Re Fortescue Metals Group Ltd

[2010] ACompT 2

AUSTRALIAN COMPETITION TRIBUNAL

In the matter of Fortescue Metals Group Limited [2010] ACompT 2

Citation:

In the matter of Fortescue Metals Group Limited [2010] ACompT 2

Review from:

Treasurer of the Commonwealth of Australia

Parties:

Fortescue Metals Group Limited

Robe River Mining Co Pty Ltd, North Mining Ltd, Pilbara Iron Pty Ltd, Rio Tinto Limited, Mitsui Iron Ore Development Pty Ltd, Nippon Steel Australia Pty Ltd & Sumitomo Metal Australia Pty Ltd

Hamersley Iron Pty Ltd, Hamersley Iron-Yandi Pty Ltd, Robe River Mining Co Pty Ltd, North Mining Ltd, Pilbara Iron Pty Ltd, Rio Tinto Limited, Mitsui Iron Ore Development Pty Ltd, Nippon Steel Australia Pty Ltd & Sumitomo Metal Australia Pty Ltd

BHP Billiton Iron Ore Pty Ltd and BHP Billiton Minerals Pty Ltd

File number(s):

5 of 2006

3 of 2008

4 of 2008

5 of 2008

Members:

FINKELSTEIN J (PRESIDENT),

MR GRANT LATTA AND

PROFESSOR DAVID ROUND

Date of determination:

30 June 2010

Legislation:

Competition Policy Reform Act 1995 (Cth)

Competition Policy Reform Bill 1995 (Cth)

Government Railways (Access) Act 1998 (WA) ss 3(1), 4, 5, 7, 20, 42, 43, 44, 46

Iron Ore (Hamersley Range) Act 1963 (WA)

Iron Ore (Mt Goldsworthy) Agreement Act 1962 (WA)

Iron Ore (Mt Newman) Agreement Act 1964 (WA)

Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA)

Iron Ore (Robe River) Agreement Act 1964 (WA)

Land Act 1933 (WA)

Mining Act 1978 (WA)

Railways (Access) Act 1998 (WA)

Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement Act 2004 (WA)

Sherman Act (15 USC (1994)) ss 1, 2

Trade Practices Act 1974 (Cth) ss 2, 44AA, 44B, 44F, 44GB, 44GC, 44H, 44K, 44V, 44W, 44X, 44Z, 44ZN, 44ZZ, 44ZZCA, 46, 50

Trade Practices Amendment Act (No 1) 2006 (Cth)

Road Traffic Vehicle Standards Regulations 2002 (WA)

Cases cited:

Application by Chime Communications Pty Ltd (No 2) [2009] ACompT 2

Application by Chime Communications Pty Ltd (No 3) [2009] ACompT 4

Aspen Highland Scheme Corp 738 F2d 1509 (10^th Cir, 1984)

Associated Press v US 326 US 1 (1945)

Australian Competition and Consumer Commission v Australian Medical Association Western Australia Branch Inc (2003) 199 ALR 423

Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 826

BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145

Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374

Brown Shoe Co. v United States 370 US 294 (1962)

City of Anaheim v Southern California Edison Company 955 F2d 1373 (9th Cir, 1992)

ReDuke Eastern Gas Pipeline Pty Ltd [2001] ACompT 2

FTC v Whole Foods 548 F3d 1028 (2008)

Hamersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203

Hecht v Pro-Football Inc 570 F2d 982 (D.C.Cir, 1977); cert denied 436 US 956 (1978)

Kentucky Speedway, LLC v National Association of Stock Car Auto Racing, Inc., 588 F3d 908 (2009)

MCI Communications Company 708 F2d 1081 (7th Cir, 1983)

Melway Publishing Pty Ltd v Roberts Hicks Pty Ltd (2001) 205 CLR 1

Metronet Services Corporation v Qwest Corporation 383 F3d 1124 (9th Cir, 2004)

Municipal Council of Shanghai v McMurray [1900] AC 206

Otter Tail Power Co v United States 410 US 366 (1973)

Re Qantas Airways Limited [2004] ACompT 9

Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481

Queensland Wire Industries Proprietary Limited v The Broken Hill Proprietary Company Limited (1988) 167 CLR 177

Rail Access Corporation v New South Wales Minerals Councils Ltd (1998) 87 FCR 517

Rio Tinto Ltd v Australian Competition Tribunal (2007) 246 ALR 1

Re Services Sydney Pty Limited [2005] ACompT 7

Seven Network Ltd v News Ltd (2009) 262 ALR 160

Sydney Airport Corporation Ltd v Australian Competition Tribunal (2006) 155 FCR 124

Re Sydney International Airport [2000] ACompT 1

United States v Colgate and Co 250 US 300, 307 (1919)

United States v Terminal Railroad Association of St Louis 224 US 783 (1912)

Verizon Communications, Inc v Law Offices of Curtis V Trinko, LLP 540 US 398 (2004)

Re Virgin Blue Airlines Pty Ltd [2005] ACompT 5

Dates of hearing:

28, 29 & 30 September 2009

1, 2, 5, 6, 7, 8, 12, 13, 14, 19, 20, 21, 26, 27, 28 & 29 October 2009

3, 4, 5, 6, 9, 10, 11, 17, 18 & 19 November 2009

3, 7, 8, 9, 14, 17 & 18 December 2009

1, 4, 18, 23, 24 & 26 February 2010

Place:

Melbourne

Category:

No Catchwords

Number of paragraphs:

1351

Counsel for Fortescue Metals Group Limited:

J B Beach QC

S E Marks SC

M I Borsky

N P De Young

Solicitor for Fortescue Metals Group Limited:

DLA Phillips Fox

Counsel for BHP Billiton Iron Ore Pty Ltd and BHP Billiton Minerals Pty Ltd:

A Archibald QC

P Crutchfield SC

M O’Bryan

Solicitor for BHP Billiton Iron Ore Pty Ltd and BHP Billiton Minerals Pty Ltd:

Blake Dawson

Counsel for the Rio Tinto parties:

N Young QC

P Collinson SC

S Parmenter

Solicitor for the Rio Tinto parties:

Allens Arthur Robinson

Counsel for the National Competition Council

S Gageler SC, Solicitor-General for the Commonwealth

C Scerri QC

J Slattery

Solicitor for the National Competition Council:

Clayton Utz

IN THE AUSTRALIAN COMPETITION TRIBUNAL

File No 5 of 2006

rE:	APPLICATION FOR REVIEW OF THE DEEMED DECISION BY THE COMMONWEALTH TREASURER OF 23 MAY 2006 UNDER SECTION 44H(9) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF SERVICES PROVIDED BY THE MOUNT NEWMAN RAILWAY LINE
by:	FORTESCUE METALS GROUP LIMITED Applicant

MEMBERS:

FINKELSTEIN J (PRESIDENT),
MR GRANT LATTA AND

PROFESSOR DAVID ROUND

DATE OF ORDER:

30 June 2010

WHERE MADE:

MELBOURNE

THE TRIBUNAL DETERMINES THAT:

1.The decision of the Treasurer of the Commonwealth of Australia, deemed to have been made on 23 May 2006 under s 44H(9) of the Trade Practices Act 1974 (Cth) not to declare the following service under s 44H, namely:

(a)use of the facility being the part of the Mt Newman railway line which runs from a rail siding that will be constructed near Mindy Mindy in the Pilbara to port facilities at Nelson Point in Port Hedland, and is approximately 295 kilometres long; and

(b)access to the facility’s associated infrastructure, including, but not limited to: 

(i)railway track, associated track structures, over or under track structures, supports (including supports for equipment or items associated with the use of the railway);

(ii)bridges;

(iii)passing loops;

(iv)train control systems, signalling systems and communication systems;

(v)sidings and refuges to park rolling stock;

(vi)maintenance and protection systems; and

(vii)roads and other facilities which provide access to the railway line route.

be affirmed.

IN THE AUSTRALIAN COMPETITION TRIBUNAL

File No 3 of 2008

rE:	APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE ROBE RAILWAY
by:	ROBE RIVER MINING CO PTY LTD NORTH MINING LTD PILBARA IRON PTY LTD RIO TINTO LIMITED MITSUI IRON ORE DEVELOPMENT PTY LTD NIPPON STEEL AUSTRALIA PTY LTD and SUMITOMO METAL AUSTRALIA PTY LTD Applicants

MEMBERS:

FINKELSTEIN J (PRESIDENT),
MR GRANT LATTA AND

PROFESSOR DAVID ROUND

DATE OF ORDER:

30 June 2010

WHERE MADE:

MELBOURNE

THE TRIBUNAL DETERMINES THAT:

1.The decision of the Treasurer of the Commonwealth of Australia, made on 27 October 2008 to declare the following service under s 44H of the Trade Practices Act 1974 (Cth) commencing on 19 November 2008 and expiring on 19 November 2028, namely:

(a)the use of the facility comprising the Robe railway from a location near Mesa J to Cape Lambert and all points in between; and

(b)the use of all associated infrastructure necessary to allow third party trains and rolling stock to move along the Robe railway between points of interconnection, including, but not limited to:

(i)railway track, associated track structures, over and under track structures, support (including supports for equipment or items associated with the use of the railway);

(ii)bridges;

(iii)passing loops;

(iv)train control systems, signalling systems and communication systems;

(v)sidings and refuges to park rolling stock;

(vi)maintenance and protection systems; and

(vii)roads and other facilities which provide access to the railway line route.

be varied so that the period of the declaration commence on 19 November 2008 and expire on 19 November 2018.

IN THE AUSTRALIAN COMPETITION TRIBUNAL

File No 4 of 2008

rE:	APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE HAMERSLEY RAIL NETWORK
by:	HAMERSLEY IRON PTY LTD HAMERSLEY IRON-YANDI PTY LTD ROBE RIVER MINING CO PTY LTD NORTH MINING LTD PILBARA IRON PTY LTD RIO TINTO LIMITED MITSUI IRON ORE DEVELOPMENT PTY LTD NIPPON STEEL AUSTRALIA PTY LTD and SUMITOMO METAL AUSTRALIA PTY LTD Applicants

MEMBERS:

FINKELSTEIN J (PRESIDENT),
MR GRANT LATTA AND

PROFESSOR DAVID ROUND

DATE OF ORDER:

30 June 2010

WHERE MADE:

MELBOURNE

THE TRIBUNAL DETERMINES THAT:

1.The decision of the Treasurer of the Commonwealth of Australia, made on 27 October 2008 to declare the following service under s 44H of the Trade Practices Act 1974 (Cth) commencing on 19 November 2008 and expiring on 19 November 2028, namely:

(a)the use of the facility comprising the Hamersley Rail Network, that is:

(i)the railway line from Paraburdoo to Dampier, including all points in between;

(ii)the railway line from Yandicoogina to Rosella Siding, including all points in between; and

(iii)the railway line from Brockman No 2 to Rosella Siding, including all points in between; and

(b)the use of the use of all associated infrastructure necessary to allow third party trains and rolling stock to move along the Hamersley Rail Network between points of interconnection, including, but not limited to:

(i)railway track, associated track structures, over and under track structures, support (including supports for equipment or items associated with the use of the railway);

(ii)bridges;

(iii)passing loops;

(iv)train control systems, signalling systems and communication systems;

(v)sidings and refuges to park rolling stock;

(vi)maintenance and protection systems; and

(vii)roads and other facilities which provide access to the railway line route.

be set aside.

