Common use of Productivity and efficiency variations Clause in Contracts

Productivity and efficiency variations. (Clause 1.3) (a) it is well understood that one of the economic incentives that monopolists lack compared to suppliers in a competitive market, is the incentive to innovate; and (b) the high coal supply chain costs for the West Moreton coal supply chain, requires innovation and productivity improvements to remain viable – with the existing users and haulage providers having made sustained efforts to find ways to produce greater efficiencies, but being dependent on QR's co-operation to implement the vast majority of supply chain efficiency improvements. This clause was included in the SAA during the AU1 process to encourage productivity improvements and infrastructure investments that rely upon QR's infrastructure, promoting the effective and efficient utilization of Queensland Rail’s below rail service, as well as promoting upstream and downstream competition and as such a narrowing of potential variations does not support the intent of the clause. It is highly inconsistent with the objective of Part 5 of the QCA Act, for a clause with such a clear purpose to be removed (particularly having been considered by the QCA to be appropriate just over 2 years ago). NHG is also concerned that QR's amendments would introduce further ambiguity by the inclusion of the ‘having regard to factors including’ wording, such that QR can have regard to other undefined factors in its consideration. QR has also removed the requirement to negotiate the variations in good faith. NHG considers that in order to realise potential productivity and efficiency improvements it is critical that good faith negotiations are undertaken by QR. This has a twofold benefit of both providing assurance to the access holder that QR has undertaken a bona fide consideration of the proposed variation and providing a platform where any misunderstanding of the proposed variation can be addressed. As noted above, NHG considers that any perceived uncertainty can be resolved or mitigated by providing a definition of good faith in the SAA (discussed at section 3.2 above).

Productivity and efficiency variations. (Clause 1.3) (a) it is well understood that one of the economic incentives that monopolists lack compared to suppliers in a competitive market, is the incentive to innovate; and (b) the high coal supply chain costs for the West Moreton coal supply chain, requires innovation and productivity improvements to remain viable – with the existing users and haulage providers having made sustained efforts to find ways to produce greater efficiencies, but being dependent on QR's co-operation to implement the vast majority of supply chain efficiency improvements. This clause was included in the SAA during the AU1 process to encourage productivity improvements and infrastructure investments that rely upon QR's infrastructure, promoting the effective and efficient utilization of Queensland Rail’s below rail service, as well as promoting upstream and downstream competition and as such a narrowing of potential variations does not support the intent of the clause. It is highly inconsistent with the objective of Part 5 of the QCA Act, for a clause with such a clear purpose to be removed (particularly having been considered by the QCA to be appropriate just over 2 years ago). NHG is also concerned that QR's amendments would introduce further ambiguity by the inclusion of the ‘having regard to factors including’ wording, such that QR can have regard to other undefined factors in its consideration. QR has also removed the requirement to negotiate the variations in good faith. NHG ▇▇▇ considers that in order to realise potential productivity and efficiency improvements it is critical that good faith negotiations are undertaken by QR. This has a twofold benefit of both providing assurance to the access holder that QR has undertaken a bona fide consideration of the proposed variation and providing a platform where any misunderstanding of the proposed variation can be addressed. As noted above, NHG considers that any perceived uncertainty can be resolved or mitigated by providing a definition of good faith in the SAA (discussed at section 3.2 above).