We are working well with CBH says Brookfield

25 Sep, 2014 02:00 AM
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Brookfield Rail boss Paul Larsen believes industry has missed the successful working relationship between CBH and Brookfield.
Brookfield Rail boss Paul Larsen believes industry has missed the successful working relationship between CBH and Brookfield.

BROOKFIELD Rail says it and grain handler CBH are working well together to move the majority of grain on rail in WA.

Speaking with Farm Weekly at the company's Welshpool office recently, Brookfield Rail chief executive officer Paul Larsen said a lot of time and energy went into the Tier 3 debate, but industry had missed the successful working relationship between the parties when moving grain on the Tier 1 and 2 lines.

"Out of the seven million tonnes we have moved in the first eight months of this year, at record rates, only 300,000 tonnes of that was on Tier 3," Mr Larsen said.

"The good news story that is being missed here is that the grains supply chain in WA is one of the most cost effective compared to the other States and it is doing a great job.

"I don't say that to downplay the Tier 3 issue at all, but to reflect on the fact the two companies CBH and Brookfield are actually working really well together in the parts that represent 95 per cent of the volume."

Brookfield Rail holds a long-term lease over the rail network that will last until 2049 but is locked in a stoush with CBH over maintenance costs and management of 500 kilometres of Tier 3 rail, which resulted in a closure of the lines on July 1 this year.

Grain handler CBH has said it wants to sublease Tier 3 lines, a solution that has not been considered as an option by Brookfield Rail because it does not believe it is viable.

"It's not viable for us, it's not how we do business, in 2011 through a competitive process the government ran we won rights to sell access exclusively for 49 years. We paid the Government a lot of money back then," he said.

"We have invested a lot of financial and other types of capital into the entire network and we have been able to increase the tonnes on the WA rail network from 30 million tonne to 70mt without having to go down the path of subleasing with any of our customers.

"Our view is that shouldn't preclude us from saying no to the sub-lease from selling access to CBH to those lines in a co-operative deal.

"It would be a track access agreement, the same model they access the Tier 1 and 2 lines on and the east-west railway where we co-invest our money alongside their money to find a way to operate those lines at an appropriate level."

The Economic Regulation Authority recently determined the floors and ceilings for discussions about each Tier 3 line CBH has sought access to and Farm Weekly understands both parties are currently engaged in negotiations.

It is also understood the ERA report is set for public release by late September/early October.

Mr Larsen said he was happy with the numbers set by the ERA but would not reveal what a potential co-investment model with CBH would look like regarding access to Tier 3 lines.

"It depends, the parties have to reach an agreement on which lines are going to be used," he said.

"One of the issues that would have to be resolved is how many tonnes will go on rail and how many on road, then depending on how many tonnes will go on road, what level of performance is required from the trains, there are a couple of key questions there.

"Will all of those tonnes move in the first six months of the year?

"Will they be spread out of the 12-month period?

"Do they want to run during the middle of summer because there are some challenges with these rails in summer."

Mr Larsen said depending on the tonnes and operational performance questions, the two parties could then determine the level of investment required to sustain the lines to achieve the task safely and reliably over the period of access they are seeking.

"We would then look at how would that be funded including what role government may or may not play?" he said.

"The answer to the size of the money that is required and how it would be split has several things that would need to be worked through before we get the answer to that question."

Mr Larsen admitted a funding commitment from State Government was unlikely, but did confirm Nationals WA leader Mia Davies had reiterated the door remained open.

"She has access to some money and she is saying if CBH and Brookfield Rail sit in front of her in agreement about what our companies are prepared to do and request that any commercial gap be plugged by government as it was for Tier 1 and 2 that she will listen to that," he said.

"But only when she has CBH and Brookfield sitting in front of her saying what we are going to do together which I think is a fair request from a Minister who at the end of the day has to ensure the taxpayers' money is appropriately allocated."

Both parties will initially have a negotiation timeframe of about 90 days, and if no solution has been met they will be subject to mediation and arbitration which could lead to a binding outcome for Brookfield Rail.

Mr Larsen would not disclose whether any other players in the grains industry had applied for access to the lines, despite ongoing speculation about Bunge's potential interest in investing in up-country storage and rumours about Louis Dreyfus' export intentions.

But he did admit there were opportunities in the grain space although it was early days and the company was still trying to understand where the industry was heading.

"We are watching with interest," he said.

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