IN THE AUSTRALIAN COMPETITION TRIBUNAL

File No 5 of 2008

rE:	APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE GOLDSWORTHY RAILWAY
by:	BHP BILLITON IRON ORE PTY LTD and BHP BILLITON MINERALS PTY LTD Applicants

MEMBERS:

FINKELSTEIN J (PRESIDENT),
MR GRANT LATTA AND

PROFESSOR DAVID ROUND

DATE OF ORDER:

30 June 2010

WHERE MADE:

MELBOURNE

THE TRIBUNAL DETERMINES THAT:

1.The decision of the Treasurer of the Commonwealth of Australia, made on 27 October 2008 to declare the following service under s 44H of the Trade Practices Act 1974 (Cth) commencing on 19 November 2008 and expiring on 19 November 2028, namely:

(a)the use of the facility comprising the Goldsworthy railway from a location near Yarrie, at one end, to a location near Finucane Island within the port of Port Hedland, at the other end, and all points in between; and

(b)the use of all associated infrastructure necessary to allow third party trains and rolling stock to move along the Goldsworthy railway between points of interconnection, including, but not limited to:

(i)railway track, associated track structures, over and under track structures, support (including supports for equipment or items associated with the use of the railway);

(ii)bridges;

(iii)passing loops;

(iv)train control systems, signalling systems and communication systems;

(v)sidings and refuges to park rolling stock;

(vi)maintenance and protection systems; and

(vii)roads and other facilities which provide access to the railway line route.

be affirmed.

IN THE AUSTRALIAN COMPETITION TRIBUNAL
File No 5 of 2006
rE:	APPLICATION FOR REVIEW OF THE DEEMED DECISION BY THE COMMONWEALTH TREASURER OF 23 MAY 2006 UNDER SECTION 44H(9) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF SERVICES PROVIDED BY THE MOUNT NEWMAN RAILWAY LINE
by:	FORTESCUE METALS GROUP LIMITED Applicant

rE:

File No 3 of 2008

APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE ROBE RAILWAY

by:

ROBE RIVER MINING CO PTY LTD
NORTH MINING LTD
PILBARA IRON PTY LTD
RIO TINTO LIMITED
MITSUI IRON ORE DEVELOPMENT PTY LTD
NIPPON STEEL AUSTRALIA PTY LTD and
SUMITOMO METAL AUSTRALIA PTY LTD
Applicants

rE:

File No 4 of 2008

APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE HAMERSLEY RAIL NETWORK

by:

HAMERSLEY IRON PTY LTD
HAMERSLEY IRON-YANDI PTY LTD
ROBE RIVER MINING CO PTY LTD
NORTH MINING LTD
PILBARA IRON PTY LTD
RIO TINTO LIMITED
MITSUI IRON ORE DEVELOPMENT PTY LTD
NIPPON STEEL AUSTRALIA PTY LTD and
SUMITOMO METAL AUSTRALIA PTY LTD
Applicants

rE:

File No 5 of 2008

APPLICATION FOR REVIEW OF THE DECISION BY THE COMMONWEALTH TREASURER OF 27 OCTOBER 2008 UNDER SECTION 44H(1) OF THE TRADE PRACTICES ACT 1974 (CTH) IN RELATION TO THE APPLICATION FOR DECLARATION OF A SERVICE PROVIDED BY THE GOLDSWORTHY RAILWAY

by:

BHP BILLITON IRON ORE PTY LTD and
BHP BILLITON MINERALS PTY LTD
Applicants

MEMBERS:

FINKELSTEIN J (PRESIDENT),
MR GRANT LATTA AND

PROFESSOR DAVID ROUND

DATE OF DETERMINATION:

30 June 2010

WHERE MADE:

MELBOURNE

1........ . INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[1]
1.1....... The railways........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[3]
1.2....... Application for access........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[8]
1.3....... The declarations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[20]
1.4....... The review........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[23]
1.5....... A roadmap of these reasons........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[31]
2........ . BACKGROUND........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[36]
2.1....... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[36]
2.2....... Steelmaking........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[38]
2.2.1.... The steelmaking process........ ........ ........ ........ ........ ........ ........ ........ ........	[40]
2.2.2.... Factors relevant to the production of iron ore........ ........ ........ ........ ........ .	[45]
2.2.2.1........ Chemical characteristics........ ........ ........ ........ ........ ........ ......	[45]
2.2.2.2........ Physical properties........ ........ ........ ........ ........ ........ ........ ......	[48]
2.2.2.3........ Metallurgical properties of iron ore........ ........ ........ ........ .....	[56]
2.2.3.... Customer requirements and use of iron ore products........ ........ ........ ......	[58]
2.2.3.1........ “Value in use”........ ........ ........ ........ ........ ........ ........ ........ .....	[58]
2.2.3.2........ Product quality........ ........ ........ ........ ........ ........ ........ ........ ...	[61]
2.2.3.3........ Product variability........ ........ ........ ........ ........ ........ ........ .......	[65]
2.2.3.4........ Timeliness and reliability of supply........ ........ ........ ........ ......	[67]
2.2.3.5........ Blending ore from different suppliers........ ........ ........ ........ ...	[70]
2.2.3.6........ Substitution of lump, fines and pellets........ ........ ........ ........ .	[71]
2.3....... Key features of the iron ore market........ ........ ........ ........ ........ ........ ........ ........ ....	[75]
2.3.1.... Producers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[75]
2.3.2.... Demand for iron ore........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[77]
2.3.3.... Supply contracts and pricing........ ........ ........ ........ ........ ........ ........ ........ ..	[84]
2.3.4.... Interrelation of iron ore prices........ ........ ........ ........ ........ ........ ........ .......	[90]
2.3.5.... The supply of iron ore on the spot market........ ........ ........ ........ ........ ......	[92]
2.4....... Recent developments in the global iron ore trade........ ........ ........ ........ ........ .......	[94]
2.4.1.... Increased demand from China........ ........ ........ ........ ........ ........ ........ ........	[96]
2.4.2.... Potential future developments........ ........ ........ ........ ........ ........ ........ .......	[100]
2.5....... Geology of the Pilbara........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[103]
2.5.1.... Bedded iron ores........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[107]
2.5.2.... CIDs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[111]
2.5.3.... Detrital iron deposits........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[116]
2.6....... Iron ore exploration in Western Australia........ ........ ........ ........ ........ ........ ........ ...	[117]
2.7....... Exploration, mine design and mine planning........ ........ ........ ........ ........ ........ .......	[131]
2.7.1.... The legislative requirements........ ........ ........ ........ ........ ........ ........ ........ ..	[131]
2.7.2.... The exploration process........ ........ ........ ........ ........ ........ ........ ........ ........ .	[140]
2.7.3.... Mine design........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[143]
2.7.4.... Mine planning........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[145]
2.8....... Classification of iron ore – The JORC Code........ ........ ........ ........ ........ ........ ........ ..	[146]
2.8.1.... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[146]
2.8.2.... Key provisions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[147]
2.8.3.... Mineral resources........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[150]
2.8.4.... Ore reserves........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[157]
3........ . BHPB'S PILBARA OPERATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[162]
3.1....... Mines........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[162]
3.1.1.... Mt Newman Joint Venture operations........ ........ ........ ........ ........ ........ ....	[164]
3.1.2.... Yandi........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[169]
3.1.3.... Area C........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[174]
3.1.4.... Goldsworthy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[176]
3.2....... The mining process........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[178]
3.3....... BHPB’s port operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[179]
3.3.1.... The port of Port Hedland........ ........ ........ ........ ........ ........ ........ ........ .......	[179]
3.3.2.... Shipping constraints........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[188]
3.3.2.1........ Channel constraints........ ........ ........ ........ ........ ........ ........ ....	[189]
3.3.2.2........ Tidal constraints........ ........ ........ ........ ........ ........ ........ ........ .	[193]
3.3.2.3........ Weather constraints........ ........ ........ ........ ........ ........ ........ ...	[196]
3.3.2.4........ Shiploading constraints........ ........ ........ ........ ........ ........ .......	[198]
3.4....... BHPB'S rail operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[199]
3.4.1.... Trains........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[204]
3.4.2.... Trains operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[208]
3.4.2.1........ Train operations on the Mt Newman line........ ........ ........ .....	[208]
3.4.2.2........ Train operations on the Goldsworthy line........ ........ ........ .....	[212]
3.4.2.3........ Finucane section........ ........ ........ ........ ........ ........ ........ ........ .	[215]
3.4.2.4........ Yarrie section........ ........ ........ ........ ........ ........ ........ ........ .....	[218]
3.4.3.... Port operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[225]
3.4.4.... Rail planning........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[227]
3.4.5.... Train control........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[231]
3.4.6.... Rail specifications........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[235]
3.4.7.... Track maintenance........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[238]
3.4.8.... Train failures........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[241]
3.4.9.... Research and development in relation to rail........ ........ ........ ........ ........ ..	[245]
3.4.10.. Axle loads........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[247]
3.4.11.. Wheel performance........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[248]
3.4.12.. Wheel and rail interface........ ........ ........ ........ ........ ........ ........ ........ ........ .	[249]
3.5....... Future expansions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[251]
3.5.1.... Recent capital expansion projects........ ........ ........ ........ ........ ........ ........ ...	[253]
3.5.2.... RGP3........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[254]
3.5.3.... RGP4........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[257]
3.5.4.... RGP5........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[261]
3.5.4.1........ Pre-approval of funding for RGP5........ ........ ........ ........ ........	[263]
3.5.4.2........ Progress of RGP5........ ........ ........ ........ ........ ........ ........ ........	[273]
3.5.5.... RGP6........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[274]
3.5.6.... [c-i-c]........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[279]
3.5.7.... Quantum 1........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[280]
3.5.8.... Quantum 2........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[285]
3.6....... Expansions beyond Quantum 2........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[288]
4........ . RTIO’S PILBARA OPERATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[289]
4.1....... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[289]
4.2....... Products........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[290]
4.2.1.... Pilbara Blend........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[293]
4.2.2.... RTX products........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[295]
4.3....... Blending requirements........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[296]
4.4....... Customer needs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[302]
4.5....... Mines........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[307]
4.6....... Ports........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[311]
4.7....... Perth operations centre........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[314]
4.8....... Rail operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[316]
4.8.1.... Railways........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[316]
4.8.2.... Trains........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[321]
4.8.3.... Operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[326]
4.8.4.... Loading facilities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[329]
4.8.5.... Train control........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[330]
4.8.6.... Planning and scheduling processes........ ........ ........ ........ ........ ........ ........ .	[337]
4.8.6.1........ Operations scheduling........ ........ ........ ........ ........ ........ ........	[341]
4.8.6.2........ RTIO’s rail scheduling........ ........ ........ ........ ........ ........ ........ ..	[343]
4.8.7.... The management of variability and unplanned events........ ........ ........ .....	[348]
4.8.8.... The need for flexibility........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[354]
4.8.9.... Maintenance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[359]
4.8.10.. Technological developments........ ........ ........ ........ ........ ........ ........ ........ ..	[362]
4.9....... Expansion of RTIO’s iron ore operations........ ........ ........ ........ ........ ........ ........ .....	[367]
4.9.1.... The expansion process........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[367]
4.9.2.... Recently completed expansion to 220mtpa and current production levels	[378]
4.9.3.... 220mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[381]
4.9.4.... The previous 320mtpa project........ ........ ........ ........ ........ ........ ........ ........	[382]
4.9.5.... Expansion to 330mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[386]
4.9.5.1........ 225mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[389]
4.9.5.2........ 230mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[391]
4.9.5.3........ 280mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[394]
4.9.5.4........ 330mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[401]
4.9.6.... Beyond 400mtpa........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[406]
5........ . PROPOSED JOINT VENTURE BETWEEN RTIO AND BHPB........ ........ ........ ........ ........ ........ ...	[408]
6........ . FMG’S PILBARA OPERATION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[413]
6.1....... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[413]
6.2....... Tenements........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[414]
6.3....... Chichester railway........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[418]
6.4....... Port facilities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[423]
6.5....... FMG’s Chichester Range project........ ........ ........ ........ ........ ........ ........ ........ ........ .	[425]
6.6....... Mindy Mindy........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[427]
6.7....... Solomon group........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[439]
6.8....... Other deposits........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[444]
6.9....... Current expansion........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[445]
6.10..... Future expansions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[446]
7........ . JUNIOR MINERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[463]
7.1....... Junior miner operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[464]
7.2....... Current and planned port infrastructure........ ........ ........ ........ ........ ........ ........ .....	[467]
7.3....... Modes for transporting iron ore........ ........ ........ ........ ........ ........ ........ ........ ........ .	[480]
7.3.1.... Trucking........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[482]
7.3.2.... Rail haulage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[494]
7.3.3.... Conclusions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[498]
8........ . THE ESSENTIAL FACILITY PROBLEM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[502]
8.1....... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[502]
8.2....... Natural monopolies........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[507]
8.3....... Problems with natural monopolies........ ........ ........ ........ ........ ........ ........ ........ .....	[516]
8.4....... The United States’ response........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[524]
8.5....... The Australian response pre-1990s........ ........ ........ ........ ........ ........ ........ ........ .....	[549]
9........ . THE LEGISLATIVE BACKGROUND........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[551]
9.1....... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[551]
9.2....... The Hilmer Report........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[552]
9.3....... Response to the Hilmer Report........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[564]
9.4....... Part IIIA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[566]
9.5....... Review of Part IIIA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[573]
9.6....... State legislation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[586]
10........ PROTECTION OF THE INCUMBENT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[592]
11........ RAILWAY CAPACITY........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[607]
11.1..... Preliminary observations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[607]
11.2..... Timing........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[613]
11.3..... Some definitional issues........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[617]
11.4..... Determining practical capacity........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[632]
11.5..... Modelling by Mr Hoare........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[640]
11.6..... Modelling by Dr Dallimore........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[647]
11.7..... Modelling by Mr Baunach........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[651]
11.8..... Static modelling........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[661]
11.9..... Practical capacity based on empirical evidence of usage........ ........ ........ ........ ......	[669]
11.10... “Windows” of capacity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[674]
11.11... Observations regarding end effects........ ........ ........ ........ ........ ........ ........ ........ ....	[682]
11.12... Further modelling........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[690]
11.13... Evidence regarding the Goldsworthy line........ ........ ........ ........ ........ ........ ........ ....	[707]
11.14... Conclusions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[710]
12........ EXPANSION POWER........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[715]
13........ RAIL OPTIONS IN THE PILBARA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[735]
13.1..... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[735]
13.2..... Current rail options for junior miners........ ........ ........ ........ ........ ........ ........ ........ .	[736]
13.2.1.. Haulage by BHPB and RTIO........ ........ ........ ........ ........ ........ ........ ........ .....	[737]
13.2.2.. Haulage by FMG........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[744]
13.2.3.. Below rail access to the Chichester line........ ........ ........ ........ ........ ........ ...	[745]
13.3..... Other rail options........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[752]
13.3.1.. The Marillana spur........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[757]
13.3.2.. The Kennedy line and the Dixon line........ ........ ........ ........ ........ ........ .......	[768]
13.3.3.. The Aquila line........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[769]
13.3.4.. The Cape Preston line........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[783]
13.4..... Stranded deposits........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[785]
14........ THE CRITERIA........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[794]
15........ CRITERION (B)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......

