contributors received an immediate quid pro quo benefit is a reason not to infer that the works were completed with the expectation of a future pricing benefit.

210    Fourth, PNO contended that during the period in which the dredging works were undertaken, the Port did not earn normal commercial returns from access fees. To demonstrate this, PNO analysed the annual accounts for the Newcastle Port Corporation and the Maritime Services Board (‘MSB’) over the 25 year period from 1990 to 2015. This showed, PNO explained, that even if the value of the ‘South Arm’ and ‘Harbour Deepening’ dredging works are deducted from the DORC, the historical port charges imposed by the State of NSW did not recover the economic cost of providing the declared service.

211    The ACCC accepted that the material before it showed there had been historical losses, but then dismissed this material on the basis that PNO had not established that the Port intended to recover those losses.

212    However PNO argued that the question is not whether the State intended to recapture any past losses, through future prices, but whether it can be inferred that there was a contemporaneous agreement or clear expectation that the cost of dredging works would be recognised in future prices, notwithstanding that users were receiving the benefit of less than cost recovery otherwise. PNO then said that no such inference can be drawn, and such an inference would be entirely illogical.

213    PNO observed that the only evidence identified by Glencore in respect of expectations is an exchange of correspondence between Port Waratah Coal Services (‘PWCS’) and the MSB in relation to a dredging agreement in relation to Kooragong No 5 berth. PWCS’s letter of 18 November 1993 noted that the agreement of the same date “set out the terms on which MSB has consented to PWCS undertaking certain dredging operations”. The letter then sought the MSB’s acceptance of the “commercial basis on which PWCS [was] creating the New Channel”, including that the MSB and Hunter Port Authority (‘HPA’) would not levy any charge in relation to the use of the New Channel by PWCS, any coal exporter exporting coal through PWCS’s coal terminal, or any vessel transporting coal, except insofar as any such charge was directly related to activities or expenses incurred by the HPA.

214    MSB’s letter in response stated that the MSB was unable to accept the specific points in PWCS’s letter. This was because, relevantly, “there is no change to each party’s right to charge a fee for the use of the assets legally under the control of each party”. That, contended PNO, was destructive of any basis for a “user pays” adjustment. The letter further noted that:

… MSB’s current policy is to exclude from its asset valuations any contribution or investment in port facilities by other parties. The effective result of this policy is that asset value based pricing will not give rise to any additional change [sic] for use of the extension of the port’s channel other than or [sic] cover actual services supplied (eg maintenance dredging, navigation aids, etc).

PNO observed that no commitment was made in relation to future policy or charges.

215    In the absence of evidence to the contrary, it was contended by PNO that it was more likely that contributions made by users were made on terms that were commercially satisfactory, to that user, at that time. There was no evidence that those terms included any ongoing enforceable right, applicable in 2019, to obtain use of the contributed asset free of charge. The Port was leased to PNO on the basis that there were no such obligations.

216    It was then contended by PNO that nowhere in the submissions of either Glencore or the ACCC was there a satisfactory explanation of why the Tribunal should have regard to one type of historical fact – namely contributions by users – but disregard all others, including the basis on which the Port was operated prior to privatisation.

217    PNO further contended that the Final Determination did not seek to establish that Glencore had made any contribution, reasoning that the existence per se of user funded assets in the DORC valuation, not the source of the user funding, informs the adjustment.

218    PNO says that the correct analysis is not to seek to strip out assets from the DORC valuation, the value of which were quantified by a hypothetical exercise. Rather, the correct approach is to make any necessary adjustment at the point of dealing with the price payable by a particular user. It is at that point, it was said, that one can properly address the relevant questions: “did this user make a contribution on a basis whereby this user can obtain access to the service at a discounted price?” Or alternatively, “was a user contribution made of a type, and on terms, that would benefit all users, including in 2019?” That, PNO said, will require evidence of an agreement or some other proper basis for making an adjustment for the particular user.

219    Ultimately, PNO’s point on this topic was that in the absence of evidence of any extant obligation to continue to take into account some historical contribution by a user there is no basis for making any adjustment. PNO said that it operates under a statutory scheme, by which it has a right to recover certain charges, and where there is no evidence of any impediment to title or any contractual obligations relating to user contributions, it should be free to enjoy its right to charge for its assets in an unqualified manner.

