Parliament House Canberra 18 & 19 May 2005 BTRE introduction - Peter Kain …with illustrations from railway regulation The tension between competing objectives in regulating infrastructure

The railway industry has undergone a revolution  formation of national freight operator and national track owner to facilitate coordination  National Competition Policy (NCP) with mandated “open” access  strategic investment e.g. gauge standardisation Melbourne-Adelaide

…with significant impact e.g. doubling tonnage on Eastern States-Perth, * * BTRE Information Sheet 22

NCP has resulted in significant benefits for customers and providers  reduced freight rates – making upstream customers more competitive  greater choice of provider  higher track utilisation  smaller range of activities to be regulated

But there are also costs  regulated prices may – discourage and distort investment – inhibit long run cost-recovery pricing options  higher contracting costs  efficiency and productivity can be undermined  regulatory task more complex

Regulations have increased significantly  mandated (“open”) access  economic regulations  safety regulators  structural regulation of vertical separation and “ring-fencing” of train/track activities

In brief, tension likely between  prices that foster competition and those that ensure sustainability of the infrastructure  multiple objectives of coordination, competition, cost recovery and investment incentives

“‛Better regulation’ principles often turn out to be a set of ‘contradictory proverbs’… tendency to enumerate a wish-list of regulatory desiderata, each of which is perhaps unexceptionable on its own, but which in practice can only be achieved at the expense of one of the other principles.”* * Hood, C, Rothstein, H and Baldwin, R 2001, The government of risk. Understanding risk regulation regimes, Oxford University Press, Oxford.