15.1..... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[805]
15.2..... “Service”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[806]
15.3..... Another facility to provide the service........ ........ ........ ........ ........ ........ ........ ........	[808]
15.4..... “Uneconomical for anyone …”........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[815]
15.4.1.. Privately profitable test........ ........ ........ ........ ........ ........ ........ ........ ........ .	[816]
15.4.2.. A net benefit or natural monopoly test........ ........ ........ ........ ........ ........ ...	[836]
15.5..... How to test for a natural monopoly........ ........ ........ ........ ........ ........ ........ ........ ....	[840]
15.5.1.. Identifying reasonably foreseeable demand........ ........ ........ ........ ........ ....	[856]
15.5.1.1...... Demand for the Mt Newman service........ ........ ........ ........ ....	[872]
15.5.1.2...... Demand for the Goldsworthy service........ ........ ........ ........ ...	[883]
15.5.1.3...... Demand for the Hamersley service........ ........ ........ ........ ......	[891]
15.5.1.4...... Demand for the Robe Service........ ........ ........ ........ ........ ......	[900]
15.6..... Application of the natural monopoly test........ ........ ........ ........ ........ ........ ........ ....	[906]
15.6.1.. Differences in operating costs........ ........ ........ ........ ........ ........ ........ ........	[908]
15.6.2.. Differences in capital cost........ ........ ........ ........ ........ ........ ........ ........ ......	[910]
15.6.2.1...... The Goldsworthy line........ ........ ........ ........ ........ ........ ........ ..	[919]
15.6.2.2...... The Robe line........ ........ ........ ........ ........ ........ ........ ........ ......	[924]
15.6.2.3...... The Hamersley line........ ........ ........ ........ ........ ........ ........ .....	[930]
15.6.2.4...... The Mt Newman line........ ........ ........ ........ ........ ........ ........ ...	[938]
15.7..... Application of private profitability test........ ........ ........ ........ ........ ........ ........ .......	[952]
15.7.1.. General principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[953]
15.7.2.. Application to the facts........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[960]
16........ SAVINGS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[966]
16.1..... Quantifying capital savings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[966]
16.2..... Determining the cost of expansions........ ........ ........ ........ ........ ........ ........ ........ ....	[968]
16.2.1.. The Sundakov approach........ ........ ........ ........ ........ ........ ........ ........ ........ .	[969]
16.2.2.. The consist proxy approach........ ........ ........ ........ ........ ........ ........ ........ ....	[971]
16.2.3.. The Metalytics approach........ ........ ........ ........ ........ ........ ........ ........ ........	[974]
16.2.4.. RTIO and BHPB actual data........ ........ ........ ........ ........ ........ ........ ........ .....	[977]
16.3..... Calculating the cost of building alternative facilities........ ........ ........ ........ ........ ....	[980]
16.4..... The Tribunal’s approach........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[984]
16.4.1.. The Mt Newman line........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[986]
16.4.2.. The Goldsworthy line........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[987]
16.4.3.. The Hamersley line........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[992]
16.4.4.. The Robe line........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1001]
17........ CRITERION (A)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1007]
17.1..... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1007]
17.2..... Market definition........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[1009]
17.3..... Vertical integration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[1035]
17.4..... Will access promote competition?........ ........ ........ ........ ........ ........ ........ ........ ......	[1048]
17.4.1.. With or without test........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[1048]
17.4.2.. Competition........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1049]
17.4.3.. Access........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[1053]
17.4.4.. Promote competition........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[1060]
17.5..... Dependent market – global iron ore market........ ........ ........ ........ ........ ........ .......	[1072]
17.6..... Dependent market – iron ore tenements market........ ........ ........ ........ ........ ........	[1094]
17.7..... Dependent market – rail haulage market........ ........ ........ ........ ........ ........ ........ ....	[1132]
18........ CRITERION (F) & DISCRETION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1160]
18.1..... Overview........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1160]
18.2..... Other access regimes........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1175]
18.3..... The utility of a declaration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1183]
18.4..... The benefits of access........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1196]
18.5..... Costs of access........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1204]
18.5.1.. Loss of throughput........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1205]
18.5.2.. Compatibility and safety........ ........ ........ ........ ........ ........ ........ ........ ........	[1209]
18.5.3.. Maintenance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1218]
18.5.4.. Scheduling issues........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[1222]
18.5.5.. Train failures and investigations........ ........ ........ ........ ........ ........ ........ .....	[1226]
18.5.6.. Constraints on third party operations and dynamic efficiency considerations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1230]
18.5.7.. Inefficiencies associated with delayed or sub-optimal new operating practices and technology........ ........ ........ ........ ........ ........ ........ ........ .......	[1238]
18.5.8.. Sub-optimal expansions due to competitive motives........ ........ ........ .......	[1244]
18.5.9.. Delayed expansions due to negotiation with third parties........ ........ ........	[1246]
18.5.9.1...... Is there a need to consult?........ ........ ........ ........ ........ ........ ..	[1247]
18.5.9.2...... Will negotiating lead to delay?........ ........ ........ ........ ........ ....	[1257]
18.5.10 Sub-optimal expansions........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1270]
18.5.11 Real options........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1272]
18.5.12 Costs of arbitration........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1282]
18.6..... Quantifying the benefits and costs........ ........ ........ ........ ........ ........ ........ ........ .....	[1292]
18.7..... Conclusions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1300]
18.7.1.. Mt Newman service........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[1306]
18.7.2.. Goldsworthy service........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[1313]
18.7.3.. Hamersley service........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1319]
18.7.4.. Robe service........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[1332]
19........ MISCELLANEOUS ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1338]
20........ CONCLUDING REMARKS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[1346]

Abbreviations

ACCC: Australian Competition and Consumer Commission

AP: Associated Press News Organisation

ASX: Australian Stock Exchange

ATP: Automatic Train Protection

Baosteel: Shanghai Baosteel Group Corporation

BHPB: BHP Billiton Iron Ore Pty Ltd and BHP Billiton Minerals Pty Ltd (collectively)

BID: banded iron-formation derived iron deposit

BOS: Basic Oxygen Steelmaking

BRS: Beyond Rail Solutions

CID: channel iron deposit

CISA: Chinese Iron and Steel Association

[c-i-c]: commercial in confidence. This indicates that the information is confidential.

CSG: Customer Sector Group

DLTU: dry long tonne unit

DRI: direct reduction iron

DWT: deadweight tonnes

E&P: Evans and Peck

Fe: iron

FMG: Fortescue Metals Group Ltd

FOB: free on board

GSWA: Geological Survey of Western Australia

HBI: hot briquetted iron

HIY: Yandicoogina fines

ICSS: Integrated Control and Signalling System

IOH: Iron Ore Holdings Limited

JORC: Joint Ore Reserves Committee

LIFO: last in first out

LOI: loss on ignition

mt: million tonnes

mtpa: million tonnes per annum

MPI: merchant pig iron

MTO: Mineral Titles Online

MTPP: medium-term production plan

NCC: National Competition Council

NPV: net present value

NWIOA: North West Iron Ore Alliance

PBF: Pilbara Blend fines

PBL: Pilbara Blend lump

PHPA: Port Hedland Port Authority

PIO: Pilbara Iron Ore Pty Ltd

RGP: Rapid Growth Project

RTIO: Rio Tinto Iron Ore, a division of Rio Tinto

RTX: Rio Tinto Exploration

RTXF: RTX fines

RTXL: RTX lump

RVF: Robe Valley fines

RVL: Robe Valley lump

STPP: short-term production plan

TEG: Technical Evaluation Group

TPI: The Pilbara Infrastructure Pty Ltd

TSG: The Simulation Group Pty Ltd

UIC: International Union of Railways

REASONS FOR DETERMINATION

1.                   Introduction

1. The Western Australian government has described the Pilbara as a window into “Deep Time” – a glimpse into a world long before human settlement, before dinosaurs roamed and before fish climbed out of the sea.  But the times they are a-changin’.  Legend has it that while on a flight over the Pilbara in 1952, Lang Hancock made a forced landing and found himself standing on solid iron ore.  In a few short years, tens of billions of tonnes of iron ore were discovered.  Major mining operations have been established.  Two of the world’s three largest iron ore producers – BHP Billiton Ltd (BHPB) and Rio Tinto Ltd (RTIO) – conduct mining operations there.  Another producer – Fortescue Metals Group Ltd (FMG) – is fast emerging as a major player.

