The federal and state governments, and their associated regulatory bodies, should stay out of the battle over third-party access to BHP Billiton’s Pilbara iron ore railway.
The federal and state governments, and their associated regulatory bodies, should stay out of the battle over third-party access to BHP Billiton’s Pilbara iron ore railway.
Instead, according to professor of economic policy at the John Curtin Institute of public policy, Peter Kenyon, commercial market forces should be left to decide the issue.
However, he told WA Business News the fact that iron ore mining aspirant Fortescue Metals Group Ltd already had rail and port facilities budgeted into its operation precluded the need to grant it access to BHP Billiton’s rail network.
Professor Kenyon said that, in providing a draft rail access recommendation in FMG’s favour late last year, the National Competition Council (NCC) had ignored crucial advice from a number of eminent economists on the issue.
“Why did the NCC even need to make a determination when, under FMG’s own development plans, access to the existing railway was not required,” Professor Kenyon said.
“I believe the NCC has lost the plot by getting too bogged down in the legal process. The whole issue has become a legal argument, when it should be about the nature of the competitive process.”
The federal government this week effectively came down in favour of the two big iron ore miners, BHP Billiton and Rio Tinto, when it failed to rule on FMG’s application to have BHP Billiton’s Newman-Port Hedland railway declared a service open to others under the Trade Practices Act.
Despite having a secret final recommendation from the NCC, Treasurer Peter Costello opted to make no ruling, without giving any reasons, leaving FMG 21 days to appeal to the Australian Competition Tribunal.
FMG special projects director Julian Tapp said the company was unlikely to appeal, given the treasurer’s failure to disclose any basis for not making a decision and would instead look to a state-based access regime being negotiated between the state government and BHP Billiton.
FMG had sought access to shift ore at some stage from the stranded, moderate-sized Mindy Mindy low-grade resource of 45 million tonnes, to Port Hedland.
Mr Tapp said FMG would now be pushing the state government to honour its stated obligation to secure an access regime for haulage services that would supercede BHP Billiton’s obligations under its rail transport agreement with the government.
No third party ore has ever been transported on the closed Pilbara rail networks and Mr Tapp was skeptical as to the circumstances that it ever would.
“We would have been happy to negotiate a deal with BHP Billiton to take our ore all the way to Port Hedland or to where it would meet our own proposed rail line, but they wouldn’t talk to us. That’s why we opted to go to the NCC,” he said.
Mindy Mindy, owned equally with Consolidated Minerals Ltd, is about 80 kilometres from the nearest access point to FMG’s proposed rail line and adjacent to the BHP Billiton line.
But it is just a sideshow to FMG’s main event – the giant $2 billion Chichester Range project, scheduled to produce 45 million tonnes/year over 20 years beginning in early 2008.
Mindy Mindy, on which FMG is carrying out feasibility aimed at a 5mt/year operation, has never been included in FMG’s project or finance modelling.
It is likely the current feasibility will be widened to include a spur line to FMG’s own railway.
BHP Billiton and Rio Tinto have argued that their Pilbara rail and port facilities are an integral part of their business, and to allow third party access would add an intolerable strain on their operations, jeopardise their international competitiveness and cost them and the country billions of dollars in lost revenue.
Professor Kenyon said he was influenced in his views particularly by four submissions to the NCC by prominent US economists, including Harvard professor Joseph Kalt, who has thoroughly investigated the changing regulatory and competitive rail landscape of the US and other nations.
Professor Kalt said FMG: “Has demonstrated with its words and its actions that building its own facilities is feasible and that FMG would be able to recover its costs if it built its own facilities and did not have access to BHP Billiton’s.
“In fact, FMG has made statements that it will build the rail line whether access is granted or not.
“In the US context, if an entrant can practically and reasonably enter and provide a service, then a US court would be unlikely to grant access,” Professor Kalt said.
Professor Kenyon is preparing an academic paper on the issue. Professor Kalt’s submission was commissioned on behalf of Rio Tinto.
