ARTC to be sold

 
Topic moved from News by bevans on 11 May 2015 09:37
  RTT_Rules Dr Beeching

Location: Dubai UAE
It is almost impossible to work out how there is $4 billion of assets in the company.  I thought ARTC only leased the track from the states?

ASX listing might be good for the industry as wont more capital be available and easier to get?  Much needed rail networks can be expanded with available capital.
8077
Lease the track, Lease the ROW or lease the line? It would get down to the wording.

Looking at the way its operated now, (my guess). ARTC lease the infrastructure and entitled to invest in it and receive he profits as a result. SO ARTC could then well be entitled to sell the lease which includes the value in the current infrastructure. ARTC pay buggerall because what NSW gave them was crap. Billions have been invested since and there has been significant growth in the Hunter and some other areas.

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  freightgate Minister for Railways

Location: Albury, New South Wales
Seriously I wonder how the government is going to spin this. Why value is there in the leases and there may just be clauses in the agreements with the statements which makes a sale void the state base leases.
  Pressman Spirit of the Vine

Location: Wherever the Tin Chook or Qantas takes me
Seriously I wonder how the government is going to spin this. Why value is there in the leases and there may just be clauses in the agreements with the statements which makes a sale void the state base leases.
freightgate
I believe there is a hand-back (to the SA gov) clause with former SAR land and property, which could make the sale of ARTC a legal minefield.
  freightgate Minister for Railways

Location: Albury, New South Wales
That's a worry. With the track record of South Australia and rail those lines handed back are likely to be closed too.
  bevans Site Admin

Location: Melbourne, Australia
Scoping studies

The Government has carefully considered scoping studies that assess the optimal arrangements for delivery and ownership options of a number of Government businesses and assets.
We have taken the following decisions:
  • Australian Rail Track Corporation
    The Government will undertake a scoping study in 2015-16 on options for the future management, operations and ownership of the Australian Rail Track Corporation Ltd.

    Recommendations from this study will be considered as part of the 2016-17 Budget process.

http://www.financeminister.gov.au/media/2015/0511-smaller-government.html
  LancedDendrite Chief Commissioner

Location: Trapped in a meeting with Rhonda and Karsten
It is almost impossible to work out how there is $4 billion of assets in the company.  I thought ARTC only leased the track from the states?

ASX listing might be good for the industry as wont more capital be available and easier to get?  Much needed rail networks can be expanded with available capital.
8077
The ARTC owns the Kalgoorlie-Broken Hill section of the East-West corridor outright, if memory serves me right. Inherited from CR and AN, not the SAR.

As for capital - floating the ARTC won't do anything for the corporation itself. Just like with the Medibank Private float, all of the proceeds of the float will go to the Feds, not the ARTC itself. Making the ARTC answerable to dividend-hungry public shareholders will squeeze revenue out of the company that is best left to be reinvested in further improving their assets.

Currently the ARTC has just as much access to commercial financing as other companies out there do - they had to get bank financing for the Southern Sydney Freight Line, for instance. Privatising the ARTC will most likely restrict its access to lower-cost Federal Government-backed debt financing.

What does the Government get from privatising the ARTC? Money up-front, in exchange for foregoing revenue from track access fees that it wouldn't have seen anyway for the most part.
What does the ARTC get? Nothing.
  RTT_Rules Dr Beeching

Location: Dubai UAE
The ARTC owns the Kalgoorlie-Broken Hill section of the East-West corridor outright, if memory serves me right. Inherited from CR and AN, not the SAR.

As for capital - floating the ARTC won't do anything for the corporation itself. Just like with the Medibank Private float, all of the proceeds of the float will go to the Feds, not the ARTC itself. Making the ARTC answerable to dividend-hungry public shareholders will squeeze revenue out of the company that is best left to be reinvested in further improving their assets.

Currently the ARTC has just as much access to commercial financing as other companies out there do - they had to get bank financing for the Southern Sydney Freight Line, for instance. Privatising the ARTC will most likely restrict its access to lower-cost Federal Government-backed debt financing.

