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NATIONAL RAIL CORPORATION (VICTORIA) BILL
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30 October 1991
Second Reading
SPYKER
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NATIONAL RAIL CORPORATION (VICTORIA) BILL
Second reading
Mr SPYKER (Minister for Transport) -- I move:
That this Bill be now read a second time.
It gives me great pleasure to introduce this critical Bill on behalf of the
government. The Bill, in conjunction with similar complementary legislation
which has been or will be introduced into the Commonwealth Parliament and the
Parliaments of New South Wales and Western Australia, will facilitate the
establishment and operation of the National Rail Corporation (NRC). As the House
will be aware, the creation of the NRC will ensure micro-economic reform in the
rail freight industry of Victoria and the nation.
Accordingly, the importance of the Bill cannot be overstated.
BACKGROUND TO THE DEVELOPMENT OF THE NRC
The NRC has been in development for several years. The initial proposal for a
national rail freight business began in October 1989 with the creation of a
National Rail Freight Initiative Committee. This committee consisted of
representatives of the five government-owned railways, the Australian Council of
Trade Unions, Broken Hill Proprietary Co. Ltd, TNT Ltd, Mayne Nickless Ltd and
Brambles, with Mr Ted Butcher representing the Federal Minister for Land
Transport.
The committee presented its report in July 1990 based on a consultant's report
prepared by Booz, Allen and Hamilton in conjunction with Travers Morgan Pty Ltd.
This report of the committee recommended the establishment of a National Rail
Corporation. The NRC was always to operate as a public company, not as a
statutory corporation or authority.
INTERGOVERNMENTAL COOPERATIVE ARRANGEMENTS FOR ESTABLISHING THE NRC
In September 1990 the transport Ministers of the Commonwealth and the States met
and agreed to establish an independent task force to develop for governments --
as potential shareholders in the proposed corporation -- detailed proposals and
recommendations on a wide range of issues relevant to establishing a fully
commercial NRC.
The seven-member task force with a representative from each of the Commonwealth,
New South Wales, Victoria, Queensland, Western Australia, the ACTU and, at a
later stage, South Australia, commenced its investigation in October 1990.
To support the work of the task force, at the special Premiers Conference held
on 30 and 31 October 1990 in Brisbane, the Prime Minister, the Premiers and
theChief Ministers of the Australian Capital Territory and the Northern
Territory signed a heads of agreement which identified eight broad conditions as
being essential to the NRC.
This document stipulated that the NRC:
be established and operate on a strictly commercial basis with a
financially viable corporate plan;
have access to existing rail system assets necessary to achieve
commercial viability;
negotiate a clean sheet enterprise agreement with rail unions;
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be subject to the Commonwealth Trade Practices Act 1974;
operate after an agreed transition period on performance contracts with
rail authorities based on world standard cost levels;
would not disadvantage the financial position of rail systems interstate
freight operations during the transition period;
be able to tender on a commercial basis for carriage of business other
than interstate rail freight; and
be subject to institutional and operating arrangements which facilitate
the most efficient cost structure for operations which will encourage
competition for services between public sector and private sector
providers.
The national rail freight initiative task force met almost continuously from
October 1990 to March 1991 when a report was presented to transport Ministers.
The report was supported by those Ministers. They decided to set up a committee
of officers to translate the report into a shareholders' agreement and to
establish a memorandum and articles of association for the NRC.
In addition officers were requested to advise transport Ministers prior to the
special Premiers Conference on 30 July 1991 on the financial support for the
corporation to be required of the individual shareholders.
Victoria participated actively in the development of the shareholders' agreement
and the invaluable contributions of officers of the Ministry of Transport, the
Public Transport Corporation, the departments of the Premier and Cabinet and the
Treasury, the Ministry of Finance and the Victorian Government Solicitor's
Office in developing the shareholders' agreement and the memorandum and articles
of association for the NRC are acknowledged. The shareholders' agreement is
reproduced in Schedule 1 to the Bill, while the memorandum and articles are
readily available publicly.
