Secret deal sparks new rail controversy

30 Oct, 2014 01:00 AM
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Certainly the profit sharing arrangement was something that was totally unexpected.

CBH says a potential conflict of interest in the WA Government's oversight of Brookfield Rail operating a privatised State-owned monopoly asset, while being incentivised to profit share with the commercial entity, must be urgently addressed.

A previously undisclosed profit-sharing deal between Brookfield and the Public Transport Authority (PTA) sparked fresh controversy last week over the grain rail network's complex operations.

It was unveiled when the rail network's operational lease and other details were publicly released earlier this month, along with the WA parliament's Economic and Industry Standing Committee report into the rail network's management.

Under the deal, the WA government can take 15 per cent return from potential profits extracted from Brookfield's operation of Tier 1 and Tier 2 lines, in the 5000 kilometre network, out to 2025.

The profits relate to investments of $258 million to upgrade and maintain the rail lines, which carry about 90 per cent of the State's annual harvest to ports.

The report says the arrangement is linked to a lease variation made in 2010 on the back of the Strategic Grain Network Report's (SGNR's) recommendations which helped trigger the $258m spend involving taxpayer funds.

In contributing to the upgrades, the government also varied the lease to keep the price of access to the rail lines capped, rising only in line with inflation, until the end of 2016.

"Because the re-sleepering of Tier 1 and Tier 2 lines was paid for with public money, both the capped access prices and the profit sharing provision represent measures by which the government sought to earn a public return on this investment," the Economic Committee report said.

"In effect, access rates were capped to encourage the continued use of these grain lines subsequent to their re-sleepering and, thus, to ensure that rail remained a fundamental component of the grain freight task.

"This would deliver a social dividend in the form of preventing an increase in road usage to meet the grain freight task."

The PTA referred inquiries from Farm Weekly to Transport Minister Dean Nalder's office which said the government was working on a formal response to the report.

Mr Nalder said some of the specific clauses in the agreement were only recently brought to his attention.

But he is now seeking clarification from the PTA to better understand the mechanics of the agreement, to ensure it's in the best interests of the State.

Mr Nalder said he was also seeking advice as to whether the agreement needs to remain commercial-in-confidence and would comment further once that advice had been finalised.

However, the Minister's immediate absence from public commentary is likely to increase tensions as CBH and Brookfield try and negotiate satisfactory longer-term access arrangements, via independent mediation.

A six-month interim arrangement was struck to manage this year's harvest as the Economic Regulatory Authority continues with its efforts to broker an outcome between the two warring parties, especially over access to Tier 3 lines.

CBH general manager of operations David Capper commended the Economic and Industry Standing Committee for being "quite brave" in releasing the lease material and information in its report, to increase transparency and shed light on key issues.

Mr Capper said the disclosure process revealed information CBH had some suspicions about regarding the rail lease arrangements and "some we had no idea at all".

"Certainly the profit sharing arrangement was something that was totally unexpected and we weren't aware of," he said.

But Mr Capper said CBH was primarily concerned the PTA was regulating a State-owned monopoly asset - given to a private sector operator - while being incentivised to "maximise the profits".

"Clearly there's a conflict there that needs to be managed and we'd like to hear how that's being managed in the department," he said.

"Someone explained it to me the other day that it's akin to the ACCC having a profit sharing arrangement with Coles and Woolworths.

"The same government body that's regulating the monopoly asset is profit sharing from it."

Shadow Transport Minister Ken Travers said it was now clear why the Liberal-National Government had fought so hard to keep the grain rail lease confidential.

"It is an outrageous betrayal of our grain farmers that the profit-sharing agreement was never made public," he said.

"In light of the many calls for the lease to be made public in recent years I find it extraordinary the Minister for Transport never read the lease or was briefed on the profit sharing arrangement.

"The release of documents highlights that all the secrecy surrounding the lease has left the growers who use the rail lines in the dark and at a significant disadvantage in their commercial negotiations."

Mr Travers said Premier Colin Barnett had his priorities wrong, being busy privatising hospitals and schools, "whilst at the same time entering into secret profit sharing arrangements for coal mines and railway lines".

He said the Liberal-National government had failed to address the many concerns raised by the Auditor General in January 2013 regarding their management of the rail lease.

"The disclosure of the lease documents shows that the Liberal Party never intended to honour their 2013 election promise to keep viable Tier 3 rail lines open," he said.

"In fact they had already done the deal to close them.

"This is a new low in WA politics."

WA Nationals Agricultural Region MLC Paul Brown said the profit sharing arrangement uncovered in the 2010 lease amendments that the PTA were partner to, "are undoubtedly of a magnitude that should have been brought to Cabinet for approval, rather than being done in secret".

He said that process would have provided a level of oversight that, "sadly for our grains industry and our local communities, appears to have been lacking".

"It's now quite obvious why they both didn't want the Committee to table any further documents," he said.

"The question that Minister Nalder needs to answer is, 'Why didn't the Department or the PTA provide him with full advice in regards to the rail lease and its amendments? Who was trying to protect themselves from scrutiny here and does the Minister regard this issue and our Wheatbelt communities so poorly that he wouldn't gain a personal understanding of the obligations to the government and taxpayers?'

"Let's not forget that he is the Minister for Finance as well."

Mr Brown said under the Brookfield management model, it appeared the company was prepared to underinvest in the entire rail network and about every 10 years threaten to shut down sections of the network, unless the government contributed all, or a large portion of the funding required for keeping the network operational.

"What benefits are our farming communities going to see from this profit-sharing arrangement which ultimately comes directly out of their pockets?" he said.

"Is the Minister going to ensure that the money received by the PTA in this deal will be invested back into the Wheatbelt road network?

"This also serves to highlight just how irresponsible Labor was at the 2013 election by promising $30 million dollars to fix Tier 3 rail when they had no understanding that that money would never have been invested as that 500km of Tier 3 rail was going to close regardless of any further investment or would have just been more wasted taxpayers' money if it was spent."

Mr Brown said he and his National Party colleagues had consistently demanded public scrutiny of the rail lease and all its amendments.

Mr Capper declined to point the finger at the current government, former ministers or Brookfield for the secretive profit-sharing deal and its potential conflict of interest.

He said the government had now released a comprehensive report that "sheds a lot of transparency into this whole arena".

He said a relatively new Transport Minister had only just been handed the critical information "and has probably for the first time got the transparency himself".

"What we'd like to see is the recommendations of the report acted on and the government take steps to rectify some of the issues the report has raised," he said.

"There's no value, in our point of view, of looking back.

"It's (more about) what are we going to do to protect growers and protect the sustainability of the track going forward, now that we have that information.

"In terms of whether it is a proper or right instrument for the government to have - we can't really comment on that.

"It's more this issue of how are they (the PTA) being a regulator on one hand and managing for the protection of the access seeker and at the same time being incentivised to maximise the profits of the operator."

Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
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X AG Socialist
30/10/2014 5:55:28 AM, on Farm Weekly

Paul Brown nailed it .

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