What does the Government get from privatising the ARTC? Money up-front, in exchange for foregoing revenue from track access fees that it wouldn't have seen anyway for the most part.
What does the ARTC get? Nothing.
LancedDendrite
Umm, normally when you sell something, the owner gets the cash, not the entity.

What does the Federal Govt get from this? $4B (assuming they get that) to contribute to debt retirement saving $200m (assume 5%) from annual fed budget that can be spent on other things. Not sure what they got in profit. Unlikely it was that much.

What does ARTC get? A new boss, just like any other company or organisation regardless of owner. Perhaps a boss with less politics in their thinking.

Will shareholders squeeze revenue out of it? Probably!
Has the feds squeezed revenue out of it to date, Probably especially over last few years as the fed budget black hole got bigger and bigger.
Any different to anything else in life whether it be a profit organisation or govt owned organisation, No!
  donttellmywife Chief Commissioner

Location: Antofagasta
Any different to anything else in life whether it be a profit organisation or govt owned organisation, No!
There are differences.  ARTC's current charter clearly includes roles that don't have a commercial value to shareholders driver (but they do have a non-commercial value to its current shareholder).  

I think it is completely unrealistic to expect those charter activities to continue in any substantial form in a private ownership model.

But like Bing says, and considering the entity as a whole, I don't see private investors handing over lots of money for a set of assets that can't earn enough net income to sustain its network in the long term.

The Hunter Valley, in isolation, is a different case - but your timing is pretty woeful (boom is over - it is cost reduction time now), and all you are selling is a lease of a lease.  If I was the NSW state government I'd have my hand out for a good cut of the proceeds.  The Hunter Valley is also part of a broader network, that is likely to see increased public service use over the next few decades, so mixing that in could be fun.

East-west, perhaps that's different again.  But you don't own the bit of the link from Kalgoorlie to Perth (better hope your business partner is cooperative), and the NSW bit is again a lease of a lease.

I think $4 billion wildly optimistic.  We'll see.

I also think a model where major capital investments in this private network (NSFL, Inland Rail) continue to be funded by government unworkable.  If you sell it, you sell it, and walk away.  One of the main benefits of private ownership of a asset is that the service is less influenced by the political cycle, pork barrelling etc.  But if you actively leave open the possibility of large slabs of capital funding coming the way of the new owner, then that benefit no longer applies - in some respects you've made the situation worse.
  Sulla1 Chief Commissioner

Obviously there's no clear way of seeing how this sale is going to play out, but if a public float model is chosen, then this creates the prospect for major rail operators (if they're interested) to become significant investors...potentially to the point of pursuing seats on the ARTC board. If 'investors' and 'rail operators' share a common cause - to provide rail infrastructure for above rail operators - then this may be a fairly positive outcome. Of course if non-rail investment groups form the bulk of the investing pie...then maybe not so good, particularly if a Brookfield type situation is created where infrastructure is simply an asset that can be held to ransom.
  RTT_Rules Dr Beeching

Location: Dubai UAE
There are differences.  ARTC's current charter clearly includes roles that don't have a commercial value to shareholders driver (but they do have a non-commercial value to its current shareholder).  

I think it is completely unrealistic to expect those charter activities to continue in any substantial form in a private ownership model.

But like Bing says, and considering the entity as a whole, I don't see private investors handing over lots of money for a set of assets that can't earn enough net income to sustain its network in the long term.

The Hunter Valley, in isolation, is a different case - but your timing is pretty woeful (boom is over - it is cost reduction time now), and all you are selling is a lease of a lease.  If I was the NSW state government I'd have my hand out for a good cut of the proceeds.  The Hunter Valley is also part of a broader network, that is likely to see increased public service use over the next few decades, so mixing that in could be fun.

East-west, perhaps that's different again.  But you don't own the bit of the link from Kalgoorlie to Perth (better hope your business partner is cooperative), and the NSW bit is again a lease of a lease.

I think $4 billion wildly optimistic.  We'll see.

