ARTC pays first dividend since 2004

 
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
Noted in the 2013-14 annual report, ARTC paid the government $36m in dividends marking the end of the dividend exemption period.

Debt has reduced slightly to $916m.

http://www.artc.com.au/library/annual_report_2014.pdf

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  Bethungra Train Controller

I noble effort I suspect. In the grand scheme of things it is chump change.

Why would the government demand a dividend?

That money could have been used to further invest in upgrades and maintenance.
  Roadmaster Locomotive Driver

Governments expect a dividend from all agencies they own. One theoretical advantage could be that it reinforces a 'commercial' or 'business' like focus so that the maximum efficiency is derived from the investment. Given that taxpayers' money has been poured into ARTC (and I am not criticising that situation) it may be a good thing that a small dividend has been paid? Value for money, and all that?
  MILW Junior Train Controller

Location: Earth
Sure, $36m is trivial, but good on them for managing to pay something.

I don't suppose this could be used as an argument against privatisation, could it? Nah, of course not, silly me...
  MD Chief Commissioner

Location: Canbera
Paying off the $916 million debt would be a better use for the dividend.
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
Paying off the $916 million debt would be a better use for the dividend.
MD


Much better!

... Given that taxpayers' money has been poured into ARTC (and I am not criticising that situation) it may be a good thing that a small dividend has been paid? Value for money, and all that?
Roadmaster


That money goes into specific rail infrastructure projects. Meanwhile the federal guvmnt funds road infrastructure and doesn’t receive any dividend payments from the relevant state road authority.
  donttellmywife Chief Commissioner

Location: Antofagasta
That money goes into specific rail infrastructure projects. Meanwhile the federal guvmnt funds road infrastructure and doesn’t receive any dividend payments from the relevant state road authority.
cootanee

Not a good analogy - the federal government gets the lions share of the road user funding source paid directly to them.  There's more likely to be an issue around whether they then pass that funding on to the relevant lower level government that incurs the costs.
  RTT_Rules Dr Beeching

Location: Dubai UAE
Much better!



That money goes into specific rail infrastructure projects. Meanwhile the federal guvmnt funds road infrastructure and doesn’t receive any dividend payments from the relevant state road authority.
cootanee


Called fuel tax
  Trainplanner Chief Commissioner

Location: Along the Line
It's all relative really. 36 mill is a drop in the bucket for the Government coffers but given the scarcity of funding is money ARTC could spend quite effectively with demonstrated benefits on a network that has suffered chronic under investment for years.  But we are told we must get the federal budget in surplus!!!!!
  justapassenger Chief Commissioner

Called fuel tax
"RTT_Rules"
And income tax, and GST, and corporate tax when not dodged, and every other source of money which ends up in the general revenue pot.

Road usage costs take all of the directly road-related income and then require huge amounts of subsidy from general revenue over and above that. I'm not just talking about the cost of building and maintaining roads, but the full cost of road usage - which includes things like the massive health expenditure incurred by Australia being one of the world's fattest nations and on course to become number one in the next few years.

If more people rode bikes for private transport (benefitting the economy by $1.05 per kilometre, and the user by in excess of 80¢ per kilometre) and more freight transport was diverted to rail, the cost of subsidising motor vehicle usage could gradually be brought down to the point where it became close to sustainable.
  RTT_Rules Dr Beeching

Location: Dubai UAE
It's all relative really. 36 mill is a drop in the bucket for the Government coffers but given the scarcity of funding is money ARTC could spend quite effectively with demonstrated benefits on a network that has suffered chronic under investment for years. But we are told we must get the federal budget in surplus!!!!!
Trainplanner




So we can pay of 7 years of increasing debt. So yes it is important.

I think 10 years notice to start contributing back to the taxpayer is a fair call
  RTT_Rules Dr Beeching

Location: Dubai UAE
And income tax, and GST, and corporate tax when not dodged, and every other source of money which ends up in the general revenue pot.

Road usage costs take all of the directly road-related income and then require huge amounts of subsidy from general revenue over and above that. I'm not just talking about the cost of building and maintaining roads, but the full cost of road usage - which includes things like the massive health expenditure incurred by Australia being one of the world's fattest nations and on course to become number one in the next few years.

