Brookfield's Asciano takeover sets up a fight for Australian Rail Track Corp

 
  x31 Chief Commissioner

Location: gallifrey
I have some real concerns about the selling of ARTC to Brookfield.  Based on their performance in the WA grain sector this is ringing alarm bells for me.

Why would you want a competitor controlling the track you run on.  The better model is separation from operators and the track management.

Brookfield's Asciano takeover sets up a fight for Australian Rail Track Corp

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  LancedDendrite Chief Commissioner

Location: North Haverbrook; where the monorail is king!
Vertical integration works -  when you have competition between routes, like the US railroads have. But we don't have the kind of network in Australia to do that.

All mainland states have only one connection with any other given state (the only exception to that being Vic-SA, which can go direct or via NSW). The East-West Corridor from Sydney to Perth is a vital asset that lends itself to monopoly ownership (and exploitation if it is privatised).

Maybe in the future Australia can privatise the interstate network by selling it to operators that want to vertically integrate. But that would need a heap of investment in new lines to happen first. Alternatively, you could let private companies build new railway lines that partially compete with existing ARTC assets - like Inland Rail. I'm sure Aurizon or a Brookfield-run Asciano would jump at that chance Rolling Eyes
  DalyWaters Chief Commissioner

I have some real concerns about the selling of ARTC to Brookfield.  Based on their performance in the WA grain sector this is ringing alarm bells for me.

Why would you want a competitor controlling the track you run on.  The better model is separation from operators and the track management.

Brookfield's Asciano takeover sets up a fight for Australian Rail Track Corp
x31
Well, up front it is terrible.

CBH has had enormous trouble dealing with Brookfield for track access.  Now Aurizon and SCT are seeking mediation to overcome track access fee hikes.

However, there is a silver lining in some clouds.

Remember when Pacific National took over Freight Australia?  Due to market dominance, the ACCC forced PN to sell G class, X class and other locos and wagons.  this help competitors get established.

There is a fair chance that any moves by Brookfield to get ARTC would see the ACCC force the setting up of an access fee tribunal to ensure transparency in those fees.  It is happening now in Queensland with Aurizon controlling the tracks.
  Sulla1 Chief Commissioner

Ultimately an ARTC tied directly to the operational needs of at least one major rail freight operator and an ARTC divorced from the Federal funding cycle should be a better ARTC for the Australian rail freight industry than the one we have now. Sure, there might be losers, but with appropriate oversight (a Federal regulator with more than just a bark) an industry controlled ARTC is likely to be putting rail industry needs ahead of "lowest cost government funded" infrastructure decisions...something that has imperilled interstate rail freight operations more than once in the last decade.
  br30453 Chief Train Controller

Ultimately an ARTC tied directly to the operational needs of at least one major rail freight operator and an ARTC divorced from the Federal funding cycle should be a better ARTC for the Australian rail freight industry than the one we have now. Sure, there might be losers, but with appropriate oversight (a Federal regulator with more than just a bark) an industry controlled ARTC is likely to be putting rail industry needs ahead of "lowest cost government funded" infrastructure decisions...something that has imperilled interstate rail freight operations more than once in the last decade.
Sulla1
The solution might be a company owned by both major operators as in the USA where in some areas both CSX and NS have what is termed a shared services operation. With smaller operators such as SCT being minor shareholders.
  RTT_Rules Oliver Bullied, CME

Location: Dubai UAE
Personally I think the interstate track owner should be NOT tied with any above rail operator.
  bingley hall Minister for Railways

Location: Last train to Skaville
Ultimately an ARTC tied directly to the operational needs of at least one major rail freight operator and an ARTC divorced from the Federal funding cycle should be a better ARTC for the Australian rail freight industry than the one we have now. Sure, there might be losers, but with appropriate oversight (a Federal regulator with more than just a bark) an industry controlled ARTC is likely to be putting rail industry needs ahead of "lowest cost government funded" infrastructure decisions...something that has imperilled interstate rail freight operations more than once in the last decade.
Sulla1
Given that a "Federal Regulator with more than just bark" does not exist in any industry in Australia I think you are on a loser with that one already.

