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Report Details


Committee Name:

Public Administration Committee (1996 - 2001)

House:

Legislative Council
Report Type:Report

Title:

Inquiry into Government Proposals for the Sale or Lease of Westrail Freight Operations
Report No:14
No of Pages:58 + appendices
Physical Location:Legislative Council Committee Office

Presentation Date:

09/21/1999
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Hide details for Executive SummaryExecutive Summary
      On 23 June 1999 the Legislative Council directed the Standing Committee on Public Administration to inquire into the Government proposals for the sale or lease of Westrail freight operations, track network, rolling stock and associated infrastructure.
      The following is a summary of the Standing Committee on Public Administration’s report findings, by chapter. This report provides an overview of the pertinent issues.



Chapter 3: Sale of Westrail Freight Business

3.4.1 The Committee notes the Government view that a private operator of Westrail’s freight business will be able to introduce innovation and operating efficiencies and expand the rail business in Western Australia.

3.4.2 The Committee notes that the Government believes Westrail’s capacity to invest in the rail network will be limited and that its constraints of being a Government owned entity will result in current business being lost to other rail operators.

3.4.3 The Committee notes that industry generally support the privatisation of Westrail’s freight business.

3.4.4 The Committee notes that the Australian Rail Tram and Bus Industry Union, expressed opposition to the sale as it fears job losses particularly in regional areas.

3.4.5 The Committee notes that the WA Farmers Federation is opposed to the sale on the grounds that the Government has provided insufficient evidence of the benefits of privatisation. It is concerned about the effect, particularly on the grain industry using narrow gauge lines, of private ownership with shareholder rather than public interest priorities.

Chapter 4: Railway Structure

4.4.1 The Committee believes that it is important to consider that a vertically integrated system with an open access regime is uncommon worldwide.

Chapter 5: A Vertically Intergrated Structure

5.10.1 The Committee notes that the rail industry overwhelmingly supports privatisation but generally would prefer a vertically separated system rather than a vertically integrated
system. This is partially due to concerns that the Access Code will be insufficient in allowing third party competition.

5.10.2 The Committee is concerned with the prohibition on Government-owned entities bidding for the proposed rail sale and lease. This restricts bidding from Europe where rail operators are predominantly Government-owned. It also prevents the ARTC (which is owned by the Commonwealth Government) from bidding, as well as other Australian operators.

5.10.3 The Committee therefore believes that the proposed vertically integrated system will be most attractive to bidders from the United States where there is a history of private rail ownership and vertical integration. The Committee believes that the reasons, implications and justification for this restriction in bidding should be explored further.

5.10.4 The Committee notes that the NRC expressed the view that the proposed access regime is insufficient to prevent leakage of information between above and below rail operations if the system in vertically integrated.

5.10.5 The Committee notes that the Productivity Commission Draft Report on Progress in Rail Reform concluded that a low volume regional network is better suited to a vertically integrated system.

5.10.6 The Committee notes that amongst witnesses, there was some support for the Productivity Commission’s conclusion that regional Western Australia is a low volume regional network and therefore is better suited to a vertically integrated system. However, the Committee notes that the NRC disagrees with the Productivity Commission’s conclusion and sees it as “too simplistic”.

5.10.7 The Committee notes the ARTC submissions that although the standard gauge interstate lines should be vertically separate, it is in favour of a vertically integrated narrow gauge intrastate system because of economies of scale involved. The Committee is concerned that requirements to suit national standards above consumer demand may prove too costly for operators. The Committee believes that the Bunbury to Perth rail line should be looked at closely as the two main customers from the mining sector may leave an owner of only track ( in a vertically separate system) in a much weaker position to negotiate with dominant customers to the detriment also of other potential users of the track.

5.10.8 The Committee notes that the Government and Task Force submissions argue that a privatised vertically integrated system, with a third party access regime, would promote competition and lead to development and innovation in the rail freight industry. Each submit that meaningful comparisons of other rail systems is difficult because of different operating environments, with differences in size of rolling stock, levels of competition, regulatory frameworks and markets.