2. The infrastructure needed to carry on mining operations – mines, transportation to port and port facilities – costs billions of dollars to construct.  Federal legislation (the Trade Practices Act 1974 (Cth)) has established an access regime which allows a third party in certain circumstances to obtain access to another party’s infrastructure facilities. FMG seeks to avail itself of this regime. It seeks to bring under the access regime the rail facilities (the lines and associated infrastructure) which BHPB and RTIO employ to haul their ore to port. FMG asserts that access to the railways will avoid wasteful duplication and unlock the full potential of many miners’ iron ore projects which would otherwise be left stranded. For their part, BHPB and RTIO say that access would have a disastrous effect on their businesses, and, for other miners, the benefits of access would be limited. The effect that access would have on the future development of the Pilbara lies at the heart of this dispute.

   1.1                 The railways

3. The four railway lines to which access is sought are shown in the map at Schedule 1.  Two of the lines (the Goldsworthy line and the Mt Newman line) are operated by BHP Billiton Iron Ore Pty Ltd and BHP Billiton Minerals Pty Ltd (hereafter both referred to as BHPB), and two (the Hamersley line and the Robe line) are operated by Rio Tinto Iron Ore, a division of Rio Tinto (hereafter referred to as RTIO).  Each line is used to haul iron ore from mines to port. 

4. The Goldsworthy line is located in the north-east of the Pilbara.  It extends from near Yarrie in the east to BHPB’s port at Finucane Island at Port Hedland, a distance of some 210km.

5. The Mt Newman line runs from near the town of Newman to BHPB’s port at Nelson Point at Port Hedland, a distance of around 400km.  The Mt Newman line intersects with the Goldsworthy line at Goldsworthy junction, 14km south of Nelson Point.

6. The Hamersley line runs from RTIO’s port at Dampier south to Rosella junction, a distance of some 235km.  From the junction the line has three branches.  There is a spur heading west to mines at Brockman No 2, a distance of around 40km.  There is a second spur heading south toward Paraburdoo, around 135km away.  The third spur heads south-east to Yandicoogina (a distance of 193km) with a further spur to the Hope Downs and West Angelas mines.

7. The Robe line runs from RTIO’s port at Cape Lambert to the Mesa J mine near Pannawonica, a distance of 182km.  It interconnects with the Hamersley line near Emu junction, approximately 60km south of Cape Lambert.  

   1.2                 Application for access

8. The procedure set out in Part IIIA of the Trade Practices Act is well known. It is a two-stage process. First there is an application to have a service declared. Service is defined in s 44B to mean “a service provided by means of a facility” and relevantly includes: “(a) use of an infrastructure facility such as a road or railway line”. If a declaration is made this creates in favour of any person interested in obtaining access to the declared service an enforceable right to negotiate access to the service. The right is enforceable in the sense that, if the negotiations are not successful, the dispute may be resolved in arbitration conducted by the Australian Competition and Consumer Commission (ACCC).

9. To initiate the first stage any person (there are no rules as to standing) must apply to the National Competition Council (NCC) to recommend that a particular service be declared: s 44F. If the NCC recommends a declaration, the designated Minister (in these cases the Treasurer) must either declare the service or not declare it: s 44H(1).

10. On 11 June 2004 FMG made application to the NCC that it recommend making a declaration in respect of “the service provided by part of the Mt Newman railway line and part of the Goldsworthy line”.  The application described the service as:

    [5.1] (1) The use of the Facility, being:

    (a)that part of the Mt Newman railway line which runs from a rail siding that would be constructed near Mindy Mindy in the Pilbara to port facilities at Nelson Point in Port Hedland, and is approximately 295 kilometres long … and

    (b)the part of the Goldsworthy railway line that runs from where it crosses the Mt Newman railway line to port facilities at Finucane Island in Port Hedland, and is approximately 17 kilometres long…”

    (2) Access to the Facility’s associated infrastructure, including, but not limited to:

    (a)railway track, associated structures, over or under track structures, supports (including supports for equipment or items associated with the use of the railway);

    (b)      bridges;
    (c)       passing loops;
    (d)      train control systems, signalling systems and communication systems;
    (e)       sidings and refuges to park rolling stock;
    (f)       maintenance and protection systems; and
    (g)       roads and other facilities which provide access to the railway line route.

11. The Mt Newman railway line was defined as “the railway line of approximately 425 kilometres in length which is currently used to carry ore from the mines in the Mt Newman area, as well as from Yandi, to Port Hedland.”  The Goldsworthy railway line was defined as “the railway line of approximately 210 kilometres in length which is currently used to carry ore from the mines near Yarrie to Port Hedland.”

12. In its application FMG described the purpose for which it sought access as being, among other things, to transport its ore from Mindy Mindy and other mines to Port Hedland.  FMG also made reference to its “foundation principle” that Pilbara rail infrastructure should be made more available to third parties.

13. The NCC determined that the use of the Goldsworthy line was not a “service” for the purposes of Part IIIA.  Accordingly, it omitted that line from its consideration. 

14. On 16 November 2007, The Pilbara Infrastructure Pty Ltd (TPI), a wholly owned subsidiary of FMG, made application to the NCC that it recommend the making of a declaration in respect of “the Facility comprising the Goldsworthy railway from a location near Yarrie, at one end, to a location near Finucane Island within the port of Port Hedland, at the other end, and all points in between.”  Access was also sought to associated infrastructure.  The application stated that TPI seeks access to the Goldsworthy service in order to be able to offer an above rail haulage service to mining companies seeking to move bulk materials between any two points on the Goldsworthy line including, without limitation, interconnection points with other rail networks and railway lines.

15. On 16 November 2007 TPI made application to the NCC that it recommend the making of a declaration in respect of the Hamersley rail network comprising:

    ·The rail line from Paraburdoo to Dampier, including all points in between;

    ·The railway line from Yandicoogina to Rosella siding, including all points in between; and

    ·The railway line from Brockman No 2 to Rosella siding, including all points in between.

    Access to associated infrastructure was also sought.

16. The application stated that TPI sought access to the Hamersley service in order to be able to offer an above rail haulage service to mining companies seeking to move bulk materials between any two points on the Hamersley rail network including, without limitation, interconnection points with all other rail networks and railway lines.

1. By letter dated 31 January 2008 TPI advised the NCC that, for the avoidance of doubt, the facilities to which TPI sought access were:  (a) the railway line from Parraburdoo to Dampier which is approximately 385km long; (b) the railway line from Yandicoogina to Rosella siding (on the Parraburdoo to Dampier railway) which is approximately 195 km long; and (c) the railway line from Brockman No 2 to Rosella siding which is approximately 45km long.

2. On 18 January 2008 TPI made application to the NCC that it recommend the making of a declaration in respect of “the use of the facility comprising the Robe railway from a location near Mesa J to Cape Lambert and all points in between”.  That service was defined to include the use of all associated infrastructure. 

3. The application stated that TPI sought access to the Robe service in order to offer an above rail haulage service to mining companies seeking to move bulk materials between any two points on the Robe railway.

   1.3                 The declarations

4. Following a process that included public consultation (as to which see s 44GB), private consultation with interested parties, obtaining the views of various experts and receiving submissions from TPI and the service providers (see s 44GC), the NCC recommended that each service be declared. The recommendations were made on 23 March 2006 for the Mt Newman line, and 29 August 2008 for the Goldsworthy, Hamersley and Robe lines.

5. The designated Minister (the former Treasurer, the Hon Peter Costello MP) was required to make his decision on the Mt Newman application within 60 days of receiving the declaration recommendation: s 44H(9). Not having made a declaration within that period, the Minister was taken to have decided not to declare the service: s 44H(9).

6. On 27 October 2008 the Minister (the present Treasurer, the Hon Wayne Swan MP) declared the Hamersley service, the Robe service and the Goldsworthy service for a period of 20 years.

   1.4                 The review

7. Section 44K(1) provides that if the Minister declares a service, the service provider may apply to the Tribunal for a review of the declaration. Section 44K(2) provides that, if the Minister decides not to declare a service (which would include a deemed decision not to declare), the applicant for the declaration recommendation may apply to the Tribunal for a review of the Minister’s decision.

8. A review by the Tribunal is a reconsideration of the matter (s 44K(4)) and for that purpose the Tribunal has the same powers as the Minister (s 44K(5)).  That means that the Tribunal must reconsider each application afresh.  This allows the parties to put before the Tribunal for its consideration any material that may be relevant to the issues raised, whether or not that material was before the Minister.  In addition, the rules of procedural fairness require the Tribunal to afford a party which may be adversely affected by its decision, the right to be heard, to be legally represented at a hearing before the Tribunal and to lead evidence and cross-examine witnesses.  Speaking very generally, the Tribunal is master of its own forms and procedures.  But the rules of procedural fairness act as a strong brake on the Tribunal’s ability to control the parties’ conduct in a proceeding.  One consequence is that proceedings before the Tribunal have every appearance of a court-style hearing.

9. Though there are four applications for review (one in respect of each decision) the parties suggested, and the Tribunal agreed, that in view of the overlapping issues as well as the commonality of much of the evidence, it would be more expeditious and less costly were the reviews to be heard concurrently.

10. At the joint hearing, the parties (applicant and service providers) took the opportunity to present material far in excess of that which had been placed before the Minister.  In all, the parties filed 130 affidavits from 73 witnesses, together with a large number of documents.  This material took up approximately 70 large lever arch files.  The transcript of the hearing runs for over 3,300 pages.  Of the witnesses, 15 were expert economists and 29 were, in alphabetical order, bankers, computer simulation experts, engineers, environmental scientists, geologists, metallurgists, quantity surveyors, rail modellers and train schedulers, among others.  

11. In light of the number of witnesses and the volume of material, the Tribunal took the view that the parties should be allocated set times within which to question witnesses and present their respective arguments.  A suitable arrangement was worked out.  By and large the parties adhered to their allotted times.  Nonetheless the hearing occupied 42 sitting days.

12. Prior to the hearing the Tribunal read and considered the evidence of all the experts.  It decided that it would not be assisted were all of them to be cross-examined.  Accordingly, the Tribunal identified those experts who were not to be called.  While not called, their evidence has been taken into account. 

13. In another step to expedite the hearing as well as to better understand the evidence of the experts, the Tribunal considered that, where possible, the experts should be grouped by topic and called as a group.  In addition the Tribunal decided that, in the first instance, it would question the economists and the capacity modellers without intervention by the parties’ lawyers, and that cross-examination would only be permitted by leave and then be confined to a short period of approximately one hour per party.  The parties largely cooperated in this enterprise.  In the result, the evidence of those experts was dealt with in just six days.  In the case of some there was little cross-examination.  A number were not questioned by some parties at all.

14. The large volume of material that has been placed before the Tribunal led to a submission by FMG, strongly supported by the NCC, that much of it was irrelevant to the first stage (whether or not there should be a declaration), although it may be relevant at the second stage (whether access should be granted and, if so, on what terms).  The Tribunal accepts that a large part of the material is relevant to stage two.  But, in the view of the Tribunal, almost all the material was, to a greater or lesser extent, also relevant to the stage one inquiry.  This view was fortified by the failure of FMG and the NCC to identify, even in broad categories, which material should be disregarded, despite several requests that they do so. 

    1.5                 A roadmap of these reasons

15. To assist the reader, we will give a brief outline of how these Reasons are structured.

16. The first part (Chapters 2 to 7) deals with general factual matters.  This includes a description of the iron ore industry, and a summary of the Pilbara operations of BHPB, RTIO, FMG and the junior miners.

17. The second part (Chapters 8 and 9) considers the so-called “essential facilities” problem, and various regulatory responses to it.  It also discusses the legislative background to Part IIIA.

18. The third part (Chapters 10 to 13) is concerned with both legal and factual issues regarding the capacity of the four lines, and the expansion of that capacity.  It also considers what options are available for miners to access rail infrastructure.