While poor infrastructure is a contributing factor to imperilled interstate freight operations, the ineptitude of the privately owned rail freight operators is a bigger factor.
  don_dunstan Minister for Railways

Location: Adelaide proud
Personally I think the interstate track owner should be NOT tied with any above rail operator.
RTT_Rules
It might be unavoidable.

Ultimately an ARTC tied directly to the operational needs of at least one major rail freight operator and an ARTC divorced from the Federal funding cycle should be a better ARTC for the Australian rail freight industry than the one we have now. Sure, there might be losers, but with appropriate oversight (a Federal regulator with more than just a bark) an industry controlled ARTC is likely to be putting rail industry needs ahead of "lowest cost government funded" infrastructure decisions...something that has imperilled interstate rail freight operations more than once in the last decade.
Sulla1
I'm in two minds about this because I'm not sure if the private operators will be interested in obtaining the cash I think will be necessary to bring the network more in line with 21st century expectations. On the other hand the federal government doesn't seem that interested either. Are there any successful examples we can look to overseas to try and copy?
  james.au Chief Commissioner

Location: Sydney, NSW
OK Firstly, lets not get ahead of ourselves - we haven't seen any report yet!  And O know that to Government is looking at the $4bn and what it can get for it, but i see the following issues:

- Previous experience in Australia (e.g. Victoria and Tasmania and South Australia)
- Previous experience in the UK (National Rail)
- The go forward position.  What does it look like for government in the future, if a scenario exists where the rail network is clapped out.  It all goes back to road and one of two things happen, the network fails and passes back to government, or some sort of future intervention is carried out to force/entice/incentivise things back to rail.
- The state governments.  Vic and NSW have leased the network to the ARTC.  Not sure they'd like to see the Federal government walk away with a bunch of cash that get the bulk of the value from the assets they still own?
- Smaller operators like SCT, Fletchers etc etc etc who are doing a great job at the lower end of the market and keeping the competitive tension alive

Lets see how this pans out.
  bevans Site Admin

Location: Melbourne, Australia
Personally I think the interstate track owner should be NOT tied with any above rail operator.
It might be unavoidable.

don_dunstan
Why might it be so?  I am trying to search my mind to ascertain the benefits of lobbing a network with an operator where there is open access?  I can;t quite find the rationale.

So if it might happen then what would be the reasons why?

Even Queensland is looking at unbundling this for the mount isa line.

It failed in Victoria where FA/PN had the track assets.  But then again you might also argue Victrack and vline have done a terrible job as the custodians for all access.
  don_dunstan Minister for Railways

Location: Adelaide proud
Personally I think the interstate track owner should be NOT tied with any above rail operator.
It might be unavoidable.
Why might it be so?  I am trying to search my mind to ascertain the benefits of lobbing a network with an operator where there is open access?  I can;t quite find the rationale.

So if it might happen then what would be the reasons why?

....
bevans
Whoever the buyer is of the 99-year lease on ARTC network (assuming that's what they go with) they will need to have the sufficient capital behind them and they'll need to be 110% sure of a good return. Despite the lessons of Pacific National in Victoria and Tasmania I think that any potential buyer will only come up with maximum up-front cash on the basis of the purchase being as free of regulation as possible.

ON this basis I think any privatisation that the Abbott government proposes will by tailored to the buyers' wishes. As Bingley Hall rightly points out, it's unlikely that any buyer will agree to regulations in which they have to share their network at rates that a government regulator wants - why would you pay top dollar for that asset only to be told by some bureaucracy that you have to resell access? It's likely therefore that we'll get a 'vertically integrated' operator that controls both above and below the rail simply because that's where the greatest profits will be for any private owner/operator and therefore that's what will get the best price in a privatisation.

