Draft report - Review of the NSW Rail Access Undertaking - 18 October 2022

We have made 32 draft recommendations that would improve stakeholders’ confidence and certainty in the NSW rail access framework.

See our media release.

We are proposing to maintain the ‘negotiate-arbitrate’ model of seeking access, but with new requirements to ensure:

• timely negotiations and effective dispute resolution processes
• bargaining power imbalances are addressed through information disclosure requirements, clear and transparent non-pricing terms and conditions, pricing terms, and obligations to consult with access seekers.

Statutory timeframes and more guidance for negotiation and arbitration

We are proposing:

• New statutory timeframes for key steps in the negotiation process. If the parties don’t reach a negotiated agreement within 3 months or a later date agreed by all parties, it would trigger the dispute resolution mechanism.
• That the framework should provide for collective negotiations where lawful and there is sufficient common interest.
• That access seekers would have a choice of using conciliation as another lower cost form of dispute resolution.

These draft recommendations would help ensure that dispute resolution is a credible threat of intervention. This should provide a stronger incentive for all parties to reach mutually agreeable negotiated outcomes.

Improved information disclosure

Under our draft recommendations, access providers would be required to disclose more information on services, costs, prices, network development and performance, including a default price for standard services, and all negotiated prices that access seekers pay. The information would need to comply with a new information standard developed by IPART.

Access providers would also be required to set out in their undertakings transparent and enforceable provisions detailing how they make decisions around allocating, managing and transferring capacity, and permitting rail operators to access the network. Our draft recommendations are consistent with the Rail Safety National Law and would have no impact on its operation.

Clearer pricing provisions and greater investment consultation

Even with the enhanced information disclosure requirements, access seekers may still not be able to negotiate efficient prices due to the market power of a monopoly access provider. We are proposing that the NSW access framework includes the following set of price principles to protect against the exercise of market power:

Existing provisions to be maintained:

1. The combined revenue from access prices cannot be more than the full economic cost of providing access
2. Access prices cannot be less than the direct costs of using the network  
3. Shared revenue from access prices should recover the incremental costs of providing access

New provisions:

4. Changes in an access seeker’s access price should reflect commercial requirements, such as an increase in the cost of providing access.
5. Access seekers competing in the same downstream market should pay the same access price for the same service except if there is a cost difference.

New powers to enforce the rules

The current Undertaking confers several compliance functions on IPART as rail access regulator. However, it does not give IPART any express powers to enforce these requirements (or deter non-compliance), except where access seekers seek arbitration. Consistent with other access regimes, our draft recommendation is that IPART, as access regulator, should have the ability to use a range of express enforcement mechanisms, depending on the breach. These would include giving directions, seeking monetary penalties and other court orders. Combined with the other mechanisms, being able to compel access providers to return excess revenue would curtail the exercise of market power which has persisted over the last decade.