Logistics, Ports & Terminals, Mining and Heavy Industries

Aurizon could be biggest loser in WICET fallout

Train on its way to WICET. Photo: Aurizon

Aurizon says a dispute with the owners of Wiggins Island Coal Export Terminal (WICET) over payments for the terminal’s rail loop could cost it up to $27 million every year for the next two decades.

The Queensland-based rail operator announced a deal in September 2011 with the eight mining companies involved in WICET, known as the Wiggins Island Rail Project.

Under the contract, ASX-listed Aurizon covered the cost of building an $843 million rail loop to deliver coal to WICET. In return, the mining companies were to pay Aurizon back over time, presumably as they used the rail connection to export coal to international buyers.

However, with the market for seaborne coal now in the proverbial toilet, and the rail loop built, the seven WICET proponents who are still solvent have reportedly asked Aurizon to cut them a new deal. (One original WICET proponent, Bandanna Energy, went into administration late last year.)

Aurizon told the ASX on Monday morning it was disputing the validity of notices it received from the seven miners.

“Those notices purport to exercise a right under the relevant agreements to reduce the financial exposure of those customers to Aurizon Network in respect of the Wiggins Island Rail Project,” the rail company said.

Aurizon warned that if the miners’ claims are valid, they could cost the rail operator a total of $509.5 million over a 19.5 year period.

“The effect of the notices, if valid, would be to substantially reduce the above regulatory return component of project revenue that Aurizon Network will receive under the Project Deeds,” the company said.

“The exact impact would be dependent upon a number of variables by which the above regulatory return component is calculated, some of which are yet to be determined.

“Accordingly, at this point in time Aurizon can provide guidance that the annual impact would be in a range from $0 to $27 million in Earnings Before Interest and Tax per annum over the 19.5 year life of the above regulatory return component.”

The company did stress that in the current financial year, the miners’ claims could only impact its EBIT by $10 million.

Aurizon delivered first rail for WICET in April 2015, and trial coal shipments began in May.

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