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National Rail Corporation Agreement Bill 1991



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House: Senate

Portfolio: Transport and Communications

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Purpose

To implement an agreement between the Commonwealth and N.S.W., Victoria, Queensland and Western Australia to transfer control of interstate rail freight and associated operations to the proposed National Rail Corporation (NRC).

Background

The current situation facing the railways is largely due to their history and the development of Australia. Rail transport was introduced in Australia in the 1850s, principally by private entrepreneurs who could foresee profits on certain lines connecting major production, transport and population centres. However, governments became involved in railways when profits were not as expected and railway operators demanded guarantees to investors and the provision of additional capital to complete and extend the railway network. Relatively quickly, the Colonial governments took over the ownership and operation of the railways and, often for political rather than economic reasons, continued the expansion of the railways. The existence of Colonial governments, often competing with each other for freight, led to many future problems as there was no standardisation and efficiency was often a secondary consideration. An example of the latter was the building of various lines in N.S.W. to compete with the transport of freight along the river system, which at that time was more efficient but took freight to Adelaide and Melbourne rather than Sydney. One of the classic examples given of the problems associated with several governments developing railways is the existence of different gauge tracks, which meant that equipment designed to operate on one system could not operate on another and there was often the need to change trains when reaching a Colonial/State border. As well, gauges were not standardised within Colonies/States.

As the various governments became more involved with rail transport, its availability was seen as a right and lines continued to operate even though the original reason for their construction, such as to service a particular industry or to provide transport that otherwise was not available, had passed. The growth of road transport, particularly after the second world war, greatly affected the efficiency of the railways and reduced the need for certain lines as the previous rail passengers and freight were using road transport. This led to reduced revenue, while the maintenance and operating cost remained largely unchanged as lines were not closed and services were maintained. The result was increasing deficits for the railways. While railways maintained an advantage in the transport of bulk freight, this area was not concentrated on and passenger services continued to make losses. The disadvantage faced by rail, as compared to road transport, was further exacerbated by a large reduction in maintenance during the war, which meant that significant maintenance costs were incurred in the early post war years.

During this period the States had also been licensing motor vehicles for use in interstate trade, with one of the factors to be examined before the issue of a licence being whether the area was served by other forms of transport. The Constitutional validity of this measure was challenged in the early 1950s and finally determined by the Privy Council in the case of Hughes and Vale Pty. Ltd v The State of New South Wales [1954] C.L.R. 93 p.1. It was found that such restrictions on the operation of motor vehicles in interstate trade was a breach of s. 92 of the Constitution which provides that trade and commerce between the states is to be absolutely free. This decision removed one of the primary protections for the railways and ensured that road and rail transport would be free to compete of interstate routes.

As the deficits became larger, the need for some reform of the rail transport industry became more widely recognised, and the next important step occurred when first the Gorton and then the Whitlam governments offered to take control of the States' non- metropolitan railways. The offer was accepted by Tasmania and South Australia. The agreement was formally implemented in 1978, and the railways are operated by Australian National Railways (AN), which is a Commonwealth enterprise that now operates Tasrail in Tasmania, the non- metropolitan lines in South Australia, the inter- State network between Broken Hill and Kalgoorlie, and carries interstate freight and passengers in conjunction with the State railway bodies.

AN's major operations are in freight and the transport of bulk goods and AN has made a profit in this area in the each of the four years ending in 1990- 91, when a profit of $9.7 million was made. Passenger services, which were previously operating at a loss, recorded a profit of $11.1 million in 1990- 91. This was achieved at a time of airline deregulation and largely came from cost cutting and efficiency increases. ANs performance has demonstrated that a co- ordinated approach, centralised system and rationalisation can bring significant efficiency gains.

The need for a national body to operate rail freight transport has been recognised and was discussed at the Special Premiers' Conference held in October 1990. That conference agreed on the establishment of a national body to operate interstate freight transport. This followed a reference to the Industry Commission (IC) in May 1990 to investigate the rail industry. The IC released its final report on 21 August 1991. The IC identified a number of problems facing the industry, including that operating conditions have changed slowly and have not kept up with technological change; lines and services that are no longer viable have yet to be closed; fares and freight rates are not flexible enough to allow the best use of capital stock; capital has been mis- invested; and governments have presented operators with conflicting social and financial objectives.

The reforms suggested by the IC are based on the need to allow greater commercial operation of the railways and freedom from government social objectives. The report also suggested that there should be open competition between road and rail, with restrictions to traffic on routes removed. (The question of the real cost of road transport appears not to have been reviewed.) The report estimated that the annual cost of failure to reform the rail transport industry was approximately $5 billion in GDP.

The proposed NRC will operate under the agreement entered into between the Commonwealth and various State governments. The main features of the agreement, which appears as a Schedule to the Bill are:

* The agreement is between the Commonwealth and the States of New South Wales, Victoria, Queensland and Western Australia.

* The NRC is to operate on a commercial basis, have access to the current infrastructure, enter into an enterprise award and not be responsible for redundancies.

* All parties to the agreement are to pass legislation to implement the agreement.

* The NRC is to be a public company limited by shares with the principal object of carrying interstate rail freight. The NRC is to have 500 ordinary shares and 500 class B shares, with 140 ordinary and 125 class B shares allocated to N.S.W., 65 ordinary and 125 class B shares to Victoria and 25 ordinary and 125 class B shares to Western Australia. The Commonwealth will hold the remainder and Queensland will hold no shares at this time.

* The shareholders are to transfer functions, assets and contracts relating to interstate freight transport to the NRC and subsidies on these services are to be paid to the NRC during a transitional period while the NRC reduces costs. Special provisions for Western Australia provide for payments to that State where a reduction in revenue is not offset by reduced costs.

* The shareholders are to contribute the following initial capital: Commonwealth - $295.8 million, N.S.W. - $75.6 million, Victoria - $35.1 million, and Western Australia - $8 million. If additional capital is contributed while the NRC is being established (i.e. for five years after the commencement of operations), it will be in the following percentages: Commonwealth - 54.3%, N.S.W. - 27.7%, Victoria - 13.1%, and Western Australia - 4.9%.

* Where there is a dispute regarding the agreement and a settlement cannot be reached within 28 days of a conciliator being appointed, or if the parties to the dispute cannot agree on a conciliator, the matter is to be settled according to the Arbitration Rules of the United Nations Commission on International Trade Law.

* The agreement may be varied with the consent the shareholders. Where the variation would effect Queensland, its consent will also be required.

Main Provisions

Clause 5 provides that the agreement made on 31 July 1991 and referred to above will be approved.

Clause 6 provides that, as far as Commonwealth power allows, the parties to the agreement are to give effect to it and observe its provisions.

In exchange for shares in the NRC, the Commonwealth may direct that Commonwealth rail freight assets are vested in the NRC (clause 9).

States or Territories may impose stamp duty on the transfer of assets if the amount is reasonable and such duty would have been imposed if the transfer had been done other than by direction under clause 9 (clause 11).

Where property is acquired due to the operation of the Bill and this is on other than just terms, the Commonwealth must pay reasonable compensation to the person from whom the property was acquired (clause 13).

The Bill will not appropriate funds (clause 14).

The Schedules to the Bill contain a copy of the agreement described above and the Articles of Association of the NRC.

Bills Digest Service 3 December 1991

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991

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Published by the Department of the Parliamentary Library, 1991.