Pilbara rail access dispute comes to a head
The long-running access dispute took a significant step forward when Western Australia's economic regulator published a maximum price for access to Fortescue's port and rail assets that was 45 per cent lower than the maximum Fortescue had suggested in May.
Fortescue's rail and port assets are held in a wholly owned subsidiary - The Pilbara Infrastructure - and the regulator ruled that the maximum paid to TPI by both Fortescue and Brockman should be $316.9 million a year.
The regulator also set a minimum price of $84.7 million a year; the two companies are theoretically supposed to agree on a price between those two numbers.
Neither the regulator nor the companies were able to accurately say what the $316.9 million maximum cost would represent on a "per tonne of iron ore" basis.
Despite the regulator finally delivering its verdict, Fortescue insisted it would not start negotiating a final price with Brockman because the junior had not proven it had the financial capacity to build its Marillana iron ore project.
Fortescue said Brockman had also not proven there was spare capacity on the railway for it to use.
Under the complex nature of WA's third party access laws, Fortescue has the right to refuse negotiations with Brockman until those issues are addressed.
Brockman has countered by saying it cannot properly evaluate the financials of its project until it has certainty over the nature and cost of its transport solutions.
With the situation seemingly deadlocked, Brockman is expected to ask for an arbitrator to judge whether its financial credentials are good enough to demand Fortescue begin price negotiations.
If those negotiations are allowed but fail to produce an agreement, a second arbitrator will be appointed to deliver the final verdict over how much Brockman should pay to access the infrastructure. The saga has reinforced the maxim that transport infrastructure, rather than iron ore, is the most valuable commodity in the Pilbara.
Fortescue chief executive Nev Power continued his attack on Brockman's financials on Thursday.
"Fortescue shareholders are not obligated or required, under any agreement or legislation, to subsidise or risk wrap third party projects that are uneconomic," he said.
Brockman boss Russell Tipper said he was pleased to now have a costing framework.
"This framework further enhances Brockman's ability to demonstrate the financial viability of its project to progress access negotiations," he said.
The comments coincided with the release of Brockman's financial results in Hong Kong, which showed the company had recorded a loss of about $66.4 million for the year to June 30, 2013.
Frequently Asked Questions about this Article…
The dispute centres on Brockman Mining wanting access to Fortescue’s Pilbara rail and port infrastructure (held in a Fortescue subsidiary called The Pilbara Infrastructure or TPI). The companies disagree over who should use the railway, whether spare capacity exists, and the price Brockman should pay to transport its Marillana iron ore project.
The regulator set a maximum annual price of $316.9 million to be paid to TPI by both Fortescue and Brockman, and a minimum annual price of $84.7 million. The companies are supposed to agree on a price somewhere between those two numbers.
The regulator’s maximum price of $316.9 million was about 45% lower than the maximum figure Fortescue had suggested back in May, according to the article.
Neither the regulator nor the companies could provide a reliable ‘per tonne of iron ore’ figure for the $316.9 million maximum, so a clear tonnes-based rate was not available from the ruling.
Fortescue says it will not negotiate until Brockman proves it has the financial capacity to build the Marillana project and until Brockman proves there is spare capacity on the railway for it to use. Under WA’s third-party access laws, Fortescue can lawfully refuse negotiations until those issues are resolved.
Brockman says it cannot properly assess its project financials without certainty on transport nature and costs. The company welcomed the regulator’s costing framework and says it helps demonstrate the financial viability of its project as access talks progress.
Brockman is expected to ask an arbitrator to decide whether its financial credentials are sufficient to force Fortescue to begin price talks. If negotiations are allowed but fail, a second arbitrator would be appointed to set the final access price. Investors should expect potentially lengthy arbitration sessions before a definitive outcome is reached.
Brockman reported a loss of about $66.4 million for the year to June 30, 2013 (released in Hong Kong). Fortescue has pointed to Brockman’s financials as part of its argument that Brockman has not proven it can fund the Marillana project, which affects whether Fortescue must enter negotiations.
Call 1300 880 160
Start a chat
Schedule a call
