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12 March 1991 - Current

 
NATIONAL RAIL CORPORATION (VICTORIA) BILL
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30 October 1991
ASSEMBLY Second Reading SPYKER
                   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.