1. Is rail freight an essential service? Paul Fearon Chief Executive Officer Essential Services Commission

2. ESC’s purpose and objectives  The Essential Services Commission is Victoria’s independent economic regulator. The ESC’s primary objective is to protect the long term interests of Victorian consumers with regard to the price, quality and reliability of essential services.  Under the Victorian Rail Access Regime the ESC is Victoria's economic regulator of rail and rail terminal access.  The objectives of the ESC under the Rail Corporations Act: –To ensure users have fair and reasonable access to declared rail transport services. –To promote competition in rail transport services to achieve an increased use of, and efficient investment in, rail infrastructure. 2

3. Regulation of rail access in Victoria  ESC’s regulatory role: –Approval of access arrangements every 3 to 5 years for the two rail networks and two terminal operators. –Dispute resolution for access seekers.  Key features of the Victorian rail regime –Access arrangements specify terms and conditions for a 3 to 5 year period. –This includes the ‘fit for purpose’ track standard and a revenue cap. –Prices must satisfy principles in the Pricing Order. –Discrimination between users of like-for-like services is prohibited. 3

4. ESC submission to the Rail Freight Network Review  Two key issues need to be addressed in ensuring an efficient and sustainable network that meets the needs of rail freight customers (and the wider community): –Appropriate network configuration and performance standards. –Ensuring access prices at an affordable level.  These aims entail a number of specific requirements that need to be met: –An appropriately prioritised program of maintenance works –Efficient procurement of services –Efficient line configuration –Subsidy arrangements tied to incentive arrangements. 4

5. Rail Freight Network Review  Directions for the access regime from the RFNR: –There be only a dispute resolution function (negotiate/arbitrate) –There be a ‘one stop shop’ for track access 5

6. Forthcoming review  The ESC understands that it may be requested to review the regime and is expecting to receive terms of reference for the Review shortly.  Background to this reference is: –Government response to VCEC report on congestion committed to reviewing regime by mid-2009 –COAG commitment to review regime in similar timeframe  Key questions: –Is regulation needed for some or all facilities? –Can it be more light-handed? How? –How to implement RFNR recommendations? 6

7. Concluding points  Future emphasis of the access regime expected to differ from the traditional focus on the protection of customers from monopoly power, with greater emphasis on: –Ensuring competitive neutrality in the provision of services. –Providing the maximum possible incentive to grow freight traffic. –Providing ongoing incentives for efficient levels of maintenance and operating expenditures. –Encouraging a financially viable railway, that provides an appropriate and affordable level of service. 7