Brookfield claims Tier 3 lines 'marginal'

Rueben HaleThe West Australian

Brookfield Rail has described its Tier 3 rail grain business as "marginal", despite industry claims that it has made big profits.

Countryman understands that Brookfield Rail has been making about 27 per cent profit on charging access fees on the State's rail network, which is managed by the agency.

CBH, which currently transports 70 per cent of grain from the Wheatbelt to port on rail, is seeking a floor and ceiling price from the Economic Regulation Authority for what Brookfield can charge to use Tier 3 lines.

Brookfield Rail chief executive Paul Larsen denied the claim, although he could not confirm the size of the company's profit from rail operations.

He said because Brookfield Rail was not listed on the Stock Exchange, it was not allowed to disclose its financial information.

"It would be up to parent company Brookfield to provide those types of figures," he said.

"But what I can say is that grain is a very marginal business."

Mr Larsen said the Strategic Grain Network Report in 2009 determined that Tier 3 lines were not viable.

"And it was confirmed that under its lease we are entitled to financial assistance for Tier 1, Tier 2 and Tier 3 lines," he said.

Mr Larsen also said the small amount of freight used on Tier 3 lines made them unviable.

"The grain harvest is around 10 million tonnes and 55 per cent of it is sent on rail," he said.

"That means only 5.5 million tonnes of grain is sent on 2406km and in comparison we have 70 million tonnes of freight running on the remaining 2700km.

"This is in addition to roads competing and being subsidised by the Government … has led the Government to be involved in rail networks."

Mr Larsen said Brookfield Rail should not have to "prop up" unprofitable parts of the rail network.

"If there is a suggestion other parts of the network that should be cross-subsidising the grain network, this would be contrary to the economic regulator and the terms and conditions of the lease," he said.

Mr Larsen said it was unfortunate a deal between Brookfield and CBH had not been reached.

CBH and BR are locked in a bitter dispute over a new rail access deal, which is before the Economic Regulation Authority.

It is a far cry from 2009, when Mr Larsen and CBH chief executive Andy Crane campaigned to keep grain on rail.

Mr Larsen said he felt CBH had stymied a deal with Brookfield because they had "run a campaign against them to control the lines".

"The CBH campaign and the Economic Regulatory Authority invention had prevented the companies from reaching a deal," he said.

The ERA process determines negotiations with CBH cannot start until a floor and ceiling price is determined on June 30.

"I think CBH have genuinely withdrawn their desire to take over the lines, so we have to now wait for the ERA discussions to finish," he said.

"I look forward to having some constructive discussions on the future of individual Tier 3 lines on a case by case basis.

"We need the money to replace sleepers, so CBH and Brookfield need to sit down and work out how many tonnes of grain need to be sent by rail and how many tonnes need to be sent by road.

"We also need to work out how long they would like to use the lines and, therefore, what level of investment needed to occur and what funding was ultimately required.

"Collaboration and co-operation on determining the appropriate level and funding sources is key to this issue."

But CBH has rejected Mr Larsen's call to discuss the viability of each Tier 3 line.

Acting general manager of operations Andrew Mencshelyi said the co-operative was committed to keeping grain on rail, and the operation of Tier 3 rails, as part of the grain rail network.

CBH has already invested $165 million into rolling stock for Tier 3 this year.

"As a co-operative we are here to represent the best interests of WA grain growers, who rely on getting their grain to export markets in the most cost effective and efficient way possible," he said.

"And CBH believe the lines are viable and are seeking a long-term solution to their operation that does not require an excessive level of further government funding demanded by Brookfield Rail," he said.

Mr Mencshelyi also rejected Mr Larsen's accusation of mounting a "campaign to control the lines".

"It became apparent that a direct commercial agreement was not able to be reached, so CBH chose to negotiate through the Railways Access Code with the ERA with the intent to secure long-term access to the grain rail network under fair and reasonable conditions and pricing," he said.

"Brookfield Rail has firmly stated their intent to close the Tier 3 lines as of June 30, 2014."

CBH last week told a parliamentary committee WA's grain freight rail network was a "ticking time-bomb" which could cost hundreds of millions of dollars to keep operational.

Mr Mencshelyi told the committee ageing steel rail was snapping in places and the problem was set to become widespread.

He said CBH had been told it would cost $40 million to replace failing steel on a 100km section from Bolgart to Miling.

"The concern is there is a lot of steel in the rest of the grain network that is of similar age and of similar condition," he said.

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