CBH takeover could solve Tier 3 woes

20 Feb, 2015 03:00 AM
Comments
7
 
What will happen to Western Australia's growers if we continue down this destructive path?

THE best solution for Tier 3 rail line lines would be a CBH takeover but that outcome might require taxpayer support, says WA Farmers grains council president Kim Simpson.

Mr Simpson was one of several witnesses quizzed about the controversial closure of Tier 3 rail lines at a public hearing of the federal Senate inquiry into grain logistics earlier this month in Canberra.

The inquiry focused largely on the wheat port code access agreement and its controversial o-op exemption which saves CBH an estimated $1 million per year in reduced red tape costs.

But Western Australian Labor Senator Joe Bullock consistently asked witnesses about the impacts of Tier 3 rail lines closing last year, including road safety and maintenance issues caused by about 30,000 additional truck movements per year.

“Do you know whether CBH would put their hat out to the taxpayer or whether they would get those rails open and running without putting a burden on the taxpayer?” Senator Bullock asked Mr Simpson.

Mr Simpson replied, “I suspect that they may not be able to do that on some of those (rail lines) without assistance”.

“To be fair, Brookfield has not done it without assistance, either,” Mr Simpson said.

“And they have had a lot of federal and state money go into it. So goodness knows where that went.

“But I am sure that CBH, with the rail operators they have in place, would be able to keep a large portion of that rail functioning and therefore keep those trucks off the road, and save the growers money at the same time.”

Negotiation period in play

Last week a determination was made by an independent arbitrator on CBH’s proposal to access the Tier 3 and Miling grain freight lines operated by Brookfield Rail.

The ruling has not yet been released publicly but the two key parties now have a 90-day negotiation period to reach an access agreement.

CBH chief executive Andy Crane told the Senate Rural and Regional Affairs and Transport References Committee inquiry his co-op had made representations to government about operating Tier 3 lines, during the recent arbitration process.

He said some maintenance “catch-up” was needed because those lines “have been neglected” because the access fee – charged by Brookfield Rail – hadn’t been going towards Tier 3 lines.

Dr Crane said he believed after the catch-up maintenance was performed, CBH could take on the operation and maintenance of Tier 3 lines and “hand them back at the end of the lease”.

He also told the Committee hearing that CBH had invested $175 million in buying new trains on behalf of its grower members, which had seen freight rates to port drop 7 per cent in year one.

Mr Simpson backed that statement by saying immediately prior to the Tier 3 lines closing, CBH had proved they should remain open by carting record tonnages of grain with their new train sets.

He said Brookfield had been taking between $40 million and $50 million a year off growers as access costs to those lines, since taking over the lease in 2000.

Mr Simpson said he was unaware what the legal solution would be to the Tier 3 issue, due to not knowing the contract details.

But he said the best solution would be if Brookfield was to “surrender those Tier 3 lines to CBH”.

“CBH has the rolling stock and the operator capable of using the lines that are still usable,” he said.

CBH general counsel Richard Codling said the 2009 Strategic Grain Network Committee report had estimated the cost to maintain Tier 3 lines was $93 million.

“We do not believe it is anywhere near that level,” he said.

Dr Crane said he believed the cost was a lot less.

“We believe that that money can be better spent when it is well spent and well overseen, when the money goes into the lines,” he said.

“It is not a huge number to get them back up and running.

“We were putting 6000 tons a day down those lines until the very day they were closed.”

Dr Crane said CBH invested about $85 million a year into its logistics network, in capex and maintenance, and had “boosted” that number due to large crops in the past two seasons, including $155 million in one of those years.

He said CBH had also invested significant in rail loading capacity including on Tier 3 lines.

Stranded assets

But CBH government relations adviser Paul Scott said, “I think we have got stranded assets”.

Dr Crane said Brookfield Rail had also commented, a few years ago, that, “whilst all were preoccupied with Tier 3, it is only a harbinger of what is going to happen to Tier 2”.

He said a Tier 2 line was already subject to closure.

“Something is dreadfully wrong,” he said. “CBH's approach is to get strongly involved. We invested in trains.

“There is a risk in investing in trains when you do not have a really well-patrolled lease or certainty over access fees, but that made us the customer of those access fees.

“It brought us into being the customer of Brookfield. It also led us to learn so much about the rail line inefficiencies and what we can do.

“We brought an American operator to operate and maintain those locomotives and wagons for us.

“They specialise in short track and these sorts of crow's feet lines that can be maintained to a low, acceptable standard - it is not a battle between gold standard and shut.

“We have learnt a lot, and that is what has taken us to the point of then trying to negotiate that as well.

“So now we have made an application under the code. We are not giving up on Tier 3.”

Brookfield lease queried

The Committee hearing also focused sharply on the State government’s decision to award a 49-year lease awarded to Brookfield Rail, when the network was privatised.

A report tabled in WA parliament late last year from an inquiry by the Economic and Industry Standing Committee was highly critical of the decision, with critics saying it was a lesson in how not to privatise a public asset.

Mr Simpson said WAFarmers had been trying to talk to the State government about Tier 3 rail closures, “for a very long time”.

But he said it was “very hard to get a hearing, because it is very hard to understand exactly what went on during all of those negotiations all those years ago”.

“I suspect the reason the politicians do not want to talk to us too much is because it is such a debacle, and they have got no answer to it,” he said.

In expressing his criticism of the rail deal, committee chair and WA Labor Senator Glenn Sterle said, “Someone should go to jail for that”.

