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QRC, Aurizon at loggerheads over coal line maintenance

QRC, Aurizon at loggerheads over coal line maintenance

Photo by Aurizon

12th February 2018

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

     

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JOHANNESBURG (miningweekly.com) - The Queensland Resources Council (QRC) on Monday said it was "extremely disappointed" by Aurizon's move to pre-empt the state's regulatory process by moving to change its maintenance programme before the Queensland Competition Authority (QCA) process was completed.

Aurizon has announced that it would make changes to its planned maintenance programme in response to a December draft decision from the QCA, pertaining to the rail freight company's 2017 draft access undertaking.

The draft proposed that Aurizon's overall maximum allowable revenue for the next four years from the use of the central Queensland coal network should be A$3.89-billion, including a weighted average cost of capital of 5.41%.

The QCA also stated that Aurizon should spend less on maintenance than the previous regulatory period for a rail network that has A$1-billion more assets to maintain and which was forecast by the QCA to transport 15% more coal over the four-year regulatory period.

The revenue allowance is less than what Aurizon believed it should be allowed and it said that this would impact on its business, announcing that that it would revise its operating and maintenance plans.

"Our detailed review has confirmed that the draft decision contains fundamental errors and flawed logic. Aurizon will make a detailed submission by the March deadline. Unfortunately, we cannot wait for the QCA final decision to implement changes given the significant commercial impacts which, under the QCA process, are retrospective to July 1."

"The draft decision reflects a clear approach by the QCA to drive maintenance to the lowest possible cost regardless of the impact on the supply chain and the consequential reduction in volumes," Aurizon said.

However, the QRC said that the decision by Aurizon to move away from a flexible maintenance system, for the sake of A$25-million, to an inflexible system, would cost Queensland 20-million tonnes a year of coal exports.

"This is worth A$4-billion in export income and would cost the state government around A$500-million in lost royalties each year, enough to pay the wages for 7 388 teachers, or 7 060 police constables or 7 430 registered nurses," said QRC CEO Ian Macfarlane.

He added that Aurizon was using its power as the monopoly operator of the network and highlighted why the regulatory process needed to be followed to maintain a level playing field.

The QRC has called on Aurizon to step back from its decision and to engage with the regulator over any concerns with maintenance.

Meanwhile, Aurizon reported underlying earnings before tax and interest (Ebit) of A$485-million for its continuing operations in the half-year to December 31, and confirmed its previous guidance of underlying Ebit in the range of A$900-million to A$960-million for the full year.

Statutory net profit after tax increased by 52% year-on-year to A$282-million in the half-year. The change is as a result of the A$156-million of impairments that were recognized in the prior period.

Aurizon lowered its coal volume guidance for the year, as a result of the changes in its maintenance plans, to between 210-million tonnes and 220-million tonnes, from a previous guidance of 215-million tonnes to 225-million tonnes for the full year.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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