Access to rail networks is important because miners, particularly coal producers, need long term certainty that they can get their product to port.
The lack of a direct relationship with the track owner has frustrated coal producers in their attempts to gain that security.
Proposed changes to the regulatory arrangements governing access to rail networks in Australia present major opportunities for coal producers improve control of their supply chain.
Under current arrangements, train operators hold an ‘access contract’ with the track owner to allow them to run trains on the network.
An access contract identifies the amount of track capacity contracted, the price and technical matters dealing with train operations.
The train operator uses these access rights along with the other inputs such as rollingstock, train crew and fuel to provide haulage services to its customers.
For many types of trains, track access is invisible to the railway customer. However, given the size of their transport task, coal producers typically have a strong interest in gaining direct control over their rail access needs.
The coupling of access with the haulage contract, and lack of direct relationship between producer and track owner, has several undesirable effects:
- The producer can only secure track capacity available through its chosen operator for the period of that operator’s contract. Typically, haulage contracts are relatively short term compared to the life of a mine and this prevents the producer from securing access over the long term.
- The producer is dependent on the operator for access and this unnecessarily hampers the creation of innovative forms of haulage contracts.
- Investment in additional capacity is difficult as the track owner cannot secure long term contracts.
However, things are changing.
A new contracting model is being proposed that will allow coal producers to take control of their rail access needs.
Industry has lobbied the owners of the rail networks servicing the coalfields in central Queensland (QR Network) and the NSW Hunter Valley (Australian Rail Track Corporation {ARTC}) to adopt the following model:
- A producer contracts with the track owner for a level of capacity over a long term.
- The producer pays all access charges directly to the track owner.
- The producer nominates one or more train operators to use the contracted capacity.
- Any train operator wishing to offer haulage services holds a “driver’s licence” contract with the track owner that covers all technical and liability matters but excludes capacity rights.
- The producer contracts with one or more licensed train operators to provide haulage services and allocates its access rights to the operator as required.
The essential difference is that the new model decouples the contract for track capacity from the right to operate trains on the network and creates a direct relationship between the producer and the track owner. This means closer alignment with the interests of each party.
The producer is able to hold a long-term track capacity contract and a shorter-term haulage contract, increasing flexibility while having security over the network capacity.
The producer is not liable to the track owner for the performance of the train operator – liability and all technical train operational issues are dealt with in the train operator’s ‘driver’s licence’.
The only technical requirement is that the nominated operator(s) has a valid driver’s licence.
For the track owner, this provides a better basis for investment in capacity as it is able to contract directly with the parties that have a long term interest in that capacity.
Where to now?
After strong industry lobbying, the owners of the rail networks servicing the coalfields in Central Queensland (QR Network) and the NSW Hunter Valley (Australian Rail Track Corporation – ARTC) have proposed contracting models based on the new concept.
The new arrangements are still at an early stage, but things are moving.
Due to the separate network ownership and regulation in NSW and Queensland, the new arrangements will move through similar but different paths.
Hunter Valley
ARTC will introduce the new arrangements through its Hunter Valley access undertaking.
After preliminary industry consultation, ARTC submitted the undertaking to the Australian Competition & Consumer Commission (ACCC) for approval in late April.
At the time of writing, the undertaking submitted to the ACCC remains confidential, so these comments refer to earlier drafts.
The ARTC proposal varies substantially from the conceptual model.
On the plus side, it gives producers the ability enter into long term access contracts including for the expansion of network capacity, an important improvement over the current arrangements.
The proposal goes further than necessary by making the new form of contract the only option.
Producers will not have the choice of having the train operator manage track access on their behalf (as happens now), so all producers will need to enter into an access contract with ARTC and actively mange this part of their business. They will also need to renegotiate their haulage contracts to cater for the new arrangement.
The proposed model retains very strong links between the operator and the access contract.
The operator’s ‘driver’s licence’ is actually a ‘sub-agreement’ to the producer capacity contract.
ARTC have effectively turned the access contract into a tri-partite agreement.
It will be very difficult for a producer to negotiate an access agreement without strong support from its chosen train operator(s).
As the decoupling of access from train operations is necessary to achieve the majority of benefits, it is puzzling that the ARTC has recreated many of the links that the original concept deliberately removed.
The producer lobby group, the Hunter Valley Rail Access Task Force, is working hard to secure a model that more closely resembles the conceptual model so that the full benefits will result.
Producers are urged to give this group their full support.
Central Queensland
QR Network also intends to offer access contracts based on the new concept in its new access undertaking.
The new undertaking is currently being considered by the Queensland Competition Authority (QCA), but the new contracts have not yet been submitted for approval.
Stakeholders will have the opportunity to comment to the QCA.
Again the intention is that the new contracts will be available once approved.
Although the current draft retains some linkages between the train operator and the capacity contract, these are less direct and less onerous than the ARTC proposal.
There is a separate “driver’s licence” for operators that more closely follows the conceptual model.
QR Network also intends to allow for other types of contract such as the current train operator based model.
The Queensland Resources Council (QRC) is working to see that the best outcome is achieved and producers in Queensland should give the QRC their strong support.
Benefits
If the conceptual model is faithfully implemented, many benefits will flow.
The challenge is to prevent the benefits from being lost in the process of implementing the new model.
The early draft contracts for both coalfields show that there is a real possibility that the benefits will much less than could be achieved.
The window of opportunity is now open to influence decision makers, and coal producers will need to make a serious effort to convert this opportunity into tangible benefits for years to come. This effort will fall into three areas:
1. Understanding the proposals and their impact on your business.
2. Carefully considered input into the regulatory review processes and support of lobby groups.
3. Negotiation of new contracts with track owners and amendment to haulage agreements.
The resourcing requirement will be substantial, but the benefits will be well worth the effort.
* Paul Bugler is Director of Lacertus Verum, a company providing advice on rail access and other railway management related matters. Email Paul at paul.bugler@lacertusverum.com.au.