National Competition Council Assessment of State and Territory Progress with Implementing National Competition Policy and Related Reforms 30 June 1997 CONTENTS ABBREVIATIONS AND DEFINITIONS SUMMARY AND RECOMMENDATIONS INTRODUCTION PART 1: REFORM COMMITMENTS Conditions for the payment of the first tranche of Commonwealth transfers to States and Territories First tranche reform commitments arising from the Conduct Code Agreement First tranche reform commitments arising from the Competition Principles Agreement First tranche reform commitments arising from the inter-governmental agreements on electricity reform First tranche reform commitments arising from the inter-governmental agreements on gas reform First tranche reform commitments arising from the inter-governmental agreements on road transport PART 2: WHAT CONSTITUTES SATISFACTORY PROGRESS Linking progress and the National Competition Policy payments PART 3: ASSESSMENT OF PROGRESS The Competition Code Legislation Review Competitive Neutrality Application to Local Government Related Reforms First Tranche Assessment: New South Wales i iii 1 1 2 3 3 6 9 14 16 17 19 19 19 22 24 25 28 First Tranche Assessment: Victoria First Tranche Assessment: Queensland First Tranche Assessment: Western Australia First Tranche Assessment: South Australia First Tranche Assessment: Tasmania First Tranche Assessment: Australian Capital Territory First Tranche Assessment: Northern Territory ATTACHMENTS Attachment A: Payments to States and Territories under the National Competition Policy for 1997-98 Attachment B: Inter-governmental agreements on electricity reform relevant to the first tranche assessment Attachment C: Inter-governmental agreements on gas reform relevant to the first tranche assessment Attachment D: Ministerial Council for Road Transport: road transport reform program and timetable 45 61 76 89 104 116 128 138 139 143 149 Assessment of progress: NCP and related reforms Abbreviations and Definitions ABBREVIATIONS AND DEFINITIONS ACCC ACTEW ACTION ACTTAB AGL ANZMEC COAG CSO DBNGP ETSA FPF GASCOR GBD GBE GBEC Act GFCV GGE GOC GPOC GRIG GTC GTSO HEC IPART MCRT MNC NCP NECA NEM NEM1 NEM2 Australian Competition and Consumer Commission ACTEW Corporation, the Government owned electricity and water distribution corporation in the ACT The Government owned public transport authority in the ACT ACT Totalisator Agency Board, a Government owned corporation Australian Gas Light Company Australian and New Zealand Minerals and Energy Council Council of Australian Governments Community service obligation Dampier to Bunbury Natural Gas Pipeline in Western Australia Electricity Transmission South Australia, the Government owned power distribution and retail corporation in South Australia Financial Management Framework in NSW Government owned gas distribution and retail corporation in Victoria, trading as Gas and Fuel Government Business Division, government business enterprise or activity under the Northern Territory Financial Management Act 1995 Government Business Enterprise Government Business Enterprises (Competition) Act 1996 in Queensland Gas and Fuel Corporation of Victoria General Government Enterprise Government Owned Corporation, as under the Government Owned Corporations Act in Queensland Government Prices Oversight Commission in Tasmania Gas Reform Implementation Group Gas Transmission Corporation in Victoria Gas Transmission System Operator, wholesale gas market manager in Victoria Hydro-electric Corporation in Tasmania Independent Prices and Regulatory Tribunal in New South Wales Ministerial Council on Road Transport Multiple Network Corporation National Competition Policy National Electricity Code Administrator National Electricity Market National Electricity Market phase 1 National Electricity Market phase 2 i Assessment of progress: NCP and related reforms Abbreviations and Definitions NEMMCO NGMC NRTC OFM PASA PAWA PFE National Electricity Market Management Company National Grid Management Council National Road Transport Commission Office of Financial Management, an element of the ACT Chief Minister’s Department Pipeline Authority of South Australia Power and Water Authority of the Northern Territory Public Financial Enterprise, a classification of government budget activity by the Australian Bureau of Statistics for the purposes of preparing the Government Financial Statistics Pacific Gas Transmission Petroleum Resource Rent Tax Public Trading Enterprise, a classification of government budget activity by the Australian Bureau of Statistics for the purposes of preparing the Government Financial Statistics Queensland Competition Authority Queensland Electricity Commission Queensland Totalisator Agency Board Queensland Manufacturing Institute Queensland Rail Queensland Transmission and Supply Corporation Road Transport Construction Service South Australian Gas Corporation, now defunct South Australian Generation Corporation State Electricity Commission of Victoria State Energy Commission of Western Australia Statutory marketing arrangements Tax Equivalent Regime Victorian Power Exchange Western Australian Municipal Association PGT PRRT PTE QCA QEC QLDTAB QMI QR QTSC RTCS SAGASCO SAGC SECV SECWA SMA TER VPX WAMA ii Assessment of progress: NCP and related reforms Summary and Recommendations SUMMARY AND RECOMMENDATIONS On 11 April 1995, the Commonwealth, State and Territory Governments signed three agreements underpinning the National Competition Policy (NCP). These