Any easing of BHP Billiton and Rio Tinto’s infrastructure restrictions is sure to upset smaller Pilbara operators.
LEGISLATION enabling BHP Billiton and Rio Tinto to share their Pilbara transport infrastructure is looming as a major flashpoint with industry ahead of the seemingly inevitable collapse of their $120 billion Pilbara iron ore joint venture.
In the face of growing opposition from competition regulators in Europe, Japan, South Korea and China, the plan to create the world’s biggest integrated iron ore operation appears certain to lapse by the end of the year.
That has turned attention to the miners’ fallback options, notably the potential to share their Pilbara infrastructure to capture some of the $10 billion in synergy gains expected from the joint venture.
To facilitate the proposal, the state government in June said it would amend both miners’ various state agreements, which currently prevent them from using transport infrastructure other than that associated with each individual state agreement.
Easing the restrictions would enable BHP to gain access to extra port capacity at Rio’s Cape Lambert and Dampier ports and enable Rio to develop otherwise stranded deposits in the eastern Pilbara, such as its giant Rhodes Ridge and Shovelanna deposits nearer Newman.
But it would also represent a slap in the face for other miners, including Fortescue Metals Group, which have been fighting for access to BHP and Rio’s railways for years.
BHP and Rio’s existing state agreements oblige them to transport third-party ore on commercial terms as long as it does not unfairly affect their own activities, yet they have successfully stymied all past attempts at gaining access.
In particular, they argue third-party access poses too great a threat to their own operations, and that their networks lack the capacity to accommodate other users.
The ineffectiveness of Rio and BHP’s existing third-party haulage obligations has left all other major mine proponents little choice but to build their own port and rail infrastructure.
Consequently, there could soon be at least four extra major railways built in the Pilbara in addition to the existing six major lines operated by BHP, Rio and FMG.
FMG government affairs chief Julian Tapp said that highlighted the capital inefficiency created by the current access obligations, with Port Hedland alone likely to end up with rail capacity of more than 800 million tonnes a year to a port with a maximum potential capacity of 500mtpa.
Completion of Hancock Prospecting’s planned Roy Hill railway will result in three major lines running parallel to Port Hedland for over 200 kilometres.
Similarly, development of Fortescue’s $3.2 billion Solomon project means three major lines will run parallel most of the way from the central Pilbara to Cape Lambert and nearby Anketell Point.
Mr Tapp said the government would therefore be remiss not to take advantage of its unique chance to resolve “this 40-year problem”.
“We will be disappointed if there’s no change in access obligations when the details of the revised state agreements become apparent,” he said.
He added that any subsequent infrastructure sharing by BHP and Rio would expose the falsity of their reasons for perennially denying access to other parties.
“They’ve always maintained that it would so interfere with their activities that it’s not possible,” Mr Tapp said. “If they can do it for each other, they can certainly do it for third
parties.”
The state government does not expect to finalise legislation to revise the miners’ state agreements until the end of this year.
Though the existing third-party haulage obligations are expected to remain in place, they are also unlikely to be strengthened to make third-party access more achievable.
Separately, the government has also effectively shelved a proposed third-party haulage regime that would apply to all Pilbara railways.
After three years of consultation, the draft Pilbara Railways (Third Party Haulage) Regime was released in September last year but has been gathering dust ever since.
The government has since made no visible attempts to complete a final draft resolving major flaws identified by industry, such as the regime’s failure to require the rail operator to deliver third-party ore to a port.
Responding to WA Business News, Premier Colin Barnett conceded the proposed revisions to the state agreements would not address third-party rail access, but said he still wanted to encourage such access for junior miners.
“It is not formally part of the negotiations but I would like to see that happen,” he said.
Labor state development spokesman Mark McGowan said the premier had clearly “thrown in the towel” on third-party rail access, after previously declaring it a major objective of his negotiations over the proposed joint venture.
