Queensland miners and government square off over sale

By Mark Carter

While they are not opposed to the general idea of privatising QR, Queensland’s coal miners are unhappy with the majority of the above and below rail assets associated with the export coal business being combined as part of the float. 

The miners see this as unacceptable, their view being that this model will restrict above rail competition and is likely to inhibit below rail investment. They would prefer to see the track owned and/or managed by a third party and have said they are prepared to make a direct offer for the track assets.

In face of some stubborn resistance from the Queensland premier Anna Bligh and treasurer Andrew Fraser to previous overtures from the industry, fourteen of Queensland largest coal miners have formed the Queensland Coal Industry Rail Group (QCIRG).

QCIRG has appointed former NSW Liberal leader and premier Nick Greiner as chair of the group to assist in presenting a united front in negotiations with the government.

Under the governments’ plan, a privately owned QR will be by far the largest above rail freight operator hauling coal in Queensland for the foreseeable future.

The privately owned QR will also own the majority of the below rail assets over which the state’s export coal task will be moved.

The state government has sought to reassure mining interests that effective quarantine will be in place to ensure that the above rail assets will be managed separately from the below rail assets within the newly privatised business, and this will be overseen by adequate regulatory processes. 

In recent months, the Queensland Government has pointed to local and overseas examples to put its case for its privatisation model.

Bligh has previously used the privatisation of Westrail as an example.

The West Australian original model was a fully integrated railway with above and below rail assets separated by a ‘Chinese Wall’.

What the premier failed to mention that during the period that this model was in place no significant third party operators gained access to the WA network.

Even since the above (now owned by QR) and below rail operations were separated, no other major operator has gained access to the tracks and many of the state grain lines are now suffering from a decade of underinvestment by the private sector.

Queensland Treasury’s own web site touts the Canadian National (CN) model as a successful example of rail privatisation to support its case for the public float of QR.

Unfortunately, while there are some parallels between this and the proposed QR model, again the comparison is severely flawed.

Much of CN’s growth and financial success has been underpinned by its proximity to the huge US domestic freight market and its acquisition of other private rail operators in the neighbouring US to expand its transcontinental network.

While CN in certain circumstances provides shared trackage rights to other rail operators, it is not subject to the kind of ‘open access’ regime requirements pertaining to rail operations in Australia.

I should add that there is a delightful irony in one of the largest miners within the QCIRG, BHP Billiton, fervently resisting any third party access to its own integrated iron ore rail network in the Pilbara.

Greiner brings valuable experience to the QCRIG, having recently spent some considerable time attempting to unravel some of the inefficiencies of the Hunter Valley export coal supply chain.

He has been joined by some strange bedfellows in promoting the case for the Queensland miners, with federal labor ministers Martin Ferguson and Anthony Albanese both guardedly throwing their support behind the miners’, to date, informal offer to purchase the below rail assets.

One suggestion has been that the miners would hand over the day to day management of the network to the federally owned Australian Rail Track Corporation (ARTC).

Whether this is feasible given ARTC’s current commitments to the Hunter and interstate networks remains to be seen, but it has not been discounted by Albanese though he says that ultimately it would be a matter for the ARTC board.

The Queensland Government is remaining intransigent on the issue although Bligh has not ruled out further discussions with the miners.

There have been suggestions that the post-sale regulatory framework overarching access to the QR coal network could very well be open to challenge under the Trade Practices Act.

Any such uncertainty could well devalue the asset, casting a cloud over the sale process and possibly frightening potential investors away.

Unfortunately the current focus on the coal side of the QR business is deflecting attention away from the future of QR’s regional rail links once their operation comes under private ownership, but with the track remaining under government control

Most of these services will be run under some form of Community Service Obligation, but as been the case elsewhere in Australian these are unlikely to be contestable.

This will leave the government to pay the new private owners whatever is their asking price for provision of these services which is likely to quickly spell the demise of marginal regional freight services while government owned passenger services will eventually be unable to meet their gorwing share of infrastructure costs.