Re: Freight Australia not happy

["Arthur Marsh" <mars0177@flinders.edu.au>]

Plain text follows for those without MS-Word...

"Paul Hambleton" <P.Hambleton@bom.gov.au> wrote in message
news:S97e6.27$wU5.6542@vic.nntp.telstra.net...
> Press release from Freight Australia today attached below.
>
> Paul Hambleton
>
>
>

[Freight Australia logo]

Access decision angers Freight Australia

The owner and operator of Victoria's rail freight network, Freight
Australia, says it is
"bitterly disappointed" at the Bracks Government's decision to proceed with
an open access
regime for the state without bothering to first agree with the organisation
most affected by its
decision on the rules and pricing principles that are to apply.

The company is warning that policy that promotes a competitive free-for-all
and unfairly
deals with the State's major private investor in freight rail will have
inevitable consequences
for rural and regional rail services and risks reversing Freight Australia's
achievements in
moving freight away from over-stressed roads and back to rail.

Freight Australia chief executive Marinus van Onselen said the decision of
the government to
proceed with the implementation of a flawed open access regime "severely
impacts on the
rights and interests of a company that has to date invested over $250
million acquiring and
improving the run-down, loss-making, inefficient former V/Line Freight".

"Freight Australia is strongly of the view that despite countless
discussions, submissions and
expert independent external advice this decision indicates that the Bracks
government has
little understanding of the needs and requirements of investors in the
state's infrastructure,"
Mr van Onselen said.  "I'm afraid this will sound a very strong warning
indeed to any private
sector organisations considering similar investments."

He said the regime's implementation without first obtaining agreement with
Freight Australia
on pricing principles made it clear that a very substantial regulatory risk
premium has been
created that would severely affect the public/private partnership investment
environment the
government is pursuing.

"Clearly from Freight Australia's perspective the matter will not end here
and cannot be
allowed to rest until our specific and investors' broader concerns are
appreciated," Mr van
Onselen said.  "This particular form of open access is short-sighted,
out-dated and
unreasonably punitive. As the University of Melbourne's Professor Joshua
Gans found in his
own study of the regime, it ". represents a form of regulation that neglects
thirty years of
regulatory experience and economic analysis."  [see attached extracts from
Prof Gans'
report.]

"The potential consequences of this decision could be a reduction of
services on Victoria's
marginal branchline rail network and an increase in the number of heavy
trucks using the
state's secondary roads.  Increases in pollution, road trauma and road
pavement costs will
clearly follow," Mr van Onselen said.

"From a broader perspective, that this decision has been made prior to the
completion of the
Productivity Commission report on Access, and prior to the establishment of
the Essential
Services Commission, is surely evidence governments have learned little in
the last 100 years.

"Now it seems we are destined to replicate the stupidity of one of
Australia's greatest and
most expensive transport blunders - different rail gauges in different
states - by enshrining in
legislation different rail access regimes in different states.  History is
repeating itself, thanks to
arrogant states deciding to `go it alone' on a matter of national
importance."


For more information:  Marinus van Onselen, Chief Executive, (03) 9619 1043.

*Background:
Freight Australia, formerly Freight Victoria (www.freightaustralia.com.au),
was founded
in 1998 to bid for V/Line Freight and successfully acquired the business
from the Victorian
Government in May 1999 for $163 million.  Freight Australia holds a 45-year
lease on
4,000 kilometres of track, owns 107 locomotives and 2,600 freight wagons,
and employs
670 people. Freight Australia is a wholly-owned subsidiary of RailAmerica,
Inc.
RailAmerica, Inc (www.railamerica.com) headquartered in Boca Raton, Florida
is the
world's largest short line and regional railroad operator and is rated the
fastest growing
railway company in the United States.  Founded in 1986 and publicly listed
in 1992,
RailAmerica currently owns or has equity interest in 50 railroads operating
more than
20,000 route kilomtres in the United States Canada, Chile and Australia. It
recently
completed the purchase of RailTex Inc, North America's leading operator of
short line
freight railroads.


An Evaluation of the Draft Access Pricing
Principles for Access to the Victorian Rail..
Network (Freight)
A Report Prepared on Behalf of Freight Australia Ltd
by
Joshua S. Gans
University of Melbourne
28th June, 2000

Section 5
Conclusions
5     Conclusions
The proposed access-pricing regime for Victorian freight rail falls far
short of
standard criteria of economic efficiency. While it does promote downstream
competition, it
does so imperfectly and in the process virtually destroys the network
operator's incentives to
reduce costs and efficiently invest in quality improvements and new capital
expenditures. In
this sense, it represents a form of regulation that neglects thirty years of
regulatory
experience and economic analysis.
But more critically it sends very poor signals to potential infrastructure
investors in
Victoria. The total neglect of asset value and the inability of the provider
to recover its past
investment costs from seekers gives providers very poor incentives to invest
in infrastructure
assets that may be subject to access regulation. At best, it creates
additional uncertainty
about an investment's rate of return while, at worst, makes investment in
those assets of
little private value.
Economic theorists have often mused about the notion that sunk assets need
not be
recovered through regulatory pricing because the assets would remain even if
the regulated
firm failed while it would be easier to implement a low pricing outcome. Of
course, this
musing was well understood to be based on a myopic viewpoint. and regulators
everywhere
have never taken such theoretical notions seriously. As a practical matter,
regulatory
decisions send signals to the market place about the future value of
investment decisions
and cannot be ignored. That they have been ignored in the proposed pricing
arrangements
raises much of concern about future regulatory decisions in Victoria.

In general, access regulation as a very useful means of promoting downstream
competition while preserving, the efficiency benefits of natural monopoly
infrastructure.
Indeed, the usual- concern over such regulation has long been that too great
a proportion of
investment costs are included in usage charges and that the better means of
recovering these
is through fixed charges. This way of regulating access to rail has been
successfully
implemented elsewhere and it would seem appropriate to impose a multi-part
tariff form of
access pricing for the Victorian case.

June 2000
28