220    PNO emphasised that the DORC is a forward-looking concept and involves a consideration of replacing the Port now, using modern technology. That would preclude excavating to one depth, and then later deepening the channel. The ACCC’s approach (following Glencore) of examining the historical records of projects that deepened the channels involves the very things that would not be done if the Port were to be replaced today.

Glencore

221    In its written submissions, quoting from the Final Determination, Glencore submitted that the ACCC did not deduct the user funded capital contributions for the purposes of determining or calculating DORC. Rather, the ACCC deducted the user funded capital contributions from DORC in order to determine the initial RAB.

222    Glencore argued that the ACCC’s approach is consistent with previous regulatory decisions in which Australian regulators have taken account of past user funding of assets when setting regulated prices.

223    It also argued that the approach is no different in principle from the ACCC’s unchallenged decision to exclude from the asset base assets that are neither owned nor leased by PNO, but which play a part in the delivery of the service.

224    Specifically, Glencore argued in its submissions:

In a competitive market, users of the Service … would not rationally agree to contribute or fund the development of assets and also pay (or see their customers pay or otherwise bear the cost of) prices that generate a return to the new entrant from access to those assets. Rather, in a competitive market, all such contributors would stay with (or switch to) a competing service. In other words, competitive tension would ensure that the service provider cannot seek to earn a return from users on assets in which, or to the extent to which, the provider has not invested in those assets.

225    In oral submissions on behalf of Glencore, Mr Young QC adopted a somewhat different line of argument in respect of a new entrant. He pointed to ss 66A to 66C of the PMAA, which he said provided the hypothetical entrant with a statutory right to impose a requirement for user funding on all port users, in respect of any investment and any return on investment funding, the acquisition or development of land, or the provision of services and facilities.

226    Despite thus putting the argument in terms of the calculation of the DORC, Mr Young QC contended that, as a “post-DORC adjustment” it did not pollute the DORC methodology: see Transcript page 132.

227    Glencore then addressed PNO’s argument that, because it has a leasehold interest in the Port that is free from any obligations to third parties it is entitled to charge for access to the whole of the Port. Glencore’s response to that argument was that while the Tribunal (and the ACCC before it) is required to consider, amongst many other things, PNO’s business interests, those interests must be legitimate. Glencore submitted that an exercise of market power that seeks to charge a capital return on assets that were funded by other parties, and thereby extract monopoly rents, is not a legitimate interest.

228    Further, PNO’s proposed approach, which Glencore described as giving no recognition to substantial capital contributions by users in the past, is likely to discourage users from making similar investments in channel extensions in the future. Glencore argued that in the sale of any major asset it is reasonable to expect that all bidders will undertake an appropriate level of due diligence on the commercial and regulatory risks associated with that asset. In particular, in the case of the Port, it is reasonable to expect that bidders would have factored in the risk of the service being declared under Part IIIA and that price regulation of its charges would follow. In this regard, Glencore submitted that it would be reasonable to factor in to any bid the significant risk that the regulator or individual users would object to being required to pay for assets that users had already funded. It was said that under Part IIIA, PNO does not have an entitlement to recover the price it paid for the leasehold interest in the Port.

229    Glencore argued that, contrary to PNO’s submissions, there is nothing in the decision by the QCA that suggests that assets which the provider has not funded should be included in the regulated asset base, unless there is documentary evidence that a relevant user agreed, or otherwise expected, future price reductions. Indeed Glencore considered that the ACCC was correct in finding that, provided the nature of user contributed assets (including their value) is reasonably identifiable, those assets can and should be recognised in determining the regulated prices. In this case, Glencore considered that the contributed assets (and the value of those assets) were reasonably identifiable: it is on Glencore’s view enough that there has been a user contribution (regardless of the circumstances in which it was made).

230    Glencore submitted that the ACCC was correct to exclude all of the cost of the contributed asset from the regulated asset base and, as per the ACCC, considered that such an adjustment was in the interests of those who have a right to use the Service for the purposes of s 44X(1)(c). It was also something said to be consistent with the objects of Part IIIA, the pricing principles specified in s 44ZZCA and the public interest.

