Rail group Asciano moves into Queensland coal market

bevans · Posted: Sat Aug 09, 2008 4:37 pm

ames McCullough and Erica Thompson

August 07, 2008 12:00am

THE Queensland Government is facing a major challenge to one of its most valuable revenue streams with southern rail group Asciano announcing it was moving aggressively into the state coal market.

Asciano and its rail business Pacific National is spending nearly $600 million to break into the local coal market which was previously the sole domain of the state government-owned Queensland Rail.

In 2006 to 2007, QR hauled 165 million tonnes of coal in Queensland worth an estimated $1 billion and Asciano has stitched up initial contracts with Rio Tinto Coal and Xstrata to haul 14 million tonnes of coal.

"This is a major challenge to QR on its home market and, if Asciano has some success, a major problem for the Queensland Government at a time it is short of cash," one rail analyst said.

Asciano chief executive Mark Rowsthorn described the contracts as a milestone for the group but said the process of getting into the state was an "excruciating, and long, painful negotiation".

"You've got to be Merlin the Magician to get into the Queensland rail market as all sorts of barriers and blocks are made," he said.

Mr Rowsthorn said Asciano had been trying to get into Queensland for about four years and now wanted to build a significant business in the state with the group starting rail haulage from early 2010.

Pacific National has never been in the Queensland coal market but has had a presence in the state since 2003 hauling general freight from Brisbane to Cairns.

QR chief executive Lance Hockridge welcomed the move and said the government-owned corporation would "fiercely defend its market position".

Mr Hockridge said Asciano's announcement was not unexpected and would be good for competition.

"Make no mistake, we will be fierce competitors in our home state by focusing on providing the best value and service to our customers," he said.

The Queensland Resources Council and coal companies welcomed the move, saying Asciano's entry into the Queensland coal haulage market should make QR look again at its business structure.

QRC chief executive Michael Roche said the size of Pacific National's commitment was a significant show of confidence in the long-term future of the state's export coal industry.

On the heels of the move, Mr Roche urged the State Government to again consider splitting QR's below and above-track operations.

"The advantage of a separation is that it would hopefully avoid much of the huge regulatory burden of determining a fair return on QR Networks' monopoly rail assets and provide confidence that QR will not be able to misuse its monopoly control over the coal network to the detriment of customers and competitors," he said.

Rio Tinto Coal Australia's managing director Hubie van Dalsen and Xstrata Coal's chief executive Peter Freyberg said the deal represented "a significant milestone" and should improve access to export markets for all coal producers operating in Queensland.

Courier Mail

RP2 - Project Director

"Victoria, the home of world class project blowouts and overruns" Mr. Bachelor, hang your head in Shame!

awsgc24 · Posted: Sat Aug 09, 2008 5:01 pm

With QR moving interstate, it is only fair that interstate operators move into Qld.

maddog · Posted: Sat Aug 09, 2008 5:20 pm

Is this the same Asciano that was mentioned a couple of days ago in the paper having to sell off assets to cover its debits.
Is this a last ditch attempt from a company fighting to stop from going under?

ParkesHub · Posted: Sat Aug 09, 2008 7:48 pm

DalyWaters · Posted: Sat Aug 09, 2008 8:09 pm

They are also paying out dividends to shareholders whilst they are losing money........which means they have to borrow more.

You have to wonder if some of the "hoops" they had to jump through to get into Queensland coal were reducing their prices to a marginal level?

They also have to find money to stump up for their share of the Saudi Arabia landbridge project, if they win it.

Fascinating times ahead.

RTT_Rules · Posted: Sun Aug 10, 2008 6:58 am

inlander · Posted: Sun Aug 10, 2008 7:34 am

Isnt Competition Policy wonderful!