Chapter 6: Rail Access

6.5.1 The Committee notes that the Government and the Task Force submitted that the proposed access regime will be sufficiently robust to promote third party competition in the proposed vertically integrated system. This is because of the provisions in the Access Code that prohibits the hindering of access and requires the rail owner to avoid unnecessary delays, as well as providing for an independent arbitration mechanism.

6.5.2 The Committee notes that several industry submissions viewed the proposed regime as being unable to balance out the advantage that a vertically integrated rail operator would have over others seeking access of the track. They pointed to their practical experiences on tactics used to suppress competition on standard gauge interstate rail lines.

6.5.3 The Committee specifically notes the ARTC’s statement that access regimes prevent exploitation but do not promote competition. The Committee recognises that this is in itself a matter of contention.

Chapter 7: Establishing a Value for the Sale

7.4.1 The submissions to the Committee emphasised the importance of the rail access Regulator being independent.

7.4.2 The Committee notes that concerns were raised about an Access Code, specifically the effectiveness of the setting of a floor and ceiling price in preventing the operator of a vertically integrated system from stifling competition.

7.4.3 The Committee believes that consideration should be given to spreading rail track lease payments periodically instead of providing for one large upfront fee. It was submitted to the Committee that the advantage of this would be that the new operator would then have more capital to apply to the maintenance and improvement to the rail infrastructure.

7.4.4 The Committee recognises that the issue of an “up-front” lease payment is a point of conjecture and believes the views expressed to the Committee should be explored further.

Chapter 8: Effect of Sale on Westrail Employees

8.6.1 The Committee believes that a situation should be avoided whereby the employer and employees are faced with instant industrial negotiations should the privatisation of Westrail’s freight business eventuate.

8.6.2 The Committee notes the concerns raised about the difficulties in transferring superannuation under a Government scheme to private schemes and the effect of an employee’s decision to opt for Government redeployment over transferral to the private sector.

8.6.3 The Committee notes the Union’s concerns about job losses following privatisation. The Committee further notes evidence that Westrail has already undergone an extensive process of restructuring and considers that large scale retrenchments are an unlikely consequence of privatisation.

Chapter 9: Effect on the Grain and Mining Industries in Western Australia

9.3.1 The Committee finds that there are a number of issues, mostly unrelated to the sale itself, which have the potential to substantially alter the dynamics of the grain haulage task for the rail service provider.

9.3.2 The Committee finds that the probability of pressure being exerted on the present price averaging arrangements between standard gauge and narrow gauge rail clients is high, and this may lead to a disaggregation of freight charges for grain.

9.3.3 The Committee believes that in some cases this disaggregation will lead to either commercial pressure to close lines, or to the requirement for the private owner to invest heavily in a low volume regional network, which may have limited potential for growth other than in the grain industry itself.

9.3.4 The same pressures would apply to a Government-owned Westrail in the same circumstances. The Committee notes that Westrail and the taxpayer have absorbed losses that were sustained during the period of time taken to make the investment required to regain commercial competitiveness with road transport. An equal capacity will need to be demonstrated by any potential private owner. This does not prevent community service obligation payments being utilised by the Government for the public interest.

9.3.5 The Committee notes that while this possible dilemma is not principally related to the sale of Westrail, it serves to underline the importance that attaches to the capacity of a potential private operator to access significant investment capital in a relatively short period of time. Any deficiency in this area could have serious consequences for the grain industry in regions not currently served by a high efficiency railway. In this context the term “high efficiency” is not exclusive to standard gauge operations.

9.3.6 In the interests of more accurately defining the potential for significant grain freight rate variations which may arise from the changing dynamics of the grain industry, the Committee suggests that the Minister for Transport should address the House further on this matter.

Chapter 10: Local Government Concerns

10.4.1 The Committee notes that WAMA is opposed to section 46 of the Rail Freight System Bill which provides that rail corridor land once leased remains exempt from paying rates under the Local Government Act 1995. The Committee believes this issue should be considered further.