The Australian Railways Business and Economics Conference was held in Perth, Australia, on July 20th 2009, bringing together 30 participants from industry, government and academia. The conference heard from six presenters: Paul Larsen – General Manager, Westnet Rail; Professor Tim Brennan – Professor of Public Policy, University of Maryland Baltimore County; Brett Hughes – Director of Policy, Australasian Railway Association; Jian Wang – Postdoctoral Research Fellow, Faculty of Business & Law, Southern Cross University; Anusha Mahendran – Research Associate, Centre for Labour Market Research, Curtin University; Nick Wills Johnson – Research Fellow, Centre for Research in Applied Economics, Curtin University. The papers which underpinned these presentations are included in this volume. Paul Larsen and Brett Hughes did not produce papers, but rather gave highly informative industry overviews and, because the perspective of key industry players is crucial for understanding the industry itself, their slides have been included in this volume. Paul Larsen focuses on the grain lines in Western Australia, a topic which has generated controversy recently because many of the lines require significant investment in order to remain viable, but generate insufficient returns to warrant such investment. The grain rail lines in WA, along with most of the rest of the network in the South West of the State (outside Perth) was privatised almost a decade ago. Westnet is the current operator of these lines, and is the only private, stand-alone below-rail operator in the world. As Paul points out, five million tonnes of grain are shipped on 2500 km of track, and 45 million tonnes are shipped on 2,600 km of track; fully half the network is unviable, earning losses of between $5 and $10 million per annum for Westnet. In such a situation, Westnet is neither willing nor obliged by the terms of its concession to fund the roughly $200 million it would cost to upgrade the grain network. The WA Government, however, has been proclaiming its desire that this occur, and this has been the basis of the controversy. Part of the problem is that, although half of the network is not viable, its alternatives are even less so when viewed from the perspective of the community as a whole. The alternative is to use B-double trucks, which not only generate significant road-safety issues, but also, according to Paul, cost roughly $300,000 per annum each in road subsidies. In New South Wales, where the grain rail network is even more moribund than in WA, trucking rates have increased by 50 percent in response to the extra demand. A further part of the problem is that, if Westnet were to upgrade the network and charge the farmers the cost of doing so, access charges would double or triple. This would not breach regulatory revenue caps on most lines, but it is likely to render rail unviable for the growers. The solution, as Paul sees it, is for government funding for the track which is commercially unviable. This allows for the farmers to obtain the track they require without the costs exceeding their capacity to pay, and allows the government to save some $350 million on road investment costs that it would otherwise have to outlay in order to accommodate the roughly 300,000 truck movements that a cessation of grain rail services would engender. Tim Brennan brings considerable breadth to the discussion of the regulation of railways by looking at the US context, and the lessons one can learn from telecommunications and electricity. Both are useful perspectives for the rail industry in Australia; railways in the US have been regulated private businesses for more than 100 years, providing a wealth of historical knowledge to inform the much younger Australian regulatory framework, and other sectors such as electricity and telecommunications often provide templates for regulators when they come to a new industry. The access regimes for rail in Australia are substantially based upon earlier regimes in electricity and telecommunications. Tim discusses the regulatory experiences of telecommunications and electricity, drawing lessons from them for the rail industry. In particular, each (in the US at least) offers a different kind of model, and neither is sufficiently similar to rail to warrant the duplication of their respective models for rail. Tim also looks at the interface between antitrust, or competition law, and regulation, noting the exemption US railways have had from antitrust law since its inception in the 19th Century. The exemption means that the Surface Transportation Board, the regulator of rail in the US, sets rates and approve mergers, and that its decisions cannot be challenged under antitrust law. This exemption has been challenged recently and, although the bill was defeated, it is likely that bills to repeal rail’s antitrust exemptions may be brought before Congress in the future. Tim thus looks at whether repealing rail’s exemption from antitrust law would give rise to antitrust liability for rail. He suggests a number of scenarios whereby it might, but suggests that, even where the courts might find breaches of antitrust law on the part of rail, they would likely defer to the regulatory agency (the STB) because the remedies would generally require price controls of some kind that the courts are ill-equipped to impose. The recent Trinko case in telecommunications is cited as an example of where the courts viewed regulation as an adequate substitute for competition law. He also looks at the way in which the removal of an antitrust exemption might provoke some competition between the Department of Justice (one of the competition agencies in the US) and the STB, noting that the dual role of the ACCC as competition agency and industry regulator may mean that such competition occurs within the organisation. Jian Wang and Michael Charles consider the impacts of the rail industry on the Australian economy by considering them through the lens of input-output analysis. This not only allows them to consider the overall impact of the industry on the national economy, but also to highlight the sectoral decomposition of that impact. In addition, they model the impacts of a modal shift from road to rail. Underpinning their analysis is the Australian Input-Output Table, put together regularly by the ABS. Jian and Michael find that the total economic impact of the rail industry is roughly $18.5 billion in industrial outputs per annum, as well as generating more than 65,000 jobs and over $4.4 billion of household income. Sectorally, the industry has its greatest impacts in the railway equipment, the metals and metal products and the construction sectors, where direct and indirect effects are dominant. However, the industry also stimulates large public and private services responses such as finance, business and insurance services through indirect and induced spending. By examining the impacts of a shift from road to rail, the authors look at both a technologically neutral shift of ten percent of final transport demand, and a shift which induces a ten percent productivity improvement to the rail sector. They find that the first shift would have no output effect, but that it would have net positive flow-on household income effect to the economy due to the higher wage structure of the rail sector relative to that of road. The second shift suggests the importance of creating higher-value-added services through innovation and investment, which could lead to larger economic impacts. In both cases, overall employment would fall, as rail workers are generally more efficient than the road freight industry in terms of the labour-output ratios. Brett Hughes brings a unique, whole-of-industry perspective to the debate, through his position as the Director of Policy at the Australasian Railway Association; the peak industry body in Australia. He focuses on the transport industry in general, particularly in response to the sustainability debate, and upon the challenges faced by rail within this broader debate about transport. He is critical of the transport planning and policy framework, arguing that the best that is being done is only going to get us to multiples of existing problems such as congestion and road-freight movements. Moreover, he highlights an important disconnect between recent data and projections