If more people rode bikes for private transport (benefitting the economy by $1.05 per kilometre, and the user by in excess of 80¢ per kilometre) and more freight transport was diverted to rail, the cost of subsidising motor vehicle usage could gradually be brought down to the point where it became close to sustainable.
justapassenger

The fuel excise is $18B, I highly doubt its less than the total cost of operating the road system. I couldn't find the actual amount spent in the short time I looked and then it gets messy as states also spend as well.

EDIT: I found a number of $14B for roads in 2013-14 budget and $4.5B for rail.

Getting people on bikes will not have an impact on road spending, this is not SE Asia. Most people use bikes for recreation or very short distances to work/study. It will also have little impact on the obesity issue as the main cause is not the short bike rides to school/work that may have stopped. The majority of the problem is what they stick in their mouths.

Yes trucks are funded by the motorist although its mostly long haul road freight that is readily rail convertible and this is the minority of trucks on the road.
  donttellmywife Chief Commissioner

Location: Antofagasta
The fuel excise is $18B, I highly doubt its less than the total cost of operating the road system. I couldn't find the actual amount spent in the short time I looked and then it gets messy as states also spend as well.

EDIT: I found a number of $14B for roads in 2013-14 budget and $4.5B for rail.
RTT_Rules

All petroleum fuel consumers initially pay excise, but then the non-public-road users mostly get that excise back as a rebate.  Your $18 billion doesn't take that into account (or you are talking about net excise plus other stuff).  After taking that rebate into account the net excise is expected to be about $9 billion in the budget for the financial year that is currently under way.

This mob have a nice summary of road charges and costs: http://www.bitre.gov.au/publications/2013/yearbook_2013.aspx - see tables T1.2d and T1.3 I would expect there to be a 2014 update soon, but historically it appears they like to be a little creative as to how often a yearbook should be published.

Given there's a clear need for additional capital expenditure on the network, pulling a dividend out of ARTC seems a bit silly. Beyond political driven "pay us a dividend so the budget looks better" type nonsense (which I'm sure goes on), I suspect this indicates that "ongoing" operations had spare cash (so here owners - you can have some of that back - plus we'll pay off $160 million or so of our debt), but separate to that there are quite a few "special" projects that are being funded by grants and equity injections.  

(Having a quick look through the annual report there was no equity injection but there was $50 million against grants.)

So we can pay of 7 years of increasing debt. So yes it is important.
RTT_Rules

That doesn't make sense.  As MD says, you either pay a dollar towards a dividend, or you pay a dollar off your debts.
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
...Given there's a clear need for additional capital expenditure on the network, pulling a dividend out of ARTC seems a bit silly. Beyond political driven "pay us a dividend so the budget looks better" type nonsense ...
That doesn't make sense. As MD says, you either pay a dollar towards a dividend, or you pay a dollar off your debts.
donttellmywife


I've pointed out previously the absurdity of ARTC having to take on debt to build national transport infrastructure.

Last year borrowings cost it $57.1m, up from $46.8m the previous year. Throw in the $36m dividend and that's $93+m that could have gone back into... buying more ballast Wink   Extrapolated over the next 10 years it could be a billion lost to rail and further proof that road vs rail funding isn't a level playing field.
  RTT_Rules Dr Beeching

Location: Dubai UAE
All petroleum fuel consumers initially pay excise, but then the non-public-road users mostly get that excise back as a rebate. Your $18 billion doesn't take that into account (or you are talking about net excise plus other stuff). After taking that rebate into account the net excise is expected to be about $9 billion in the budget for the financial year that is currently under way.

This mob have a nice summary of road charges and costs: http://www.bitre.gov.au/publications/2013/yearbook_2013.aspx - see tables T1.2d and T1.3 I would expect there to be a 2014 update soon, but historically it appears they like to be a little creative as to how often a yearbook should be published.

