Pilbara rail access dispute comes to a head

A rail access stoush between Fortescue Metals and iron ore aspirant Brockman Mining could be two lengthy arbitration sessions away from conclusion, after a cost judgment by a government regulator did little to unite the two companies on Thursday.

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.