CBH warns against takeover

11 Sep, 2015 01:07 PM
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The sale would give Brookfield monopoly controls of key strategic supply chain assets

WEST Australian grain handling co-operative CBH has warned federal politicians that Canadian global logistics giant Brookfield’s proposed $8.9 billion take-over of Asciano is against the national interest and must be blocked, unless significant changes are made to national rail regulations.

One of Brookfield’s local subsidiaries - Brookfield Rail - is WA’s below rail access provider, operating over 5100km of track and infrastructure in the State’s southwest under lease from the WA government, first struck in 2000.

However, that controversial privatisation arrangement has seen CBH and Brookfield involved in ongoing angst caused by the closure of 500km of Tier 3 rail-lines in Wheatbelt communities and regulatory mediation over disputed access costs.

The proposed Asciano sale has already prompted WAFarmers to warn that the change of ownership would give Brookfield control of Pacific National’s above rail operations and Patrick stevedoring business.

But that vertical integration would invoke dire cost implications for farmers due to potential monopolistic behaviours and controls, WAFarmers says.

The $8.9b offer is currently being assessed by the Foreign Investment Review Board (FIRB) and Australian Competition and Consumer Commission (ACCC).

Brookfield Rail CEP Paul Larson said “Brookfield is committed to the independent process of the ACCC and it would not be appropriate for us to comment in detail on any regulatory process while they are underway”.

This week, a senior CBH delegation - including CEO Dr Andy Crane - lobbied political representatives of various persuasions and States to express concerns about the vertical integration and competition impacts sparked by Brookfield’s Asciano acquisition.

Several sources confirmed CBH had discussed the need for a national regulatory rail system and want strict conditions imposed by the FIRB, before the Asciano takeover can proceed.

“There’s no doubt the sale would give Brookfield monopoly controls of key strategic supply chain assets and growers will get screwed,” said one source who asked not to be named.

An interview request by Fairfax Agricultural Media with Dr Crane to address details of the co-op’s lobbying activities in Canberra this week was denied.

But a spokesperson said, “CBH has concerns about the deal at this point in time and is adamant that Australia must have an appropriate regulatory framework that ensures better price setting and performance monitoring before approval is given for any key infrastructure acquisitions such as Brookfield's purchase of Asciano”.

It’s understood CBH’s lobbying called for urgent national regulations to address any market failures invoked by handing greater control of the WA’s grain/rail operations to Brookfield which has about $200 billion worth of assets under management globally, including commercial real estate.

CBH believes State regulations that govern Brookfield Rail’s management of the rail network are too weak and would therefore incentivise an uneven playing field, if the acquisition proceeded.

The huge farmer owned co-op says given the deal involves key strategic infrastructure for the agricultural sector, the new owner’s objectives must align with local interests, in serving the national economy, rather than a single-minded objective to return profits to overseas shareholders.

The CBH delegation stressed a new regulatory framework must be introduced before Brookfield’s acquisition of Asciano can proceed, to protect the national economy and agricultural industry.

They also provided specific warnings about Brookfield’s recent track record in WA operating the rail freight network, under its 49-year lease with the WA government.

CBH told federal politicians that giving the Brookfield consortium control of key strategic infrastructure assets in WA like ports, would risk them being managed like the State’s rail network has been, which would be unsustainable for growers.

They argued that rail standards have decreased under Brookfield Rail’s management while access fees have increased to the point where WA growers are paying access rates five-times greater than those paid by east-coast growers, where tracks have higher speeds and mass limits.

CBH has also warned that Brookfield Rail had also increased its access fees significantly in WA, despite plans to close over 500km of track.

The co-op also complained that restrictions on the rail network had been imposed, despite government committing $164.5 million on track maintenance.

Concerns were also raised about CBH trains being forced off the rail network after the co-op refused to sign up to a 36 per cent increase in access fees in a compromise deal needed, as negotiations stalled on a long-term lease agreement.

Today, Deputy Prime Minister and Transport and Infrastructure Minister Warren Truss was asked about the Brookfield proposal, as he released a new strategic delivery plan and report on the $10b inland rail project, from Melbourne to Brisbane.

Asked by Fairfax Media whether he supported the Asciano sale without regulations in place to protect growers from potential price gouging, Mr Truss said “this is a matter that has to be considered through the proper processes”.

“You raise some very valid issues that will have to be addressed in that kind of consideration,” he said.

“Some of these things are in relation to reduced competition and potential monopolies – that would develop in privately owned monopolies – across large sectors of the system.

“(That) will naturally cause concerns, not just from growers but also from other operators who may feel as though they may be priced out of the system

“That is a key issue that we are considering also in relation to ownership of the Melbourne to Brisbane railway line.

“It has to be not only open access, but genuinely, practically, fair open access so that if there is an individual owner, that owner does not give priority or lower prices to their own operations.

“That would be unacceptable in an open access network

“It is absolutely essential, that when you have fundamental infrastructure like roads and rail, that they are genuinely freely open to all users, on equal terms.”

Asked whether Brookfield’s proposed $8.9 billion takeover of Asciano was detrimental to the national interest, Treasury, on behalf of the FIRB, declined to comment.