The creation of the NRC fulfils the objectives of the studies into the
desirability and viability of what was initially called the National Rail
Freight Corporation. It is to be noted that the word freight no longer forms
part of the name of the corporation. This omission was made during the
development of the shareholders' agreement and clarifies the company's ability
to undertake other business if agreed by the shareholders.
However, such business should only be undertaken if it is to the commercial
advantage of the NRC. In other words, the corporation will not undertake
business as community service obligations unless it is specifically funded for
those obligations.
FINAL APPROVAL OF THE ESTABLISHMENT OF THE CORPORATION AND THE NEED FOR
LEGISLATION
At the special Premiers Conference held on 30 July 1991 the shareholders'
agreement and the memorandum and articles of the NRC were approved by the four
originating shareholder governments and Queensland as a supporting government.
At that conference, the governments of the Commonwealth of Australia, New South
Wales, Victoria and Western Australia agreed to become equity shareholders in
the NRC. The government of Queensland signed the shareholders' agreement as a
non-equity shareholder, pledging to support the corporation in its operations
and establishment. The government of South Australia did not sign the agreement
and has indicated it will monitor the progress of the corporation and resolve
bilateral issues between itself and the Commonwealth government over the 1974
Railways of Australia legislation before deciding whether to join the
corporation either as a shareholder or as a supporting State.
The need for Victoria to pass legislation to facilitate the establishment of the
NRC arises directly out of obligations specified in the shareholders' agreement.
In this context I draw the attention of the House to Part III of the
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The Bill before the House provides for Victoria to fulfil its obligations under
the agreement to facilitate the establishment and operation of the NRC. Put
simply, appropriate legislation is essential if the NRC is to operate in
Victoria in accordance with the agreement.
WHAT DOES THE BILL PROVIDE?
In addition to approving the shareholders' agreement and providing for it to be
given effect, the Bill addresses five critical aspects of the agreement which
require supporting legislation. These are:
1. Victoria commits itself to $35.1 million cash equity funding of the
NRC to 1996-97 as provided in part Vl of the shareholders' agreement.
This commitment is provided in clause 6(2) of the Bill.
The commitment to cash equity funding is necessary to ensure that the
debt-to-equity ratio of the company is maintained at a reasonable and
sustainable level as agreed by the shareholders.
In addition to the cash equity, Victoria agrees to underwrite
loss-making businesses the NRC takes over from the State.
The maximum period for which underwriting can be required is five years.
The NRC commercial model developed by the task force and the
shareholders' agreement support three-year underwriting being
anticipated. This planned deficit support will reduce over the period.
Should the company not perform as advised, the agreement provides that
during the total five-year establishment period the State has an
obligation to underwrite unanticipated losses of the NRC up to the level
of 13 per cent of such losses. This is of significant advantage to the
Public Transport Corporation (PTC) as it has been independently assessed
to bring 20 per cent of the intersystem rail freight losses to the
company.
2. The Bill provides, in accordance with strict procedures, for the
referral to the Commonwealth of the ability of the NRC, which is a
company in which the Commonwealth will hold shares, to undertake
intrastate rail services. It is to be noted that any intrastate business
can only be undertaken with Ministerial consent.
3.
The transfer of rail freight assets to the corporation is also provided
for in the Bill. Transfer may be by way of vesting in return for share
equity or by lease or licence in return for share equity. The transfer
value of the assets is another means by which the State can obtain
equity in the NRC. Ultimately, the assets required to be transferred to
the NRC will be those identified by the company as appropriate to its
business. Transfer will be a matter to be negotiated between the
corporation and the PTC. However, assets cannot be withheld from the
NRC. They must be transferred or provided to the NRC under a contractual
arrangement.
4. Land currently used or available for use by the PTC for railway
purposes is an asset which may be sought by the NRC. For the most part
the land identified in the Bill is used for terminal operations.
