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Aurizon is furious with a draft Queensland Competition Authority decision on the cost of access to its Queensland coal rail network, claiming it could leave a hole of almost $1 billion in its revenue.
Shares in the rail group crashed 5.9 per cent to close at $5.09 on Monday after the QCA published its draft decision on the access undertaking that will regulate Aurizon's coal network between July 1, 2017, and June 30, 2021.
Aurizon claimed the QCA "has made fundamental errors and miscalculations in its assessment" and said the maximum allowable revenue the company can earn under the draft decision over the four-year period is $999 million lower than where Aurizon believes it should be, at $3.9 billion.
It is also $40 million below the maximum allowable revenue set under the previous access undertaking, despite the fact Aurizon will be required to maintain an asset base that is $1 billion larger and will transmit an extra 130 million tonnes.
"This is strangulation – not regulation," chief executive Andrew Harding told The Australian Financial Review.
"The Central Queensland Coal Network is the biggest infrastructure asset in Queensland and at the heart of our national export industry.
"Not investing properly to maintain that asset risks not only the integrity of the existing network but also future jobs and growth linked to expansion."
Risk to earnings
Aurizon wanted users to pay an average of 60¢ extra for every tonne of coal hauled on the CQCN over the four years in real terms, compared to what they are paying under the current access undertaking.
Aurizon is particularly incensed that the QCA has determined Aurizon's weighted average cost of capital should be 5.41 per cent, whereas the Australian Competition and Consumer Commission recommended this year that the government-owned Hunter Valley Coal Network should have a WACC of 6.3 per cent.
Analysts have long seen the negotiations over the new access undertaking, known as UT5, as a risk to Aurizon's medium-term earnings.
Morgan Stanley analyst Rob Koh said the decision could wipe as much as 8 per cent off Aurizon's earnings in 2018-19 if the draft undertaking was made final.
Macquarie described the QCA draft as a "hostile decision".
"We anticipate Aurizon will negotiate with the QCA in good faith, highlighting the errors in law, such that they can establish a potential claim. However, as any successful appeal will simply see the decision sent back to the QCA to reconsider, we are not sure it provides comfort for investors."
Coking coal prices have surged as high as $US300 a tonne in recent months due to supply interruptions in Australia – particularly Cyclone Debbie in April, which left large stockpiles of coal across the system –and strong demand.
Aurizon says it will take its concerns directly to its customers, who it says would see a "substantial adverse impact on the volume and timeliness of delivery of coal" if the draft was allowed to stand.
The undertaking is not expected to be approved until June 30, 2018.
Read more: http://www.afr.com/business/mining/coal/aurizon-furious-with-regulators-draft-decision-on-queensland-coal-rail-access-20171218-h06lgt#ixzz51wVtTHi9
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This article first appeared on www.afr.com
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