AWB hits back on $11/t 'fee'

18 Dec, 2002 10:00 PM

AWB International has staunchly defended its multi-million dollar service agreement with AWB Limited after complaints from WA growers that the system was out of balance.

Under the agreement, signed last year, AWBI had to pay AWB Ltd 1.5pc of the gross pool value for a range of services. It set a base fee of $45m and a cap of $60m.

The agreement has an "out performance incentive" which allowed AWB Ltd to earn another 1.5pc of GPV with it sells wheat above benchmarks set by AWIL.

As part of the OPI, 80pc of the revenue earned above the benchmarks goes to the national pool and 20pc goes to AWB Ltd.

AWBI marketing manager Bruce McDonald would not reveal its estimate for the management fee but WA groups predicted it would be between $8-$11 per tonne, depending on the size of the national pool.

WA growers were set to provide a big percentage of the export pool, which made them responsible for most of the service agreement charge.

Mr McDonald said the agreement was reached between AWBI and AWBL after negotiations between two independent committees, external consultation and separate legal advice.

"The agreement was ratified in September 2001 after rigorous negotiations between independent committees for AWBI and the A-class shareholders and AWBL and the B-class shareholders," Mr McDonald said.

"AWBI is responsible to growers.

"AWB Ltd can earn up to 3pc of the GPV but it has to walk over hot coals to get it.

"And if it gets the 3pc, growers have benefited because it has returned 80pc more revenue to the national pools.

"The benchmarks are set against transparent and liquid markets - mainly the US but sometimes French and German.

"We are talking about getting premiums in premium markets.

"Only participants in the pool make a contribution to the service fee and they also share proportionately in the extra revenue."

Mr McDonald said 2002/03 pool participants were likely to pay the base fee of $45 but costs could rise if AWB Ltd beat its benchmark targets.

"The OPI can dramatically increase the value to growers," he said.

"It is estimated that the OPI has added $80m to the 2001/02 national pool.

"It ensures that services are maintained at the highest level - they won't sell into discount markets and it ensures that our position is better managed."

Mr McDonald would not reveal AWB estimates for the size of the pool - but 4-5.5 million tonnes have been generally accepted. WA is expected to provide between 3-4.5mt of the total.

Growers had warehoused more than 20pc of wheat in WA this year but would need to make a decision as pool access dates loomed.

WAFarmers grain section president Peter Wahlsten said the management fee would be at least $8.85/t, based on a 5.5mt pool.

"Under Grains Council of Australia pressure, AWB Ltd has moved from a cost plus to a performance based service agreement to more clearly demonstrate performance against Wheat Industry Benchmarks, developed with GCA and WEA," Mr Wahlsten said.

"This is designed to lessen pool risk and encourage an increase in GPV.

"Exact figures are not available for the 02/03 harvest, with a lot of grain warehoused, but based on 5.5mt in the national pool, averaging as high as $285/t, equates to a GPV of $1.6m.

"This equates to $8.55/t approximately.

"With a base fee of $45m and a maximum service charge of 3pc of GPV (that is including the OPI) AWB Ltd could only charge a maximum of $47 million to the pool."

Mr Wahlsten said the GCA and the WAFarmers would continue to press AWB Ltd and the Wheat Export Authority on benchmarks, transparency and contestability.



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