231    Further, Glencore submitted that the ACCC’s decision to deduct user contributions aligns with the way in which extensions are to be treated under s 44X(1)(e), namely that the value to the provider of extensions where the cost has been borne by users is to be taken into account. While PNO asserts that the provision is directed at situations where the determination under s 44V(2)(d), requires the provider to extend the facility (eg by extending a train line to a third party mine), this narrow construction is contrary to the natural and ordinary meaning of the words. The focus of the section, Glencore submitted, is to avoid the mischief of service providers charging users for a return on extensions to the facility providing the service, which have already been paid for by users. The dredging of the Port, paid for by user contributions, falls within this category.

232    Glencore further submitted that, in any event, even if s 44X(1)(e) is directed at future extensions, it is based on a principle that has relevance to past investments and that informs the proper application of other factors in s 44X in accordance with the objectives of Part IIIA.

233    Glencore stated that it is axiomatic that users have received a benefit from the deepening of the Port channels: that is why the projects were undertaken and how the Port was able to have users fund them. As the ACCC found, the Port has also benefitted considerably from these user contributed assets. The fact that the users who have paid for the asset have benefitted from them does not support PNO being able charge users for use of the asset in which, or to the extent to which, the investment was funded by others.

ACCC

234    The ACCC began its written submissions by observing that in regulatory regimes with objectives similar to the objects of Part IIIA, the overall objective of regulation is to promote outcomes that would be consistent with those that would result from an effectively competitive market. There was no dispute between the parties that the regime under Part IIIA is, in the words of the High Court in East Australian Pipeline Pty Ltd v Australian Competition and Consumer Commission (2007) 233 CLR 229, at [18], in the context of the access regime for gas pipelines, to operate as “a surrogate for the rewards and disciplines normally provided by competitive market”.

235    The ACCC continued by contending that excluding user funded assets from a regulated asset base was consistent with the outcomes that would be expected in an effectively competitive market. In such a market, a service provider would not charge a user for assets that the user had funded without the threat of being entirely displaced by an efficient entrant. Charging the user for assets it has funded would result in a price above the service provider’s efficient costs. A service provider could only charge the user a price that, in expectation, is just sufficient to recover the assets it has funded for the provision of the service, and it is this price that deters entry into the market.

236    The ACCC then observed that it was commonplace in regulatory regimes for user contributions to be excluded from valuations of the asset base. The ACCC gave examples from the National Gas Rules (‘NGR’) and the National Electricity Rules.

237    It said that in these regulatory regimes, user contributions are either excluded from the asset base or prices are adjusted in respect of such contributions. The principle, as expressed clearly in the NGR, is that a service provider is not to benefit through increased revenue from a user’s contribution.

238    The principle that a service provider is not to benefit through increased revenue from user contributions is consistent with the principle that underpins these types of regulatory regimes - that expected revenues over the remaining life of the assets ensure the net present value of the provider’s investment is zero (“NPV=0”). If a service provider receives a revenue stream from assets that it has not paid for, this will violate the NPV=0 principle, as the service provider will receive revenues that exceed its investment.

239    The ACCC contended that excluding user funded assets from the asset base is consistent with the statutory criteria. Specifically, excluding these assets ensures that:

(1)    prices reflect efficient costs (ss 44X(1)(h) and 44ZZCA(a)(i));

(2)    PNO is able to earn an appropriate return on its investment (ss 44X(1)(h) and 44ZZCA(a)(ii));

and is consistent with:

(3)    PNO’s legitimate business interests (s 44X(1)(a));

(4)    the interests of those who have a right to use the Service (s 44X(1)(c));

(5)    the value to the provider of extensions whose cost is borne by someone else (s44X(1)(e)); and

(6)    promoting the economically efficient operation of, use of and investment in the facility (the objectives of Part IIIA and also having regard to s 44X(1)(g)).

240    The ACCC considered that DORC was a methodology that could be used in order to determine an access price that would be consistent with the relevant statutory criteria. The DORC methodology is directed at measuring the economic cost of assets in service - that is, the net present value of expected revenues over the remaining life of the assets where monopoly profits are assumed to be zero.

