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Tuesday, 2 December 2008
Page: 43

Senator XENOPHON (4:55 PM) —This referral to the Senate Standing Committee on Economics came as a result of a second reading amendment to legislation in relation to taxation of the North West Shelf Joint Venture partners. I believe it was an important referral given the concerns expressed by DomGas, the domestic gas users alliance, about a lack of competition and a lack of transparency and the unfairness for consumers in the context of the North West Shelf gas-marketing arrangements. I must say that I am disappointed that the government’s view is effectively to keep the status quo, to keep the joint marketing arrangements. I believe that is a bad outcome for consumers. I am also disappointed that the coalition took a similar view, that there would need to be a very comprehensive evaluation of all relevant factors before any decisions are made to change the joint marketing arrangements.

It was the position of a number of witnesses who gave evidence to this inquiry that the joint venture reduces competition. I refer in particular to one of the witnesses, Associate Professor Frank Zumbo from the School of Business at the University of New South Wales, who is an expert on competition law. He said this is so. Associate Professor Zumbo gave evidence that, in his opinion:

… there is a breach of section 45 of the Trade Practices Act. It can be through price fixing—and we know there is price-fixing conduct. Also there is conduct that is likely to have the effect of substantially lessening competition.

It is my view that the venture clearly has the effect of substantially lessening competition in the Western Australian gas market because of the lack of import competition, the very high barriers to entry of the market, high levels of market concentration and the lack of countervailing power of gas buyers. That sums up quite neatly the opinion of Associate Professor Zumbo. The joint venture also reduces the number of significant sellers from seven to two. In terms of whether its purpose is to substantially lessen competition, I agree with the question posed by Associate Professor Zumbo:

…you have to ask: what is the goal they are seeking to achieve by engaging in joint marketing? I would submit that there is only one goal, and that is to maintain or raise prices above competitive levels.

There is the whole issue of what other markets do. Associate Professor Zumbo cited the Norwegian and Danish gas markets. The European Commission settled cases involving the joint marketing of gas in those markets where the markets were opened up.

It is arguable that the joint venture was justified when it was first introduced as the producers were effectively facing the government as a vertically integrated monopsony buyer. But the subsequent deregulation and privatisation of the domestic gas market means this justification no longer holds. The individual companies in the joint venture are all large and profitable. Collectively they would be making tens of billions of dollars of profit through their operations around the world. The profitability of the joint venture project itself was not disclosed. At one point, the joint venture’s CEO said:

… the joint venture is not an incorporated entity. It does not have profits per se …

That appeared to be inconsistent with other comments made later that in the nineties ‘this project was far from highly profitable’. I do not believe there is any convincing reason to keep the joint venture arrangements. They are bad for DomGas, the domestic gas users alliance, and ultimately they are bad for consumers, whether they be domestic or industrial consumers in Western Australia. There is a price to be paid for these restrictive joint venture arrangements.

There is also the puzzle of the lifting of the authorisation. The majority report notes that, in December last year, the venture applied to the ACCC to have its authorisation for joint selling revoked. Ms Howell, the CEO of the joint venture, claimed the authorisation was no longer necessary and may not have been needed at all. But Associate Professor Zumbo questioned the strategy, and he said:

My advice to any person in the position of the joint venture—given the considerable risk, given the size of the venture—is:  if you have an authorisation you keep it, and if you do not have an authorisation you get one.

He said: ‘It is far too risky, given the penalties under the Trade Practices Act.’ Professor Zumbo posed a real question as to why the ACCC sought to revoke that authorisation: ‘If it is there, you keep it. Why would you give it up?’ That puzzle was posed by Professor Zumbo. He speculated that the ACCC may have given the joint venturers a level of comfort, that the arrangements are not in breach of the act and that no action would be taken. He stressed that, if an understanding along these lines had been reached, it is important for that to be made public. It has been publicly noted that, as part of an inquiry, the ACCC has looked at the marketing arrangements in terms of what their impact is in relation to the act.

It is my belief that the North West Shelf joint venture arrangements for maintaining joint selling arrangements are flimsy and unconvincing. All of the arguments put to the committee in defence of joint selling were soundly rebutted. Further, the arguments that the arrangements stunted the competitive development of the Western Australian gas market were cogent and well founded. Having had its authorisation for joint selling revoked, the venture seems to be in breach of section 45 of the Trade Practices Act. Whatever the legal ramifications of current practices, there is no reason why joint selling arrangements should be allowed to continue.

Ending the North West Shelf joint venture is a crucial requisite for deregulating the upstream gas market in that state and ensuring that the wealth of domestic gas consumers is maximised. It is my belief that the ACCC should either abolish the joint marketing arrangements on the North West Shelf Venture or provide clear, publicly stated reasons as to why the current arrangements should be permitted within the provisions of sections 45, 76C and 76D of the Trade Practices Act.

Can I say that, whilst this is very much about the Western Australian gas market, I think it is quite telling in the context of ensuring that there is a strong and robust Trade Practices Act that can actually deal with these types of arrangements, whether in Western Australia or indeed in any other state, and I believe that consumers are worse off with these sorts of arrangements, and it is high time the joint venture arrangement is scrapped.

Senator Hurley —I seek leave to continue my remarks later.

Leave granted, debate adjourned.