agreements, together with sector specific agreements on electricity, gas, water and road transport, set a number of reform objectives for the period to the year 2000. For the first stage of the NCP – the period to June 1997 – the key objectives are: • exposure of the unincorporated sector and State and local government businesses to the competitive conduct rules set out in the Trade Practices Act; development of a timetable for the review and where appropri te re a form of all existing legislation restricting competition by the year 2000, and evidence of progress against the timetable; publication of a policy statement for applying competitive neutrality principles to significant State and local government business activities and evidence of progress against objectives, including the establishment of a mechanism for handling complaints about competitive neutrality matters; publication of a policy statement on extending the competition principles to local government and evidence of progress against that agenda; structural reform of public monopolies where competition is introduced or where a monopoly is privatised; progress towards freely operating national markets in electricity and gas; and implementation of early reforms to standardise road transport regulations across all States and Territories. • • • • • • Governments assigned to the National Competition Council the task of assessing progress against these reform objectives. National Competition Policy payments are to be made by the Commonwealth to the States and Territories where the Council assesses progress to meet reform obligations. This report provides the Council’s first stage assessment of progress. Although the NCP is still at an early stage of implementation, there have been several significant advances. For example, the Council judges that there is now: • good progress towards implementing the National Electricity Market in eastern and southern Australia, including commitments for interconnection by both Queensland and Tasmania; a well advanced framework for introducing free and fair trade in gas (already implemented in New South Wales); continued implementation of competitive neutrality policy principles in significant government business activities in line with governments’ focus on the performance of their GBEs, and mechanisms for consideration of complaints; extensive legislation review programs in place and the potential for businesses through the repeal of redundant or unjustified legislation; and reduced costs to • • • iii Assessment of progress: NCP and related reforms • Summary and Recommendations greater recognition of the importance of applying the reforms to local government businesses. Nonetheless, there are areas where the Council has some concerns. These include the potential for delay in adoption of national gas regulation and for the adoption of arrangements which might inhibit the free and fair trade in gas, the failure by some governments to include all their anti-competitive regulation for review, and generally slower than anticipated application of competition principles to local government. The Council has recommended reassessment of reform performance in these areas prior to July 1998. The Council considers that the decision by New South Wales to continue the current domestic vesting arrangements available to the NSW Rice Marketing Board does not meet the spirit of the Competition Principles Agreement. The decision was taken despite the recommendation of an independent review panel that deregulation of domestic arrangements, while leaving the export monopoly intact, would provide a net community benefit. The Council recognises that this review was the first consideration of statutory marketing arrangements (SMAs) for rural producers, and that New South Wales is one of the leaders in competition policy reform, especially in moves towards competitive energy markets. The Council is tempted to overlook deficiencies in domestic rice reform on these grounds. But the Council considers its role is to assess each State and Territory against each NCP reform commitment, and make appropriate recommendations, rather than horse trade leading performances in some areas against poor performance in others. This is a general principle that the Council will apply throughout the assessment process. The Council considers that SMAs will be one of the most important areas of NCP reform, and worthy of thorough commitment by all governments. The Council raised its concerns with the New South Wales Government, with the objective of ensuring that action taken on domestic rice marketing meets the spirit of the Competition Principles Agreement. In response, the New South Wales Government has indicated a preparedness to enter into meaningful discussions with the Council on the competition policy concerns with its domestic rice marketing arrangements. In considering its approach on this matter, and to deal with departures from NCP commitments more generally, the Council gave thought to recommending the imposition of a financial penalty on New South Wales. But recognising the preparedness of New South Wales to address the Council’s concerns, and the fact that New South Wales rice marketing was one of the first major reviews of legislative restrictions on competition, the Council will not recommend a penalty at this time. The Council will reassess New South Wales’ progress on legislation review matters prior to July 1998 for the purposes of the second part of the