BULLETIN
Gas Major Project Implementation Team
GAS MARKET REFORM
BULLETIN THREE / JANUARY 2017
INTRODUCING A BINDING COMMERCIAL ARBITRATION PROCESS FOR GAS PIPELINE ACCESS
DISPUTES IN THE NATIONAL GAS LAW
The COAG Energy Council agreed in December 2016
Proposed Amendments
to implement a commercial arbitration framework for
pipeline access disputes in the National Gas Law
(NGL).
Applicable pipelines for purpose of commercial
arbitration
Chapter 6 of the NGL provides arrangements for access
Dr Michael Vertigan AC's Examination of the Current Test
disputes applicable to scheme pipelines. The NGL defines
for the Regulation of Gas Pipelines report found an uneven
scheme pipelines as:
bargaining relationship around the transport of gas
existed. Transportation makes up to 15 per cent of the
(a) a covered pipeline; or
price of gas, and costs will be lowered through mandating
(b) an international pipeline to which a price regulation
greater disclosure and transparency of pipeline services
exemption applies.
and pricing, and mandating commercial arbitration.
This means that the existing threat of arbitration is unlikely
A draft amendment has been developed setting out a
to constrain the behaviour of all pipeline owners. Access
commercial arbitration framework. This framework is not
to dispute resolution should not be predicated on whether
intended to pre-determine a particular arbitration model
or not the pipeline is a scheme pipeline.
but to facilitate consultation. It draws on existing best
practice principles and models found in national energy
The changes will introduce a new commercial arbitration
and electricity law and should be considered as a starting
framework for transmission and distribution pipelines
point for consultation feedback.
which are not scheme pipelines. The draft Bill allows the
NGR to exclude a pipeline, part of a pipeline or a pipeline
The COAG Energy Council requested a commencement
service from the commercial arbitration framework.
of 1 May 2017 for the commercial arbitration framework.
The proposed amendment establishes the framework
within law and further detail on the commercial arbitration
scheme will be established in National Gas Rules (NGR).
A separate consultation process will be undertaken on the
detail of the commercial arbitration scheme and thee
development of the amendment to the NGR.
Requirement for commercial negotiation
Changes will require a prospective user or user of a
pipeline and the operator of that pipeline to negotiate in
good faith on commercial terms for access to pipeline
services. Access to the commercial arbitration framework
is only intended to be used where commercial negotiations
between the parties break down.
Secretariat
GPO Box 787
Canberra ACT 2601
Telephone: (02) 6274 1668
[email protected]
Gas Major Project Implementation Team
To address power asymmetry between the pipeline
are unable to agree upon an arbitrator, it shall be
operator and the prospective users and users of a
appointed for them by the AER.
pipeline, the draft Bill provides for the NGR to include
detail on matters such as the publishing and provision of
information, process and timelines.
The arbitrator is required by the amendments to make a
binding determination on the access dispute. In doing
this, they are required to take into account certain
Triggering the commercial arbitration process
principles and to follow relevant procedure.
On the breakdown of commercial negotiations, either the
The amendments provide for principles to be applied to
prospective user or user of a pipeline or the operator of
decisions regarding access disputes, including the
that pipeline can trigger the commercial arbitration process
national gas objective. Pricing principles must also be
through the declaration of an access dispute to the
taken into account and these principles will be
Australian Energy Regulator (AER).
established in the NGR. Other relevant principles may
The amendments provide that the AER is the administrator
of the commercial arbitration process.
The declaration must be in writing and outline matters
which the prospective user or user of the pipeline and the
operator of the pipeline have reached agreement on and
those they have not been able to reach agreement on in
commercial negotiations.
The amendments provide that the AER must refer the
access dispute to arbitration, unless the AER considers
that certain conditions, as set out in the draft Bill apply.
These conditions ensure that; the notification was not
vexatious, the parties have negotiated in good faith first
and the parties are not using commercial arbitration for
trivial matters.
Commercial Arbitration Process
The draft Bill provides for the parties to appoint an
arbitrator by mutual agreement. However, if the parties
also be established in the NGR.
The amendments apply the existing provisions in Chapter
6, Part 6 of the NGL regarding access dispute hearing
procedures to the commercial arbitration process.
Costs
The costs of the arbitrator will be borne equally between
the parties to the access dispute, unless the arbitrator
deems otherwise in accordance with the NGR.
Parties may continue to conduct commercial negotiations
after a matter has been referred to arbitration, with the
access seeker having a right to terminate arbitration if an
agreement is reached. The parties would be liable for the
costs of the arbitrator to the point of the termination.
Compliance and enforcement
The arbitrator’s determination is binding on the parties to
the access dispute as if it were a contract between the
parties. The existing enforcement regime provided for in
Secretariat
GPO Box 787
Canberra ACT 2601
Telephone: (02) 6274 1668
[email protected]
Gas Major Project Implementation Team
section 271 of the NGL will apply to the arbitrator’s
arbitration and negotiation framework? Please
determination.
provide an evidence base for your reasons.
4. Do the proposed amendments provide a sound
Initial Rules
foundation for information transparency and
The draft Bill provides for the South Australian Minister
for Mineral Resources and Energy to make these initial
disclosure particularly around service costs, pricing
and contract terms and conditions?
rules. Once the initial rules are made, future amendments
to them will proceed under the regular Australian Energy
5. Are there other alternative options or models for a
binding commercial arbitration framework that may
Market Commission rule making framework.
better achieve the outcomes proposed by the
A separate consultation process will be undertaken to
Examination of the Current Test for the Regulation
develop the relevant rules.
of Gas Pipelines report? Please provide details and
reference existing models if relevant.
Issues for stakeholder consideration
Stakeholders are encouraged to review and comment on
6. What are your views on the interaction of these
all aspects of this draft Bill, including identifying any areas
reforms with other COAG Energy Council gas
that are more appropriate for setting in the Rules, noting
market reform priorities, including standardisation of
any additional prescription that may be required and
capacity contracts? Are there improvements which
detailing
could be made?
any
other
arbitration
models,
principles,
commercial and/or technical issues that require further
consideration.
7. What key parameters would you suggest be covered
in the Rules to support these legislative reforms?
Stakeholders are asked to consider the following
Stakeholders are invited to provide written submissions
questions in their feedback:
by close of business (AEDT) on
1. Does the proposed framework provide sufficient
Wednesday, 8 February 2017.
threat of arbitration, whilst still ensuring that
All stakeholder submissions will be published on the
commercial negotiation is the preferred approach for
Energy Council website unless stakeholders have clearly
access to open pipelines?
indicated that a submission should remain confidential,
2. Is there anything in the framework which may
suggest that the expeditious resolution of the access
dispute will not occur?
3. Are there other changes to the draft Bill that you
either in whole or in part.
Electronic submissions are preferred and can be sent to
the Energy Council Secretariat at
[email protected].
consider are necessary to support a best practice
Secretariat
GPO Box 787
Canberra ACT 2601
Telephone: (02) 6274 1668
[email protected]
Gas Major Project Implementation Team
Those who wish to provide hard copies by post may do so
by addressing their submissions to:
COAG Energy Council Secretariat
GPO Box 787
Canberra ACT 2601
Secretariat
GPO Box 787
Canberra ACT 2601
Telephone: (02) 6274 1668
[email protected]