The Independent Pricing and Regulatory Tribunal (IPART) of New South Wales has imposed a 5.3 per cent rate of return on the NSW Rail Access Undertaking, meaning RailCorp may only have 21 more years of access to the Hunter Valley Coal Network.
The final rate, decided using the weighted average cost of capital (WACC), was lower than the 5.8 per cent rate proposed in IPART’s draft version of the paper released in April 2019.
IPART conducts a review of the state rail access undertaking every five years, including depreciation decisions for the Hunter Valley Coal Network, and rate of return for ARTC’s non-Hunter Valley network, Country Regional Network and Sydney Metropolitan Freight Network.
The decision has resulted in a knock-on effect to RailCorp’s depreciation rate at its Hunter Valley coal operations, meaning the company’s network will be written off by 2040 rather than 2044.
RailCorp operates five of 37 sectors of the Hunter Valley coal network line, comprising around 21 kilometres of track running coal and freight trains from Newstan Junction (sector 405) to Woodville Junction (sector 497) in Hamilton.
While the line does not transport coal for export to the port of Newcastle, it is an important sector for the transport of coal to the Eraring and Vales Point power stations, BlueScope Steel, Port Kembla and several other mines.
The other 32 sectors are run by the Australian Rail Track Corporation (ARTC) under a separate agreement with the Australian Competition and Consumer Commission (ACCC).
IPART chair Dr Paul Paterson said the undertaking had undergone “significant changes” since it came into effect and it no longer met the needs of stakeholders. IPART has recommended the NSW Government undertake a review of the rail access regime, suggesting a national review could suffice as a longer-term solution.
The line does not transport coal for export to the port of Newcastle, but it doesn transport coal to the Eraring and Vales Point power stations, BlueScope Steel, Port Kembla and other mines south-west of the line.
IPART’s decision cited uncertainty regarding the future of coal-fired power stations and a projected decline in coal revenues over the next five years as factors in the reduced mine life.
“The shorter estimated life is an on-balance judgement, taking into account the best publicly available information on the rail line’s expected use, mine reserves, and closures of Eraring and Vales Point power stations,” IPART chair Dr Paul Paterson said in relation to the decision.
Origin Energy, the owner of the Eraring power station, is expected to exit coal-fired power generation after 2032.
The next review will take place in July 2024.