Will Bligh change tracks?

It would be hugely surprising if Queensland Premier Anna Bligh wasn't having strong second thoughts about supporting the proposed $7 billion float of Queensland Rail, in view of the renewed nervousness in global sharemarkets.

QR chief executive Lance Hockridge is presently off on an international road show for the float, spruiking the benefits of the investment to international investors. And no doubt he's reporting back to his political masters that offshore investors are keen to take a stake in the company.

But Bligh plays a more careful game. She'll be aware that investors have been burnt recently in the big floats such as Myer, Kathmandu and Miclyn Express, with share prices of all three companies now trading well below the issue prices. And she'll be aware that this will cause investors to cast a very critical eye over her own QR float.

Her decision is made even more difficult because an extremely viable alternative to the QR float has emerged, courtesy of the decision of 11 coal companies to make a $4.85 billion cash bid for QR's central Queensland coal track network. The price that the miners are offering to buy the rail tracks is seen as being pitched at a generous premium to the regulated asset base of the tracks.

In addition, industry experts estimate that Bligh could pick up a further $2 billion or so by selling QR's rail haulage operations to private equity groups or infrastructure funds. As a result, Bligh could be reasonably confident of picking up close to $7 billion from the sale of the QR assets without having to run the risk that the share market could deteriorate badly and force her to cancel the QR float.

What's more, if Bligh sells off the rail coal tracks to the deep-pocketed coal miners, she'll be freeing Queensland taxpayers from the future obligation of having to share in the $5 to $10 billion cost of upgrading and expanding the rail network.

Under the existing QR float plans, the Queensland government could end up with a 25-40 per cent stake in the business. Obviously, if the demand from, investors is weak, the government will end up holding a larger share of the business.

The problem is that this means that the Queensland government will also be required to fund its share of QR's capital expenditure going forward. It's not impossible that Anna Bligh could receive, say, $4.2 billion for selling off a 60 per cent stake in QR, only to find that she's obliged to fork out $4 billion or so in coming years to upgrade the rail tracks.

In contrast, if she sells the track to the miners, it will be up to them to pay for the upgrades. And the miners are said to have already put in place a multi-billion bank facility to cover future spending on upgrading and extending the rail track.

The other extremely important benefit from the miners' bid is that it will mean that Queensland ends up with a much more competitive rail industry.

In its haste to pick up the biggest possible cheque from selling off QR, the Queensland government was happy to turn a blind eye to competition issues.

The competition issues stem from the fact that the QR business consists of two separate sections – the rail tracks (which are a monopoly asset) – and the rail haulage business (where QR faces competition from groups such as Mark Rowsthorn's Asciano).

Now, it's abundantly clear from the whole Telstra experience that if a government wants to foster competition, it should split off the monopoly ownership of the infrastructure assets from the provision of rail haulage services. Otherwise a privatised QR will have a huge incentive to use its monopoly over the rail assets to freeze out competitors in the rail haulage business. But the Queensland government was no doubt advised that it'd get a much better price for QR if the two divisions were kept together.

Anna Bligh will probably be feeling a little bruised by the criticism she's copped from her federal colleagues for not splitting up QR before the float.

And she'll no doubt note that one important feature of the miners' bid for the QR tracks is that they're proposing to introduce the federal government-owned Australian Rail Track Corporation as an independent manager of the tracks. ARTC is ideally placed to manage the QR rail tracks, because it has a long record of running rail track maintenance and upgrades and reliable traffic control systems. In addition, it has the necessary experience in preparing schedules that allow a variety of different users to access the rail track. This should go a long way towards reassuring groups such as Asciano, which has raised legitimate concerns about what sort of playing field it's likely to see once QR is privatised.

But as a prudent Premier, Anna Bligh will be aware that the miners' bid allows her to neatly side-step a lot of those tricky competition issues associated with the QR float. But even more importantly, she'll appreciate the benefit of the $4.85 billion in hard cash they're offering, especially now that global equity markets are looking a lot more wobbly.