Unity needed at the coalface

Inefficient regulation, cumbersome public-private sector interfaces and long lead-times for new port infrastructure are just some of the constraints impacting the export coal chain in Queensland.

The biggest problem, however, is the unwillingness of the stakeholders to let go of these niggling concerns and commit seriously to an integrated vision. In this regard, one of the most significant factors preventing a commercial solution to improved performance is the coal companies themselves. They'd rather whine about easy targets than bring about serious structural change.

The 12 coal mining companies in the Bowen Basin are interested in two inter-related things.

First, they want a seamless service that moves coal from the mine to the hull of a ship. There has to be excellent co-ordination between mine output, rail services, stockpiling at port and ship-loading operations.

Second, they need supporting transport infrastructure planned and delivered as efficiently as possible. Rail lines must cope with required train operations, while the ports need matching capacity. Upgrading rail without port improvements will lead to bottlenecks. Similarly, there is massive value in the ports collectively managing capacity in order to avoid costly new investment as long as possible.

The Queensland system has many historical constraints preventing the integration of the various parts of the coal logistics supply chain and the infrastructure that support it.

For example, the coal ports at Gladstone and Hay Point are responsibility for services and infrastructure. The former is owned by a Queensland government owned corporation(GOC); the latter by the BHP Billiton-Mitsubishi Alliance.

In the 1980s, the Queensland Government built coal terminals at Abbot Point and Dalrymple Bay following concerns that the big miners were unwilling to share capacity (Dalrymple Bay is in the same harbour as Hay Point). These two ports are managed by operating companies jointly owned by the coal miners who use them. The infrastructure at Abbot Point is owned by another GOC, while Dalrymple Bay is now the responsibility of Babcock & Brown Infrastructure through a long-term lease.

Rail services and infrastructure in the Bowen Basin are provided by QR, a Queensland GOC. Other operators like Pacific National can compete above-rail by gaining access through the state-based regime, though this has not yet happened.

The mass of public-private interfaces could hardly be enhancing efficiency. What is interesting is why a commercial solution has not been forthcoming, given the situation is ripe for reform.

Despite media photos depicting long shipping queues, the coal system in Queensland is now much closer to optimal performance. The real problem is the resources boom is forcing stakeholders to work closer together.

The miners find it excruciatingly difficult to agree on how to share the benefits and costs of changes to existing operations and more importantly, new investment. Infrastructure improvements may deliver different returns for different mines. Smaller companies can often free-ride by being obstructionist, while the multinationals use their political clout. Add to this the fact that one miner has exclusive use of its own port.

As a result, coal companies are often more interested in strategising than agreeing to what is best for the system as a whole. These dynamics are exacerbated by the absence of hard-and-fast rules for allocating the costs of different rail or port options and the unsophisticated contracting arrangements between the parties that have been shaped by history, not the commercial realities of a post-NCP, boom economy.

If the coal companies and governments really want optimal performance of the Queensland coal system they should be willing to re-constitute responsibilities and ownership arrangements.

One obvious option is to follow Toll Holding's lead by creating two separate services and infrastructure companies with mine-to-ship responsibilities. The existing stakeholders would jointly own relevant rail and port services and assets vended in two new organisations. A commercial relationship between the two would ensure an integrated approach. There could also be provisions allowing for the entry of new mines, thus avoiding a Pilbara-like fracas.

There are political positives from unlocking significant shareholder and community value. The rail network for the Bowen Basin could be separated out without material impact on the remaining Queensland rail system. The Beattie Government has consistently welcomed public-private company structures as a way of improving performance, while freeing up capital for social infrastructure. This structure would allow it to stay involved in infrastructure, while removing itself from the riskier logistics side of the business.

The right corporate structure should also allow a scaling back of regulation, consistent with the Federal Government's demands.

Re-arranging the Queensland coal system is something of a radical idea - though it shouldn't be. The market is moving towards a new business model that could improve the fortunes of all stakeholders if they could find the commitment to implement it.