I also think a model where major capital investments in this private network (NSFL, Inland Rail) continue to be funded by government unworkable.  If you sell it, you sell it, and walk away.  One of the main benefits of private ownership of a asset is that the service is less influenced by the political cycle, pork barrelling etc.  But if you actively leave open the possibility of large slabs of capital funding coming the way of the new owner, then that benefit no longer applies - in some respects you've made the situation worse.
donttellmywife

Melbourne has private rail and tram operations.
Overland is privately run on a subsidy.
Savanalander is privately run on a subsidy.
Numerous freight services in Australia are still run on a subsidy either via access fees or contract. NSW grain, Qld grain, Qld cattle, Vic intrastate, Tas, WA grain.
Feds have also thrown money at Eyre Peninsula grain.
NT line is private
CQ coal is private

Until we get more details we need to get out of heads that the deal requires 100% self funding including major capital funding.

NSW, if I was the Fed Minister for Transport and the NSW Premier phoned up and asked about some cash for them, I hang up laughing.
NSW choose not to fund the Hunter and let it run down,
NSW choose not to fund the interstate and let it run down,
NSW choose not to go fund the billions spent by the Feds to upgrade the Hunter and interstate.
NSW choose to lease out their rail assets and as such the contract and conditions of the lease remain valid what ever they are.

NSW, WA, Vic and Qld lease conditions have probably been checked and do not preclude the Feds from selling or leasing the lease.

Even a lease can have great worth as the lease is effectively open ended and exceeds most of our natural lives. This gives the future owner confidence to spend and get their investment back over the longterm. The $4B, while probably high is a representative of the existing infrastructure worth and future tonnages. But $4B should be generating $400m or more in profit and/or capital growth.

The sale of Vic track and Tas track was a failure because of a small customer base that used those lines over short distances. The customers had short term contracts and the operations were always marginal and probably operating with 1mths notice of cancellation by the customers. The ARTC interstate is far more predictable, customer base is very wide with multiple profitable operators.

Coal Boom's are not always good time to invest infrastructure, you don't know where the peak is and for how long. Coal growth is predicted to relatively constant with slow growth. So the buyer isn't going to be hit with $B expansion requirements from day one.
  donttellmywife Chief Commissioner

Location: Antofagasta
Melbourne has private rail and tram operations.
Overland is privately run on a subsidy.
Savanalander is privately run on a subsidy.
Numerous freight services in Australia are still run on a subsidy either via access fees or contract. NSW grain, Qld grain, Qld cattle, Vic intrastate, Tas, WA grain.
Feds have also thrown money at Eyre Peninsula grain.
NT line is private
CQ coal is private

Until we get more details we need to get out of heads that the deal requires 100% self funding including major capital funding.
RTT_Rules
The first few of those are predominantly rail operators or rail operations, which I don't think particularly relevant.

I think an arrangement that required general on-going government contributions towards a private network would be the worst of both worlds.

NSW, if I was the Fed Minister for Transport and the NSW Premier phoned up and asked about some cash for them, I hang up laughing.
NSW choose not to fund the Hunter and let it run down,
NSW choose not to fund the interstate and let it run down,
NSW choose not to go fund the billions spent by the Feds to upgrade the Hunter and interstate.
NSW choose to lease out their rail assets and as such the contract and conditions of the lease remain valid what ever they are.

NSW, WA, Vic and Qld lease conditions have probably been checked and do not preclude the Feds from selling or leasing the lease.


I'm far from pretending that history was all rosy (in general, I think the formation of ARTC was a great step), but your recollection is seriously selective.  Competition policy and removal of arbitrary state barriers might rate a mention in there.  Also worth point out that ultimately the feds aren't the ones who fund all the Hunter upgrades anyway.

If I was the NSW premier, I'd email you, as hypothetical federal minister, before you stopped laughing, and remind you that "The Commonwealth and NSW have entered into an agreement in relation to arrangements (including a buy back of the Lease and related arrangements) in the event that the Commonwealth proposes to dispose of or adjust its interest in ARTC."  If you want to sell it, then I get to sit at the table.  And by the way, in terms of the North-South corridor, we still own the bit just north of Sydney, so anyone buying ARTC off you is going to have to be very nice to us anyway.