241    The ACCC pointed out that DORC valuations are based on a competitive concept: a return on replacement cost is the maximum return that the monopoly firm could earn in a perfectly contestable market. The contestability standard assumes the market is “as if” the firm were operating in a perfectly contestable market. Regulatory regimes with objectives akin to those set out in Part IIIA seek to mimic the outcome of contestable markets as this is considered to promote efficiency.

242    The ACCC disagreed with PNO’s contention that, as the purpose of the DORC methodology is to derive the cost of replacement of the facility, there is no justification for the removal of the costs of assets that were user-funded in the past from the initial capital base.

243    The ACCC said that PNO was disregarding the premise underlying the DORC methodology, being to derive the net present value of expected revenues over the remaining life of the assets where monopoly profits are assumed to be constrained to zero by the threat of new entry.

244    The ACCC contended that the hypothetical exercise involved in the DORC methodology can be reconciled with this underlying premise by conceiving of that exercise as involving not only the replacement today of the existing asset but also the user funding, in the presence of the competitive constraints imposed by potential entry. These competitive constraints would operate to exclude the replacement cost of the future required productive capacity attributable to user funding from the replacement cost of the existing asset for the reasons it had explained.

245    The key element is that in an effectively competitive market, a service provider would not charge a user for assets that the user had funded without the threat of being entirely displaced by an efficient entrant.

246    It was contended by the ACCC that there was nothing improper about recognising past user contributions when determining the initial capital base using a DORC methodology. Indeed, in the decisions of the QCA referred to by PNO, the QCA recognises past user contributions when determining the initial capital base using a DORC methodology.

247    To the extent the ACCC’s reasons may be read as the ACCC adjusting ORC for user contributions as an interim step to calculating DORC, as there was no basis to assume that user and State funded assets should be assigned different depreciation rates, and the relevant assets had been assigned a perpetual life, no difference arises in making the adjustment at the ORC stage versus the DORC stage. The ACCC said it made an adjustment to the value of the asset base that resulted from the application of the ORC/DORC methodology. It did so in light of the matters it was required to take into account in s 44X.

248    The ACCC’s submissions asserted that the decisions of the QCA neither establish any economic or regulatory principle of general applicability, nor conclude that clear evidence is required for recognition of a user contribution when setting prices.

249    Nevertheless, the ACCC later stated that the QCA decisions set out a principle for the purpose of distinguishing between capital contributions which should be reflected in future pricing and payments made for some other purpose, being that capital payments should be recognised as capital contributions if it was the intention and expectation of the relevant parties at the time that the capital payment would be recognised for pricing purposes.

250    Notwithstanding this characterisation, the ACCC was at pains to downplay the general applicability of any conclusions reached by the QCA.

251    Summing up its reasoning, the ACCC said that in the present case, the capital payments for the ACCC’s consideration were user contributions. The parties had agreed that State contributions were not to be excluded for pricing purposes. The evidence before the ACCC did not establish one way or another whether there was an intention or expectation at the time of the user-funded dredging works that a capital contribution would be recognised when setting prices.

252    Consistent with the views expressed by the QCA, the ACCC exercised judgment on the basis of all available evidence. Having done so, the ACCC concluded that the statutory criteria were best served by not requiring users to pay a price that includes a return on capital for assets that they have already funded, and a service provider should not earn a stream of revenue from assets that it has not funded.

253    According to the ACCC, there was nothing in this approach which was inconsistent with the QCA decisions.

254    The ACCC then addressed PNO’s submission that past port charges did not recover the economic cost of providing the Service.

255    PNO had contended that no inference can be drawn as to an intention or expectation that user contributions would be recognised in future pricing having regard to the past losses sustained by the State. The ACCC said that the past losses evidenced by the material relied on by PNO were not specific to the Port; to the contrary, that material discloses that the Port did not itself sustain historical losses. In any event, any incurring of historical losses by the State is potentially (even likely) explicable by policy objectives unconnected to user contributions. In circumstances where there is neither evidence of historical losses at the Port nor any evidence that such losses were not informed by policy considerations unrelated to user contributions, it is not appropriate to offset the capital contributions by the benefit of past State pricing concessions as to do so would negate the intended benefit of those pricing concessions. Again, the ACCC’s views in this regard are consistent with the principles applied by the QCA in considering historically low prices in making its decisions.

