Re: Coal haul costs in Queensland, was > QR going National. (LONG)

[phaedrus@ultra.net.au (darryl)]

mauried@commslab.gov.au (Maurie Daly) wrote:

>In article <biz7N1Psk9gbdNNbls1hfQpzIzJp@4ax.com> "< Tell >" <telljb@OZozemail.com.au> writes:
>>From: "< Tell >" <telljb@OZozemail.com.au>
>>Subject: Coal haul costs in Queensland,  was > QR going National.
>>Date: Wed, 06 Oct 1999 20:33:13 +0930

>>May I quote the following from BHP which is readily
>>available on their Web site.

>>++++++++++++++++++++++++++++++

>>Rail freight charges are also a significant cost in
>>Queensland. 
><snip> 

>>BHP Coal
>>++++++++++++++++++++++++++++

>>Cheers.

>>----Terry Burton
>>Alice Springs NT
>><< remove OZ for Email reply.>>


>The following are some extracts from the NCCs April 1999 inquiry into the 
>Black Coal Industry in Australia.
>Section 7.5 deals with the issue of coal transport.
>Its a very long section and full of charts and graphs that wont easily display 
>on Usenet.
>I have tried to extract the relevant sections which deal with the current 
>thread.


>-------------------------------------------------------------------------------
>Available evidence suggests that after adjusting for differences 
>in the operational environment, the productivity of coal rail freight services
>in Australia is somewhat lower (by around 20 per cent) than that of
>better operations overseas. The prospect of competition in freight-carrying
>services has led to some improvements in performance. The
>introduction of third party access to rail infrastructure, if pursued
>vigorously by the NSW and Queensland Governments and if
>supported by fair and transparent access regimes, offers significant
>opportunities to remove much of the remaining performance gap. By
>introducing competition into rail freight services, access
>arrangements are likely to stimulate improved productivity and
>efficiency in pricing.


>7.2.1 Coal freight rates
>Inquiry participants indicated that rail freight rates per ntk for coal in Australia
>are very high relative to those paid by mines overseas, particularly in the United
>States. MIM stated:
>Rail and port charges for export coal in Queensland are internationally
>uncompetitive. (sub. 18, p. 1)
>Similarly, Exxon argued:
>The high cost of transport of black coal in NSW is well known and documented as
>being significantly out of step with world’s best practice. (sub. 3, p. 10)

>The BIE (1995a) found that for 1993–94 average coal revenue per ntk in NSW
>(5.7 cents) was over three times the average for US Class 1 railways (1.8 cents),
>while Queensland revenue (4.8 cents) was 2.6 times the US equivalent.

>Current freight rates
>Data on 85 mines from Barlow Jonker (1997) indicate that average freight rates
>per ntk are higher in NSW (6.3 cents) than Queensland (4.8 cents), largely
>reflecting the much shorter average haul (Table 7.2).2 For hauls between 100
>and 200 km, NSW rates are around 20 per cent higher than Queensland, due to
>the shorter average haul length in NSW in this range. The average rates for each
>State for distances over 200 kilometres are very similar (see Figure 7.1).
>However, there are some wide variations in charges between mines within each
>range, partly reflecting rail authorities’ discriminatory pricing policies.


>Table 7.2: Weighted average coal rail charges and average
>distance carried, 1996 a
>cntk Distance (km) $/t
>NSW 6.28 112 7.03
>Queensland 4.83 248 11.98
>Combined b 5.05 174 8.79
>a Weighted averages based on tonnes per mine and calculated using 85 mines.
>b Weighted average of NSW and Queensland.
>Source: Commission estimates derived from Barlow Jonker (1997).

>For 1996, Rio Tinto estimated that NSW freight costs per ntk (unadjusted for
>different average haul lengths) were 40 per cent higher than in Queensland and
>2.2 to 2.8 times US better performance. When the monopoly rent is removed,
>Rio Tinto estimated that the NSW freight rate would be 4.6 cents per ntk, which
>is still higher than Queensland freight costs of 4 cents per ntk (sub. 22, p. 29).
>As noted above, different average haulage distances and operating environments
>mean that such unadjusted price comparisons are not valid measures of relative
>performance.

>Rio Tinto (sub. 22) commented that the corporatisation of QR had brought
>about some slow change, but much remained to be done. ARCO argued that
>there are some difficulties with QR’s structure due to the lack of independence
>of the freight division:

>At the micro economic level, progress has certainly been made and there is a
>strong working co-operative relationship between the coal industry and QR’s Coal
>and Minerals Division. From the coal industry’s perspective however the Coal and
>Minerals Division seems to be hamstrung by the current integrated Queensland
>Railways structure as well as unrealistic financial objectives placed on Coal and
>Minerals Division from Government. (sub. 21, p. 3)