first tranche assessment and in future tranche assessments. The Council will take into account the discussions with New South Wales on rice marketing in these assessments. The Council’s recommendations are summarised in the table below. iv Assessment of Progress: NCP and related reforms Summary and Recommendations Summary of Recommendations: First Tranche NCP Payments State/Territory Outstanding First Tranche Issues Recommendations on Transfers Full payment of first part of first tranche payment due 1997-98. New South Wales Review progress with legislation review and reform obligations re domestic arrangements for rice marketing for compliance with clause 5 of the Competition Principles Agreement prior to July 1998. Payment due in 1998-99 dependent on evidence of clause 5 compliance for domestic rice marketing arrangements and Review progress with legislation review and reform obligations re casino control legislation, compliance with clause 5(5) for casino control legislation for compliance with clause 5 prior to July TAB privatisation legislation and progress with the 1998. application of competition principles to local government. Review progress with legislation review and reform obligations re legislation for the privatisation of the NSW TAB for compliance with clause 5(5) of the Competition Principles Agreement prior to July 1998. Review progress with application of competition principles to local government prior to July 1998. Full payment of first part of first tranche payment due 1997-98. Victoria Review progress with application of the uniform national gas access code prior to July 1998. Review progress with application of competition principles to local Second part of payment due in 1998-99 dependent on government prior to July 1998. satisfactory progress with application of the national gas access code and with the application of competition principles to local government. v Assessment of Progress: NCP and related reforms Summary and Recommendations State/Territory Outstanding First Tranche Issues Recommendations on Transfers Full payment of first part of first tranche payment due 1997-98. Queensland Review progress with application of the uniform national gas access code prior to July 1998. Review progress with legislation review and reform obligations re casino agreement legislation for compliance with clause 5 prior to July 1998. Second part of payment due in 1998-99 dependent on satisfactory progress with application of the national gas access code, with clause 5 compliance for casino agreement legislation and progress with application of Review progress with application of competition principles to local competition principles to local government. government prior to July 1998. Full payment of first part of first tranche payment due 1997-98. Western Australia Review progress with the national gas reform commitments re tender process for a second Dampier/Perth gas pipeline. Review progress with application of the uniform national gas access code prior to July 1998. Second part of payment due in 1998-99 dependent on commitment to implementation of the National Gas Access Code, satisfactory progress with national gas reform Review progress with review and reform of agreement legislation commitments in respect of removing regulatory barriers to prior to July 1998. free and fair trade in gas, and satisfactory progress with review of agreement legislation and application of the Review progress with application of competition principles to local competition principles to local government. government prior to July 1998. vi Assessment of Progress: NCP and related reforms Summary and Recommendations State/Territory Outstanding First Tranche Issues Recommendations on Transfers Full payment of first part of first tranche payment due 1997-98. South Australia Review progress with application of the uniform national gas access code prior to July 1998. Review progress with legislation review and reform obligations re casino control legislation for compliance with clause 5(5) prior to July 1998. Second part of payment due in 1998-99 dependent on satisfactory progress with application of the national gas access code, with evidence of clause 5(5) compliance for Casino Act 1997 and progress with application of Review progress with application of competition principles to local competition principles to local government. government prior to July 1998. Tasmania Review progress with application of competition principles to local Full payment of first part of first tranche payment due government prior to July 1998. 1997-98. Second part of payment due in 1998-99 dependent on satisfactory progress with application of competition principles to local government. Full payment of first part of first tranche payment due 1997-98. Second part of payment due in 1998-99 dependent on satisfactory progress with application of the national gas access code. Australian Capital Territory Review progress with application of the uniform national gas access code prior to July 1998. vii Assessment of Progress: NCP and related reforms Summary and Recommendations State/Territory Outstanding First Tranche Issues Recommendations on Transfers Full payment of first part of first tranche payment due 1997-98. Second part of payment due in 1998-99 dependent on satisfactory progress with application of the national gas access code. Northern Territory Review progress with application of the uniform national gas access code prior to July 1998. viii