“Treasury does not comment on the application of the foreign investment screening arrangements as they apply or could apply to particular cases,” a spokesperson said.

In its review documents, the ACCC said the legal test it applies in considering the merger was in section 50 of the Competition and Consumer Act 2010, which prohibits acquisitions that substantially lessen competition in a market, or are likely to do so.

In backing CBH’s argument, WA’s biggest farm lobby group WAFarmers made an unambiguous warning about potential competition impacts, to the ACCC’s review of the Brookfield offer for Asciano.

The competition watch-dog is assessing the views of market participants about the likely competitive effects of the proposed acquisition and is due to announce its decision on October 15.

WAFarmers said the acquisition had “untold implications in limiting the competitive nature of rail and would further impose the monopolistic nature of rail onto Western Australia”.

“WAFarmers does not support the acquisition of Asciano by Brookfield, on the grounds that it will significantly hinder the WA grains industries ability to operate competitively in international markets,” the submission said.

"WA Farmers urges the ACCC to deny the proposed acquisition, as the monopolistic nature of the infrastructure involved will lead to anti-competitive behaviour in the already turbulent rail freight network in WA.”

WAFarmers also told the ACCC that the vertical integration of Brookfield Rail into the below rail lease holder, to an above rail operator also, “is of significant concern”.

“There is substantial potential for Asciano’s significant infrastructure portfolio to be mismanaged to utilise the monopolistic power of rail and port,” they submitted.

“The potential for the lack of transparency would allow Brookfield to provide Pacific National with preferential access and prices to the disadvantage of other operators.

“It would utilise Brookfield monopoly on key infrastructure, and further exacerbate issues currently occurring within the rail access sector.

“The distinct lack of scrutiny and transparency of Brookfield to external members of the operating chain is likely to create an uneven playing field for all above rail operators in WA.

“The issue will also be compounded by the lack of oversight and transparency in the management of the state rail network under the Economic Regulation Authority.

“Under the current legislation and framework, Brookfield could position their vertically integrated assets to squeeze out competition.

“The regulation and framework cannot facilitate current access, and therefore it cannot be relied upon to manage the entrance of Brookfield into the above rail operator market, as it will be in direct competition to its customers.”

FarmOnline
Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Kettle Black
14/09/2015 11:21:41 AM

CBH already have a monopoly on supply chain assets in WA. In fact, in CBH's recent submission to the ACCC regarding port competition they said "CBH does not support unnecessary supply chain regulation as it invariably leads to inefficiencies, market distortion and increased costs that are ultimately borne by the grower.” If this is their view, why do they want to increase regulation on WA's supply chain assets???
boris
14/09/2015 1:41:26 PM

CBH's position is not surprising Kettle Black because they only support a reduction in regulation when its allows them to cement their monopoly powers further. This is what occurred when Barnaby Joyce exempted CBH from the Mandatory Port Code. Now that the Fremantle port is likely to be sold they scream that they are the victim. But in reality they are so inefficient they just can't compete against the emerging competition in the WA grains supply chain. CBH's only chance of survival is to seek political cover by way of protection, hence the massive lobbying effort in recent years!
Jock Munro
14/09/2015 5:11:22 PM

Come over to the East Boris and Kettle Black and see what it is like to gouged from farm gate to customer by merchant middlemen. You are both more than likely merchants yourselves.No WA grower could possibly want to sell off CBH.
Deregul8
15/09/2015 8:06:39 AM

Another year with little or no exports over your way Munro. Its little surprise the exporting infrastructure is failing to attract investment. Is Jock going to commit to export at lower prices when domestic end user bids are $20/t more? Of course not, Jock wants his cake and anyone elses he can scoff too. Typical agrarian socialist. Just like in the old AWB days which thankfully are long gone.
Jock Munro
15/09/2015 5:26:35 PM

Dereg,You obviously don't know much about the East if you think that export is not important to us- it is time that you got over here and checked things out.
cmt
16/09/2015 10:23:08 AM

Jock, its obvious that the traders stooges are the only one's taking you on again. You are right to say that WA growers would be mad to even think of dumping CBH because every survey ever taken over here shows growers support for CBH in WA to be overwhelming.
Deregul8
16/09/2015 10:25:59 AM

You are welcome to invest in the storage and handling network. All you have to do is buy GNC shares or form a co-op if it is so profitable. Personally I could think of better places to put my money. Lime, lease, more herbicides, more fertilizer, farm infrastructure, ...
cmt
16/09/2015 3:36:04 PM

Already done all that deregular. Been buying into CBH for generations. That is why it is the envy of the world as it is.
Mark2
16/09/2015 5:09:27 PM

I don't know Deregul8 , if you have some ownership of your industry then it is possible to get a fair price from both the export and domestic market. What you don't seem to be able to understand is the interdependence of the two in the eastern states. The lack of export interest leaves the domestic market over supplied in even an average year, in any event growers get gouged. How multiple exporters in WA all competing for the same markets works in growers interests is beyond me
boris
16/09/2015 7:31:27 PM

Only a poor businessman would gloat about buying in when no ownership is recognisable by way of equity. Take a tour of the Bunbury export facility, CMT, it might then register where your buy in has been transferred to. Wake up before it's too late!
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