>7.3.2 Structure appropriate for a competitive environment
>The evolution of a more commercial focus for State rail authorities and the
>introduction of competition into rail freight services raise questions of the
>appropriate structure of rail authorities. In particular, the actual and perceived
>relationship between the government-owned provider of the monopoly
>infrastructure service and the government-owned freight operator will be crucial
>to the emergence of effective competition in rail freight. The Queensland
>Mining Council (QMC) argued:
>The industry structure within which an access regime operates may be a crucial
>factor influencing the regime’s effectiveness. The standard approach is physical
>separation of the monopoly and contestable elements of a service in the interests of
>ensuring non-discriminatory treatment by the access provider of all established and
>prospective access seekers.
>This reflects one of the basic presumptions of competition policy — that vertical
>integration is inherently anti-competitive and in attempting to establish genuine
>contestability the burden of proof should rest with those who would retain
>integrated structures.
>The coal industry strongly supports a review of rail industry structure in
>Queensland. The present configuration — a ring-fenced network access unit within
>a fully integrated QR — needs to be examined in respect of its implications for
>effective third party access. (sub. 24, pp. 34–35)
>As noted above, NSW has separated infrastructure and rail freight and has also
>created an independent infrastructure maintenance unit. Structural separation
>improves the transparency of the cost of each element of rail services and hence
>increases the pressures to improve the efficiency of the rail system. The QMC
>commented:

>Monopoly encourages complacency, inattention to costs and resistance to
>innovation. To the extent that competition is impeded for want of a structure which
>better facilitates the entry of third parties, then integration is unequivocally bad for
>overall costs. (sub. 24, p. 35)
>The Queensland Commission of Audit recommended a break-up of QR:
>In order to drive efficiency through competition, Queensland Rail’s track
>operations should be separated from rail service operations, which would then be
>provided by separate commercial providers. (Queensland Commission of Audit
>1996, p. 165)

>7.4 Removing implicit royalties and monopoly rent
>Coal freight has been subject also to specific reform in the pricing area. This
>reform has addressed the use of coal freight rates as an implicit royalty
>collection mechanism or as a means of financing losses in other rail freight and
>passenger services.
>The level of coal royalties is determined by State governments. However, the
>means of collecting royalties may have unintended and undesirable impacts on
>the efficiency of both rail services and the level of royalty collections. The coal
>industry has been particularly critical of both the past use of rail freights as a
>taxation mechanism and of the rate of phasing out of this practice. The QMC
>observed the deleterious impact of royalty-inflated rail charges in Queensland in
>the 1980s:
>Rail reform has been and will continue to be a critical determinant of coal industry
>development in Queensland. Rail freight concessions introduced from 1984
>provided a crucial measure of relief for the industry when the eighties ‘coal boom’
>failed to materialise. Although freight rates stayed very high, without the
>concessions that were given, many of the mines commissioned in the late seventies
>and eighties would have become economically unsustainable.
>That said, no new coal mines were then commissioned until after 1989 when
>significantly lower freight rates were offered to new projects. Investment in
>Queensland coal assets was simply untenable until rail charges were reduced to
>something approaching commercial levels. (sub. 24, p. 3)
>State governments charge royalties on the extraction of coal (and other
>minerals) in order to provide benefits for their communities for the exploitation
>of their resources. Because of the high prices for black coal in the 1970s and
>early 1980s the NSW and Queensland Governments used the rail freight system
>to obtain revenue from coal producers additional to that raised from explicit
>royalties. These monopoly rents and de facto royalties as they have been
>referred to in NSW and Queensland, respectively, significantly distorted rail
>freight pricing and distracted governments from the focus of providing efficient
>rail freight services. The revenue from these high charges was appropriated by
>governments into general revenue or was used to allow rail authorities to at least
>partially fund loss-making services.
>The push to improve performance of GBEs over the last decade, together with
>the declining fortunes of the coal industry, resulted in governments recognising
>that the collection of royalties through the rail freight system was inefficient,
>arbitrary and inequitable. The QMC commented on the impact of de facto
>royalties based on perceived ability to pay:
>The effects of this approach were mainly three. First, there was no predicability in
>the system and no relationship between freight rates and the cost related factors


>7.5 Introducing competition into rail freight
>The use of rail freight charges to collect revenue is one reason why rail costs for
>export coal have been excessive. The other key reason for high rail charges is
>the existence of some degree of inefficiency in State rail authorities. Section 7.3
>noted some changes in the organisational structure of rail authorities which have
>helped to improve performance. This section considers the NSW and
>Queensland Governments’ response to the introduction of a more competitive
>external environment for rail authorities in order to stimulate further efficiency
>gains.
>As with most economic infrastructure in Australia, rail services have been
>provided traditionally by governments, because provision by a single enterprise
>was seen as the most cost-effective and in order to meet social objectives for
>these services (for example, uniform provision and subsidised pricing). The
>competition policy agreement reached by the Commonwealth and State
>governments in 1995 recognised that only the network infrastructure portion of
>rail services required monopoly provision and that freight carrying services
>could be opened up to competition by allowing freight carriers access to rail
>infrastructure. However, while the network provider was a monopolist, the
>potential existed for it to appropriate most of the benefits of competition. Hence
>safeguards were included providing applicants for access to rail infrastructure
>with certain rights of appeal to the National Competition Council (NCC).
>As with the restructuring of their rail authorities, the NSW and Queensland
>Governments initially adopted different approaches to allowing access to rail
>infrastructure for coal carriers. NSW developed an access regime which
>potentially provided access to rail infrastructure for freighting coal while
>Queensland relied on the Competition Policy Reform Act, (s.78) (which does
>not bring ‘government coal-carrying services’ under the access arrangements of
>the Act until November 2000) to delay access to rail infrastructure for third
>parties wishing to transport coal. However, in April 1998, the Queensland
>Government indicated that it will no longer rely on the s.78 exemption and will
>allow competition in coal freight once an acceptable access regime has been
>developed.

