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 seeking access to Fortescue Metals' Pilbara rail and port assets (held in Fortescue's wholly owned subsidiary, The Pilbara Infrastructure or TPI). The companies disagree over whether Brockman can secure access, who should pay what, and whether Brockman has the financial capacity and need for spare rail capacity to justify negotiations.
Western Australia's economic regulator published a framework setting a maximum access price of $316.9 million a year and a minimum of $84.7 million a year for payments to TPI. The regulator also noted the maximum it set was about 45% lower than the maximum Fortescue had suggested in May.
Neither the regulator nor the companies could accurately say what the $316.9 million maximum would represent on a 'per tonne of iron ore' basis, so the direct per-tonne impact remains unclear from the information in the article.
Fortescue says it will not start final price negotiations until Brockman proves it has the financial capacity to build its Marillana iron ore project and demonstrates that there is spare capacity on the railway for it to use. Under WA third‑party access laws, Fortescue can refuse negotiations until those issues are addressed.
Brockman says it cannot properly evaluate the financials of its Marillana project until it has certainty over the nature and cost of its transport solutions — specifically whether it can access Fortescue's rail and at what price.
The article explains a likely two-step arbitration path: first, Brockman may ask an arbitrator to rule on whether its financial credentials are sufficient to require Fortescue to begin price negotiations. If negotiations go ahead but fail to reach agreement, a second arbitrator would be appointed to deliver the final verdict on how much Brockman should pay for access.
The dispute highlights that transport infrastructure value can be as important as iron ore itself in the Pilbara. The outcome — including lengthy arbitration and unresolved per‑tonne costs — adds uncertainty for Brockman's project viability. The article also notes Brockman's reported loss of about $66.4 million for the year to June 30, 2013, and Fortescue's view that its shareholders should not subsidise uneconomic third‑party projects.
The main companies are Fortescue Metals Group (and its wholly owned Pilbara Infrastructure subsidiary, TPI) and junior miner Brockman Mining. Key individuals quoted in the article are Fortescue CEO Nev Power and Brockman boss Russell Tipper. The Western Australian economic regulator is the government body that published the access pricing framework.
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