I don't know the specifics of those arrangements (not actually being the NSW premier), but at the time the arrangement was written I'd be reasonably certain that the state would be pretty keen to have something in there that kept the feds "honest".  

Even a lease can have great worth as the lease is effectively open ended and exceeds most of our natural lives. This gives the future owner confidence to spend and get their investment back over the longterm. The $4B, while probably high is a representative of the existing infrastructure worth and future tonnages. But $4B should be generating $400m or more in profit and/or capital growth.

The sale of Vic track and Tas track was a failure because of a small customer base that used those lines over short distances. The customers had short term contracts and the operations were always marginal and probably operating with 1mths notice of cancellation by the customers. The ARTC interstate is far more predictable, customer base is very wide with multiple profitable operators.

Coal Boom's are not always good time to invest infrastructure, you don't know where the peak is and for how long. Coal growth is predicted to relatively constant with slow growth. So the buyer isn't going to be hit with $B expansion requirements from day one.
The buyer might also find that their existing customers cut production.  Spare capacity doesn't earn you money.
  a6et Minister for Railways



I'm far from pretending that history was all rosy (in general, I think the formation of ARTC was a great step), but your recollection is seriously selective.  Competition policy and removal of arbitrary state barriers might rate a mention in there.  Also worth point out that ultimately the feds aren't the ones who fund all the Hunter upgrades anyway.

If I was the NSW premier, I'd email you, as hypothetical federal minister, before you stopped laughing, and remind you that "The Commonwealth and NSW have entered into an agreement in relation to arrangements (including a buy back of the Lease and related arrangements) in the event that the Commonwealth proposes to dispose of or adjust its interest in ARTC."  If you want to sell it, then I get to sit at the table.  And by the way, in terms of the North-South corridor, we still own the bit just north of Sydney, so anyone buying ARTC off you is going to have to be very nice to us anyway.

I don't know the specifics of those arrangements (not actually being the NSW premier), but at the time the arrangement was written I'd be reasonably certain that the state would be pretty keen to have something in there that kept the feds "honest".  

The buyer might also find that their existing customers cut production.  Spare capacity doesn't earn you money.
donttellmywife
One thing not considered is that when still in government hands there was a huge investment in upgrades to the HV rail lines in the mid 80's. where the whole of the track was refurbished with heavy rail along with full concrete sleepers.  It also included the full rehabilitation of the ballast & track formation.

They were able to do it while keeping all trains running with the only exceptions being the local squirts to Singleton, not sure about the Scone service but I think it was retained though.  The work was carried out with single line working in both directions, working on one line then the other before heading to the next section.

I think that did leave the basis of a fairly good main line for all traffic running at the time, certainly the amount of coal has increased but, no general freight outside of cotton & grain is now seen.
  Junction box Chief Commissioner

Location: newy
If ARTC is owned mostly by the Feds and making a profit don't they owe it to the tax payer to keep the funds rolling in?
What does NSW RIC say about the operator being sold off?
  RTT_Rules Dr Beeching

Location: Dubai UAE
Same could be said about any privatisation, does the govt get more revenue keeping or selling?

Then get down to the debate of what should and what not be owned by the govt and why. Hunter coal is owned by feds, CQ coal was sold by Qld govt to private interests. Pilbra iron ore is privately owned. Both are doing fine on their own. Selling CQ coal saved the tax pay billions in capital upgrades.

Not clear cut. NSW leased it all off so as long as the sale is within the terms of the lease what can they do? If they try and stick their hands out they might get sent a bill for the upgrade  cost spent by the feds.
  bingley hall Minister for Railways

Location: Last train to Skaville
Pilbra iron ore is privately owned.
RTT_Rules
Can't use that one

Part of the production process - just a giant conveyor belt that happens to be a railway.

No open access.
  RTT_Rules Dr Beeching

Location: Dubai UAE
Can't use that one

Part of the production process - just a giant conveyor belt that happens to be a railway.

