Tuesday 14th Aug, 2018

Aurizon takes QCA to court over chairman’s alleged bias

Coal wagons Aurizon. Photo: Aurizon
Photo: Aurizon

Aurizon has formally accused Queensland Competition Authority chairman Roy Green of allegedly failing to remain impartial, telling the Supreme Court that Green’s new role as chairman of the Port of Newcastle represents a serious conflict of interest.

Aurizon Network, which is engaged in a fierce battle with the QCA over how much revenue it should be allowed to earn from its operation of the Central Queensland Coal Network, applied to the Supreme Court of Queensland on April 30, for a judicial review of the QCA’s process.

The QCA late last year told Aurizon it should only earn $3.9 billion in revenue operating the CQCN between July 2017 and June 2021. Aurizon believes a fair revenue figure to be almost $5 billion.

Now the Brisbane-headquartered rail operator has alleged Green’s vested interest in the profits of the Port of Newcastle helped motivate a tough QCA decision.

Green was announced as the Port of Newcastle chairman in December last year.

Aurizon is arguing the revenue constraints defined in the QCA’s draft decision will limit capacity on the CQCN, and said miners who operate in both the Hunter region and in Central Queensland will be more likely to invest in the Hunter, where network capacity will not be so limited.

Extra investment in Hunter mines would no doubt be good for the bottom line at the Port of Newcastle, where the region’s coal is exported.

Aurizon on Monday told the ASX it had applied for the Supreme Court to tell the QCA to set the decision aside.

“This application results from the QCA Chairman, Professor Roy Green also being the Chairman of the Port of Newcastle in NSW, part of the Hunter Valley coal supply chain,” Aurizon said.

“Aurizon Network is seeking Judicial Review of the Draft Decision on the basis that it was affected by legal error because the Queensland Competition Authority did not afford procedural fairness to Aurizon Network due to Professor Green’s conflict of interest and the apprehension of bias.”

Throughout its ongoing conflict with the QCA, Aurizon has repeatedly compared the proposed access regime for the CQCN with that applied to the Hunter Valley rail network by the ACCC.

Weighted Average Cost of Capital (WACC), a key component of the competition authorities’ calculations, has been a keen focus for Aurizon. The QCA is saying Aurizon can have a WACC of 5.41% on the CQCN, while the ACCC has applied a higher 6.3% WACC on the Hunter network.

Aurizon has questioned why the WACC figures could be so far apart for two similar assets in the same part of the world, moving large volumes of the same commodity.

“We maintain the very strong view that the proposed rate of return of 5.41% does not promote the economically efficient operation of the asset nor incentivise investment in the network,” Harding told a coal investment conference in Japan on April 26.

“The rate of return proposed by the regulator makes our coal network one of the lowest rated regulated assets in Australia.”

Aurizon this week said it would continue to work with the QCA and its Queensland coal customers throughout any court proceedings.

Miners remain unhappy with the rail operator, which earlier this year rolled out a less flexible maintenance program for the CQCN, because of the QCA’s draft decision. The new program will limit annual capacity on the network by roughly 20 million tonnes per annum, Aurizon said.

The Queensland Resources Council says Aurizon has acted too hastily in making the changes, and should wait until the QCA’s final decision is formalised later this year.

But Aurizon boss Andrew Harding has said the company was forced to act as soon as possible on the draft decision, given it will apply to revenue that has been earned since July last year.

Harding has also said he doubts the QCA will change any of the key components of its decision, between its draft and final stage.

“The regulator advocates lowest-cost maintenance practices rather than the flexible work practices that Aurizon had used to maximise throughput for customers,” Harding told the Japanese conference last week.

“As a commercial business, we just cannot continue to incur costs that might not be recovered.”