You take a network built up over 150 years of Taxpayer funded infrastructure and open it up to ruthless company; Asciano for the sum of a track rental fee- they should be made to contibute to the infrastructure as well.
Asciano has a solid repuataion as a take and destroy operation.
They dont put anything back into the track or structures. You only need to look at the Tasmanian and Voctorian experiences to see that.
Anyway, with current Coal haulage projections there will be plenty of business to go around. Even two operators will have trouble coping with it.
I just wish that the private operator was someone else.

Forgive those who do not travel by train for they will not inherit the earth!

loco2301 · Posted: Sun Aug 10, 2008 11:21 am

I'll second that sentiment Inlander, competition policy is all about one thing, and that is to try and destroy the unions and take away employee's conditions.

You will find that the big mining companies are most likely behind the push to bring in new operators, so as to undermine the status quo and bring on a restructure by stealth.

It is just ironic that competition policy was introduced by labor governments.

ShowMeTheMoney · Posted: Sun Aug 10, 2008 11:54 am

RTT_Rules · Posted: Sun Aug 10, 2008 12:17 pm

"You take a network built up over 150 years of Taxpayer funded infrastructure and open it up to ruthless company; Asciano for the sum of a track rental fee- they should be made to contibute to the infrastructure as well."

Company is irrelevent, all operators should pay for infrastructure costs, including QRN's above rail operations. The track infrastructure section of QR should not see any difference in revenue regardless of the loco livery.

"They dont put anything back into the track or structures. You only need to look at the Tasmanian and Voctorian experiences to see that."

There are other reasons to this, although I'm not saying TOLL is all that warm and fuzzy. None of these state govts have provided the rail operator with any certainty over their investment in the fixed infrastructure and repeatitly through money at the parrallel roadways ie Tas NE line, even Qld govt has done this to its own railways.

Regards
Shane

Riccardo · Posted: Sun Aug 10, 2008 1:51 pm

And the Victorian and Tasmanian cases you have to ask is the traffic really there?

We are comparing a booming coal haul in Qld with a seasonal grain service over a few branches in Victoria, over the period of a drought and global-warming induced drying out of south eastern Australia. Of course the vics have stuffed other things up but that happened decades ago and you're feeling the karma now.

In Tas I'd like to see better but with Tassie throwing money at roads and no comparable inclination to fix up the shocking alignments on the main N-S trunk as well as the garbagy NW and NE lines, it is no wonder that even moderate trains sizes are lost to road.

If you need to get in touch, drop a comment at the Transport Textbook or on my blog.

PI_Dash_9 · Posted: Sun Aug 10, 2008 10:46 pm

Under bidding your competitor and winning the contracts is one thing, being able to deliver for the price that was bid is another thing.

I wouldn't worry about it too much, QR's coal systems are among the most efficiently run railways in the world. Far above any other operator in this country. Now you guys who work for QR might disagree, however if you were to work for any of the other operators you would see this is true. Luckily they own the mine, port and railway as the big mining companies in the Pilbara would not last 5 minutes if they had to compete with QR for their rail contracts.

They won't be able to deliver and QR will carve ASCIANO up.

RTT_Rules · Posted: Mon Aug 11, 2008 7:27 am

ParkesHub · Posted: Mon Aug 11, 2008 8:29 am

RTT_Rules · Posted: Mon Aug 11, 2008 12:42 pm

Yes, if a business wants to make a strategic move on the market or cost the opposition out, they will undercut. Trucking industry has done this for years pushing rail out. I believe a fair chunk of Tassie branch line logs were lost this way, branch line closed, ripped up no competition.

Problem is is a catch 22 situation. QR under cuts ASCIANO in CQ, ASCIANO undercuts QR in Hunter, but the issue will be some mines won't care and want a 2nd player and will pay for it.

I think the two players will enjoy the duopoly as well which is an interesting situation as the above rail equipment is not compatible between CQ and Hunter nor just about anywhere else in Australia. So in both cases if the minor player was to grow faster than the market growth you could see the existing players rolling stock parked up. I personally doubt this will happen as I believe the small player in both areas will not exceed 25-33% of the market there within 10years for this very reason.

Regards
Shane