CBH welcomes release of ERA report

26 Sep, 2014 08:42 AM
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This gives us a clear benchmark for our continued negotiation with Brookfield through the ERA

CBH has welcomed the public release of the Economic Regulation Authority's (ERA) redacted version of its determination of costs for certain routes on the Brookfield Rail network, saying it will increase the level of transparency around costs associated with the operation of the grain freight rail network.

The ERA released the redacted determination on Wednesday, which sets floor and ceiling costs for CBH and Brookfield to negotiate in order to determine access to the State's freight rail network, including closed Tier 3 lines.

The ERA made its determination of costs on June 30 this year, and at the time provided a copy of its findings to both parties who began discussions on certain confidentiality issues to enable the public release of the redacted version at a suitable time.

Earlier this year CBH told the ERA it did not want any content in the determination regarding Tier 3 rail lines to be made confidential and publicly released a redacted version of its submission to the ERA, which revealed significantly different price expectations between CBH and Brookfield.

In its summary, CBH said it made a proposal for access to certain routes on the railway network managed and controlled by Brookfield under section eight of the Rail Code.

It said, in response Brookfield proposed aggregate annual floor costs of $110,329,225 and ceiling costs of $617,685,432 including the Tier 3 lines, for which Brookfield had provided costs that were valid until June 30, 2014 and the Miling line for which Brookfield provided costs valid until December 31, 2015.

The submission report showed that CBH estimated the floor and ceiling costs, if properly calculated in accordance with the Code, should be much lower than Brookfield's figures, and calculated aggregate floor costs for its requested routes totalling $15,821,503 - a difference of $94,507,722 - and ceiling costs of $274,546,536 - a difference of $343,138,896.

However the release of the ERA determination this week revealed parameters which set a floor price of $20m and a ceiling price of $250m for the lines that only CBH uses (dedicated grain lines).

In the determination, the ERA also gave the green light for CBH to seek access to Tier 3 lines, which were shut down on July 1 this year following a long running stoush between the parties over maintenance costs and management.

"We welcome the ERA's determination, as indicated in the Final Determination section of the report, not to approve Brookfield Rail's proposed costs and welcome the Authority’s determined costs," a CBH spokesperson said.

"This gives us a clear benchmark for our continued negotiation with Brookfield through the ERA."

Brookfield Rail chief executive officer Paul Larsen said the company had accepted the ERA's determination and was happy to move forward.

"They have done their job and have set the floor and ceiling prices for us and CBH to negotiate between, and we look forward to commencing those negotiations," Mr Larsen said.

Although not unhappy with the numbers, Mr Larsen did agree the ceiling price determined by the ERA was more consistent with the company's submission while the floor price was less consistent.

"There is a large gap between the floor and the ceiling, not a lot of people understand what the floor cost is," he said.

"The floor price is actually a cost that would be avoided by trains not running on that line for the next 12 months, it is a number that doesn't deliver a safe reliable railway for the short medium or long term.

"It is not a number that is sustainable - it's too low."

In the original version of this article it stated that the ERA determination revealed parameters which set a floor price of $20m and a ceiling price of $250m. These values refer to the rail lines that only CBH uses (dedicated grain lines) and do not include the value of the floors and ceilings for the lines redacted in the ERA report, which are multi-user lines.

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