The Minerals Council of Australia (MCA) says the current debate over regulation of Australia’s ports runs the risk of missing the fundamental point in addressing the systemic failures in Australia’s minerals export corridors. MCA Chief Executive, Mitchell H Hooke, said “the debate should be about the efficiency and effectiveness of the export infrastructure system – mine production, track, trains, and ports – and not merely one element of it – the regulation of ports.”

The MCA welcomes the current focus of discussions at the Council of Australian Governments (COAG) and anticipates the debate will be much broader than merely the question of regulatory institutional arrangements governing ports. It says COAG should focus on the need for simple, transparent, nationally consistent regulation that promotes efficiency and alignment of capacity and economic interests throughout the entire export chain. And there should be due recognition of the real progress in gearing up Australia’s export capacity on account of improvements in regulatory outcomes and a significant increase in public and private investment in capacity. Nevertheless, the large coal shipping queues demonstrate the imperative for further regulatory reform and investment in expanded capacity.

MCA belives the Australian Prime Minister’s Export Infrastructure Task Force got it right – the system is best served by market based solutions, regulation only where the market is failing, and a national regulator where there is a failure in national consistency across existing State regulators. Market based solutions are best served by an alignment of those with a direct economic interest in the operation of the logistics chain, such that those with direct interest have direct equity – that is, the minerals producers, and the owners and operators of the rail system and the ports. It is only where there is an alignment of capacity and pricing with performance that the fundamental economic drivers for improved cooperation and coordination in the use and expansion of infrastructure is optimised. That is, those with direct equity share the costs and the benefits of throughput.

The iron ore export infrastructure in the Western Australian Pilbara is an optimal alignment model, where the iron ore producer is the owner and operator of the rail system and the ports. In these cases, the system is vertically integrated – so by definition, interests are aligned – and subject to very little economic regulation – their response to increased global demand has been timely, effective and efficient.

In contrast, Australia’s east coast coal export corridors are a complex system of multi-user and multi-owner public/private infrastructure – and thus all parts of the coal chain are only generally aligned and have different economic drivers. For example, the NSW Hunter Valley export coal chain comprises many individual coal producers, two major rail track providers, two train operators, the port is owned by the Government, the coal loading facility is provided by a private coalition of companies, and bulk shipping is not synchronised. As a consequence, the export system has struggled to efficiently and effectively meet the increasing global demand for coal, incurring significant demurrage and opportunity costs. This, notwithstanding a significant improvement in regulation and a significant increase in public and private investment in capacity.

Over the last 18 months or so, MCA reports, there has been significant investment increasing coal port and rail and rolling stock capacity. In excess of A$500 million of public and private sector investment has been made in the New South Wales (NSW) Hunter Valley and about A$700 million in port expansions in Gladstone Port in Queensland, along with A$320 million of public investment in various rail line upgrades and expansions in Queensland. More than A$400 million has been invested at the Dalrymple Bay Coal Terminal in Queensland with a further upgrade of A$640 million committed and A$200 million in expansions are underway at Abbot Point and Hay Point Coal Terminals.

All this has increased coal export chain capacity in Queensland and NSW by around 13% and 21% respectively. And more is planned, such that by 2008 there is an estimated increase of 35% of capacity in Queensland and a further 12% in NSW. There are a number of key initiatives under consideration, which include:

• Queensland Government feasibility studies on a new rail link and complementary port capacity at Abbot Point
• Further expansion of the Hay Point Coal Terminal to 55 Mt/y – committed (an increase of greater than 25%)
• Further expansions and new facilities at Gladstone Port
• A$530 million for the construction of a third coal loading terminal at Newcastle in NSW with an estimated initial throughput of 30 Mt/y.

However, the MCA contends that “despite this significant increase, there is a continuing imperative for further co-ordinated planning and investment in vital export infrastructure, which cannot be artificially constrained by an unresponsive, inefficient, poorly co-ordinated, nationally inconsistent regulatory system.