1. The Rail Operator’s Perspective
THANKS FOR INVITING US
Mike Mohan
Chief Executive Officer
Australian Railroad Group

2. The Rail Operator’s Perspective
Background
Problem identification
Potential solutions
WE WILL TRY TO GIVE YOU THE RAIL OPERATORS PERSPECTIVE ON GRAIN TODAY.
AFTER SOME BACKGROUND, WE WILL DO SOME PROBLEM IDENTFICATION AND THEN
SUGGEST SOME POTENTIAL SOLUTIONS

3. The Rail Operator’s Perspective
Background

4. 10 – 12 million tonnes annually
ARG Revenue Mix
10 – 12 million tonnes annually

5. Western Australia Grain Lines
3,000 kms of grain lines
150 CBH owned rail served bins
One of the best grain networks in Australia

6. South Australia Grain Lines
Eyre Peninsula
Eyre Peninsula contributes 33% of SA’s grain harvest
50% of this task is currently transported by rail
90% of grain transported by rail is to Port Lincoln
Mainland

7. Problem Identification
The Rail Operator’s Perspective
Problem Identification

8. Returns on Grain Operation
Low returns on capital deployed in grain

9. WA real rate $ per tonne trend & task
1989\90
1990\91
1991\92
1992\93
1993\94
1994\95
1995\96
1996\97
1997\98
1998\99
1999\00
2000\01
2001\02
2002\03
2003\04
2004\05
0.0
2.0
4.0
6.0
8.0
10.0 MT
Real rail rate
Rail task (MT)
$/t
Real rate erosion
Rail and truck competition

10. Harvest Volumes Western Australia
Source: Co-operative Bulk Handling Limited

11. Variable Track Maintenance Condition

12. Unrecovered fuel price increases
Fuel prices
ARG Average Fuel Expenditure and Fuel Cost per Barrel (AUD$)
Unrecovered fuel price increases

13. Grain Line Economics Rail grain economics impacted by: Light Density
Variable Track Condition
Not on policy parity with Truck
“Private” rail sector pays own maintenance costs
Circuity
Low Speed Loading facilities
Light Axle Loadings
Rail Access Competition & Truck
Inherited “Government” contracts
Leads to low or negative returns and underinvestment

14. The Rail Operator’s Perspective
We like the grain business

15. The Rail Operator’s Perspective
Potential Solutions

16. Grain Line Opportunities – Public Sector
Public Investment
Public Subsidy
Rationalization
Modal Equity

17. Grain Line Opportunities – Private Sector
Line Rationalization
GIG & GNR
Subsidy
Capital Infusion
CSO
Alternative Ownership
Marketing Alternatives
Access rationalization on light density lines
Modal equity
Investment incentives

18. Rail versus Truck Market Share
South Australia market share
West Australia market share
GIG key role is to educate Gvt and provide impartial views through SD+d
Truck Competition is pervasive

19. US & Canadian Outcomes Similar situation 25 yrs ago
Neither country has an “open access” environment
Free market orientated legislation
Accelerated abandonment and rationalization
Short lining
Deregulation / Pricing freedom
Private investment where returns could be generated
Public investment in track rehabilitation where private sector not viable
Equipment and track investment tax incentive
Government loan guarantees

20. The Rail Operator’s Perspective
This can be done