In 2007, significant vessel queues waiting to load coal at Australia’s largest coal export port in Newcastle became the most visible reference point in an ongoing public debate about the capacity of Australia’s export infrastructure. Those queues were symptomatic of capacity constraints affecting all major Australian coal chains, imposing substantial direct and indirect costs.

NECG Managing Director Henry Ergas today welcomed an important decision by the Australian Competition Tribunal in proceedings involving the Australian Competition and Consumer Commission (ACCC). “The decision vindicates the position NECG has consistently expressed in regard to the manner in which the ACCC sets the risk free rate in its calculations of regulated firms’ cost of capital,"

Assets with a value of over $130 billion are regulated in Australia. We define regulatory risk as being regulation that increases the cost of servicing this capital and analyse the sources of this risk.

Presented at an Australian Competition and Consumer Commission forum on asset valuation. June 11, 2000

'The most important innovation (in recent regulatory policy)', notes Sir Christopher Foster, an eminent British expert in the field, 'has been the realisation that there is no compelling reason why a monopolist should have the exclusive right to use its distribution network'

Gli economisti sono da lungo tempo interessati a quanto i governi dovrebbero o non dovrebbero fare - un problema descritto da Bentham come corrispondente alla definizione di "agenda" e "non agenda" per un governo. Essi hanno invece prestato minore attenzione al problema del modo in cui un governo dovrebbe agire quando è necessario farlo.

Standard approaches to estimating the cost of capital are vulnerable to two errors when applied to sunk assets subject to economic regulation. First, investors in sunk assets usually have a valuable ability to delay commitment which is therefore an opportunity cost of investment. Second, economic regulation alters the distribution of returns to capital, and may do so in a way that eliminates potential but leaves some risk of losses.

A Paper for the Australian Competition & Consumer Commission
Incentive Regulation and Overseas Developments Conference
Holiday Inn, Coogee Beach, Sydney, 18-19 November 1999

The views expressed here are those of the author writing in a strictly personal capacity.