256    PNO had contended that, as no contribution was made by Glencore and there is no evidence to establish an expectation that a contribution would be recognised in Glencore’s access prices, there is no basis for recognising user contributions in setting the charges Glencore should pay.

257    The ACCC said that its reasoning – the existence per se of user funded assets in the DORC valuation, not the source of the user funding, informs the adjustment – engages with the statutory criteria.

258    Mr Lloyd SC, on behalf of the ACCC, summed up its argument by saying that “[u]ser capital payments must be taken into account where this is required to avoid the provider earning monopoly rents and users paying twice for assets that they have funded.” This was in the context of, among other things, denying that the ACCC considered the surrounding factual context irrelevant, see Transcript page 306.

259    When asked in what sense Glencore could be considered to have paid twice, it not having made user contributions, Mr Lloyd SC said that “the point is, I suppose, in some sense, at a level of principle. If … Glencore had have been around for the entire time, we would certainly say then they would have paid twice” and further that “the paying twice is just a simple way of expressing the ideal. The ideal is that the provider, which doesn’t require you to look at the user at all, the provider not be able to have monopoly rents. They will have monopoly rents if they can get a return on capital that they didn’t - didn’t invest”, see Transcript page 308.

260    Mr Lloyd SC said that the ACCC did not change the DORC but took an amount off the DORC to adjust the RAB. However, he went on to say that while the ACCC certainly did not do it [the Glencore] way, “…that would be a way of conceptualising it. [Y]ou could say that the potential entrant is competing not just to reconstruct the Port but to do it with the same assistance. We, as I say, didn’t do it that way but the result is the same…”, see Transcript page 310. He explicitly did not adopt Mr Young QC’s reasoning with respect to recovery of user contributions under ss 66A to 66C of the PMAA.

261    Mr Lloyd SC responded to questions about the fact that PNO had not been the Port operator at the time of the user contributions: it had never built channels. He said that “what investment PNO actually made … is entirely a distraction and is the wrong question because the DORC value of the [Port], … with or without a user contribution deduction adjustment should be the same … whether the state still owned it, whether PNO owns it. The efficient value of the port doesn’t change according to who owns it”, see Transcript page 309.

262    Ultimately, Mr Lloyd SC summed up the ACCC’s reasoning in five propositions, see Transcript pages 335-336:

(1)    Part IIIA is designed with the objective that regulated access prices specified in determinations following an arbitrated access dispute will generate revenues for access providers sufficient to meet the economically efficient costs of providing access to the declared service.

(2)    The economically efficient costs of providing access to a declared service do not extend to giving an access provider a stream of revenue by way of a return of capital in respect of valuable assets that were contributed by access users.

(3)    The exception to proposition 2 is where an access provider has subsequently repaid the capital value of the asset.

(4)    In the circumstances of the present case, access users contributed capital to create perpetual capital assets held and legally owned or leased by an access provider.

(5)    In the circumstances of the present case, neither of the access providers -that is the state or PNO - has repaid or paid for the capital value of those user created assets.

The Tribunal’s analysis

263    As referred to earlier, there were two major tranches of channel upgrades involving user contributions:

(1)    the Harbour Deepening dredging works from 1977 to 1983; and

(2)    the South Arm and berth pocket dredging primarily from 1989 to 2010.

264    The ORC of the whole Port as estimated by the ACCC was $2,169.5 million.

265    The ACCC deducted a proportion of this amounting to $912.0 million, arriving at a pre-depreciation replacement cost of the Port of $1,257.6 million (the small discrepancy presumably due to rounding). The deductions were based on “the percentage of user funding” and concerned channel assets and riverwalls and revetments, which are two of the eleven categories of assets in the DORC. After depreciation, the final DORC value of the RAB on 1 January 2018 for the purposes of calculating the MAR was $1,163.8 million.

266    The size and method for making the deductions (by a proportion of the total DORC) were as proposed by Glencore.

267    The starting point for considering the appropriate value of the RAB is the DORC. Use of a DORC methodology was agreed between the parties. The ACCC decided that the DORC methodology would meet the requirements of s 44X.

