AusRAIL, Market Sectors

FMG loses fight to access Rio’s rail lines

Fortescue Metals Group (FMG) has lost a seven year legal battle over access to Rio Tinto’s railways in the Pilbara region, with the case potentially having far reaching implications for future third party rail access.

By Jennifer Perry

The Federal Court last week dismissed an appeal lodged by FMG and the National Competition Council against an earlier decision made by the Australian Competition Tribunal’s not to declare Rio’s Hamersley line open for third party access.

The court also ruled that the tribunal’s July 2010 decision to declare Rio’s Robe River railway open to access should be set aside.

Rio was “very pleased”, saying that as the tribunal noted “the potential disruption and diseconomy costs would dwarf whatever benefits might exist in mandating third party access”.

“Rio remains steadfastly of the view that our integrated operations would be severely impacted if third parties were permitted to run trains on our rail network and is extremely pleased that as a result of this decision no part of our network is declared,” the company said.

FMG said the decision would not affect the company’s expansion plans.

FMG chief operating officer Nev Power said FMG had been attempting to gain third party access to Rio’s railways since 2004 so the company’s expansion plans were not reliant on this access.

“Fortescue’s growth to 155 million tonnes per annum (mtpa) and beyond to 355mtpa is built on the construction of our own rail infrastructure, and funding and approvals have been secured on that basis,” Power said.

Nevertheless, Powers said the court’s decisions were disappointing because they “return the Pilbara to a situation where rail lines will be duplicated at great economic and environmental expense”.

“… Many miners will be denied the more efficient opportunity to access existing infrastructure,” he said.

“Fortesuce will continue to provide its own third party rail and port access to junior Pilbara iron ore miners so they can generate export revenue for the local, Western Australian and federal economies.”

FMG said it would review the full detail of the decisions and consider its legal options.

Future implications
The case has potentially far reaching implications, according to Paul Bugler, director of Lacertus Verum, a management advisory service to the rail industry which specialises in infrastructure access regulation.

Bugler says the core of the matter is one of the criteria in the Competition and Consumer Act 2010 for the determination as to whether essential infrastructure should be “declared”, i.e. made available for third parties to use.

“The criteria is that it would be uneconomical for anyone to develop another facility to provide the service required, for example, a railway line to allow a third party to operate trains on it,” he said.

Typically, a “declaration” (or, access undertaking) applies to what is known as a natural monopoly, i.e. infrastructure that has a characteristic that makes it very difficult to replicate, such as railway lines and ports.

“The Federal Court’s decision is in relation to what ‘uneconomical’ means,” Bugler said.

“The prevailing ruling was by the Australian Competition Tribunal in 2000 in which it decided that the test was whether it was ‘socially’ uneconomical, i.e. that society would be worse off if access is to be denied to third parties.

“The court’s decision overturned this position and ruled instead that the test was whether it was privately uneconomical, i.e. whether someone could potentially afford to duplicate the facility.”

According to Bugler, these two positions take a very different approach to what third party access is all about, and the privately uneconomical approach sets the bar much higher for anyone trying to gain access to someone else’s infrastructure.

Unless circumstances change, it will be this higher standard that will apply.

“It is possible that the ruling may be appealed to the High Court. The Federal Government will also probably take a long hard look to see whether the law needs to be amended or whether it supports the court’s view,” he said.

“In the meantime, the ruling effectively puts an end to any hopes of junior miners gaining access to Rio Tinto and BHP railway lines in the north-west via a declaration.

“Of course, the track owners voluntarily offer access, but that is unlikely given the massive amounts spent on the court cases to date to keep others out.&quot