Wanted: regulators with a light touch

Gas pipelines: they are underground, buried, out of sight – and, it sometimes seems, out of mind. That’s why the gas pipeline industry is doubly pleased with the report by the Prime Minister’s Exports and Infrastructure Taskforce, in which gas pipelines actually get a mention.

In an overdose of interest in infrastructure last week, we also had the introduction of the Trade Practices Amendment (National Access Regime) Bill 2005 and a statement mentioning infrastructure from the Council of Australian Governments.

The National Access Bill, although some years late, further reinforces the need to ensure that regulators of infrastructure make “timely and efficient” decisions that reflect commercial realities.

The gas transmission industry has argued strongly for government to implement the recommendations of the Productivity Commission Report on the Gas Access Regime.

Like the PM’s Taskforce, the PC report calls for “light-handed” regulation in those instances where regulation is needed at all.

While there is a need for some form of regulation for any natural monopoly pipelines, the current form and practice of pipeline regulation is characterised by: focus on reducing tariffs for existing pipelines without regard for the impact this will have on future investment; regulatory uncertainty; regulatory complexity; an adversarial regulatory environment; and a focus on optimal outcomes rather than reasonable outcomes.

This uncertain environment surrounding pipeline regulation discourages long-term investment in gas pipelines, which can lead to future bottlenecks in the supply of gas.

Let’s be clear, the industry does not wholly support all of the PC recommendations, but, in the interests of simplicity the industry has encouraged government to accept all the PC recommendations rather than either government or industry resorting to “cherry-picking”, which would further confuse matters.

Energy ministers and bureaucrats should heed the PM’s taskforce warning that over-enthusiastic regulation discourages long-term investment in infrastructure.

The taskforce and the PC report have called for a simplified regulatory test, suggesting that regulators base decisions on whether what has been proposed by the infrastructure owner is reasonable in the commercial circumstances and in the light of the statutory objectives.

Another issue of immense importance to gas transmission industries is the right of appeal.

All relevant reports have supported such “merits review” of regulatory decisions that involve the terms and conditions impacting on commercial outcomes, to ensure accountability and transparency and therefore maintain a level of confidence in the regulatory regime.

The taskforce called on regulators to allow industries to make long-term commitment to infrastructure investment, not just to roads and rail and ports, but also to other important infrastructure industries, such as gas transmission pipelines, which are an unseen but vital part of the nation’s economy.

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