Given there's a clear need for additional capital expenditure on the network, pulling a dividend out of ARTC seems a bit silly. Beyond political driven "pay us a dividend so the budget looks better" type nonsense (which I'm sure goes on), I suspect this indicates that "ongoing" operations had spare cash (so here owners - you can have some of that back - plus we'll pay off $160 million or so of our debt), but separate to that there are quite a few "special" projects that are being funded by grants and equity injections.

(Having a quick look through the annual report there was no equity injection but there was $50 million against grants.)


That doesn't make sense. As MD says, you either pay a dollar towards a dividend, or you pay a dollar off your debts.
donttellmywife

I looked up revenue to the govt, I have no idea if that includes/discludes rebates

The debt I was referring to was the fed govt debt, something ALP failed to address just make it worse. Yes some of that money used by ARTC to build what ever.
  RTT_Rules Dr Beeching

Location: Dubai UAE
I've pointed out previously the absurdity of ARTC having to take on debt to build national transport infrastructure.

Last year borrowings cost it $57.1m, up from $46.8m the previous year. Throw in the $36m dividend and that's $93+m that could have gone back into... buying more ballast Wink Extrapolated over the next 10 years it could be a billion lost to rail and further proof that road vs rail funding isn't a level playing field.
cootanee

It would be interesting to see what they actualy borrowed for as the money they have used to build infrastructure over recent years far exceeds this number by a very large number. The feds have provided billions.
  donttellmywife Chief Commissioner

Location: Antofagasta
I've pointed out previously the absurdity of ARTC having to take on debt to build national transport infrastructure.

Last year borrowings cost it $57.1m, up from $46.8m the previous year. Throw in the $36m dividend and that's $93+m that could have gone back into... buying more ballast Wink Extrapolated over the next 10 years it could be a billion lost to rail and further proof that road vs rail funding isn't a level playing field.
cootanee

Not all of ARTC's infrastructure has a primary role of being "national transport infrastructure".  For some sections of track that is more a secondary role - it is still quite useful that it is part of a contiguous national system (and I don't want to see it separated from that system for that reason) but primary role of that part of the network (as indicated by the majority of traffic) is as a local mine to port product chain.  I don't have a problem at all with the capital requirements of that part of the network (the Hunter coal system) being funded on nominally commercial terms (which it is) and there has been a fair chunk of capital work carried out on that network in the last decade or so.  Have you noticed the "bump" in the main line tracks at Sandgate?  Have you counted the number of tracks to the west of Maitland?  Have you seen what Hexham looks like these days?  Add all that up, plus the work going on to enable more tonnes out of the Gunnedah basin.

The rail operators are also commercial businesses and have to deal with the reality of commercial rates for cost of capital - if there was too much of a difference between the cost of capital for the rail access provider and the rail operators then you could see some bizarre things going on.

Party political nonsense aside, the government does not have oodles of spare cash lying around - if ARTC didn't borrow the money then the feds practically would.  The interest rate for the feds might be a bit less (ARTC's looks like it is about 5%, the feds might get 3.5% today) but they would still have an interest bill.  You don't take that into account with your ten year extrapolation.

Perhaps the feds took the dividend in a failed attempt to stop the roll-out of the new logo.
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
Not all of ARTC's infrastructure has a primary role of being "national transport infrastructure". ...
donttellmywife


Nothing to do with the HVN.

The bulk of the debt is associated with the SSFL. A nationally significant infrastructure project which received little if any federal guvmnt funding (under either party).

For the last 10 years ARTC was allowed to retain the dividends to put back into the network. That arrangement started under Libs and subsequently extended by Labor. It was a good idea then and it still is.

Ignoring the party politics comments, for the feds $36m is nothing compared to its annual transport infrastructure spend. However for ARTC it's 28% of last FYs interstate rail investment.
  djf01 Chief Commissioner

I noble effort I suspect. In the grand scheme of things it is chump change.

Why would the government demand a dividend?
Bethungra


If they can run ARTC for a year or three without capital injections and paying a small but increasing dividend, it will look like a "growth story".  This is purely about preparing ARTC for sale.
  djf01 Chief Commissioner

This is a topic I've been banging on about for years here.