19. The final part (Chapters 14 to 20) analyses the statutory criteria which must be satisfied before a declaration can be made, and then applies those to the facts.  Some miscellaneous legal issues are also considered.

    2.                   background

    2.1                 Overview

20. To understand the issues raised in these applications it is necessary to have a broad understanding of steelmaking, the iron ore market, the geology and development of the iron ore industry in the Pilbara and the mining operations undertaken by BHPB, RTIO, FMG and other smaller mining companies.  Only then will it be possible to appreciate the important role rail has to play in the production and sale of iron ore.  It is the nature of that role, and the possible effect access will have on a mining company’s operations, that turned out to be the central issues in dispute.

21. To a large extent much of the background is uncontroversial.  Although the material is spread across many affidavits, it has conveniently been summarised in statements that, at the Tribunal’s direction, the parties were required to produce.  What follows is to a considerable extent based on those summary statements.

    2.2                 Steelmaking

22. Iron ore is a naturally occurring substance, the main characteristic of which is the presence of iron oxide.  However, there is a wide variation in the mineral form and percentage of iron oxide in the different forms of iron ore, and the chemical composition of iron ore depends upon the geology of the area in which it is located.

23. Almost all iron ore which is produced is used in the manufacture of steel, and it is important to understand the nature of the steelmaking process in order to understand the business objectives concerning iron ore production.  In particular, the specific chemical composition, physical properties and metallurgical properties of particular types of iron ore can affect the steelmaking process and the quality of the steel produced, and so can affect a steelmaker’s decision as to the iron ore it acquires.

    2.2.1The steelmaking process

24. Approximately 60-70% of global steel is currently manufactured using the Basic Oxygen Steelmaking (BOS) furnace process.

25. The BOS process involves two steps: using a blast furnace to produce molten iron and then using that molten iron as feedstock to produce steel using a BOS furnace.

26. Molten iron is produced by smelting iron ore in a blast furnace, using coke (which is produced from coal), auxiliary fuels and hot air as sources of energy, and minor amounts of limestone, dolomite and quartzite as fluxes.  Smelting extracts metallic iron from within the ore prior to commencing the actual steelmaking process.  Some impurities remain in the iron after smelting.

27. In more than 95% of cases worldwide, the molten iron produced in the blast furnace is then used as feedstock for the BOS furnace process. 

28. The other main method of steel production is the use of an Electric Arc Furnace.  Instead of molten iron, this process can use various types of iron feedstock, such as direct reduction iron (DRI), hot briquetted iron (HBI), scrap metals, and cold merchant blast furnace hot metal or merchant pig iron.  DRI and HBI are both produced from pellets.

    2.2.2Factors relevant to the production of iron ore

    2.2.2.1Chemical characteristics

29. Iron ore producers aim to produce products that achieve the iron content required by customers while keeping the levels of impurities in those products within acceptable ranges.  The key impurities in iron ore to which steelmakers have regard are silica, alumina and phosphorus; other impurities include sulphur, sodium and potassium.

30. The presence of these impurities significantly affects the quality of the steel produced and the efficiency of the steelmaking process.  For example, higher levels of silica lower the productivity of the steelmaking process, while alumina can have adverse effects on the properties of slag, and phosphorus causes steel to be brittle, and is difficult and expensive to remove.  The percentage of each impurity also dictates the extent to which other materials (such as coke, lime and dolomite), or other grades of iron ore need to be added to the blast furnace.  Impurities cause steelmakers to bear higher costs, reduce furnace productivity, use more energy per tonne of reduced iron and also lower product quality.

31. Accordingly, the level of these impurities is just as important as iron content, and steelmakers generally require a discount on the price of iron ore products with high levels of impurities.  It is also important that iron ore products have low product variability, both in terms of the grade of a product “within” a ship and between ships.  Some iron ore producers blend ores from several mines to achieve a low variability product.

    2.2.2.2Physical properties

32. The mining of iron ore produces particles of varying sizes.  Particle size directly bears on the smelting process, since a blast furnace operates with the greatest efficiency where the particle size allows easiest passage of gas between particles (if iron ore becomes compacted, the gas will not circulate properly and the furnace will become choked, adversely affecting output and quality).  In a worst case scenario, this can result in the blast furnace becoming inoperable, resulting in a shutdown of the steel mill. 

33. Iron ore can be sold as lump, fines or pellets.

34. “Lump” generally refers to iron ore material with a particle size of 6mm or more.  Generally, lump can only comprise 20% or less of the iron product being fed into a blast furnace.  Lump products can be fed directly into a blast furnace provided they do not exceed maximum size specifications and are as free as possible of adhering fines material that may have been generated during handling.  Accordingly, lump products must be well screened to remove such material before shipment and again at the steel plant before feeding into the furnace.  Such fines removed during screening will be used to produce sinter (defined below).  The percentage of fines that needs to be removed in screening is a significant factor considered by purchasers of lump iron ore. 

35. “Fines” generally refers to iron ore material with a particle size of less than 6mm.  There are two types of fines product: concentrate fines and sinter fines.  Fines cannot be fed directly into a blast furnace; rather, sinter fines need to be agglomerated (fused) into sinter and concentrate fines need to be processed into pellets before they can be used by a steel mill.  Fines products are generally sold at lower prices than lump or pellet products, to reflect the need for this further processing.

36. “Sinter” is formed by agglomerating fine particles of iron ore.  Agglomerating involves mixing fines, coke breeze (small particles from the coke screening plant), fine fluxes (such as limestone and dolomite), mill scale (small flakes of iron oxide from the steel rolling process), dust from the blast furnace and BOS furnace exhaust gases (containing fine iron oxide particles) to produce new chemical forms of iron.  This iron is then broken into lumps, cooled and screened, forming a product ranging from 5mm to 50mm in size, which is then sent to the blast furnace.  As sinter tends to disintegrate while being transported, steel mills typically have their own sintering plants.  Sinter is usually re-screened at the blast furnace immediately before it is fed to remove fine material generated during transport from the sinter plant.

37. Steelmakers can alter the type of fines used to make sinter, including where there is a supply problem or shortage of a particular fines product, a change in the chemistry or delivered cost of ore, or a change in the burden (the combination of lump, pellets and fines).  Sometimes a steelmaker must alter its blend quickly, due to sudden or unexpected changes in supply conditions.  In other cases the steelmaker may be able to introduce changes over a longer time frame (ordinarily one to two years).

38. “Pellets” are a form of high-grade feedstock produced from concentrate fines (either hematite or magnetite).  Pellets are produced through a process which involves combining finely ground iron ore with binding clay (and fluxes if required), moistening and rolling the mixture into 14mm balls, and baking the pellets.  The ore used is normally ground finely due to previous beneficiation processes.  This process produces pellets of high-grade, and consistent size, shape and density, which are large enough to be directly fed into a blast furnace.  Although pellets are high quality and, because of their metallurgical properties, are efficient in the blast furnace process, the additional processing required to produce them makes them more costly than lump or fines products.

39. Pellets are normally produced near the mine site by iron ore producers.  However, some steelmakers also produce pellets (eg OneSteel has a pellet plant at Whyalla in South Australia).

    2.2.2.3Metallurgical properties of iron ore

40. The following metallurgical properties of iron ore are important:

    (a)reducibility characteristics – these characteristics describe the ease with which the iron oxide in the ore is reduced to metallic ore by carbon monoxide and the strength of the ore during this reduction process; 

    (b)softening/melting characteristics – these characteristics describe the temperature interval between the onset of softening and the complete melting of iron ore during reduction.  Blast furnace efficiency is enhanced by a narrower temperature range between softening and melting; and 

    (c)loss on ignition (LOI) components – this refers to the water and volatile compounds which are released when the iron ore is heated.

41. In general, sinter and pellets have more porous physical structures than lump, and pellets have a more porous structure than sinter; accordingly, sinter and pellets are more easily reduced than, but are not as strong as, lump products.  Further, the fluxes contained in sinter and pellets also mean that, generally, the temperature range between softening and melting points is narrower for sinter and pellets than for lump.  These relative disadvantages in the metallurgical properties of lump are the principal reasons why lump product generally only comprises 20% or less of the iron ore products fed into a blast furnace at any one time.

    2.2.3Customer requirements and use of iron ore products

    2.2.3.1“Value in use”

42. Steel producers constantly evaluate the efficiency of their processes and are very sensitive to any sustained shift in the value of one type of iron ore in relation to the others.

43. Customers constantly balance various technical and quality considerations against price considerations and the availability of supply in order to calculate the “value in use” of particular iron ore products.  The specific value in use of a mining company’s products will be different for every customer and for each blast furnace.  This is because the operation of each blast furnace involves the use of a specific and unique mix of inputs, including iron ore products, which reflects the economics of the customer’s steel production process.  Any change in the feedstock mix of the blast furnace affects the total composition of the burden and therefore the value in use of each of the individual products.

44. Steel mill customers value most the following attributes in suppliers of iron ore:

    (a)product quality – the supplier’s ability to meet or exceed customer quality specifications;

    (b)(low) product variability – the supplier’s ability to deliver consistent product quality from shipment to shipment and within each shipment, which is based on the supplier’s blending or quality control systems; and

    (c)reliability and timeliness of supply – the supplier’s ability to deliver contracted product tonnages on time, every time, without interruption.

    2.2.3.2Product quality

45. Iron ore producers work to tight product quality specifications for their lump and fines products.  Most iron ore products for direct shipping or blending have:

    (a)iron content of between 60% and 65%, although the highest sales volumes of Pilbara iron ore in the globally traded market have an iron content in the range of approximately 57-58%;

    (b)alumina values of less than 3%:  2.7% alumina remains the highest alumina content standalone bulk iron ore product in the main contract sector of the globally traded market, although the ability to blend means that small quantities of ore with more than 3% alumina could be sold; and

    (c)          phosphorus content of between 0.02% and 0.08%.

46. Iron ore supply contracts specify strict quality or “grade” requirements for the iron ore supplied.  These are the outside limits and customers expect product grade specifications to fall within much tighter specifications.  These contracts apply cost penalties if specific quality constraints are not met in individual shipments.  If the deviation is not significant, neither is the penalty.  During recent strong demand for iron ore exports, there has been a slight, although not major, relaxing of product quality acceptable to the steel mills.  However, there have been no significant sales of high impurity products in the contract market.  The position is different in the spot market.

1. Lower quality iron ores are generally less attractive to steelmakers, as they contain less iron and inevitably higher levels of impurities, or higher LOI characteristics.  Accordingly, lower quality ores impact on the supplier’s revenue.  Depending on the ore type, lower quality ores will have a lower price than high-grade ores.  Further, shipping costs are higher for lower quality ores per tonne of actual iron content (as international bulk shipping costs are tonnage driven) and a further freight cost is imposed as a result of the greater LOI of lower quality ores, as the chemically combined water the LOI represents will be driven off in the steelmaking process.  The obvious implication is that there is a “baseline” quality below which ore of lesser quality will not be acceptable to customers.

2. Nonetheless, lower quality iron ores are purchased by steelmakers who then blend it with higher quality iron ore to create their sinter feed.  Typically between four and eight different fines or concentrates may be added to a sinter plant feed blend.  Thus, small quantities of lower quality ores will be procured.

   2.2.3.3Product variability

3. Steel mills greatly value low variability, where the quality of every shipment of a particular product is almost the same.  Any significant departure from the agreed product specification quality range can affect the steelmaking process.  The ability to produce products with low variability is a critical attribute of supply delivery, especially for the major high-volume ore suppliers. 

4. Product quality and variability deviations can stem from inadequate mine and plant coordination and planning, equipment breakdown and freight interruptions, as well as from unexpected deviations in ore presentation in the mines.  Maintaining low variability is generally more readily achieved by the large-scale iron ore producers because they operate several large-scale mines and have the opportunity to blend ore within a single mine or to blend ore from several mines.

