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Queensland: coal industry complains of infrastructure bottlenecks affecting increased exports.

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Wednesday, 16 February 2005



STEPHEN CRITTENDEN: Later today BHP Billiton is expected to announce the largest interim profit in Australian corporate history. Its healthy bottom line has been boosted by soaring commodity prices and unprecedented demand from China. And yet it’s in this prosperous business climate that we’re starting to hear the term ‘infrastructure bottleneck’ more and more. It’s a term which refers to delays, or potential delays in the supply chain, and delays where the solution to those delays is further capital investment.


And nowhere is this more obvious than the coal chain, with pressure on ports, rail lines and water capacity, Everyone from the Reserve Bank down knows that the key to boosting exports is to fix these bottlenecks. But who pays and who invests is a complex issue. Tim Latham reports.


TIM LATHAM: This week up to 40 ships are queued off Dalrymple Bay near Mackay, Queensland. The coal terminal is run by Prime Infrastructure and it says the ship queue is not its doing, rather it’s the coal producers who are in a frenzy over record prices and global demand. They order the ships, it seems, without any communication with the port.


Susan Johnston is Chief Executive of the Queensland Resources Council.


SUSAN JOHNSTON: What we’re seeing, Tim, is a very significant and we believe sustained increase in demand for coal, and that’s of course leading to price increases. Our projections indicate that there could be up to 60 per cent growth in coal railed from central Queensland for export over the next five to 10 years—we think closer to five. So there’s an enormous increase in requirements for Queensland coal.


TIM LATHAM: The rail, port and water infrastructure in Queensland is now at capacity. Expansions are under way at Gladstone and Hay Point terminals, but additional infrastructure is needed if the state wants to snare a greater share of the export market. Susan Johnston.


SUSAN JOHNSTON: You see, we could continue to export to existing customers at the rate that we’re doing right now and it wouldn’t disadvantage mines with those existing customers. But what we would do, if we couldn’t meet the increase in demand, is ensure that Queensland’s share of coal exports, as an international, on an international basis would decrease. There’s a huge opportunity out there. If we can’t take it up then other people will. And it’s, I think, very sad to see a situation where it’s not a constraint because of coal, it’s not a constraint because of companies’ willingness to invest, it’s a constraint because of lack of infrastructure capacity.


TIM LATHAM: And this is what infrastructure bottlenecks are. It’s where a company wants to expand but can’t or won’t because of the lack of capacity down the line. And we’re not only talking about ports and trains and water, but also decisions by regulators and state governments—which brings us back to those 40-odd ships off the coast of Mackay.


SUSAN JOHNSTON: If you take, for example, Dalrymple Bay, which is one of the major coal terminals in the north, near Mackay, there is a process in place that requires a decision from the Queensland Competition Authority as to whether or not the access regime for coal companies which is being proposed by the Dalrymple Bay coal terminal company is adequate, is appropriate. That process actually started off in July 2003, and as of right now, in February 2005, we do not have a final determination on what the access arrangements should be.


When you think about that, that’s more than 18 months. It’s around about the same period of time that it takes to add on an expansion to an existing coal site. So it’s not that the infrastructure is taking an incredibly long time to build, as such. It’s that the decision-making process itself is taking as much time as the expansion of an existing mine site would do.


TIM LATHAM: Last month Rio Tinto’s Blair Athol coalmine, which ships its coal through Dalrymple Bay, stopped production for a day. The company says it had nowhere to put its coal, the entire chain was full up. Rio Tinto denies its temporary shutdown was a stunt, but if it wanted to send a message to the Queensland government that it was unhappy with existing infrastructure, then it surely succeeded.


Unless operators can get a better price for each tonne of coal loaded or shipped, then investment in crucial infrastructure won’t happen. The suggestion Dalrymple Bay is at capacity is rejected by Prime’s Managing Director, Chris Chapman. He says he can h andle more coal if people can get it to his port quicker. But he agrees queuing ships off the coast doesn’t say much about the synergy of the coal supply line as a whole, which is why a coordination group is now trying to iron these problems out.


Down the coast at Port Waratah, Australia’s largest coal terminal in Newcastle, things have changed since March last year when a queue of 56 ships formed, costing millions in late handling fees for producers. The crisis led to a quota system at Port Waratah and a streamlining of the entire coal chain. The results show that spending big bucks on infrastructure isn’t the only way to increase capacity. General Manager of Port Waratah, John Barbagallo.


JOHN BARBAGALLO: From my understanding that was the maximum we’d seen off the port of Newcastle, and that really was imbalance between system capacity to get coal onto vessels versus the demand for coal producers to ship coal out.


TIM LATHAM: So then you realised you had a problem. What was the solution?


JOHN BARBAGALLO: Yes. When we recognised that with a queue of 56, and it was forecast to increase well beyond that number in the coming months, a decision was made to introduce a capacity distribution system which was aimed at two things. The first one was to limit vessel arrivals to the capacity of the entire coal chain, and the second one was continuing working on projects to increase the capacity to load more coal out.


TIM LATHAM: And how successful has that been?


JOHN BARBAGALLO: I actually think we’ve come a long way in a relatively short period of time. If we reflect back to 2002, Port Waratah shipped a then record 70 million tonnes through. In 2003 that increased to 74 million, last year it was 78 million and this year we’re targeting 84 million. Much of that increase has been due to people working together with better alignment, without very much capital being spent at all.


STEPHEN CRITTENDEN: John Barbagallo, Managing Director of Port Waratah. And that report was prepared by Tim Latham.