>7.5.2 Queensland
>Initially the Queensland Government indicated that it would delay the
>introduction of third party access for coal haulage until November 2000. In the
>Draft Report the Commission argued for the early introduction of competition
>in coal rail freight, because implicit royalty revenue was being largely removed
>as most coal rail contracts were renegotiated. Since the Draft Report, several
>developments have signalled a somewhat faster introduction of more
>competition in Queensland coal rail freight.
>First, from March 1998, a regulation under the Queensland Competition
>Authority Act 1997 (QCA Act) provides for third party access to below track
>rail services in Queensland. This permits the use of all transport infrastructure
>owned by QR for the purpose of providing transportation by rail (except for
>interstate services). QR observed:
>The Queensland Government is of the view that the Queensland third party access
>regime constitutes an effective access regime in accordance with the Competition
>Principles Agreement. As such, the Queensland Government will soon be
>submitting the access regime with respect to rail services to the National
>Competition Council for certification. (sub. DR66, p. 2)
>Second, the Queensland Government announced:
>... on the 25 April 1998 the removal of the exemption in relation to access to
>Government coal carrying services on the Queensland rail network.
>(sub. DR61, p. 6)
>An application for certification of the Queensland access regime has been made
>to the NCC. In view of the NSW experience, this process may involve
>significant delays unless the Queensland Government is fully committed to
>achieving the benefits of competition in coal rail freight.
>Finally, in April 1998, the Queensland Government signed an agreement with
>SUDAW Developments Ltd to develop a feasibility study for a privately owned
>merchant railway from the Surat Basin coal field to a Queensland export coal
>port.
>The combined impact of these reforms will potentially introduce competition
>within the existing rail network and possibly provide yardstick competition with
>a new railway.
>If the benefits from the lifting of the moratorium on access to coal rail freight
>are to be realised by new entrants, there needs to be an effective mechanism for
>operators, other than QR, to gain access to the below track infrastructure. The
>Queensland Government has established a legislative framework for access in
>rail and other industries under the QCA Act (see Box 7.2). However, an access
>regime for rail is not yet in place.

>Queensland has not established a separate access authority like the RAC in
>NSW, but rather has set up an independent access unit within QR. This unit is
>responsible for all dealings (operational and pricing) with third party operators
>seeking to gain access to the rail network in Queensland. It will now be
>subsumed in the new infrastructure division to be created within QR. This
>arrangement raises concerns about transparency and fairness as the coal and
>minerals division of QR will be a competitor for third parties seeking to provide
>coal freight services. BHP observed:
>Despite there being arguments on both sides, there is reason for concern that the
>retention of an access body within the control of the current service operator,
>without specific and transparent controls, will not result in an unbiased outcome.
>(sub. 30, p. 20)
>This view was supported by the Queensland Commission of Audit:
>Given the incentive that exists for Queensland Rail to discourage competitors from
>operating on its network, the effectiveness of the regime will be limited unless it is
>enforced by an independent authority. (Queensland Commission of
>Audit 1996, p. 162)
>As shown by the NSW experience, an access regime will need to be
>comprehensive, transparent, clearly equitable to all parties and have appropriate
>appeal mechanisms if it is to generate confidence for potential entrants and end
>users. The Queensland Commission of Audit argued:
>To introduce competitive pressures the very minimum required is a comprehensive
>third party access regime implemented across the entirety of the Queensland Rail’s
>network. (Queensland Commission of Audit 1996, p. 162)

>Early development of an access regime which is detailed and transparent in
>dealing with pricing and operational matters and has appeal mechanisms
>easily accessible to freight users is necessary to generate the maximum
>benefits from the planned introduction of competition into rail freight. This
>is particularly so in Queensland where the integrated structure of
>Queensland Rail has created industry concerns about the fair treatment of
>new entrants into the coal freight market.

>Recommendation:
>The NSW and Queensland Governments should facilitate the early
>establishment of comprehensive rail access regimes that can be certified by
>the National Competition Council as effective.
>-------------------------------------------------------------------------------

>I wont comment on the above , you can make up your own minds.
>But if you are really interested in this sort of thing then get a copy of this 
>report and read it in its entirety.
>MD

>-


  Dunno about coal BUT a few years ago MIM stated that it cost more to
  freight a ton of product from Mt Isa to Townsville than it did to 
  freight it form Townsville to Europe :-)
  Darryl,driver,Townsville.