   2.2.3.4Timeliness and reliability of supply

5. Many steel mills depend heavily on iron ore shipments from suppliers arriving regularly and on schedule.

6. Many steel mills only have limited stockpiles of iron ore.  The average stockpile of a Chinese customer is approximately one month’s worth of ore.  Japanese customers often carry even less in order to drive efficiencies through their production process.

7. It follows that any delay or disturbance to delivery schedules – for example, due to factors such as inadequate planning, weather, equipment breakdown, rail freight delays and shipping demurrage at the port – can have a profound and expensive impact on the steel mill, especially in a market in which it is extremely difficult to source replacement ore on short notice (that is, such as on the spot market) at reasonable prices.  Delays in receiving ore shipments can affect steel mills’ ability to use the optimum blend of ores to maximise steelmaking productivity and to minimise costs.

   2.2.3.5Blending ore from different suppliers

8. Steelmakers seek to acquire iron ore from more than one supplier for various reasons:

   (a)Appropriate product mix – The difficulty of achieving the desired mix of chemical and physical properties means that steelmakers will rarely purchase all of their iron ore from one supplier;

   (b)Cost savings through using lower grade product – The highest quality iron ore is generally the most expensive; accordingly, steelmakers seek to purchase several iron ore products that contain a range of chemical compositions, in order to meet the required chemistry specifications for the blast furnace while minimising costs.  Where customers can source sufficient high quality ore to make up the main feed for their blast furnace, there is some limited scope to blend some slightly lower quality ore into the blast furnace burden;

   (c)Improving sinter strength and reducibility – Ore blending strategies can improve sinter strength and reducibility, and thus increase productivity, by blending appropriate chemical, mineralogical and textural features of different ore types; and

   (d)Commercial and strategic reasons – Steelmakers may diversify their sources of iron ore to encourage competition between suppliers and protect themselves from the risk of supply disruptions from any particular supplier.

   2.2.3.6Substitution of lump, fines and pellets

9. Each steel producer is likely to use a blend of lump, pellets and/or fines, depending on the location of its steel mill and the economics of its steelmaking process.  The precise combination of lump, fines and pellets which a steelmaker uses is referred to as the burden, and depends on what is most efficient from the perspective of that steelmaker, having regard to a number of factors, including cost, sintering capacity, geographical location, blast furnace efficiency considerations and the quality of the steel to be produced.

10. The location of customers’ steel mills also affects the value in use of individual iron ore products.  For example, because lump ore breaks down during transport, lump products may not offer the same value to inland steel producers as to customers located at or near ports.  Similarly, pellets (which are high cost) tend to be used by steelmakers where the cost of shipping alternative ores is higher, where the steelmaker needs to compensate for lower grade ores, or where the steelmaker’s sinter plant has insufficient capacity to meet its requirements.  Consequently, pellet products are principally produced in North America and Europe (primarily for local use) and Brazil, both for export (mainly to Europe) and local use.  Pellet production in Australia is very low, relative to lump and fines product.

11. If the price of any of lump, fines or pellets was decoupled from the price of the others for any significant period of time, steel producers would consider optimising their processes to reduce the impact of this shift in value, for example, by investing in additional sintering or pelletising plant or altering the use of lump in favour of pellets.

12. It is possible to change the burden by investing in additional sinter capacity, pelletising capacity, and/or improved blast furnace feeding facilities.  Any significant changes to the burden are likely to involve considerable investment in new plant, so that decisions by a steel producer about whether to change the mix of iron ore types comprising the burden used in its blast furnaces are not taken lightly.  Once steel producers invest in their own pelletising or sintering plant near their steel mills, it will usually be most cost effective to purchase fines in order to take maximum advantage of this capacity.  However, a steel producer operating a pelletising or sintering plant at full capacity may find the use of lump more cost effective than investment in additional facilities.

    2.3                 Key features of the iron ore market

    2.3.1Producers

13. The three largest producers of iron ore are:

    (a)Vale, the world’s largest iron ore producer, which supplied a total of 237.9 million tonnes (mt) of iron ore in 2009 (down from 301.7mt in 2008).  Vale supplies sinter fines, concentrate fines, lump and pellets from its iron ore operations, all of which are based in Brazil.

    (b)RTIO, the second largest supplier, with total global production (directly or through joint ventures) in 2009 of 217mt.  RTIO supplies high quality fines and lump from its operations, most of which are based in Western Australia (although it also has iron ore mines in Brazil and Canada, and proposed projects in Indonesia and Africa).  RTIO’s “Pilbara Blend” product is formed using blended output from across several of RTIO’s Pilbara mines.

    (c)BHPB, which supplies six high quality fines and lump products.  BHPB does not have any pelletising operations in Australia, although it does produce some pellets at its Samarco mine and its operations in Brazil (which it operates through a joint venture with Vale).  In 2009, BHPB supplied approximately 118mt of iron ore. 

14. In addition to Australia and Brazil, many other countries have iron ore resources and are substantial exporters of iron ore, including India (whose production in 2008 was 220mt), Canada (31mt), South Africa (49mt) and Russia (100mt). 

    2.3.2Demand for iron ore

15. Prior to the Second World War, iron ore mining and production tended to be undertaken by small producers located near to, and usually integrated with, steel mills.  There are still considerable domestic iron ore reserves in a number of steel producing countries, including Russia, the United States, India and China.

16. The rapid growth in demand from the Japanese steel industry provided momentum for the rapid development of internationally traded iron ore in the 1960s and 1970s (notably, Japan does not have a domestic iron ore industry).  This was particularly the case for iron ore sourced from the Pilbara, which is geographically in an advantageous position to service Asian customers, minimising shipping costs compared with longer hauls by competitors from, for example, Brazil.  The facilities of BHPB and RTIO were progressively expanded to service the growing demand.

17. China began to import high-grade iron ore from Australia in the 1970s.  Since then, Chinese demand for imported iron ore has increased progressively.  China has become the world’s major importer of iron ore and its iron ore imports have been driven by high compound annual growth rates for crude steel production.

18. The global steel industry is now dominated by a modest number of extremely large steelmakers who often act as a kind of national or regional “champion” in their country or region.  On the other hand, in some countries, such as China and India, there are still a considerable number of smaller steel mills who tend to participate at the edges of the global steel market.  The development of such large steel producers has been the result of a process of consolidation which has occurred in two phases.  The first phase occurred relatively slowly over the last two decades prior to 2004.  The second phase was more rapid and involved aggressive market consolidation since around 2004.  As well as mergers, a number of steel manufacturers are also looking to exploit economies of scale and scope in other ways, such as through shared production, joint procurement or technology transfer arrangements.

19. The global trade in iron ore can now be understood in terms of two largely distinct sources of demand: China and the “rest of the world” (including other countries which have traditionally had strong and substantial steel industries, such as Japan, Taiwan, South Korea, Western Europe, Australia and the United States).  Since 2002, although demand from the rest of the world has grown moderately, China’s rapid industrialisation has been the source of remarkable growth in steel consumption and substantial increases in demand for, and the price of, iron ore.

20. Imported iron ore constitutes, on average, around half of the iron ore used globally (across all of lump, fines and pellets).  This highlights the important role that continues to be played by domestic production in a number of countries and, in particular, in China.  China has significant domestic iron ore deposits, which provide around two thirds of its iron ore supplies.  Most Chinese domestic reserves are of relatively low quality ore, which requires beneficiation before it is suitable for use by Chinese steel producers.

21. As well as China, the other country with a sizeable and growing stake in global iron ore consumption and production is India.  The total production of iron ore in India during 2008 was approximately 220mt, with production expected to rise to 240mt in 2009.  Of this total production, approximately 86mt was exported and the remainder was consumed by domestic Indian steelmakers.  The majority of Indian iron ore is hematite ore sold as sinter fines.

    2.3.3Supply contracts and pricing

22. Historically, most of BHPB’s and RTIO’s customers purchase iron ore under long-term supply arrangements.  Approximately 90-95% of BHPB’s iron ore products are sold through contracts of between 5 and 15 years duration.  RTIO also sells most of its iron ore under long-term agreements.  Recently there has been a move towards short-term supply contracts by both firms, reflecting the higher price that is currently being obtained in the spot market.

23. Supply contracts tend to contain:

    (a)         a commitment as to the annual tonnages to be purchased and shipped;

    (b)the specific chemistry and physical properties of the iron ore to be supplied, usually including at least minimum iron content, physical size specifications, maximum levels of impurities and maximum LOI – these grades are often amended during annual benchmark pricing discussions, typically due to changes in the producer’s ore or facilities, the customer’s production plans or other iron ore sources;

    (c)          variations to payments to reflect the grade of ore actually provided;

    (d)a “Base Price” for iron ore supplied during the first year of the contract and a mechanism for varying the Base Price in subsequent years to reflect annual benchmark price negotiations; and

    (e)provisions dealing with liability in the event of any delay to a shipment.

24. The benchmark price negotiations occur annually between iron ore producers and their customers to determine movements in the benchmark price.  Such movements are negotiated through a series of annual meetings held in Europe and Asia between individual iron ore producers and steel producers.  The credibility of a supplier or buyer for the purpose of benchmark negotiations reflects the generally held view of the industry based on the size of the parties to an agreement and the significance of the contracts they are negotiating.

25. The steel market has traditionally participated in the benchmark negotiation process as regional “blocks”, but in recent years, China has operated to a large extent independently of the other major Asian players.

26. The annual price settlement, in the form of a percentage increase or decrease from the benchmark price of iron ore in the previous year, is usually set by the first agreement reached between a significant buyer and a significant seller anywhere in the world.  This first settlement can be reached at any time from December through to as late as September the next year.

27. The pricing signals for iron ore tend to become blurred by a complex range of factors, such as uncertainty about global supply conditions (including the timing of planned capacity expansions), the state of forecast supply and demand, market development considerations (such as placing new or additional tonnage in the market), the relationship dynamics between a supplier and each customer, and changes in the costs of transportation.  The result of this uncertainly is that benchmark price negotiations tend to be a mix of backward-looking analysis of the market conditions and forward projections of supply and demand.  This complex balancing act is then reflected in a view as to the appropriate benchmark price for the next 12 months.

    2.3.4Interrelation of iron ore prices

28. The benchmark prices agreed in Europe and Asia are closely interrelated.  The prices of iron ore supplied into Asia and the prices of ore of similar type and quality supplied to Europe have tracked one another over many years.

29. The prices of fines, lump and pellets also tend to be interrelated.  The price of fines is the market driver and the global benchmark.  The lump price has been traditionally linked to the price of fines plus the additional cost of the sintering required to beneficiate the fines into a form comparable with lump (that is, capable of being directly fed into a blast furnace).  The price of pellets is approximately the fines price plus the pelletising cost, taking into account the improved quality of the pellets.  The following figure illustrates this inter-relationship.

    2.3.5The supply of iron ore on the spot market

30. Iron ore can also be purchased on a one-off or ship-by-ship basis or in the form of multiple shipments over a shorter period of time.  These short-term supply arrangements are referred to as the “spot market.”  The spot market has grown considerably over the last four or five years as a result of the tightening of supply.  Up to 25% of total seaborne iron ore is currently sold under spot contracts. 

31. Historically, iron ore supplied on the spot market generally tended to be lower quality than ore supplied under long-term contracts.  Most spot market producers were small operations with relatively high mining and/or freight costs.  The spot market is a helpful mechanism for identifying the market-clearing price of iron ore, and so has become an important factor to take into account when pricing strategies are developed.  Recently the larger producers have been selling their products into the spot market to obtain the benefit of higher prices.