No open access.
bingley hall
Yeah I know thats their argument against open access. But Hunter is no different at being a conveyor
  x31 Chief Commissioner

Location: gallifrey
Then get down to the debate of what should and what not be owned by the govt and why. Hunter coal is owned by feds, CQ coal was sold by Qld govt to private interests. Pilbra iron ore is privately owned. Both are doing fine on their own. Selling CQ coal saved the tax pay billions in capital upgrades.
RTT_Rules

Selling CQ Coal saved the taxpayer money?  How?

What investments have been made by the private sector into this network other than recent electrification installations?

The Mount Isa line as mentioned on this site is in desperate need of upgrading and additional capacity.  I am yet to be convinced the privatisation of any rail networks in Australia has been beneficial to Australian's through productivity gains or for the users of these networks.
  AN830 Locomotive Driver

Location: Adelaide, South Australia
As for the ARTC network in South Australia, which they own, it maybe the case, that some of the network (formally being what SAR owned), maybe need to handed back to Government of South Australia and then leased back to new owners of ARTC. This was case when Australian National was privatised in 1997, all those lines were handed back to SA Government and the leased to the new operator. It also worth noting that the Leigh Creek line which was originally at Commonwealth Railways line was also handed over to SA government in 1997.
  YM-Mundrabilla Minister for Railways

Location: Mundrabilla but I'd rather be in Narvik
If (when ?) ARTC is sold let's just hope that someone with a little more entrepreneurial skill and customer/community interest than Brookfield or G & W buy it.
  Sulla1 Chief Commissioner

Wow, you're hard to impress x31. The 107km Rolleston electrification was the largest privately funded electrification ever undertaken in Australia and since separation from QR in 2010, Aurizon has spent at least $2.5-billion on above and below rail infrastructure and now has an annual capital expenditure of $600-million. Aurizon has overseen duplication works on the Newlands Line, new mine branches, the new 80-million tonne Wiggins Island coal terminal, upgrading the power supply to the Blackwater system and the ongoing duplication of the Blackwater system. Aurizon has done more track work in the last five years than the ARTC and all of it privately funded (not by taxpayers)...I'm not sure what else the largest rail company in Australia has to do to get some respect from the railfan community.

The Mt Isa line remains under the control of the Queensland Government and QR, this line has been continually upgraded since the 1960s, and the 970km line is currently being relaid with 60kg rail with the remaining steel sleepered sections recieving cement sleepers at the moment. The line does have capacity issues, but it is getting more crossing loops and holding roads paid for by the Queensland Government (taxpayers). Plans for duplication and CTC signalling are in place dependent on future mining projects (and tax payers).
  RTT_Rules Dr Beeching

Location: Dubai UAE
Wow, you're hard to impress x31. The 107km Rolleston electrification was the largest privately funded electrification ever undertaken in Australia and since separation from QR in 2010, Aurizon has spent at least $2.5-billion on above and below rail infrastructure and now has an annual capital expenditure of $600-million. Aurizon has overseen duplication works on the Newlands Line, new mine branches, the new 80-million tonne Wiggins Island coal terminal, upgrading the power supply to the Blackwater system and the ongoing duplication of the Blackwater system. Aurizon has done more track work in the last five years than the ARTC and all of it privately funded (not by taxpayers)...I'm not sure what else the largest rail company in Australia has to do to get some respect from the railfan community.

The Mt Isa line remains under the control of the Queensland Government and QR, this line has been continually upgraded since the 1960s, and the 970km line is currently being relaid with 60kg rail with the remaining steel sleepered sections recieving cement sleepers at the moment. The line does have capacity issues, but it is getting more crossing loops and holding roads paid for by the Queensland Government (taxpayers). Plans for duplication and CTC signalling are in place dependent on future mining projects (and tax payers).
Sulla1
thanks Sulla

Suggest X31 review the original Press Releases regarding the sale

I am yet to be convinced the privatisation of any rail networks in Australia has been beneficial to Australian's through productivity gains or for the users of these networks

So to turn this around, does this mean the continued private ownership of Wepia and Pilbra which have never been in govt hands have been non-beneficial to the Australian's? Has the transfer of the longterm (100_+ yrs of privately owned EBR line to govt ownership seen a marked improvement in line performance and benefit for Australia?