268    The Tribunal does not disagree with the ACCC’s reasoning that use of the DORC methodology is appropriate. However, the Tribunal also notes that use of the DORC methodology is by no means mandatory. Other approaches could have been adopted, such as starting from the existing port charges and determining how they might need adjustment.

269    Furthermore, the Tribunal considers that use of the DORC methodology may lead to higher charges than other approaches. In accepting it as the starting point in this re-arbitration, the Tribunal is not only accepting the ACCC’s reasons for doing so, but acknowledging that any other approach is effectively precluded by the parties’ having agreed to use a DORC methodology.

270    In this re-arbitration there was some confusion as to whether the user contribution amounts were deducted from the estimated DORC to arrive at the RAB, or whether the adjustment was made within the DORC as part of its estimation.

271    The Final Determination is perfectly clear that, as stated above, the DORC was estimated on the basis of all the assets and that user contributions were then deducted. However, as set out above, the ACCC’s submissions adopted a different approach. The argument for the deduction was put in terms of what an efficient entrant would charge, and recovery of assets it has funded for provision of the service, this price deterring entry to the market. That is equivalent to treating the deduction as a step in calculating the DORC, not as adjusting it after it has been calculated. This manner of framing the argument hearkened back to a passage in the ACCC’s Draft Determination that was omitted from the Final Determination.

272    On oral Submissions for the ACCC Mr Lloyd SC stated accurately what the ACCC said it did in the Final Determination, but made his argument for the deduction at times in terms of an adjustment within the DORC and at times in terms of a deduction from the DORC. He said the two approaches were different ways of conceptualising the issue, the result being the same.

273    Similarly, Glencore noted what the ACCC had done in its Final Determination but couched its argument for the adjustment in terms of a hypothetical new entrant, ie as part of the estimation of the DORC.

274    PNO attacked the adjustment within the DORC as defeating the purpose of the DORC estimation.

275    It is accepted that, as the ACCC said, the two approaches lead to the same result, which is to generate the same lower RAB (and lower NSC) than if no deductions were made. However, the proper estimation of the DORC needs to be considered, and the thinking behind what is actually adjusted goes to the reasoning for making an adjustment.

276    The vital questions when using a DORC approach are: what assets are being considered, and what are the assets that are to be hypothetically replaced?

277    As the submissions show, all parties ostensibly agreed that the relevant facility is the whole port, meaning all the channels and berths. Both Glencore and the ACCC stated clearly at various points that this included user contributed assets. Deductions for user contributed assets were to be made after the DORC was calculated to arrive at the RAB. We say “ostensibly” because the Tribunal considers that the submissions just referred to - placing the adjustment within the context of calculating the DORC in the first place - are inconsistent with the facility comprising all of the assets, including those contributed by users.

278    Excluding them from the DORC is, in the Tribunal’s view, equivalent to deciding that not all the assets are required to provide the Service. Since the Tribunal is of the view that all the assets, including the user contributed assets, are required to provide the Service, the Tribunal considers that excluding them from the DORC could not generate efficient charges and would be inconsistent with Part IIIA, given that a DORC approach has been agreed and adopted.

279    The Tribunal will now explain that thinking in more detail. It will then go on to examine whether, nevertheless, there is a justification for adjusting the DORC, calculated for all assets including user contributed assets, by subsequently deducting the user contributed assets to arrive at the RAB.

280    A range of arguments were mounted for adjusting the DORC, or at least the argument was set out in a number of different ways. First, the ACCC said that in an effectively competitive market, a service provider would not charge a user for assets that the user had funded without the threat of being entirely displaced by an efficient entrant. A service provider could only charge the user a price that, in expectation, is just sufficient to recover the assets it has funded for the provision of the service, and it is this price that deters entry into the market.

281    Secondly, the principle (as expressed clearly in the NGR) is that a service provider is not to benefit through increased revenue from a user’s contribution. This principle is consistent with the “NPV=0” principle that underpins these types of regulatory regimes. If a service provider receives a revenue stream from assets that it has not paid for, this will violate the NPV=0 principle, as the service provider will receive revenues that exceed its investment.