Pilbara rail decision to cost $30bn: Rio

20/06/2008 - 10:17

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Fortescue Metals Group Ltd is a step closer to gaining access to railways in the Pilbara owned by BHP Billiton Ltd and Rio Tinto Ltd after a government body said they should be opened to third parties.

Pilbara rail decision to cost $30bn: Rio

Fortescue Metals Group Ltd is a step closer to gaining access to railways in the Pilbara owned by BHP Billiton Ltd and Rio Tinto Ltd after a government body said they should be opened to third parties.

The National Competition Council today released draft recommendations in response to three separate applications received from The Pilbara Infrastructure Fund, a wholly owned subsidiary of FMG, for the declaration of Rio's Robe and Hamersley rail lines and BHP's Goldsworthy line.

Fortescue Metals and other junior iron ore companies are seeking access to the railways to better export the steel making commodity amid rising prices for the product.

"The decision by the NCC recognises the opportunity available now for all mining companies operating in the Pilbara to capture the enormous export demand from China and other Asian markets for all minerals including iron ore," Fortescue Metals executive director Graeme Rowley said in a statement.

The NCC will make its final recommendations to Federal Treasurer Wayne Swan following the public submission period.

Mr Swan will have 60 days in which to declare the services open to third parties.

In a statement, Rio said it was disappointed with NCC's call for its Pilbara rail lines to be open to third parties and sees it as a move that would put at risk billions of dollars in future investment.

"The NCC appears to be lining Australia up for a massive exercise in value destruction," Rio Tinto Iron Ore chief executive Sam Walsh said.

"A report by Access Economics estimated that a multi-user system could cost up to A$30 billion over 20 years. Its effect on future investment decisions would be equally wealth-destructive."

BHP spokeswoman Samantha Evans told WA Business News that the company was disappointed with the recommendations however will need time to digest the report to consider its next move.

"We will continue to pursue all legal avenues to protect our shareholders' investments in our rail network and to ensure the efficiency of our rail system isn't compromised," Ms Evans said.

BHP Billiton has an appeal before the High Court regarding access to its Mt Newman railway.

Fortescue Metals originally initiated action to gain access to BHP Billiton Ltd's Mt Newman rail line in the Pilbara to service its Mindy Mindy iron ore deposit in the Pilbara.

The iron ore producer then expanded that focus in November after it lodged an application with the NCC seeking to declare Rio Tinto's rail network and BHP Billiton's Goldsworthy rail line open to third party users.

NCC's recommendations are in contrast to the state government's Pilbara draft haulage regime which proposes that miners in the region pay a fee to BHP and Rio to use their rail infrastructure including rail wagons to haul ore.

The NCC's recommendations relate to giving access to third parties to use their own locomotives on BHP and Rio's rail lines.

Below are announcements by FMG and Rio Tinto.

Fortescue Metals Group Ltd ("Fortescue"; ASX: 'FMG') welcomes today's draft recommendation by the National Competition Council ("NCC") to declare open to third party access the rail services of Rio Tinto and BHP Billiton for the Robe, Hamersley and Goldsworthy railway lines.

Fortescue recognises the ultimate decision rests with Treasurer Wayne Swan to act on the recommendations.

Fortescue Executive Director Graeme Rowley said: "It has now become abundantly clear that the railroads of the Pilbara have not just been used to develop an iron ore business for a favoured few but as a prohibition on the further development of the Pilbara by anyone else."

"The decision by the NCC recognises the opportunity available now for all mining companies operating in the Pilbara to capture the enormous export demand from China and other Asian markets for all minerals including iron ore," he said.

"Australia stands to lose enormous opportunity if mining companies in the Pilbara are denied the opportunity to access existing and available infrastructure to export their product.

"The enormous capital requirements to build rail lines and ports, which has a resultant impact on national expenditure causing increased inflationary pressure, is beyond the financial means of most mining companies.

"We see no reason why third parties should not be allowed to commercially negotiate with rail operators to access those rail lines if that access has no impact on the efficient operation of the operator."

 

Rio Tinto Iron Ore is opposed to the National Competition Commission's call for its Pilbara rail infrastructure to be thrown open to third parties, a move it believes would put at risk billions of dollars in future investment and rapidly erode national wealth. Imposing such a system would quickly see the infrastructure chaos and inefficiencies that have plagued the east coast coal ports duplicated in the Pilbara, where the single user integrated system is underpinning Australia's economic growth.

Rio Tinto iron ore chief executive Sam Walsh said, "The NCC appears to be lining Australia up for a massive exercise in value destruction. A report by Access Economics estimated that a multi-user system could cost up to A$30 billion over 20 years. Its effect on future investment decisions would be equally wealth-destructive.

"Rio Tinto has spent or committed to spend US$8.6 billion since 2003 upgrading its infrastructure and expanding its integrated mine to port network to ensure the maximum efficiency. Not only would the inefficiencies of a multi-user system impede Rio Tinto's ability to expand, but the likelihood that new capacity would be available to others would discourage further investment."

The NCC has called for public comments on a draft recommendation it has released in relation to the application by Fortescue Metals Group (FMG) to have certain Hamersley and Robe River rail lines made subject to the open access regime contained in Part IIIA of the Trade Practices Act.

"Part IIIA of the TPA was originally designed to fix the poor performance of government-owned monopolies, including infrastructure on the east coast. What has happened is that the east coast remains inefficient but instead the world-competitive Pilbara iron ore industry is being undermined," Mr Walsh said.

Rio Tinto remains hopeful that the relevant decision makers will conclude that declaring its successful, efficient network open to outside interests would not be in the national interest.

 

 

 

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