To mention words to effect of "non beneficial", you need to define why? Yes there have been some failures in privatisation. The reverse under govt ownership is also true. All to often privatization is inferred to as line closure. The Qld govt has left little left to close ouside coal and a few trunk/main lines. NSW govt has closed thousands of km's of track on its own. Again you need to define why?
  don_dunstan Minister for Railways

Location: Adelaide proud
I think selling ARTC without putting a meaningful price on the use of the greatly subsidised highway system will doom the rail network to fail. If they're going to privatise completely the below-rail right of way then they need to start tolling our major highways to heavy vehicular traffic, perhaps even private motorists too. The technology now exists to implement a satellite transponder system very cheaply; there's no reason why one transport network should be completely free to access (apart from registration and excise) while the other network is going to be effectively a closed private one with access charges that will reflect the full cost of acquisition and maintenance plus private ownership profits. It will unfairly disadvantage rail if it has to be completely privately operated while its competitor essentially remains public and free - the roads must also go to full cost recovery.

That won't happen though, the trucking industry will scream blue murder if they're asked to make a more realistic contribution to the constant damage heavy vehicles do on our roads. So given that assumption, I think its inevitable that a privatised ARTC outside the highly profitable parts of the network is likely to fall apart and end up being closed eventually just because the longer term costs of investing in 8,000km of rail to keep it all viable and competitive against trucking won't stack up.
  cootanee Chief Commissioner

Location: Waiting for the sky to fall, the seas to rise... and seeing a train on the SSFL!
I think selling ARTC without putting a meaningful price on the use of the greatly subsidised highway system will doom the rail network to fail. If they're going to privatise completely the below-rail right of way then they need to start tolling our major highways to heavy vehicular traffic, perhaps even private motorists too. The technology now exists to implement a satellite transponder system very cheaply; there's no reason why one transport network should be completely free to access (apart from registration and excise) while the other network is going to be effectively a closed private one with access charges that will reflect the full cost of acquisition and maintenance plus private ownership profits. It will unfairly disadvantage rail if it has to be completely privately operated while its competitor essentially remains public and free - the roads must also go to full cost recovery.
...
don_dunstan


Imagine privatising every road and making them tollways.

Federal funding of DIRN improvements is now miniscule and this guvmnt refuses to acknowledge any federal role in public transport. Its response to this report won't be any surprise.

http://www.news.com.au/finance/economy/infrastructure-australia-audit-gridlock-costs-could-skyrocket-to-53-billion-a-year/story-fnu2pwk8-1227364673579
  Draffa Chief Commissioner

If they're going to privatise completely the below-rail right of way then they need to start tolling our major highways to heavy vehicular traffic, perhaps even private motorists too.
don_dunstan
Tolling PMVs on major highways isn't necessary; PMV's create congestion, Heavy Vehicles create maintainence issues (and are the reason why the pavement needs to be so thick these days).  Every report I can remember reading has stated that the smaller vehicles are subsidising the heavy ones (mid-sized vehicles such as a Hino 300 series or Isuzu NLR200 pay their own way).
It doesn't have to be full cost recovery (because rail isn't, either), but does have to be more than just paying rego and fuel excise.
But imagine the screaming.
  don_dunstan Minister for Railways

Location: Adelaide proud
But imagine the screaming.
Draffa
There will never be an equitable system of cost-recovery because the trucking industry has some extreme political power to wield and there's no way they'll put their windfall profits at risk by being asked to contribute more towards the roads they use.

I think realistically what will happen is that ARTC will be sold for a fraction of the expected $4 billion price tag to a foreign interest who will promptly stop preventative maintenance on the unprofitable parts of the network (think NE standard gauge mudholes times a thousand) before the bulk of the interstate system falls into disrepair and ends up having to be re-purchased by the Commonwealth later on - in much the same way that Tasmania and Victoria were forced to repurchase the below-rail operations of (what was left) of their intra-state networks.

This is not a sensible or well-thought-out privatisation that will increase competition - it will actually have the reverse affect of driving more trucks onto the interstate highway system. Hockey & Co. know this already but they don't care because by the time the problems start to manifest they'll be long gone on their six figure pensions writing columns for News Ltd.

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