25/09/2007 - 22:00

Making sense of the Mid West imbroglio

25/09/2007 - 22:00

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“A coordinated approach to common-user infrastructure development and stakeholder relations is vital to unlock the full potential of Australia’s fastest growing new iron ore province.”

“A coordinated approach to common-user infrastructure development and stakeholder relations is vital to unlock the full potential of Australia’s fastest growing new iron ore province.”

That was how the Geraldton Iron Ore Alliance introduced itself to the world in December 2005.

The alliance was established by three aspiring miners – Midwest Corporation, Murchison Metals and Gindalbie Metals – which “agreed to cooperate to facilitate the development of the iron ore industry in the Geraldton area”.

The alliance is still in place, and in fact has attracted additional members, but on the big issue of infrastructure development, its members are deeply divided.

That has left the state government battling to find an acceptable path forward.

Like with many policy issues, armchair critics have been quick to pounce on the government and blame it for the current difficulty.

However, it is misleading to heap all of the responsibility onto the government.

Companies such as Midwest, Murchison and Gindalbie have been talking up their growth plans in the Mid West region for several years.

It became apparent at least three years ago that major rail and port developments would be needed to cope with the planned mining projects.

The mining aspirants said they wanted the private sector to develop the new infrastructure, so the government quite sensibly gave the industry an opportunity to do just that.

It set some ground rules – including a requirement that individual miners could not control the company – which were widely accepted.

 

Competing proposals

The industry’s unified stance fractured in June 2006 when Murchison formed a consortium with Mitsubishi Corporation and two other companies to develop the new infrastructure.

Its stated intention was to develop common-user infrastructure but other players in the industry indicated they were not happy with Murchison’s move.

At the time, Planning and Infrastructure Minister Alannah MacTiernan said she was considering an open tender process, since the industry had failed to adopt a unified position.

Midwest and Murchison responded by announcing that they would continue to work together.

However, they split acrimoniously in the middle of this year.

Midwest formed an alliance with Yilgarn Infrastructure, which is backed by Chinese entities and has promoted itself as an independent infrastructure provider able to service all of the miners.

Midwest also said it planned to utilise a 34-year-old state agreement to facilitate the infrastructure project.

Murchison formed a joint venture with Japan’s Mitsubishi Corporation, which included the creation of a new company, Oakajee Port & Rail, to build and operate the new infrastructure.

It also took a swipe at Midwest, stating that Midwest’s state agreement did not confer exclusive rights to develop infrastructure in the region.

State agreements have played an important role in facilitating the development of major projects in WA.

Midwest believes its state agreement gives it a compelling advantage, but critics like Murchison believe the agreement is a historical anachronism.

The state government has concluded that Midwest’s agreement is not an appropriate vehicle for development of the region’s infrastructure.

State Development Minister Eric Ripper wrote to Midwest in July stating that: “My strong preference is for the agreement to be terminated.

“I am advised that the agreement is very dated and is unworkable in its current form,” Mr Ripper’s letter stated.

Midwest begs to differ. It believes the provisions of its agreement, apart from a few exceptions, are in accord with other state agreements.

It has also pointed out that the state government renewed the agreement as recently as 2003.

Midwest believes its alignment with Chinese entities adds weight to its proposal, since Chinese demand is underpinning the planned projects.

The reality facing the government is that both consortiums are capable of delivering the port and rail infrastructure, at a cost of up to $3 billion.

The government’s latest thinking is that the port and rail components should be broken up, with the port going to tender. That would force each consortium to move beyond rhetoric and come up with hard numbers.

 

Current woes

Critics of the government are on stronger ground when they focus on the problems facing iron ore miners currently operating in the Mid West.

The port at Geraldton has been progressively upgraded but has failed to keep up with demand.

As a result, Mt Gibson Iron has been forced to limit production and other miners have been adversely affected by port congestion.

Midwest also faces delays in transferring its operations from road to rail because the Environmental Protection Authority belatedly subjected its rail siding project to a detailed review.

The infrastructure bottlenecks and planning delays that are adversely affecting the existing small projects do not augur well for the state’s ability to facilitate much bigger projects.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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