South Australia may see Freight Australia investment

["Rod [comtrain]" <freight_man@hotmail.com>]

MEDIA RELEASE

23 May 2001

South Australia may see Freight Australia investment

Melbourne-based regional rail freight specialist Freight Australia may
direct some of its capital investment into South Australia as a result of
what the company describes as that state's 'pragmatic' rail access regime.

Somewhat overshadowed by the euphoria over last week's budget announcement
of the potential standardisation of Victoria's country rail network was the
government's decision to proceed with its declaration of open access to the
state's intrastate freight network from 1 July 2001.

Freight Australia chief executive Marinus van Onselen says he notes with
regret - but no surprise - that the government has gone ahead with its
access plans despite his company's strenuous objections to its attendant
pricing principles, and fears expressed by independent bodies such as the
Productivity Commission.

"Our discontent with what we regard as unjust provisions of the access
regime pricing principles was made known at the outset.  In short, it is
unacceptable that the regime does not include provision for us to earn a
legitimate return on the investment we made in acquiring the loss-making
business and relieving the government of considerable unfunded liabilities
and ongoing subsidies.  We will be forced to allow competitors to operate
over the network we lease and maintain, at lower prices than we can.

"Yet the government has chosen to portray us as a monopolist somehow afraid
of competition, rather than acknowledge that as a private company we are
simply angered by its efforts to skew the market to our competitors'
advantage.

"It is our private investors' money being put at risk, not the
government's."

Mr van Onselen re-iterated that in just the first 20 months of its existence
(following the $163 million acquisition of the former V/Line Freight, and
transfer to Freight Australia of $27 million in government liabilities)
Freight Australia pumped more than $53 million additional capital into
Victoria's freight network.

"So now we have the curious situation where the only serious investor in
Victorian rail to date has had its incentive to continue to invest in
Victoria dampened but South Australia is going a different way.

Significantly, the South Australian Government has acknowledged the need to
create a climate necessary for private sector investment in its efforts to
re-vitalise rail in that state.  Transport Minister Diana Laidlaw told
Parliament earlier this month that tender documents for the re-opening of
lines in the south-east of the state provide for the government to
facilitate sole operation of the line by the operator.

"This is a big issue for South Australia," Ms Laidlaw said.  "If we can
provide this undertaking of what is technically called 'closed access' to
the operator, we are more likely to secure private sector funding in the
standardisation of the line and, therefore, minimise state investment."

Freight Australia claims Victoria's form of open access is short-sighted,
out-dated and unreasonably punitive. As the University of Melbourne's
Professor Joshua Gans found in his own study of the regime, it "...
represents a form of regulation that neglects thirty years of regulatory
experience and economic analysis."

And the Productivity Commission's review of the national access regime,
published in March, noted:

* Access regulation provides a means for businesses to use the
services of 'essential' infrastructure, such as gas pipelines and railways,
that is uneconomic to duplicate.  Without such regulation service providers
could deny access to their facilities or charge monopoly prices for their
services.  This could be costly for communities.
* However, access regulation is itself not without costs. Paramount
among these is the potential for it to deter investment in essential
infrastructure. (Freight Australia's emphasis.)
* Any such impact on investments are a cause for concern.  This is
because the costs of failing to invest in essential infrastructure are
likely to be larger than the cost of monopoly pricing of the services it
provides. Hence it is crucial that access regulation gives proper regard to
incentives to invest. (Freight Australia's emphasis.)

Commission chairman, Gary Banks, said: 'Regulation should avoid promoting
competition and lower prices at the expense of necessary investment in this
important area [essential infrastructure services] ... Otherwise consumers
could eventually become worse off'."

But Mr van Onselen said the access regime's implementation made it clear
that a very substantial regulatory risk premium has been created that would
severely affect the public/private partnership investment environment the
government is pursuing.

"Through this appalling piece of regulation it appears the judgement of
politicians and public servants is being substituted for that of owners and
entrepreneurs."

"Private investors are simply not interested in committing funds to
railroads if competitors can appear at any time and unjustly capture the
economic benefits of those investments," he said.

"South Australia has evidently recognised this, and may well become a far
more attractive place for genuine rail investors to do business.  Certainly
the prospects of a possible reopening of the Mount Gambier area rail network
is a lot closer as a result."


For further information:  Marinus van Onselen, Chief Executive, (03) 9619
1043.