“Politicians are paid very, very well - and they are not paid very, very well to hide behind mum's apron strings,” he said.

“Get out there and make a decision.

“Quite frankly, I do not care what persuasion or what political colour they are; that is their job.

“What will happen to Western Australia's growers if we continue down this destructive path of: 'Nothing to see here; move along - we're not going to put any money into the rail network'?”

Mr Simpson said he didn’t have an exact figure but estimated the additional cost to growers impacted by Tier 3 rail closures may be up to $7 per tonne. He said 99.9 per cent of WA’s grain was exported so it had to be moved to port.

“In real terms, farming has got tougher for about the last 50 years,” he said.

“The real price of most produce is going the other way.

“So, any cost they can save helps keep them there.

“Obviously all of our grain, or 99.9 per cent of our grain, has to go to port, because it is exported, so it has to get there.

“That is the biggest drawback we have in our system in WA.

“And closing those Tier 3 rails is going to cost them more.”

Senator Bullock told Mr Simpson, “You might have a chat with (WA Labor Leader) Mark McGowan”.

“He is looking for new friends,” he said.

Question marks

WA Pastoralists and Graziers Association grains committee chair John Snooke also made a rare foray into the Tier 3 rail issue, at the Senate inquiry.

Mr Snooke also said “There are certainly some question marks over Brookfield” and “I am in no way going to support them”.

But he said overall, the rail issue was very broad and complex with “a huge history behind it”.

“Firstly, the PGA always takes the view that our members want to seek the least-cost pathway to port, so we try always to abide by that principle and policy,” he said.

“We could actually point to all players involved in the dispute and point out some things they have done wrong. It is as simple as that.

“Brookfield gets a lot of criticism. It is an outside and an easy target, but on this matter you can equally blame CBH, the state government and some grower groups.”

Mr Snooke pointed to the SGNC review which showed that grower groups were “very happy for the Tier 3 lines to be wound back” having been found to be uneconomical.

“And yet we have now some grower groups who want all this Tier 3 back when they are in a dilapidated state and they agreed to winding them back only a few years before,” he said.

“That review is worth a read.

“It is a very good review of the grain freight network in WA and makes the case with everyone on board that some of these lines have a use-by date and should be wound back.”

Mr Snooke said PGA had not been actively in the Tier 3 rail debate but were during the SGNC report process and “”we support rail”.

“There standard-gauge line in WA is a great asset and Tier 2 components of the railway system we absolutely support,” he said.

“The grain task in WA is not that big relative to all the other general freight.

“So we need good roads and sometimes that is lost in this argument.”

Mr Snooke said agreement between Brookfield Rail and the State governments had elements of confidentiality which needed to be respected.

FarmOnline
Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Deregul8
20/02/2015 7:40:41 AM

It is as simple as this, one multi million tonne up country storage and handling facility owned by a foreign multinational in the Kwinana catchment will sign the death of tier 3 and many tier 2 lines. Growers will fill this site at harvest via trucks rather than build storage and wait for tier 2/3 trains to be able to get their wares to market in an untimely fashion. If CBH lumbers itself with the cost of rebuilding a narrow gauge rail network, it will all but guarantee it loses tonnes to the competition as close to port farmers seek to rid themselves of cross subsidy potential.
X Ag Socialist
20/02/2015 6:02:59 PM

How could anyone build a multi million tonne up country storage and handling facility, D8, when according to you we are all going to store on farm? they must be growing more than grain and oilseeds up at Calingiri, D8, or are you down at West Perth?
Deregul8
23/02/2015 8:17:00 AM

Oh dear Socialist you are in for a free market shock. And all your agsoc mates down the local footy club will be sending wheat past the local CBH bin to get to the standard guage supersite. This will be a mortal blow to CBH and the board is ill equipped to cope.
X Ag Socialist
23/02/2015 9:47:48 AM

I actually do use two super sites, D8, scope barley to Merredin and oats to Brookton. Both have good rail links to CBH Kwinana Port Terminal. And just to show unlike you I actually do get in a pocket road train and cart something, the weighbridge operator there for most of the loads I carted was named Clare, a polite young lady. She did a great job.
Deregul8
24/02/2015 12:33:18 AM

We'll see how you go delivering Scope barley and oats to the supersite/s when average rainfall returns to the Eastern Wheabelt. The header will be parked up more often than it is harvesting. Good problem to have but that is when you'll notice the S&H costs taking an unreasonably large chunk of your profits. The solution is corporatisation to encourage loyalty and renewed strength to reinvest in the core business of the WA grain harvest handle. With choice and a $2 share they are all going to jump ship and CBHs core business will be the Eastern Wheatbelt.
X Ag Socialist
25/02/2015 8:51:32 AM

No problems, D8, my main crop is wheat and the Local CBH bin is well serviced by a very proficient contractor. Who knows, the ALP might win the next election and not let Brookfield Rail pull the wool over their eyes like they have been doing to our current state government.
Jock Munro
2/03/2015 1:56:25 PM

A fellow from WA with very good connections told me that deregular is a consultant-is this correct?

POST A COMMENT


Screen name *
Email address *
Remember me?
Comment *
 

COMMENTS

light grey arrow
In a sovereign country with its own currency there is no need for foreign capital. The need for
light grey arrow
I'm sure u are familiar with the term "divide and conquer" Sen Wang, the major role of gov't is
light grey arrow
In the meantime,somewhere on Brisbane Ave........more of the same! "Those pests from the