The definition of third party access is access or increased access by an entrant to an incumbent's infrastructure services where this infrastructure is operated by a natural monopoly and has excess capacity. In the urban water sector a new entrant may require access to the wastewater system which is owned by the incumbent to supply a new service, such as recycled water. Third party access can also involve the new entrant targeting new customers or customers already serviced by the incumbent.
The establishment of third party access arrangements can create competitive pressures and encourage incumbents to review and improve management practices and service delivery to customers. It can also create an avenue for new cost-saving technologies to enter the market which would otherwise be closed to new entrants. These improvements can provide benefits to customers by lowering tariffs, reducing subsidies from taxpayers and providing a higher-quality service (PPIAF and WB 2006).
Two examples of third party access arrangements in Australia are, Barossa Infrastructure Limited (a private consortium made up of 250 irrigators), which gained access to a water pipeline owned by SA Water to provide water for irrigation and the use of Brisbane Waters treatment plant and pipeline by local councils. Both of these arrangements were cooperatively arranged with an incumbent water authority.
Third party access to the water and/or sewerage supply system may not always be appropriate. In some cases it may be too disruptive to the existing situation or deemed to be contrary to public interest (for example, see the National Competition Council's (NCC) decision rejecting an application by Lakes R Us Pty Ltd available at: http://www.ncc.gov.au/articles/files/PR06LRU-001.pdf).
Case study: Services Sydney Pty Ltd
Third party access to natural monopoly infrastructure, such as railways, pipelines, ports etc., is governed by Part IIIA of the Trade Practices Act 19743. The procedures under the Trade Practices Act are slow. They require in the first case consideration by the NCC which makes a recommendation to the relevant authority, usually a state government. If the recommendation is not acted upon, the applicant can appeal to the Australian Competition Tribunal ("the Tribunal") which is chaired by a Justice of the Federal Court.
The only reported judgment of the Tribunal relating to water was on 21 December 2005 when the Tribunal rules in favour of an application from a private company, Services Sydney Pty Ltd to 'declare' for 50 years the wastewater interconnection and transportation services of three sewer reticulation networks within Sydney's wastewater system. The decision meant that Services Sydney, or any other business, has a legal right to seek access to these elements of the wastewater system by negotiating with the existing water authority and/or the New South Wales Government. In anticipation of this ruling the New South Wales Government developed its own state-based third party access regime which is discussed on page 31. It is expected that in this case a private operator would tap into the existing sewerage network (referred to as sewer mining) and treat and recycle wastewater for sale to agricultural and industrial producers, recreational users and for environmental flows.
The Services Sydney case illustrates that an application for access can take many years when negotiations fail with the incumbent service provider and the seeking of access is subject in the first instance to the NCC and if their decision is to be reviewed by the Tribunal under the 1974 Trade Practices Act. The decision by the Tribunal on the Service Sydney case is available at: http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/cth/ACompT/2005/7.html?query=Services%20Sydney.
A summary of the 1974 Trade Practices Act is available at: http://www.accc.gov.au/content/index.phtml/itemId/303161
Many people believe that the long and expensive proceedings that are required to obtain third party access under the 1974 Trade Practices Act process demonstrates that the legal system is not the best means of dealing with third party access issues or for developing public policy. The experience of the energy sector in establishing rules and an access code for establishing a third party access regime offers an alternative to using the legal system and provides some lessons for the water sector. The rules and the code under which the energy sector operates in the market place are available from the Australian Energy Market Commission at http://www.aemc.gov.au/rules.php.
The central elements of energy reform comprised the removal of barriers to trade as well as the establishment of a national access framework and deregulation of elements of the supply-chain capable of supporting competition. An industry-specific access framework was considered to be the most appropriate means of encouraging access. The main elements of reform include the: introduction of competition; the unbundling of Electricity Supply Industry (ESI) functions; the reorganisation of the electricity market including the separation of network charges; the privatisation of electricity businesses in some states; and the formalisation of ESI regulation.
The major objective of these reforms has been to introduce competition into the Australian energy market by unbundling the four ESI functions into separate businesses and the development of a wholesale market, the National Electricity Market (NEM). This market is completely competitive, with any participant able to purchase from any other. Participants in the NEM can choose to take part in any combination within three defined levels of trading.
After a decade of energy reform, the results are clear (see page 11 and Figure 1). The energy sector is in the process of being transformed from a series of state-based integrated monopolies into an industry characterised by an emerging national market underpinned by access regulation, growing competition and increasing investment. The operation of the energy sector has also vastly improved. The following is a summary of the main benefits of these reforms.
Figure 1: A summary of COAG review findings into energy reforms
The COAG Review found that substantial progress on energy market reform has been made in Australia, and that significant benefits have arisen from that reform. Since the reform program has commenced, there has been: • Considerable integration of the wholesale electricity markets in Victoria, New South Wales, Queensland, the Australian Capital Territory and South Australia. • Substantial investment in new electricity generation and gas production and in electricity and gas transmission interconnection between states in eastern and south eastern Australia. • A substantial productivity improvement through greater generator availability. • Vigorous retail competition in the medium and large business sector (which has delivered significant benefits), and accelerating competition in the newly opened household and small business markets in New South Wales and Victoria. • High levels of supply security, and improvements in network reliability. • The pursuit of consistency with arrangements elsewhere by Western Australia, a non-interconnected jurisdiction, in reforming its electricity and gas markets. |
Adapted from the ministerial Council on Energy Report to COAG on Reform of Energy Markets - 11 December 2003
Q7: | What are the pros and cons of using third party access as a way of involving the private sector? |
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3 When deciding whether to apply Part IIIA of the TPA to services/infrastructure, the Minister is required to have regard to factors (listed under 44(H)) including that it would be uneconomical for anyone to develop another facility to provide the service and that the facility is of national importance.