In 1999 when ARTC first reported it's balance sheet was worth $0.2bil. By 2004 it was $0.8bil. By 2014 it's $5bil.

In all that time (I'll have to go and add them all up one day) it's total accumulated net profits are close to zero. That $5bil has come mostly from "one off" grants and raising debt on the commercial debt markets. Because government debt to purchase business assets are balance sheet rather than P&L items, that debt doesn't appear as part of the budget deficit. Neither does the debt ARTC sources directly from the market.

But the effect on macro economic policy and the government's actual financial position is exactly the same as if the organisation was a publicly funded statutory authority. It just doesn't look as bad on the government books.

My previous estimates are than ARTC loses roughly $500mil a year, but it's hidden by various means: mostly capitalising maintenance. It's been less than that in the past couple of years, as the government's budgetary (and indeed political) position has been deteriorating. So we're back to running down the plant.

There are exceptions, and the obvious one is the Hunter coal network.

The intention with ARTC was about turning it into a viable business, but unfortunately it hasn't panned out that way. Unfortunately, the current government appears to be more ideologically than pragmatically driven: even though in my view ARTC is a million miles away from being ready to privatise, I think they are going to push ahead and privatise it anyway.

I think there is a very strong case for separating out the Hunter coal network from ARTC (in terms of financial reporting/administration). ATM there is tremendous scope for ARTC to be a front for back-door unrecognised subsidies to the coal industry. There is similar scope for it to collect an unwritten coal tax (like Queensland used to?). If the Hunter network is sold, I think careful thought as to the possible ownership structures needs to be made. It would be far better if it were run by some sort of co-operative controlled by the miners but with a constitution preventing individual players taking complete control. Such restrictions would lower the sale price of course, but the alternative  increases the sale price because the government essentially sells it's right to levy transport taxes on the mining industry.
  MD Chief Commissioner

Location: Canbera
If ARTCs losses are $500 million a year, that means that its track access charges are waaay too low.
So why not raise the charges to at least break even.
As for privatising ARTC, what does ARTC actually own that can be sold, as distinct from leased.
The leased assetts cant be sold , and the leases cant be transferred without the agreement of the lessors
and theres zero chance of that happening, especially now that their is a Labor Govt in Victoria.
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
Basically ARTC has three main functions.

1. Rail Access provider for the network it controls.
2. Operating the network it controls including BAU maintenance.
3. Managing Infrastructure investment.

Ideally 1 should cover the cost 2, however there is no way ARTC could cover the cost of addressing decades of deferred maintenance let alone improving the network (the exception being the HVN).

ARTC doesn't need to own tracks to be a saleable entity. As long the business it can turn a profit (1 - 2), a buyer would be looking to grow 1 and lower 2. As for 3, the feds have invested in building tollways operated by private companies therefore some arrangement would be possible.
  donttellmywife Chief Commissioner

Location: Antofagasta
I think there is a very strong case for separating out the Hunter coal network from ARTC (in terms of financial reporting/administration). ATM there is tremendous scope for ARTC to be a front for back-door unrecognised subsidies to the coal industry. There is similar scope for it to collect an unwritten coal tax (like Queensland used to?). If the Hunter network is sold, I think careful thought as to the possible ownership structures needs to be made. It would be far better if it were run by some sort of co-operative controlled by the miners but with a constitution preventing individual players taking complete control. Such restrictions would lower the sale price of course, but the alternative increases the sale price because the government essentially sells it's right to levy transport taxes on the mining industry.
djf01

The cost/revenue position of the Hunter network is reasonably clear because of the way that regulation of the access undertaking works.  Go knock yourself out on the reams of documentation available on the ACCC website.  While there is always disagreement about details (you expect that in any sort of commercial negotiation) the current arrangements strike me as being reasonably balanced - the right of ARTC to make a commercial return on its investments is recognised, but its right to go further and exploit its monopoly position is constrained.

It doesn't bear any resemblance at all to the situation that used to exist in Queensland.  

