Saturday, November 08, 2008

TPA's perverse effect on investment

Letters by Michael Crouch (October 30), and Julian Tapp (October 31) argue that the Treasurer was justified in requiring BHP Billiton to share its Pilbara rail line with other companies because of the original state agreements' contractual conditions.

Actually, those original state government agreements required BHP and Rio to provide haulage to third parties. Requiring them to permit others to use their track for this purpose goes somewhat further.

More importantly, the original agreements' requirements on haulage services were not the basis of the requirements to open the lines to third parties. The case, endorsed by the Treasurer, for the regulatory control over these facilities that was put by the National Competition Council and the Australian Competition and Consumer Commission was based on the lines having some monopolistic characteristics.

But almost all infrastructure has such features. The decision of the Treasurer therefore sets a precedent that grants government agencies wide powers over all infrastructure.

Allowing government agencies to set the prices and conditions for a firm's property is a sure-fire way of suppressing new private sector investment.

This demonstrates that Part IIIA of the Trade Practices Act and other competition provisions are now having a perverse effect on investment by giving officials too much power to override commercial decisions. This is undermining the incentive for infrastructure investment that was a major objective of the national competition agreements. It compounds a problem, identified in the government's mid-term statement, that there is now rather less government money to build new infrastructure.


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