Access dispute threatens port and rail investment

The case dates back to 2004 and pits BHP Billiton against the arriviste Fortescue Metals Group (FMG), although the implications of a final ruling could potentially impact all the key rail and port export routes used by iron ore miners, as well as increase the risk element of future infrastructure investments made in Australia.

The legal history of the case is long and complex but in simple terms it is about whether third parties can, under the Australian infrastructure access regime, use the private transport systems built by rival miners to their products to overseas buyers.

After a series of legal skirmishes, Australia’s High Court ruled in September 2008 that FMG could continue to seek access to ship iron ore using BHP Billiton Iron Ore’s Mt Newman rail lines, which link the Pilbara iron ore mining region of Western Australia to Port Hedland’s export facilities.

Following the High Court decision, another bout of legal fisticuffs ensued, with FMG also seeking access to other rail lines in the Pilbara operated by Rio Tinto.

The question of access to all of the lines is now due to be ruled on by the Australian Competition Tribunal. A decision is likely in the second half of the year, after hearings finished on February 26.

‘Declaration’ of private rail lines into ports as a ‘service’ rather than part of an integrated production process would give third parties the right to negotiate access on commercial terms, with arbitration by the Australian Competition and Consumer Commission (ACCC) a fallback option if the parties cannot agree.

If FMG wins the case, BHP and Rio Tinto contend that access would reduce the efficiency of their iron ore export systems and hurt the Australian economy.

Although there has been little sign that the ongoing dispute has dampened the enthusiasm of commodity majors for investing in iron ore infrastructure, it continues to hang over the sector – by threatening to open up access to private rail facilities the case adds an element of potentially expensive risk to investment decisions.

Matthew Bull, senior associate in Competition & Market Regulation at Freehills solicitors in Australia, told Port Strategy that arbitration would not automatically result in Fortescue gaining access.

“When the decision comes out, there may be a reaction [in terms of investment strategies], although the significance of the case should not be overstated,” he said. “The ACCC arbitration does not have to require access and access, if required, must be granted on commercial terms, taking into account the legitimate business interests of the service provider.”