(It is historical now, but I am aware of one case where a domestic consumer of coal had a relatively long haul (~1100 km) from one of its existing export mines to the point of consumption.  In order to reduce cost it investigated sourcing coal from a domestic only deposit that was about half the rail distance.  Those investigations were abandoned when the government of the day informed them that they would be paying the same amount in haul tariffs regardless of the distance.  I am also aware of proposals for standard gauge links in the 60's and 70's that got killed off, in part, for similar reasons ("you can build your own line and operate your own trains if you want... but you'll still be paying us as if we built and operated it..."))

I am also quite a fan of the cooperative ownership model - I think that has worked quite well for some of the coal terminals on the eastern seaboard.  That was the sort of model that the industry was internally trying to get together at the time of the Aurizon privatisation.  However I don't see a pressing need to change to that from the current ownership model, and I do have concerns of the impact that such a change would have on the "national network" aspects of the Hunter.  We don't want additional administrative barriers to rail traffic - we have enough physical ones to deal with already thanks.

(One good aspect about the cooperative model is that the organisation set up to run the asset generally just sits in the background behind its customers and owners and just gets on with the job - you don't see a lot of effort put into things like re-branding or inspirational videos...)

I have no idea what the current government's plans are.  But it would be delusional to think that a couple of years of dividends would mask the underlying return on investment situation that the network has to deal with for any investor that has half a clue.  


If ARTCs losses are $500 million a year, that means that its track access charges are waaay too low.

So why not raise the charges to at least break even.


(djf01's figure is a gross exaggeration, perhaps by a factor of five.)

Because customers will just give rail operators/ARTC the finger and put their containers on a truck.
  djf01 Chief Commissioner


(djf01's figure is a gross exaggeration, perhaps by a factor of five.)

Because customers will just give rail operators/ARTC the finger and put their containers on a truck.
donttellmywife


What the Balance Sheet numbers say is $5bil more has gone into ARTC than has come out.  (It showed roughly the the same over a 10 year period from 2002 to 2012, which is how I came to the "loses $500mil a year").   Is it *really* worth $5bil more than it was in 1999?

BTW, consider myself knocked out!  200 pages of ACCC ecconobabale (so far) without a single digit of real data, much less a graph.  Only 10000 pages to go Sad.
  donttellmywife Chief Commissioner

Location: Antofagasta
What the Balance Sheet numbers say is $5bil more has gone into ARTC than has come out. (It showed roughly the the same over a 10 year period from 2002 to 2012, which is how I came to the "loses $500mil a year"). Is it *really* worth $5bil more than it was in 1999?

BTW, consider myself knocked out! 200 pages of ACCC ecconobabale (so far) without a single digit of real data, much less a graph. Only 10000 pages to go Sad.
djf01

It's certainly not worth nothing!  

Using 1 July 2003 as a starting point (that's the period before the NSW lease started, but it is the period when big contributions started being made) I agree that there's been about $5 billion in grants, equity and debt funding.  

But you clearly have a better business now than you did then - first mostly-complete year of the NSW lease there was about $250 million annualised access revenue (excluding CRN).  Last financial year that was about $720 million.  Not far off three times higher.  Depending on what floats your boat, reasonable measurements of underlying profit have risen by perhaps four times.

Undoubtedly some of the money spent will never earn a financial return - hence the ~$2 billion of impairments over that time.  That was known ahead of time (though perhaps not the extent).  Some of that non-commercial spend can also be considered as the payment for the Hunter Valley part of the network - remember they got that otherwise for nix.

The latest report values the infrastructure on a discounted cash flow basis ("what can we earn from this in future") at about $4.1 billion.  If you consider the grants and equity together ($4 billion) plus whatever the company was originally worth (say $0.2 billion from 2003 report) - so $4.2 billion total - that's then bought you a $4.1 billion asset less $0.9 billion loans and bonds - so $3.2 billion total.

You are $1 billion in the red - over ten years that's $100 million a year, which is a factor of five less than $500 million a year.

In terms of regulating these things, I think there is a need for some caution that the cost of regulation doesn't get excessive.  I shudder at the amount of time that must be put in by the ACCC, ARTC, operators and customers for each access undertaking review.

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