If it is appropriate, the Bill enables this land to be vested in the
NRC. Alternatively, the land and other appropriate areas of land such as
that in route corridors could be leased or licensed to the NRC.
As in the case of rail freight assets transferred, the transfer of land
to the NRC may be necessary to enable the company to undertake its
upgrading investment programs. If land is not transferred by way of
vesting or by long-term lease, the NRC may be unwilling to invest in the
necessary improvement and upgrading of those areas critical to the
long-term commercial viability of the corporation.
5. Consistent with the requirement for the NRC to operate in a strictly
commercial manner, the company is compelled by the Bill to pay State
stamp duty and other charges or fees in relation to assets transferred
to it.
CONSTITUTION ACT 1975 -- SECTION 85(5) STATEMENT
I make the following statement under section 85(5) of the Constitution Act 1975
of the reasons why the Bill alters or varies that section.
1. Clause 13 of the Bill provides that it is the intention of that
clause to alter or vary section 85 of the Constitution Act to the extent
necessary to prevent the bringing before the Supreme Court of an action
of a kind referred to in clause 10(4) and to prevent the Supreme Court
from awarding compensation in respect of anything done or arising out of
clause 11.
2.
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Clause 10(4) of the Bill provides that the operation of clause 10 is not
to be regarded as giving rise to any cause of action against the
State,the Minister, the Public Transport Corporation or any other
person. Clause 11(6) of the Bill provides that no compensation is
payable by the Crown, the Public Transport Corporation or the National
Rail Corporation in respect of anything done under or arising out of
clause 11.
3. The Bill:
(a) provides for the transfer of rail freight assets to the National
Rail Corporation and prevents the bringing of actions against the State,
the Minister, the Public Transport Corporation or any other person that
may otherwise arise as a result of the transfer;
(b) provides for the transfer (by vesting and grant) of land to the
National Rail Corporation and the Public Transport Corporation and in
connection with the transfer, extinguishes certain easements and
covenants, removes a caveat and closes part of a road.
4. The reasons for preventing the Supreme Court from having the actions
referred to brought before it and for preventing the Supreme Court from
awarding compensation are as follows:
(a) for the transfer of rail freight assets to be effective it is
necessary to prevent actions being brought by any other persons
interested in those assets against the transferors;
(b) the bringing of actions for compensation in respect of land
transactions connected with the transfer of assets to the National Rail
Corporation might impede or frustrate the whole arrangement which is an
arrangement beneficial to the community as a whole.
OPERATION OF THE CORPORATION
As a shareholder, the State of Victoria will be able to influence the direction
and strategies undertaken by the National Rail Corporation. However, the
corporation will be managed by an independent board of directors under the
corporations law which has duties and obligations to the company for its
decisions. Despite the Bill before the House, it must be recognised that major
managerial decisions governing the operation of the company will be taken by the
corporation itself. For example, operating efficiencies must be implemented to
ensure the corporation undertakes best-practice operating standards.
It is to be noted that in the report of the task force operating efficiencies of
35 per cent on average have been targeted.
In addition to these operating efficiencies a capital replenishment program of
$1.7 billion is proposed by the company. The major part of this investment will
be funded by debt raised in the market on commercial terms by the company. The
equity commitment by the shareholders, including Victoria, is anticipated to be
35 per cent of total capital requirements.
CONCLUSION
The NRC is a major and historic initiative in the delivery of rail freight
services in Australia. It will introduce commercial practices into the operation
of railways in Australia and will provide good models for government-run railway
systems. Overall, it is a critical micro-economic reform initiative.
Government-run railways will be expected to improve their performance in order
to compete with the NRC for staff and for service delivery. Victoria's
intrastate rail businesses will benefit from the creation of the National Rail
Corporation and the models for business it identifies. The State and national
economies will also benefit from its establishment and this is a prime reason
for the bipartisan support which the concept has attracted.
I commend the Bill to the House.
Debate adjourned on motion of Mr PESCOTT (Bennettswood).
Debate adjourned until Wednesday, 13 November.