In June 1997, when the Government privatised the Phase I airports, I announced details of the prices oversight regime that would apply to core-regulated privatised airports. The prices oversight regime consists of a CPI-X price cap on aeronautical services together with prices monitoring of certain aeronautical related services. This system has been in operation for the Phase I privatised airports at Brisbane, Melbourne and Perth since 1 July 1997.

The prices oversight regime is designed to strike a balance between protecting airport users from monopoly pricing and creating the conditions for commercially-driven decisions on the part of the airport operators. Over time the Government wants to see airport operators and their customers negotiating directly on pricing and investment decisions, but with the Australian Competition and Consumer Commission (ACCC) remaining empowered to prevent monopoly pricing.

As the Government has now announced the successful bidders for the Phase II airports (the leases for these airports will commence over the next few weeks), I have signed the various instruments necessary to implement the prices oversight arrangements for the core-regulated Phase II airports (and also revised instruments for the Phase I airports). These instruments will be gazetted shortly.

The core-regulated Phase II airports to be covered by the prices oversight regime are Adelaide, Alice Springs, Canberra, Coolangatta, Darwin, Hobart, Launceston and Townsville airports.

The value of ‘X’ in each airport’s CPI-X price cap reflects productivity improvements that the Government considers can be made in the provision of aeronautical services (aircraft movement and passenger processing facilities) at each airport. For the Phase II airports, the Government has determined the following ‘X’ values to apply in each of the five years of the price cap:

The ‘X’ values for most of the airports are higher than current inflation forecasts. The CPI-X price cap will result in real price reductions of aeronautical services at all privatised airports, and actual price reductions at most airports.

Price monitoring will allow the ACCC to collect data where the airport operator may have scope to exercise market power but where coverage of the services under the more formal price cap arrangements is not considered warranted. Any abuses of market power detected through the prices monitoring arrangements will be the trigger for consideration of stricter forms of prices oversight.

The following aeronautical related services provided by airport operator companies are to be monitored by the ACCC:

The Government will review the need to modify these arrangements as necessary. In addition, the ACCC will review the prices oversight arrangements in place at each airport toward the end of the first five years of their lease.

CANBERRA

25 May 1998

Alistair Davey
Treasurer’s Office
(02) 6277 7340

Tony Webster
Treasury
(02) 6263 3274