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Aurizon has ended an acrimonious battle with Queensland’s competition regulator after deciding not to pursue a legal fight over a ruling that crimps its revenue.
The Queensland Competition Authority first issued a draft decision just over a year ago proposing to cap the company’s four-year revenue at $3.88 billion — almost $1bn less than Aurizon had proposed — as well as cutting its maintenance allowance and rate of return to investors. A final ruling in December gave some ground to Aurizon, lifting the company’s proposed revenue cap from $3.88bn to $4.1bn. The rate of return was raised from 5.4 per cent to 5.7 per cent.
The listed rail company, which had been weighing legal action, said it had decided not to pursue QCA’s final decision. “The 28-day statutory period has expired and Aurizon has not sought judicial review of the final decision,” Aurizon said in a statement yesterday. Aurizon had asked for a 7.1 per cent rate of return, noting the 5.4 per cent proposed by QCA was well below the 6.4 per cent granted to NSW’s Hunter Valley Coal Network by its regulator. The rail operator is still required to submit an amended draft access undertaking by February 18 to the QCA after the regulator yesterday granted an additional two weeks from the original February 4 deadline.
After the QCA’s draft decision last year, Aurizon launched a cost-cutting drive that mining companies warned would halt up to 20 million tonnes of coal exports each year, blowing a $2bn hole in state budget forecasts. The miners accused Aurizon of trying to hurt the industry to boost profits, refusing to engage with miners and breaching state laws by implementing restrictive maintenance programs. Investor concern over the QCA ruling, which impacted the company over the past 18 months has now subsided, according to Credit Suisse. Since the draft decision was delivered in December 2017, Aurizon shares have fallen 19 per cent, closing at $4.40 yesterday, with about $2bn wiped off the company’s market value. “Regulatory uncertainty plaguing Aurizon for the past 18 months has abated,”
Credit Suisse analyst Paul Butler said in a note to clients. “We expect it to accept the final decision and provide for the repayment of $90m of network revenue over collection during the past 18 months.” Aurizon shareholder Investors Mutual backed the company last year in saying the ruling did not allow Aurizon to earn a realistic return and would severely damage investor confidence.“Unless the draft decision is revised to be more in line with commercial realities, it will ultimately have the effect of reducing the capital available for companies involved in infrastructure in future and it will act as a great deterrent for investment in Australian infrastructure,” Investors Mutual said in an April 2018 submission to the QCA on its draft decision.
This article first appeared on www.afr.com
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