I think its really unlikely that Abbott will privatise ARTC in any other way; or if they do it will be with some window-dressing legislation around open-access (probably at prices to be determined by the owner/operator... and at times that they determine too).
  james.au Chief Commissioner

Location: Sydney, NSW
If privatisation is done, it is going to have to recognise the competitive above rail operating landscape that now exists. Period.  Lumping with one operator who can charge whatever they want is just not going to happen.  Can you see Brookfield staying quiet if Aurizon gets the network or vice versa?

Can anyone give a brief overview of how the track access works with the Qld Coal network owned by Aurizon?  

Perhaps they will also look to the Telstra model to work out pricing.  If it happens.
  Sulla1 Chief Commissioner

Aurizon's coal network operations are for all intents and purposes vertically integrated. It operates, controls and maintains its network in-house. The privatisation process that created Aurizon was specifically modelled on the North American industry so its below rail operations reflect US and Canadian practice. Australia's National Competition Policy requires owners of monopoly facilities to negotiate third-party access agreements with other users, a requirement Aurizon has always met since the splitting of the QR and Aurizon networks. BMA and PN have access agreements with Aurizon, and PN is currently the primary tonnage mover on the Goonnyella system serving Brookfield's Dalrymple Bay coal terminal. For the 2014/2015 financial year Aurizon generated $718-million through access agreements and has committed to a $600-million annual cap ex spend.
  bevans Site Admin

Location: Melbourne, Australia
@Sulla1

You might also say the Mount Isa line is part of those assets and has since been subjected to under investment by Aurizon.  would that be a fair comment?

It is now to the point where so much capital is needed it is likely to be split out.

I draw your attention to the Federal Court battles over FMG requiring/requesting access to the BHP network (I think it was BHP) in northern Western Australia.
  Sulla1 Chief Commissioner

Personally I think the interstate track owner should be NOT tied with any above rail operator.
It might be unavoidable.
Why might it be so?  I am trying to search my mind to ascertain the benefits of lobbing a network with an operator where there is open access?  I can;t quite find the rationale.

So if it might happen then what would be the reasons why?

Even Queensland is looking at unbundling this for the mount isa line.

It failed in Victoria where FA/PN had the track assets.  But then again you might also argue Victrack and vline have done a terrible job as the custodians for all access.

bevans
The Mt Isa Line has never been part of the Aurizon network. There are two independently owned rail networks in Queensland now, one is Aurizon's comprising the Newlands, Goonyella, Blackwater and Moura coal systems. The other is the QR network owned by the Queensland Government. The QR network includes the Brisbane suburban system, the Western, South Western, Southern Lines and branches west of Brisbane, the North Coast Line and branches north to Cairns (except Aurizon-owned sections between Gladstone/ Rockhampton and Durroburra/Kaili), the Central line west of Emerald, the Clermont branch north of Emerald and the Mt Isa line and branches.  

Prior to the last election the previous government was planning to lease the Mt Isa line and Townsville Port as a single integrated entity to interested parties (Aurizon and PN were both rumoured as interested parties), but with the new government elected on a policy of "no privatisation", the Mt Isa Line will remain part of QR for a long time yet. Reports of deteriorating track conditions on the Gold Coast line and parts of the North Coast Line and ongoing issues on the Mt Isa line suggests QR's maintenance program may have been underfunded in recent years.
  Sulla1 Chief Commissioner

@Sulla1

You might also say the Mount Isa line is part of those assets and has since been subjected to under investment by Aurizon.  would that be a fair comment?

It is now to the point where so much capital is needed it is likely to be split out.