    2.4                 Recent developments in the global iron ore trade

32. Recent developments include: 

    (a)the continued and rapid industrialisation of China, leading to sustained demand growth;

    (b)the powerful role played by Chinese buyers, particularly in benchmark price negotiations;

    (c)the transportation cost advantage enjoyed by Australian iron ore producers and the potential for this advantage to be eroded over time as Vale takes steps to lower its transport costs and Chinese customers shift toward free on board (FOB) terms;

    (d)the expansion projects being undertaken by iron ore producers to meet Chinese demand; and

    (e)the development and growth of the spot market (particularly in China and India) and its impact on benchmark price outcomes.

33. Steel production and consumption generally follow global economic trends and are heavily influenced by the major economies of Asia, Europe and the United States.  This means, for example, that steel production dropped during the US and European recessions of the early 1990s.  It also explains why, since in or around 2002, steel production has been dominated by growth in Chinese steel demand.

    2.4.1Increased demand from China

34. Chinese industrialisation continues to significantly affect the dynamics of the global iron ore market.  The extraordinary size and growth of Chinese demand has pushed iron ore producers to maximise their production volumes, encouraged smaller producers into the iron ore market, caused the development of a significant spot market and increased China’s role and influence in the market, including in price negotiations.

35. In general, the larger Chinese steel mills who supply steel to customers in the automotive or shipbuilding industries tend to produce high quality steel products using state of the art processes and technology.  Small Chinese steelmakers mostly supply long products (such as bars, railway lines, beams and pipes) into the Chinese construction industry and often use less sophisticated production arrangements. 

36. State-owned steel manufacturer, Shanghai Baosteel Group Corporation (Baosteel), and the Chinese Iron and Steel Association (CISA), which is the industry association for steel producers in China, are two of the major Chinese players in the iron ore market.  CISA provides the main public interface between the steel industry and the Chinese government, which is very interested and active in the sector.

37. The Chinese steel industry differs from other steel industries in the region (such as Japan, South Korea, Taiwan or Australia), due to the diversity of Chinese steel mills, the availability of domestic production, differences in attitudes to commercial negotiations and relationships, and the influence of the Chinese government.

    2.4.2Potential future developments

38. While China’s steel industry is rapidly undergoing a process of consolidation similar to that in the global steel industry, there remain literally hundreds of steel factories in China, most of which are small “cottage” operations which produce less than 5mt of steel per annum.

1. It was not only the economists who gave evidence about losses arising from delays.  Senior personnel also had their say.  Mr Walsh AO, RTIO’s chief executive officer, said that any delay in expansion in the current economic environment (ie the growing demand by China for iron ore) will delay the revenue stream from extra sales that could be achieved from each expansion.  He said a delay of twelve months to implement a 20mtpa expansion (not a large expansion in the scheme of things) would cost in excess of $2bn at current prices and exchange rates. 

   18.7              Conclusions

2. We can now weigh up the benefits and costs of access to each service. Although this will be done on a line by line basis, some general observations can be made.

3. It is particularly important that, if the services are not declared, alternative rail facilities are likely to be available for many access seekers. The situation in the Pilbara is unusual in that, notwithstanding the presence of facilities with natural monopoly characteristics, alternative facilities can be – and are highly likely to be – built if a declaration is refused. Other benefits which might ordinarily flow from access to a natural monopoly facility do not necessarily arise here. In particular, although we have concluded that criterion (a) is satisfied in respect of all of the services except the Mt Newman service, we doubt that access will result in large gains for competition.

4. Sifting through all of the benefits and costs which have been raised by the parties, in the end there are only a few which have a major bearing on the public interest.

5. On the benefits side of the ledger, there are two key potential benefits.  First, access to some lines might potentially “unlock” some stranded deposits, and even for those who are not stranded, access may provide a significantly cheaper form of transport and allow greater volumes of iron ore to be transported.  Second, there may be capital savings from accommodating third party demand on an incumbent’s existing line rather than on a new railway.

6. On the other hand, there are two key likely costs.  First, there is the likelihood that access will discourage the development of alternative lines.  Given that access to alternative lines may well be less constrained, and provide far more certainty of use for third parties than access to the existing lines, this is an important cost.  The second critical cost is that for some services access will most likely lead to delays in the incumbent making changes on its lines, whether by way of expansions, adopting new operating practices or introducing new technology.  These delays (and the resultant costs) are a likely consequence of having a shared facility.  The delays (and costs) would probably arise in any event if third parties were to share an alternative facility.  Hence, the third parties may be indifferent to the effect.  But it is of great significance for BHPB and RTIO.   

7. We have said that criterion (f) and the discretion do not require a precise quantifiable cost/benefit analysis.  Nonetheless, in what follows we have attempted to compare the benefits and costs of access, where possible giving them some order of magnitude value.

   18.7.1Mt Newman service

8. To begin with, in the absence of a declaration, the Chichester line would likely be extended to Marillana. The result is that there would be no competition benefits: ie no tenements will be stranded or even inconvenienced by using the extended Chichester line.  Indeed, some might benefit from being able to access the extended Chichester line at any point, rather than being required to truck to Mindy Mindy on the point to point Mt Newman service. 

9. We have elsewhere concluded that there are unlikely to be any capital savings associated with expanding the Mt Newman line rather than building an alternative line:  see Chapter 15. Indeed, taking into account the ability to link with the Chichester line, there may be greater costs associated with expanding the Mt Newman line.

10. The only real benefit we see from declaring the Mt Newman line is that it may allow FMG to accelerate its development of the Mindy Mindy mine (avoiding waiting for a rail spur to be built to the Chichester line). Other junior miners would likely need to wait for port facilities at South West Creek or Utah Point to become available. Given that Mindy Mindy is a relatively small mine, we see the benefit from accelerating its development as marginal.

11. As to the costs of access, it must be remembered that the vast majority of BHPB’s production is transported down the Mt Newman line.  BHPB’s demand for use of the line – and correspondingly, the constraints on third party use – are most acute.  Several of those junior miners identified as potential access seekers are contemplating relatively large iron ore operations:  ie operations of greater than 10mtpa.  The effect of the operating constraints on those juniors would be keenly felt.

12. The constrained nature of access is to be compared with the position that would exist if the junior miners obtain access to the Chichester line. We have outlined some of the advantages of access under the regulatory regime applying to the Chichester line from the perspective of an access seeker. Further, according to FMG, the Chichester line is more technologically advanced than the Mt Newman line and can handle trains which are more efficient.  A third party which obtains access to the Chichester line would use more efficient trains.  Alternatively FMG could provide the juniors with haulage services.  FMG has expressed a keen interest in hauling for third parties.  Junior miners are likely to be better off accessing the Chichester line. However, if the Marillana spur were not built, this might prevent many junior miners from accessing the Chichester line.

13. Another key cost we have identified is the cost of delays to expansions or changes in operating practices or technology.  Any delay will inevitably affect the Mt Newman line.  And, as the evidence regarding the cost of delays to expansions shows, delayed throughput (whether due to delays in expansions, in changes to technology or for some other reason) is potentially a very large cost.

14. Even if we were to ignore costs from delays to expansions, access to the Mt Newman service has limited benefits and significant costs, and would not be in the public interest. This conclusion is only strengthened once delays to expansions under Part IIIA are taken into account.  Hence, access is not in the public interest.  In any event, as a matter of discretion we would not declare the service.

    18.7.2Goldsworthy service

15. Access to the Goldsworthy line will have two major benefits. The first is that it will provide access seekers with a rail option which otherwise would not be available. Unlike other lines, an alternative rail facility to the Goldsworthy service is unlikely to be developed in the absence of access. Some potential access seekers may admittedly have other transport options (eg trucking near Port Hedland or slurry pipe from the Ridley project). But we do not discount the possibility of other potential access seekers requiring access to the line to transport their iron ore, and in any event, rail may be cheaper even if trucking is possible.

16. Access will also clearly achieve some capital savings.  A conservative estimate of the minimum capital savings to be had is something in the vicinity of $550m.  This is because limited, if any, expansion is needed to the eastern section of the line to accommodate third party demand.

17. Turning to costs of access, the impact of operating constraints on third parties when accessing the Goldsworthy line are likely to be significantly less than for accessing the Mt Newman line.  BHPB’s demand for the eastern section is limited, and potential third party demand for that part of the line is not great.  This suggests that a third party could operate with relative freedom on that section. The Finucane section is obviously more problematic.  But this section is relatively short and a third party has a variety of options for bypassing this section altogether (eg using the Chichester line or the spur to South West Creek that is being investigated by the NWIOA).

18. The risk that access to the Goldsworthy service will lead to delays to changes in operating practices or technology is, we think, limited.  Technological development and maintenance of the eastern section of the line has not kept pace with changes to the remainder of BHPB’s Pilbara network.  Given BHPB’s relatively limited anticipated use of the eastern section, changes to operating practices are not likely to be significantly impacted.  Access to the Finucane section will have a greater impact, although the potential impact should not be overstated.  The Finucane section is short.  To the extent that there are technological or operating changes, those changes may well be manageable over a short distance (in the way, for example, that BHPB manages trains coming off the eastern section of the Goldsworthy line by running them at lower speeds).

19. As regards expansions, access to the eastern section will have little, if any, impact given that no expansions are likely.  Access to the Finucane section will have a greater impact.  But we think the impact is unlikely to be large on an ongoing basis.  Being a relatively short section, there is only so much that can be done to expand the line.  Putting in numerous sidings, for example, is an unlikely option.  We suspect that what will be required for any expansion will be relatively clear-cut.  Because the distances are short, the cost of any expansion is likely to be relatively small and less prone to protracted dispute.

20. We are satisfied that access to the Goldsworthy service is not contrary to the public interest.  This is a line which, for most of its length, can comfortably accommodate third party demand.  The problems associated with the Finucane section can, we think, be largely mitigated or avoided. We see no reason to exercise our discretion against declaration. We think it is appropriate to declare this service for the 20 year period sought.

    18.7.3Hamersley service 

21. Of all of the lines, demand for the Hamersley line – from both RTIO and potential access seekers – is likely to be the most intense.  This means that the benefits and costs of access are likely to be of greater magnitude than for other lines.  Although we have concluded that the benefits may be worth billions, there is the very real possibility – indeed probability – that these benefits could be dwarfed by the costs.

22. To understand how we come to this conclusion, it is necessary to have regard to the way in which demand will arise for the Hamersley line.  On the one hand, RTIO requires the line to carry the vast majority of its iron ore.  Most of the mines which RTIO plans to bring online going forward will require use of the Hamersley line.  On the other hand, we have identified 167mtpa of potential third party demand.  To put this figure in context, this will be more than half of RTIO’s output as at 2014.  Of the potential third party demand we have identified, a large proportion is from tenements located near the Solomon area (many of whom could access the Dixon line if it were built), with a comparatively small group of tenements to the south and east who would perhaps be unable to access the Dixon line.

23. Viewed in this context, there are two principal benefits from access. One is providing a rail service for tenements who would be “stranded” or severely inconvenienced without access and unable to access the Dixon line.  As to the risk of tenements being stranded or severely inconvenienced, see Chapter 13.4. 

24. If it difficult to know the extent of the benefit.  When we assessed potential third party demand for the Hamersley line, we considered that most would come from large projects in or near the Solomon area.  But it must be remembered that we identified potential demand by applying some fairly strict rules which did not take into account other deposits (eg non JORC-certified deposits) which might also benefit from access.  Other projects might emerge in the vicinity of the Hamersley line.  This makes it impossible to quantify the benefits of access for those tenements, other than to suggest that the benefits will be substantial.  It is also important to note that a number of those tenements, even if they cannot access the Dixon line, might be able to access other rail services (eg the Kennedy line or the Marillana spur to the Chichester line).

