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BHP and Rio’s stranglehold on Pilbara rail is being tested, writes Leonie Wood. Klaus Clemens is a professional train buff. He might have started his career 30 years ago as an industrial chemist in the petro-chemical industry, but more recently Mr Clemens has taken to analysing train traffic for state rail authorities.
As a top-level consultant he considers rail demand, passenger flows, fixed timetables versus flexible scheduling, bottlenecks at rail junctions, and how the weight and speed of fully loaded freight carriages might affect the theoretical capacity of a rail system.
In other words, he tries to work out how a train controller might tweak little bits of a vast system to ensure more trains could be sent down the rails.
That is why Mr Clemens is appearing this week as a witness for Fortescue Metals in the Australian Competition Tribunal, which is sitting in Melbourne. Fortescue, considered by its much bigger rivals BHP Billiton and Rio Tinto as little more than an upstart iron ore producer with big dreams, is trying to gain access to four rail lines in the Pilbara.
Two of those lines, the Hamersley and Robe lines south of Dampier, are owned and operated by Rio. The other two, the Newman and Goldsworthy lines running south and east of Port Hedland, are wholly owned and operated by BHP. Fortescue wants the Competition Tribunal to declare those rail lines open-access routes for all comers – a move that BHP and Rio claim would curb the efficiency of their own mining operations, cut their revenue, cut their profits and therefore diminish the Commonwealth’s tax take.
From their court submissions, BHP and Rio are adamant that they simply cannot accommodate other players on their rail lines.
BHP’s estimates, detailed in expert reports to be scrutinised in coming weeks by the three-person tribunal, suggest that a 10 per cent drop in iron ore sent to port (which BHP says would be caused by interference and delays emanating from less efficient smaller miners using its rail lines) would cost the Australian community about $7.1 billion. Double that figure to gauge the effect of a 20 per cent reduction.
Rio, which blends all its iron ore near its shipping berths at Dampier, does not want any other miner using its rail system because, among other things, it says it might need to run an urgent load of ore all the way from, say, Yandicoogina in the eastern Pilbara down to the coast for blending with product from the western Pilbara. In other words, it wants maximum flexibility.
Whether that flexibility could admit other players on the rail network is something the competition tribunal has to consider. It’s a multi-billion dollar question with plenty at stake for all parties – indeed, the nation. Which is why there was plenty of commotion and a few flabbergasted faces in the tribunal last week when it emerged that BHP had very recently opened some kind of discussions with one of the smaller miners, Brockman Resources.
It was the tribunal president, Justice Ray Finkelstein, who drew the revelation from a witness, Brockman Resources’ managing director, Wayne Richards. After long cross-examination of Mr Richards by BHP’s counsel, Justice Finkelstein wanted to know whether Mr Brockman recently had been ‘‘in discussions with BHP about the use of the Newman line in any shape or fashion’’.
‘‘Yes,’’ Mr Richards replied, adding the ‘‘correspondence is as recent as a week or two ago’’.
‘‘When did the discussions begin?’’ Justice Finkelstein asked. But Mr Richards’ response was terminated by his own lawyer who leapt to his feet and requested confidentiality.
Exactly what those BHP-Brockman discussions entail is not yet clear to outsiders, because the tribunal immediately shut the doors for a private session. Mr Richards returned to Perth and he is under orders to deliver to the tribunal all documentation relating to the discussions.
He will resume giving evidence this morning by video-link.
Mr Richards’ revelation was indeed a very curious moment in what has otherwise amounted to a maze of detail about how to stack ore in chevrons, the configurations of shipping berths, the permutations of trucking or railing iron ore from mines to rail junctions, and the essential criteria for determining open access.
And of course there were Mr Clemens’s enlightening descriptions of efficient train networks.
He presented the tribunal with several fold-out pages, each measuring about one square metre, which charted highly detailed records of a day in the life of a train on one of the Rio rail lines. The data was supplied by Rio.
In columns, the charts listed everything anyone might need to know, including the time of departure, ore tonnage and type of train, the destination, driver’s name and time he started his shift. Indeed it was so detailed that Mr Clemens pulled from his jacket pocket a large magnifying glass and offered it to Justice Finkelstein (who, for the record, declined).
Explaining some of the coded language on the chart, Mr Clemens noted: ‘‘You will see in the middle of the page ‘struck dead cow’ ...’’
‘‘Ah, that’s probably literal rather than code,’’ Justice Finkelstein suggested.
‘‘To the left of the cow incident, not in red but in blue, you will see ‘CONV-stop’,’’ Mr Clemens said. ‘‘That’s a convenience-needs break, yeah? Personal needs, you pull the train up to go to the toilet.’’
The tribunal examined more incidents that might affect train schedules: suspected brake problems, delays with the ore dumper; all sorts of serious and trivial interferences that can throw out a big miner’s best-laid plans.
What Fortescue is seeking to prove is that the more errors or incidents on the train line, the more room there is for improvement – and if there is room for improvement, then there is room for a small miner or two to piggyback off the existing rail line.
At this stage, it is worth remembering BHP and rival, Rio, have their own dreams. They hope to marry up their Pilbara iron ore mining and rail operations in a merger that could only have been devised by companies with ferociously grand ambitions. The mooted merger is so big, it is easiest to measure in terms of the savings the two suggest could be wrested from their combined businesses: more than $11 billion.
The Sydney Morning Herald
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