21/05/2009 - 00:00

In-built flexibility key to resolution of infrastructure issues

21/05/2009 - 00:00

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As the state rushes to commit to a port at Oakajee, it would do well to heed the warnings of previous infrastructure arrangements.

PREMIER Colin Barnett has described the Oakajee development as the most important infrastructure project for the next 50 years. If that is the case, it is even more important than ever that Western Australia gets the right result from its investment.

As Mr Barnett's government draws up the regulatory framework under which Oakajee's port will operate, he ought to remind those involved to look at some of the other infrastructure flashpoints around the state.

In grain and mining, access to rail, port and loading facilities is a hot issue. In the gas sector, local users are aggrieved at the lack of supply from the north-west's massive projects that are largely controlled by a handful of export-focused companies.

The issues are incredibly similar despite the different nature of the parties involved in these disputes.

Monopoly infrastructure avoids duplication but those wanting access often encounter a lack of transparency, agreements that transfer risks and costs to users, and a general fear that complaining too loudly will only cause great difficulties in obtaining vital services.

The challenge for government is to make sure that agreements drawn up under current circumstances are flexible enough to change with the times.

One example is the grains industry, where AWB recently lost its monopoly wheat export powers.

The fragmenting trading part of the industry relies on grains handler CBH which controls much of the vast network of receival points, storage bins, transport infrastructure and, most importantly, shiploading facilities around the state's agricultural belt.

Apart from being this, CBH also trades and exports grain via associate entities.

After just one season under the rules of the new Wheat Export Authority there is already considerable angst within the farming community about a lack of transparency in CBH's systems to allow independent traders to read the market properly.

Farmers group, Pastoralists and Graziers Association, has called on changes to the system to make it more viable for new competitors. Just to show how quickly markets can change, the PGA has been joined in this call by AWB, the former monopoly wheat marketer which now faces the full brunt of competitive forces.

To the north, two very different examples of infrastructure access highlight the importance of ensuring the right to use the assets is clearly spelled out from the beginning and properly regulated.

The celebrated case of Fortescue Metals Group gaining access to BHP Billiton's rail network to Port Hedland has attracted significant interest.

Despite state agreements stipulating third party access for their rail networks, BHP and fellow major Rio Tinto have both fought long and hard against allowing FMG to use their lines.

While FMG has won a High Court battle after years in the courts, it remains bogged down in negotiations over commercial terms and has since built its own 250-kilometre railway from its Cloud Break deposit to Port Hedland.

Ironically, FMG has also faced access issues from the other side. It allows Atlas Iron to ship from its port and is dealing with other miners' desire to use its line.

While the North West Shelf might be a very different beast to the Pilbara's rail network, the underlying issue of access remains the same.

In the case of the NWS, the consortium members have been allowed to jointly market their gas.

This has not been an issue in the past, as the domestic supply was above demand due to the original take-or-pay contracts that underwrote the development of the project.

However, domestic gas users believe the growth of LNG exports has resulted in failure to increase domestic natural gas supplies. By acting in concert, the companies that make up the NWS consortium may be maximising export sales but, according to the local users' DomGas Alliance, they are limiting access to WA's gas supplies for domestic users, unravelling one of the core reasons for the state's original backing for the gas industry in the first place.

DomGas Alliance chairman Stuart Hohnen said the Australian Competition and Consumer Commission extended the joint selling arrangement, which allows the partners to discuss and agree terms and prices, in 1998 on the basis that it would significantly increase the domestic gas supply.

Mr Hohnen said that increase had not occurred.

The ACCC authorisation had since been revoked at the request of the NWS partners, which did not believe they required it any longer. The joint selling arrangement continues. There were reports last year that the ACCC was looking into the arrangement but the watchdog won't comment on its investigations.

At Oakajee, the potential for problems of this nature also exists.

While Oakajee Port and Rail is a stand-alone company controlled by local miner Murchison Metals and its backer Mitsubishi, Murchison's operations are not considered big enough to underwrite the port's development alone, ensuring at least two rival iron ore miners will be needed to make up the numbers.

Those who commit early to the port probably have the best bargaining position. But once these foundation customers are brought on board and the port is operational, things could be much trickier for those later arrivals.

The complicated nature of this situation can be seen in the words of OPR CEO Christopher Eves, who recognises the value of the integrated operations of the majors in the Pilbara where the big players manage variances in output from different mines via the transport system.

"The analogy with the Pilbara can only be taken so far as OPR is an open-access service provider, regulated to ensure access to the supply chain is available to all access seekers," Mr Eves said in a speech to a Committee for Economic Development of Australia breakfast last week.

"This means OPR has to work within a regulatory framework which will ensure access requirements are met but seeks to emulate the efficiencies of fully integrated systems.

"In striking this balance, it is recognised that OPR is a monopoly service provider.

"This is essential in the Mid West to avoid duplicative and inflationary fragmentation of the supply chain."

Mr Eves said mine customers would be protected in terms of access to the supply chain via a proposed negotiate-arbitrate model. OPR will assume the same set of regulations across its operations to avoid confusion.

"In the regulation of the supply chain we sought to ensure the principles reflected in the regulatory regime were given effect to, while at the same time simulating the efficiencies of the Pilbara," he said.

"This was to be done among a number of relatively small fragmented mines with variable development programs, products and off-take requirements.

"We believe that we have achieved an appropriate balance."

Governments and future users will be hoping Mr Eves is right.

 

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