Minerals Council: Infrastructure fails Australia's mining industry

THE MINERALS Council of Australia is calling on the federal government to cut red tape and address supply chain management issues that are threatening Australia’s market share of global commodities, especially the nation’s biggest export, coal.
Minerals Council: Infrastructure fails Australia's mining industry Minerals Council: Infrastructure fails Australia's mining industry Minerals Council: Infrastructure fails Australia's mining industry Minerals Council: Infrastructure fails Australia's mining industry Minerals Council: Infrastructure fails Australia's mining industry


Blair Price

In a submission to Infrastructure Australia, the body established by the Rudd government in April to guide the investment of the $26 billion Building Australia Fund, the council made the case that Australia has missed an opportunity to cash-in on the commodities boom that started in 2003-4.

“Despite being one of the world’s most important minerals producers, Australia has failed to fully capitalise on this expansion,” the MCA said.

“While prices have risen, volume growth in key commodity sectors has been stagnant. Capacity constraints, including congested export infrastructure, undeveloped and unresponsive energy and water markets, and failing social and physical infrastructure in regional and remote Australia, have applied a firm brake on export growth.

“The cost of this missed opportunity is substantial. Access Economics has estimated that if Australia had maintained its market share between 2002 and 2007 then – at today’s prices – Australia would have earned another $17 billion in export income, the equivalent of 1.6 per cent of nominal national income in 2007. This represents a significant and avoidable cost to national prosperity.”

In its medium-term outlook, the MCA said the outlook for commodities is strong because of strong demand from developing nations such as China and India but for Australia to maintain its current market share of the commodity trade will require substantial new investment in minerals operations and supporting infrastructure.

“To meet expected global demand in 2020, Australia will need to lift annual coal and iron ore volumes by 211 million tonnes and 328 million tonnes respectively over and above their 2007 levels. That is more than three times the matching lift in tonnages achieved across the period 2002 to 2007.”

However, the MCA referred to modelling by Access Economics. This revealed that if Australia’s market share dips between 2013 and 2020 in a similar fashion to between 2002 and 2007, the nation will be more than $91 billion worse off.

Lagging eastern coal versus fast-moving Pilbara iron ore

The MCA gave special mention to export chain problems with the Eastern Seaboard and made comparison to improved streamlined logistics operations achieved in the Western Australia’s Pilbara region and drew on Reserve Bank of Australia findings.

With the Eastern Seaboard, the MCA said coal infrastructure construction was either carried out directly by mining companies or by the government, and underwritten by mining companies – leading to a proliferation of regulatory and ownership complexity.

“For example, the majority of rail track in Australia (excluding the Pilbara) is now provided by four government agencies and three private companies, with at least six different access regimes.”

“Further, the rail track providers, freight service providers, terminal operator and port operators are typically owned and operated independently of each other.”

This contrasts with the Pilbara region with the MCA noting it had vertically integrated mine, rail and port arrangements that have been a key factor in the rapid expansion of the iron ore trade of past years to China and India.

The MCA referred to RBA research into the two supply chains showing that transport capacity for iron ore increased 27% since 2005, higher than the central bank’s 15% forecast, while coal transport only grew 8% below the 13% expectations.

“These shortcomings, particularly evident in both the Queensland and New South Wales coal sectors, are a function of poor policies and the diverse ownership arrangements those policies have fostered over successive decades,” the MCA said.

“Instead of an integrated, streamlined export chain, the mining operations, the rail track, freight services, terminal operations, port management and shipping services have been developed, owned and operated independently of each other."

The lobby group also referred to research with PriceWaterhouseCoopers that was published in December last year.

“Long queues of coal vessels have developed off the Eastern Seaboard increasing demurrage charges for industry.

“The underperformance of the Goonyella Coal Chain (in Central Queensland) alone resulted in a lost economic benefit of $1billion in 2005-06.

“Further evidence of these constraints is provided by the value of coal stockpiles awaiting shipment, the value of which has increased from $4.9 billion in 2005-06 to $6 billion in 2006-07.”

Despite $2 billion of public and private sector investment in the Hunter Valley and at least another $3.9 billion slated for Queensland’s coal sector, the MCA said the investment will be of little benefit if the capacity of the whole supply chain does not match to improve the capacities of the ports or the rail system.

Changes for infrastructure development

While the MCA does not think many of the burning logistical issues can be solved in a single Australian budget, yet alone a single round of funding allocations from Infrastructure Australia, it drew special attention to the impact of red tape related to physical export infrastructure.

“Many solutions to these capacity constraints will not require additional spending; rather they require better federal state cooperation, the elimination of duplicative and contradictory regulatory processes, institutional and intellectual capacity building, and more appropriate competition policy settings. With the right policy and regulatory settings most infrastructure issues can be resolved commercially.”

Most read Archive



Most read Archive