Fremantle Ports has defended plans to privatise its automotive terminal, after the competition watchdog warned that putting a monopoly service in the hands of a private company could lead to higher prices for car buyers.
Fremantle Ports has defended plans to privatise its automotive terminal, after the competition watchdog warned that putting a monopoly service in the hands of a private company could lead to higher prices for car buyers.
The warning from the Australian Competition and Consumer Competition followed its approval for two companies to bid for the automotive trade at Fremantle harbour.
The ACCC granted approval after the two companies gave enforceable undertakings, but it said these were “not a substitute for effective access regulation”.
Up to 100,000 vehicles are imported each year through Fremantle, representing more than two-thirds of all new vehicles coming into the state.
The low-key privatisation of the port’s automotive trade has been under way since December 2013, when Fremantle Ports called for expressions of interest from the private sector to develop and operate a single new automotive terminal on Victoria Quay.
The two companies short listed to bid for the new terminal are closely associated with other shipping, stevedoring and automotive services companies.
One bidder, Victoria Quay International RoRo Terminal, is a wholly owned subsidiary of Wallenius Wilhelmsen Logistics (WWL), which operates a shipping business in competition with other terminal users at Fremantle.
The second bidder, Australian Amalgamated Terminals, is jointly owned by listed companies Qube Holdings and Asciano, which already run major stevedoring operations at Fremantle.
In addition, QUBE has a 25 per cent stake in Prixcar Services and Asciano has an 80 per cent interest in Patrick Autocare, which provide vehicle processing, storage and distribution services at the port.
The two short-listed bidders have provided enforceable undertakings to the ACCC, to ensure they operate an open access service that is ring-fenced from their other operations if they win the tender.
On this basis, the ACCC has announced that it would not oppose the two bidders from acquiring a long-term lease to develop and operate the automotive and roll-on, roll-off terminal at Victoria Quay.
However, the ACCC said the undertakings it had obtained “are not a substitute for effective access regulation”.
“One important limitation of merger remedies in section 87B undertakings is that they do not adequately address underlying monopoly pricing concerns,” ACCC chairman Rod Sims said
“The appropriate mechanism to deal with monopoly pricing concerns and prevent damage to the economy in the future is through undertakings under Part IIIA of the Act.”
This regime requires initial tariffs to be determined through an up-front price setting process or a ‘negotiate arbitrate’ framework, to address concerns about monopoly pricing, while ensuring the infrastructure provider is allowed an appropriate return.
The ACCC said these concerns applied to both Fremantle and a similar privatisation process under way in Melbourne.
It said Part IIIA undertakings were an effective mechanism, but were voluntary unless governments required bidders for monopoly infrastructure to offer a Part IIIA access undertaking that was acceptable to the ACCC.
“If governments continue to privatise monopoly assets without requiring appropriate regulatory regimes, such as Part IIIA undertakings or robust state or territory access regimes, this concern will be perpetuated and may result in inflating costs in downstream markets and ultimately higher prices for end consumers,” Mr Sims said.
Fremantle Ports chief executive Chris Leatt-Hayter said pricing and access issues had been and remained a fundamental consideration in seeking to obtain efficiency improvements through a dedicated automotive terminal.
“In addition to Part IIIA, there are other means, such as through contractual arrangements, of ensuring appropriate price setting and addressing monopoly pricing concerns,” Mr Leatt-Hayter told Business News.
Mr Leatt-Hayter said the two bidders had been required to provide detailed breakdowns of their proposed pricing levels and the contractual documentation required by Fremantle Ports will contain strict limitations on price increases.
“The value for money of the bidders' proposals including pricing impacts on users will be a fundamental consideration in the assessment of proposals,” he said.
