FTW pick: Draft bill raises alarm bells over regulations of transport industry

The transport industry has been warned to familiarise itself with the letter of the law of the draft Economic Regulation of Transport Bill that aims to replace all existing regulation pertaining to sea, air, road and rail freight.

 An initial version of the bill was gazetted in February and according to Peter Lamb, transport division director at law firm Norton Rose Fulbright, “should have set off alarm bells back then already”.

And while the primary purpose of the bill is to ensure an efficient and productive freight sector, it seeks to do so in ways that imply regulating previously unregulated areas of the transport environment, in Lamb’s view.

Whereas current legislation mainly looks at parastatals such as SAA and Transnet’s various divisions, the draft bill, if ratified, will cast the regulatory net much wider with significant repercussions for free market conditions.

Should the draft bill become law, it could impact directly on companies in a number of ways. It could, for example, place revenue limitations on perceived market share leaders and force companies to reveal sensitive commerce-related data to government.

“The February draft,” Lamb explained, “gave the transport minister wide discretion, to the extent that he (Blade Nzimande) could decide when a public and or private participant could be regulated.”

Apart from obvious concerns such as the cost implications of extended regulations, it means that the Department of Transport could effectively interfere with private sector profits and procedures. Thankfully the February bill was re-drafted and, under the current version, Nzimande’s powers have been reined in.

According to the latest version of the bill, regulation would essentially be governed by two parallel but independent bodies: the Transport and Economic Regulator (TER) and the Transport Economic Council (TEC). Whereas the TEC would essentially act in a primary adjudicative capacity, the latter should be of particular concern to transporters, Lamb said.

In comparison the TER, he stressed, would serve to pass down determinations related to price control, accounting and disclosure requirements, and deal with complaints lodged against companies, be they public or private.

More importantly, if any company is regarded as applicable for regulation under the bill, it could be forced to share business information as per section 11 of the bill. And under section 2.4 of the bill, “the minister, in consultation with the TER, may declare that the act – if the bill is approved – applies to any market or entity that controls more than 70% of a section or sub-section of a market or service concern”.

In the main it means that sole proprietors and market-dominating companies, where it is found that no preconditions for competition exist, could henceforth be regulated in such a way that it could even limit revenue if profits are perceived to be unduly benefiting from insufficient competition.

Looked at differently, if a commercial concern operating in the freight sector is proven to have at least 70% of the market share in its particular sector or sub-sector, and if it has majority control over a facility, it will be exposed to the kind of regulatory interference from which it is currently free.

Lamb said that fortunately, with the last draft gazetted in October, “the minister’s powers have been more circumscribed. “But his discretion to regulate previously unregulated concerns, although limited, can still be applied in significant ways.” Under the current bill the TER will have to make a determination on the footprint of a particular entity once it has received and considered an opinion from the Competition Commission.

“The Commission, for that matter, will have had to do a market enquiry in keeping with the stipulations of the Competition Act and, if needs be, must have found through a tribunal that anti-competitive abuses have occurred.” These findings, Lamb added, would then have to be published by the minister in addition to requirements that the TER make its intentions clear in the Government Gazette.

But although checks and balances to protect industry against possible over-regulation had been incorporated into the current bill, private companies, and transporters in particular should become aware of the risks of this bill.

“We’re particularly concerned about the bill’s implications for transporters and are calling on companies to listen to discussions around the bill and to participate in public hearings,” Lamb warned.

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