I draw your attention to the Federal Court battles over FMG requiring/requesting access to the BHP network (I think it was BHP) in northern Western Australia.
bevans
As noted, the Mt Isa line isn't owned by Aurizon, it remains a part of the government owned QR network and the lease was stopped by a change of government earlier this year. FMG attempted to have National Competition Policy applied to the Pilbara networks but BHP and Rio argued their rail assets "weren't monopolized assets, but rather a part of their integrated supply chain" - since the same company owned the mines and port at each end. FMG has since used the same argument to prevent access to its own network. Aurizon could not use the the BHP/Rio defence since it does not own the mines and ports it serves.
  RTT_Rules Oliver Bullied, CME

Location: Dubai UAE
Australia is not Nth America, we don't have a large web of interstate lines on multiple routes where operators work with each other to save building their own lines or enable to shutdown their own lines and use others. Nearly all our SG routes are a monopoly with the few alternative routes usually adding hundreds of km or mountains or via commuter rail corridors.

Keep the track owner separate, this way you don't need to regulate or monitor the contracts and rates charged to anywhere near the same level. Reduce the number of lawyers and save money.

What happens in CQ should never have happened and even so bulk haulage with large longterm contracts is completely different to intermodal operations.

This doesn't mean that above rail operators cannot take minority share holdings of the track owner, but I'd limit this to 19.9%.

The track owner has a vested interest to have more trains operate, regardless of who is paying the bill and can have peak pricing if demand is there.
  Sulla1 Chief Commissioner

Australia is not Nth America, we don't have a large web of interstate lines on multiple routes where operators work with each other to save building their own lines or enable to shutdown their own lines and use others. Nearly all our SG routes are a monopoly with the few alternative routes usually adding hundreds of km or mountains or via commuter rail corridors.

Keep the track owner separate, this way you don't need to regulate or monitor the contracts and rates charged to anywhere near the same level. Reduce the number of lawyers and save money.

What happens in CQ should never have happened and even so bulk haulage with large longterm contracts is completely different to intermodal operations.

This doesn't mean that above rail operators cannot take minority share holdings of the track owner, but I'd limit this to 19.9%.

The track owner has a vested interest to have more trains operate, regardless of who is paying the bill and can have peak pricing if demand is there.
RTT_Rules
On the other hand, a separated track owner creates a situation where all rail access is a cost to an above rail operator, discouraging marginal or internal traffic. In the case of the ARTC, there's a need to make a profit from all rail users - whereas a vertically integrated rail user can take a cost neutral approach to their own access. Would G&W be making as much money running a single intermodal to Darwin each day if they were paying access costs charged with a profit margin, rather than just paying for their current annual below track costs?
  RTT_Rules Oliver Bullied, CME

Location: Dubai UAE
On the other hand, a separated track owner creates a situation where all rail access is a cost to an above rail operator, discouraging marginal or internal traffic. In the case of the ARTC, there's a need to make a profit from all rail users - whereas a vertically integrated rail user can take a cost neutral approach to their own access. Would G&W be making as much money running a single intermodal to Darwin each day if they were paying access costs charged with a profit margin, rather than just paying for their current annual below track costs?
Sulla1
If the track cannot earn enough money to pay for its costs, then its subsidised. Doesn't matter what ownership model you throw at it. What you are mostly refering to is the profit margin of the track owner being removed from the equation.

The accountants of the world will tell you this will not be the case as the track, which is an asset and has value now belongs to the rail operator and increase their net worth, which means the profit in $ terms must rise to be in proportion or the company will be seen to under perform and hence sold off by share holders. Which is what happened to the NT line prior to G&W.
  don_dunstan Minister for Railways

Location: Adelaide proud
On the other hand, a separated track owner creates a situation where all rail access is a cost to an above rail operator, discouraging marginal or internal traffic. In the case of the ARTC, there's a need to make a profit from all rail users - whereas a vertically integrated rail user can take a cost neutral approach to their own access. Would G&W be making as much money running a single intermodal to Darwin each day if they were paying access costs charged with a profit margin, rather than just paying for their current annual below track costs?
Sulla1
I agree, I think there's a strong business case to be made for a single owner/operator setting the charges for third party access.

