ERA draft report calls for standardised rail pricing

30 Sep, 2015 01:00 AM
CBH Group could be charged the same tonnage-per-kilometre rate for its grain trains on the Kwinana-Kalgoorlie standard-gauge line as other users, including Asciano-owned interstate freight hauler Pacific National, if a draft Economic Regulation Authority recommendation is adopted by Treasurer Mike Nahan.
If the parties wanted to have this impasse resolved, then that process could have started in July
CBH Group could be charged the same tonnage-per-kilometre rate for its grain trains on the Kwinana-Kalgoorlie standard-gauge line as other users, including Asciano-owned interstate freight hauler Pacific National, if a draft Economic Regulation

RAIL user access and pricing regimes on the Kwinana-Kalgoorlie standard-gauge line should be aligned with the rest of the national interstate rail network, a draft report has recommended.

Such a move could restrict the ability of WA freight rail network operator Brookfield Rail to charge major customers on that line - CBH Group, Mineral Resources Ltd and Asciano-owned Pacific National - different tonnage-per-kilometre prices.

Brookfield could be required to use a 2008 interstate rail access undertaking by Australian Rail Track Corporation (ARTC), or an updated version due in 2018, as a model for all customer access and pricing on the standard-gauge line.

The Australian Competition and Consumer Commission (ACCC) could become the arbiter of access and cost disagreements and replace the Economic Regulation Authority (ERA) as administrator.

Formed from a 1997 agreement between WA and other mainland State governments with the Federal Government, ARTC has a similar role to Brookfield, operating the standard-gauge line east of Kalgoorlie to Adelaide, Melbourne and Brisbane.

ARTC operates under the 2006 Competition and Infrastructure Reform Agreement (CIRA) to which the WA government was also a signatory.

Its rail access undertaking, which governs third-party access and pricing, was approved by the ACCC under a section of the Trade Practices Act 1974, now the Consumer and Competition Act 2010, designed to protect efficient operation of export-related major infrastructure.

The draft recommendation may entitle Brookfield Rail to one annual ACCC-approved price increase for access to the line which carries up to five million tonnes of CBH grain and up to 10.5mt of Mineral Resources' iron ore a year to Kwinana Port for export.

The recommendation is the State Government implement CIRA "in respect of the interstate route west from Kalgoorlie" and also The Pilbara Infrastructure (TPI) railway linking Fortescue Metals Group iron ore mines with Port Hedland.

It was the first of six recommendations by the ERA, released for public comment last week in a draft report on the third statutory review of the Railway (Access) Code 2000, but the only one proposing significant operational change.

"From a WA government perspective, implementation of the CIRA agreement may simply require removing the affected routes (Kwinana-Kalgoorlie standard gauge and TPI) from schedule 1 of the code, thereby potentially opening them up to declaration or to the provision of an access undertaking equivalent to the ARTC access undertaking," the ERA report said.

Effectively, extending CIRA to the standard-gauge line west of Kalgoorlie would remove it from regulation under the Railway (Access) Code 2000, but not from control by Brookfield, which has a lease until 2049.

The code has been widely criticised as unworkable by farmers, farming groups and freight rail operators such as CBH.

No access agreement has been concluded under the code and CBH has been attempting since October 23, 2013, to negotiate a 10-year access deal for its grain trains with Brookfield under the code.

CBH, which is about to formally ask the ERA to appoint arbitrators to make a determination on its access request and pricing, estimates it is still 12 to 18 months away from an agreement.

Streamlined negotiation is one of the reasons the ERA has said it recommended regulation of the standard-gauge line be transferred from the code, administered by the ERA, to CIRA and administered by the ACCC.

Its report recommended the current "light-handed approach" to the State's freight rail regulation be continued, "except for certain routes where a more prescriptive approach would encourage negotiations to happen quicker".

ERA chairman Stephen King said on routes with "complex negotiable elements", such as the condition of the track or different types of freight tasks, it was "appropriate for the parties, with recourse to an arbitrator if needed, to arrive at a fair price which takes into account all the variables''.

"In these circumstances, it is appropriate for the regulator to play a limited role, such as by establishing cost boundaries between which the parties can negotiate a price," Dr King said.

"However, where it is relatively straightforward to arrive at a fair price for a standard service, the regulator can be more involved in setting the price to minimise the potential for delays in the negotiation process.

"Accordingly, the ERA has recommended that the code should not apply to The Pilbara Infrastructure railway and Brookfield Rail's interstate freight route.

"Instead, these railways could be regulated through undertakings with the ACCC."

He said the other recommendations aimed to improve operation of the code "by removing unnecessary clauses which have delayed previous proposals and by addressing timing issues and information requirements in consideration of recent experiences".

The ERA made no recommendation on CBH's assertion, echoed by other rail users and WAFarmers, that the gross replacement value (GRV) method of determining access ceiling price "did not meaningfully provide any guidance".

CBH and others had argued GRV, effectively the cost of building a modern equivalent railway, did not account for track condition or asset depreciation.

It also made no recommendation on Brookfield's argument that arbitrators' decisions should be binding on applicant and rail operator.

Under the code, only Brookfield is bound to accept an arbitrator's ruling on access and price.

Dr King defended the ERA's administration of the code during CBH's dispute with Brookfield.

He said the ERA "understood" progress was "delayed by the parties failing to provide all the required information, and by legal disputes".

"In the case of CBH and Brookfield Rail, the negotiation period laid out in the code finished sometime in July without the parties coming to an agreement,'' Dr King said.

"If the parties wanted to have this impasse resolved by arbitration, then that process could have started in July, but to date arbitration has not been called for.

"In the absence of unnecessary delays, the provisions of the code allow negotiations to be concluded within a timeframe comparable with normal commercial negotiations.

"The ERA has not been provided with any evidence that the code necessarily hinders the timely progression of negotiations."

A review of the code operation is required every five years.

The ERA called for submissions in February and received 11.

In May it extended the comment period and called for more submissions, particularly on issues raised in the initial submissions received.

It got 10 more, two from new submitters.

The draft report compiled from a review of the 21 submissions, and the submissions, are available on the ERA website,

Comment on the draft report will be accepted until Friday, October 23.

The ERA has said a final report will be provided to Treasurer Mike Nahan by the end of the year.

Mal Gill

Mal Gill

is wool and dairy writer for Farm Weekly


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