Six months after Premier Anna Bligh put the brakes on the Goonyella Abbot Point (GAP) rail link in Central Queensland, the project is back on. This time almost $400 million has been added to the price tag but question marks remain over why the giant infrastructure project is going ahead.
Bligh and QR have pledged that construction will begin in March 2010 but top coal exporters remain reluctant to jump aboard the project. Speculation is rife that the project risks being suspended a second time.
The project includes the 69-kilometre Northern Missing Link that connects the Goonyella coal rail system to the Newlands rail system, as well as upgrades to the Newlands system.
The line will have capacity to handle 50 million tonnes of coal annually, the same capacity as the expanded Abbot Point Terminal, north of Bowen.
Construction of the GAP was suspended in February, after the ripples of the global financial downturn eroded the confidence of Queensland’s resources industry. Coal miners consulted told Bligh they could not commit to what was then a $680 million project and now tops $1.1 billion.
At the time, the premier said coal companies told her government that the demand for coal had been hit hard and they were not in a position to give “any accurate view” of a time when international demand would return.
“In light of that, we have given the coal companies a three-month extension on determining the capacity for the Northern Missing Link,” she said.
On October 23, Bligh announced the link she described as the “Suez Canal of the Central Queensland coal industry” would go ahead with the backing of two coal companies and that the state government had slated construction to start in March.
She flagged its completion date as January 2012 with 500 jobs created by its construction.
“By December, QR will complete the final planning for the project, including detailed design and costing work and finalisation of commercial contracts,” Bligh said.
QR representatives said the company was “committed to building the project to match the needs of our foundation customers” while calling for other mine companies to back the project.
In her announcement Bligh suggested other companies “get on board quickly” to join the two already keen for the project to go ahead.
Those foundation customers are Bowen Central Coal, a 50:50 alliance between Western Australia-based Aquila Resources and Brazilian giant Vale, and the smaller-scale Lake Vermont Resources which owns a single project near Dysart.
A QR spokesman said it was “open to other companies signing up as we move forward, however the project is not dependent on other companies getting on board”
“We are able to scale-up the tonnage capacity depending on commitment from other companies,” he said.
But the top coal exporters that have the most to gain from the GAP have been dragging their feet and so far none have been willing to commit to the project.
Anglo Coal, Macarthur, BHP Billiton and Peabody have so far stayed tight-lipped about negotiations. It appears Bowen Central Coal had little choice but to sign because owners Vale and Aquila wanted the Eagle Downs project operating in 2012 and needed access to a port.
With no capacity available at Dalrymple Bay Coal Terminal and Gladstone too far away, the group made its decision.
General manager of Aquila’s coal arm and former Vale executive Stephen Pilcher told Australia’s Mining Monthly it was “important that we signed up to get the project moving forward”
“[The port of] Gladstone is further south and [BHP-owned] Hay Point is not for public users,” he said.
“Dalrymple Bay Coal Terminal has no capacity so it becomes the target for our logistics solution.”
The Eagle Downs project is still in the feasibility stage of development but Bowen Central Coal wants to start construction in late 2011 and produce longwall coal by the end of 2014.
With the line confirmed, it becomes one fewer obstacle for its owners.
“We had advanced to a point where this was the best outcome to proceed,” Pilcher said.
“The announcement has been the result of quite prolonged negotiations.
“The government always has a conservative negotiating position so it took a while to happen.”
It may have taken “a while” for Bowen Central Coal to sign on the dotted line, but after years of discussion, Macarthur Coal is not yet ready to put pen to paper.
Macarthur executive general manager of corporate development Ian McAleese said the company was “still involved in the process”, adding that two years was a long time to be talking about “a chunk of rail”
“If we want to grow our business, we would need Abbot Point,” McAleese said.
Macarthur already has take or pay contracts with the port, near Bowen, but it was “unviable” to send coal there at the moment without the missing link in place.
“We’re not sending coal there at the moment – it’s very expensive to send it that way,” McAleese said.
“These negotiations are ongoing and we’re still in discussion.”
It is a similar line from BHP.
The world’s biggest miner said it welcomed Bligh’s announcement but was still in discussions with QR and was “constantly assessing its options for coal infrastructure”
Industry sources have placed doubts on the future of the GAP, especially in line with the April 2010 deadline, because there are still no larger players on board.
QR, however, maintains the project will go ahead although there are no specifics on how construction will be handled when it begins in March.
When QR was asked what regions would benefit from the group’s engineering needs, a spokesperson said the GAP would be a boost for construction workers, equipment suppliers and so on.
“However, it is too early to provide the specific details requested,” he said.
Pilcher said he did not expect to see the $1.1 billion piece of infrastructure come off the rails, regardless of whether the biggest players in town climb aboard.
“It’s not the understanding we have after reading the letter between the parties [Bowen Central Coal and QR],” Pilcher said.
“We’ve signed the letter and we believe both parties will honour that agreement.”