25. The other principal benefit is the capital savings associated with avoiding duplication of the Hamersley line. There are potentially large capital savings if the Hamersley service is not duplicated.  We have assessed the maximum amount that could be saved to be around $2.4-2.75bn, although we did not, and could not, purport to calculate accurately the actual savings.  The actual savings might be significantly lower, but, even then, the savings will be substantial. It is important to understand who will benefit from these capital savings. The largest capital savings arise from avoiding duplication of the line south and east of Rosella. The capital savings from Rosella north – which, for a large proportion of identified potential third party demand, is the only section which they will use – are less clear-cut. The cost of expanding this section to cater for third party demand may not be that much less than building the Dixon line.

26. There is no denying that savings of this order (ie savings incurred by avoiding the construction of an alternative facility) have a significant bearing on the public interest.  But to focus on construction costs is to take too blinkered a view.  It is just as important – and perhaps more important – to consider whether access to the Hamersley line will encourage the optimal development of rail infrastructure in the Pilbara.  The Hamersley line services parts of the Pilbara where significant mining activity already takes place and where activity will likely grow.  A vital question is whether access will encourage rail infrastructure which best services these regions.  There are three possibilities presented before us.  The first is that there is access to the Hamersley line and the Dixon line is not built. The second possibility is that there is access to the Hamersley line and the construction of the Dixon line is delayed (but it is eventually built).  The third possibility is that there is no access to the Hamersley line and (as is most likely) the Dixon line will be built.

27. Let us consider the implications if the first possibility were to eventuate. This would involve potentially cramming a very large amount of traffic (from both RTIO and third parties) on to one rail network. We have potential third party demand to be 167mtpa; in the long run this likely understates potential demand. Apart from anything, this will increase the potential for complexity in rail operation and for disputes.

28. From the perspective of third parties using the line, the constraints associated with fitting in with RTIO’s requirements may be very significant, if not prohibitive. Many of the juniors who might benefit from access have relatively large projects contemplating target production rates of 10mtpa or more.  In FMG’s case, its project contemplates 100mtpa of demand for the Hamersley line.  These projects will be particularly affected by constrained operations.  The reality is that the proposed Dixon Island line would likely offer a much more attractive arrangement for many potential access seekers.  In this regard, we note that if FMG were to build the Dixon Island line, it would be able to use it as part of an integrated network with the Chichester line (and any other lines it is contemplating building).  Obviously, the Hamersley line could not be used in that same way. 

29. From the perspective of RTIO, the consequences of third party access would likely be grave.  The Hamersley line is regularly expanded to enable RTIO to take advantage of growing iron ore demand.  The expansions are significant, and take years to plan and implement.  If access is granted it would be necessary for expansion to cater not only for RTIO’s future needs but also those of the third parties.  The resultant delays caused by the need to consult with third parties on any expansion proposed (RTIO’s or the third parties) will produce significant loss to RTIO.  Likewise, the costs associated with delaying or preventing the introduction of innovations on the line (eg through changed operating practices or new technology) could be significant.

30. On Mr Taylor’s analysis and his assumption of a three month average delay to an expansion – which we think is a very conservative assumption – lost export revenue would be in the order of $10bn.  While Mr Taylor’s calculation was for the combined RTIO rail network, most of this loss would be attributable to the Hamersley line.  Mr Taylor did not take the next step, as Dr Fitzgerald did in BHPB’s case, of deriving the likely impact of this loss on Australian economic welfare.  If he had done so, we have little doubt that the cost would be extremely large, if Dr Fitzgerald’s findings are anything to go by. 

31. Turning to the second possibility (access to the Hamersley line will delay but not prevent the construction of the Dixon line), we do not think that much could be said to commend this result.  The notion of third parties paying for expansions to the Hamersley line and then “ramping up” production while building the Dixon line is, we think, uncommercial. Whatever capital savings there are from access would be greatly reduced.  And for the period the Dixon line is under construction, the costs that will be incurred by both third parties and RTIO will be large indeed.

32. If we consider the final possibility (no access to the Hamersley service), then we think the consequences are as follows:

    ·A relatively small proportion of access seekers who could not otherwise access the Dixon line or some other line would be prejudiced.

    ·For a relatively large proportion of access seekers who could access the Dixon line, the Dixon service will offer a much more commercially practical rail solution, although they will incur the additional costs of constructing the Dixon service either directly or indirectly (through access charges to the Dixon service).

    ·RTIO will avoid the potentially enormous costs associated with delays to implementing expansions and innovations on the Hamersley line.

33. In none of the above scenarios would we be satisfied that access (even if one ignored delays to expansion) would not be contrary to the public interest. Indeed, when expansion delays are taken into account (and given the enormous potential demand for the Hamersley line, delays are likely to be most prominent), we think access would be contrary to the public interest.  We would, in any event, for the reasons outlined, exercise our discretion not to declare the Hamersley service.

    18.7.4Robe service

34. Here there are parallels with the Goldsworthy service.  One parallel is the need to consider two separate sections of the line.

35. Access to the south-west section has significant benefits and relatively minor costs.  There are large savings from avoiding duplication of this part of the line, since it appears that any expansions required to meet the demand for this section is limited.  Correspondingly, issues such as constraints to third party operations, delays to changes in technology or operating practices, or delays to expansions, are not particularly troubling.

36. Access to the northern section of the line (ie north of Western Creek) gives rise to greater complexities.  The starting point is that much of the iron ore which RTIO plans to bring online will be directed to Cape Lambert. Equally, however, it appears that RTIO’s current expansion plans would not fully utilise capacity of the northern section until at least 2018.

1. We note also that the northern section may have some bearing on the proposed joint venture between BHPB and RTIO.  It is far from clear whether this joint venture will proceed.  At the present time, it is too speculative a prospect to be given significant weight in assessing the public interest.

2. If we were declaring the Hamersley service, there might have been large potential third party demand for the northern section.  But we are not declaring the Hamersley service, and the third party demand for the northern section is relatively limited.  It appears that for at least some time, that demand can be comfortably accommodated with relatively minor, if any, expansions.

3. Access to the Robe service will result in large capital savings and, because there is significant capacity, problems associated with constrained third party operations and delays to changes to operating practices or technology are not as pronounced as on other lines. Importantly, Mr Ranson has suggested that in the absence of a joint venture with BHPB, RTIO does not have any intention of fully utilising the capacity of the northern section of the Robe line before 2018.  We are concerned about the likelihood of extensive use by RTIO of the line after that time. Even taking into account potential expansion delays, we think that access would not be contrary to the public interest if the period for declaration is limited to 2018.  However we are not satisfied that, for any period beyond 2018,  access would not be contrary to the public interest. 

   19.                 MISCELLANEOUS ISSUES

4. There are a few remaining legal issues which, for want of a better term, are miscellaneous.  They may be disposed of relatively quickly.

5. The first was raised by the Tribunal itself.  The question is whether the application for a declaration covers a service provided by a facility which, at the time of hearing, is, in many respects, different from what it was at the time of application.  The Tribunal raised this question because several of the railway lines, particularly the Hamersley line and the Mt Newman line, have, during the period, undergone significant expansion, including having sections altered from single track to double track.

6. We think the answer lies in drawing a distinction between the service for which the application is made and the infrastructure pursuant to which the service is provided.  While the infrastructure might be different, the service applied for has not changed: see Chapter 12. 

7. The second issue is confined to the application for declaration of the service on the Mt Newman line.  According to the application the service sought is described, relevantly, as “the use of the facility being part of the Mt Newman railway line which runs from a rail siding that would be constructed near Mindy Mindy in the Pilbara to port facilities at Nelson Point in Port Hedland.”  In fact, FMG does not wish to exit the Mt Newman line at Port Hedland.  Instead, if access is granted, it will exit the line somewhere near the Goldsworthy junction, probably at a point 10 to 12km south of the port at Port Hedland.

8. BHPB says that this is a material variation to the service that has been applied for.  It says that the section of the line that FMG wishes to access is materially shorter in length than that stated in the application.  And it is says it has a different character because it does not involve transport to port facilities. 

9. We accept that FMG has changed the service to which it seeks access.  We do not agree that the change is in any way material.  In Rio Tinto Ltd v Australian Competition Tribunal, the Full Federal Court said (at [59]) that there need not be a “slavish attachment to the words of an application”. A “literal or pedantic adherence” to the description of the service is not required, provided that the substance and essential natural of the service is not altered. That is the position here.

10. The last point arises out of s 44W(1)(c). This subsection provides that the ACCC must not make a determination in an arbitration of an access dispute that would have the effect of depriving any person of a protected contractual right. Each of BHPB and RTIO contend that were access to be granted each would be deprived of protected contractual rights. The contractual rights are those created pursuant to the State agreements, pursuant to special leases of the rail corridors granted by the Western Australian government and pursuant to several joint venture agreements.

11. The Tribunal will not enter upon this issue.  It is an issue appropriately considered at stage two when a particular request for access is considered:  Hamersley Iron Pty Ltd v National Competition Council (1999) 164 ALR 203 at [80]. Indeed, there is little utility in dealing with the point at this stage. Even if it is a good one as a matter of theory, in appropriate cases consents may be forthcoming from counterparties to the relevant agreements so as to undermine the argument.

    20.                 Concluding Remarks

12. There are four observations we wish to make.

13. First, while we set aside two ministerial decisions, it does not follow that we disagree with those decisions.  The iron ore industry is a dynamic industry.  Iron ore operations change rapidly and dramatically.  They change to meet ever changing market demand, and to enable firms to keep up with, or get ahead of, competitors in the iron ore market.  Little of what we see today will exist in a few years time.  The nature of the industry that was before the Minister when the decisions were first taken is significantly different from the industry that we have here. 

14. Second, the mechanism to promote community welfare identified by the Hilmer Committee – competition – is as vital today as it was in 1993 when the Committee published its report.  Part IIIA is an important means of achieving community welfare.  Yet the Part does require reform, and we think the following issues should be investigated:

    • The possibility of compelling inefficient investment
    • The desirability, and mechanics, of an expansion power
    • Whether access on a first-come, first-served basis is inequitable

15. These are just some of the important issues which the legislation does not deal with adequately.  There are other, less significant, problems which we have identified along the way that might also be worth looking at.

16. Third, one matter of procedure should be considered, namely whether it is appropriate to collapse a rather complicated process.  The multitude of steps included in a Part IIIA application for access are:  (1) NCC recommendation; (2) Ministerial declaration; (3) Tribunal review; (4) Appeals to the court; (5) Possible remitter; (6) Negotiations for access; (7) Arbitration; (8) Further Tribunal review; (9) Possibly more appeals to court.  Getting through this process will inevitably take years:  If a complex case was run in the fast lane, the earliest it will still take is 4 to 5 years to complete.  The imposition of time limits on administrative decision-makers will reduce the time a little, but will not address the core problem.

17. Finally, we cannot leave these reviews without acknowledging the significant effort that the parties and the NCC went to in order to prepare for, and present, what is a most difficult case.  Without the assistance of the parties and their lawyers it would not have been possible for us to come to grips with so many issues in a (relatively) short period of time.  We recognise that we have placed significant burdens on the lawyers by imposing limits, and requiring prompt responses to Tribunal requests and directions.  Still, the cooperation we received from them was complete.  We wish to thank everyone for their assistance.

I certify that the preceding one thousand, three hundred and fifty one (1351) numbered paragraphs are a true copy of the Reasons for Determination herein of the Tribunal.

Associate:

Dated:           30 June 2010

SCHEDULE 1 – MAP OF BHPB AND RTIO LINES (and Chichester line)

SCHEDULE 2 – MAP OF BHPB’S PILBARA OPERATIONS

SCHEDULE 3 – DETAILED MAP OF CURRENT BHPB RAILWAYS

SCHEDULE 4 – SCHEMATIC OF CURRENT RTIO RAIL SYSTEM

SCHEDULE 5 – MAP OF EXISTING AND PROPOSED LINES (except for proposed Marillana Spur)