It's really unlikely that a potential buyer will sign a contract allowing a statutory authority to determine the value of the assets and their peak times of use and allow other operators in. I just don't see who would be interested in taking on the network under those circumstances; if you are paying big $$$ for ownership of that track then you will want to be able to dictate yourself circumstances under which third parties are allowed to operate on it (and you'll also probably want to take the best paths/times for your own trains).

If the terms of sale of ARTC are too arduous then I'd say there's a good chance they won't find anyone to buy it. It has to be an attractive proposition for whomever takes it on and an 'independent' third party pricing scheme for access will be a major turn-off.
  don_dunstan Minister for Railways

Location: Adelaide proud
Keep the track owner separate, this way you don't need to regulate or monitor the contracts and rates charged to anywhere near the same level. Reduce the number of lawyers and save money.
RTT_Rules
That degree of regulatory oversight will be a significant deterrent to anyone in the private sector taking it on.

It's like trying to sell a time-share house where all the school holidays and the entire summer is booked out to someone else. Who would want to buy it?
  Trainplanner Chief Commissioner

Location: Along the Line
Yes there are certainly positives and negatives in all of these models.   There is two common threads running through all of this.   Firstly the network is doesn't have mulitple routes between City pairs meaning whoever operates trains here shares the same network - multiple operators and secondly outside the Hunter Valley traffic densities are very light compared to North America.

The network is still relatively inefficient even after much needed investment and needs a hell of a lot more investment to make it truly efficient, reliable and competitive.

The policy settings are still not rail friendly as we know and that's not likely to change dramatically to the extent that the system starts to get volumes to justify big spending so that tells me a separated model will be what its going to be.   Getting the infrastructure manager to "behave" in the way you want them is another issue as seen by Brookefield.   To me the route NSW has taken with their model appears at least on the surface to have been reasonably successful, noting NSW initially had ARTC as its infrastructure maintainer and network manager then shifting subsequently to  John Holland.

The policy setting appears right, the network has had investment, there are a range of operators accessing the network and newer players especially are investing in brand new equipment etc.
  a6et Minister for Railways


- The state governments.  Vic and NSW have leased the network to the ARTC.  Not sure they'd like to see the Federal government walk away with a bunch of cash that get the bulk of the value from the assets they still own?
- Smaller operators like SCT, Fletchers etc etc etc who are doing a great job at the lower end of the market and keeping the competitive tension alive

Lets see how this pans out.
jamesbushell.au
The way the NSW government is going at the moment, they would leap at the chance to get some capital from a leased rail system, would others not be in the same position?

The East West line may not be the great booming railway at the moment, but the potential of it is an unknown size for wise use & operations.  What actually gives me doubts as to having an above rail owner in the private market of the below rail sector is their way of controlling things as well as trying to milk clients of their own as well as competitors. The WA grain lines operation is very concerning indeed, & from what I can see of those lines, the market is there,& is it just in a single grain commodity, the old NSW misnomour that grain only stood for wheat when it suited.

The East West line, & perhaps that should not just take in the WA/SA component of it either needs to in essence an open access type line.
  LancedDendrite Chief Commissioner

Location: North Haverbrook; where the monorail is king!
The fact that ARTC doesn't own/lease the line from Kalgoorlie to Perth is pretty dumb, I'd say. Having a properly unified access regime should be a high priority, but it doesn't give governments bags of cash to throw at voters - unlike privatisation.
  x31 Chief Commissioner

Location: gallifrey
Keep the track owner separate, this way you don't need to regulate or monitor the contracts and rates charged to anywhere near the same level. Reduce the number of lawyers and save money.
That degree of regulatory oversight will be a significant deterrent to anyone in the private sector taking it on.

It's like trying to sell a time-share house where all the school holidays and the entire summer is booked out to someone else. Who would want to buy it?
don_dunstan

Can you explain oversight?  

Do you mean there is regulation and it is not followed or do you mean there is not enough regulation?

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