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Competitive neutrality policy
Iota Services Pty Ltd
Iota Services Pty Ltd
Competitive Neutrality Policy
To ensure that the activities of Iota Services Pty Ltd (Iota) – which do not form part of the statutory functions of South East Water – are operated commercially, at arm’s length from South East Water and aligned with the Victorian whole-of-government policy for competitive neutrality.
2. Scope of Policy
This policy applies to Iota’s people (including, but not limited to, directors, employees, contractors) and any person providing services to Iota on behalf of South East Water under its service level agreement.
This policy is designed to reiterate guiding principles of the Victorian Government’s competitive neutrality policy to ensure Iota is responsible for:
a. Determining if any business activities fall within the scope of that policy;
b. Assessing the costs and benefits of implementing competitive neutrality measures or whether there is public interest reason not to implement such measures;
c. Retaining a sufficient record of the controls around such activities to ensure compliance with the policy, and illustrate a defensible position in the event of scrutiny or investigation (triggered by a complaint); and
d. Ensuring that those guiding principles are embedded in Iota’s governance framework and that competitive neutrality measures are implemented where necessary.
The Government only requires competitive neutrality measures to be applied ‘to the extent that the benefits to be realised from implementation outweigh the costs’. Accordingly, Iota acknowledges that the decision to implement such measures depends, in the first instance, on the expected benefits outweighing the expected costs.
3. Policy statement
Iota is a wholly owned subsidiary of South East Water Corporation, a statutory authority formed under the Water Act 1989 and subject to the competitive neutrality policy of the State of Victoria, published in September 2012.
Iota’s corporate structure enhances competitive neutrality, by ensuring that the activities of Iota (which do not form part of the statutory functions of South East Water) are:
Operated commercially, at arms-length from South East Water without, where possible, obligations imposed on South East Water; and
Operated without taking deliberate or unfair advantage of South East Water’s position as a statutory authority.
The Government’s policy provides for three measures to implement competitive neutrality – corporatisation, commercialisation and full cost-reflective pricing (as detailed in section 6). Corporatisation and commercialisation of Iota activities have already been implemented and full cost-reflective pricing is applied within the service level agreement between South East Water and Iota, in so far as possible, in alignment with the Victorian Government’s competitive neutrality policy.
The premise for competitive neutrality is to ensure that ‘significant business’ activities of publicly owned entities compete fairly in the market. Essentially, the Government’s policy seeks to remove any unfair competitive advantages or disadvantages by government businesses, simply as a result of their public sector ownership.
Given that the Victorian Government’s competitive neutrality policy only applies to the ‘significant business’ activities of publicly-owned entities, and not to the non-business, non-profit activities of those entities, determining what constitutes a ‘significant business’ is, therefore, the key threshold question in applying the policy. That judgement informs whether competitive neutrality measures are required, and thus whether those activities fall within the scope of the Government’s policy.
5. Significant business activities for competitive neutrality
5.1 Iota is responsible for identifying, assessing and documenting whether any of its activities is a ‘significant business’ for competitive neutrality purposes.
5.2 Iota will refer to the Office of the Commissioner For Better Regulation (OCBR)’s guidance note “OCBR 2016, Identifying significant business activities for competitive neutrality: Guidance note, Melbourne” regarding ‘significant business’ activities, taking into account four key factors:
a. Do the activities result in the sale of a good or service?
b. Are the costs of providing the goods or services predominantly met by users?
c. Is there an actual or potential competitor?; and
d. Do the managers of the activity have a degree of independence in producing or supplying the good or service and the price at which it is provided?
5.3. Further, to contextualise what is meant by the concept of ‘significant, the following two factors will be considered:
a. The size of the relevant business activity in relation to the size of the relevant market; and
b. The influence or competitive impact of the business activity in the relevant market.
6. Competitive neutrality measures
6.1 A range of possible measures may be adopted to achieve competitive neutrality. These include:
a. Corporatisation – creation of a separate legal business entity to provide the relevant goods and services;
b. Commercialisation – organising an activity along commercial lines without creating a separate legal business entity; and
c. Full cost‐reflective pricing – offsetting any net competitive advantages a government business may enjoy, thereby ensuring that resource allocation decisions are made on the basis of comprehensive and accurate costing. A guidance note on when and how to use cost allocation methodologies which covers calculating fully cost reflective proves is now available at: betterregulation.vic.gov.au/Competitive-Neutrality/Competitive-Neutrality-Guidance
6.2 The decision to implement such measures depends, in the first instance, on the expected benefits outweighing the expected costs. Cost-benefit analyses (if performed) are required to be documented in each competitive neutrality assessment.
6.3 Should Iota consider that the implementation of full cost-reflective pricing (or other competitive neutrality measures) compromise other public policy objectives, a public interest test may be conducted to demonstrate the case for not implementing the measure.
7. Competitive neutrality assessments and OCBR complaints
7.1 Competitive neutrality assessments will be routinely performed for each of Iota’s business segments. These assessments document the circumstances and context for which the policy is applied and evaluates the measures taken by Iota to ensure it is operating consistently with the competitive neutrality policy. These assessments will be made available in the event that investigation is triggered by a complaint.
7.2 The Commissioner for Better Regulation is responsible for considering complaints lodged against a government business’s application of competitive neutrality. The OCBR provides private businesses with a formal complaints handling mechanism, which enables independent verification of the compliance with competitive neutrality requirements.
8. General matters
8.1 Any dispute with respect to the interpretation of this policy shall first be referred to Iota for resolution. If the matter cannot be resolved by the General Manager Iota, the matter shall be referred to South East Water’s General Counsel for discussion and action as required, which shall represent the final and conclusive Iota position on the matter.
8.2 This policy may be reviewed by the Iota Board from time to time and, as a minimum annually. Any amendments shall be effective on the date the amendments are approved.
9. Enacting legislation and related documents
9.1 Competitive neutrality assessments undertaken by South East Water.
9.2 Victorian Government competitive neutrality policy.
9.3 Minister’s letter of approval (27 October 2014).
9.4 Heads of agreement between South East Water and Iota.
9.5 Service level agreement between South East Water and Iota.
9.6 Loan agreement between South East Water and Iota.
10.1 The boards of South East Water and Iota Services are responsible for approving and adopting this competitive neutrality policy, respectively.