The Australian Competition and Consumer Commission has granted conditional authorisation* to a medium term system designed to address the imbalance between the amount of coal that exporters want to export and the capacity of the infrastructure which moves coal from mines in the Hunter Valley onto vessels in Newcastle, ACCC Chairman, Mr Graeme Samuel, said today.
"The medium term system, designed by Port Waratah Coal Services (PWCS) in consultation with coal producers and customers of Hunter Valley coal, is designed to prevent a large queue of vessels from re-forming at the port", he said. "This system replaces a short term system which expired at the end of 2004.
"With high international coal prices, Hunter Valley coal producers want to export more coal than the coal chain can deliver at present. The system essentially reduces the amount of coal each producer can export through the port on a pro rata basis so that the overall amount handled by the port better matches the amount that can be delivered by the coal chain. This is designed to substantially reduce significant demurrage costs** that arise from an excessive queue.
"To address the current shortage, logistics providers in the Hunter Valley, through a centralised team, have developed a long term program of coordinated investment to expand the capacity of the coal chain. Part of this program includes investment in port infrastructure by PWCS. Based on these plans, the capacity of the coal chain is expected to increase from current annualised throughput of 86 million tonnes to 120 million tonnes per annum in the next few years".
This type of investment involves significant lead times. The medium term system is transitional measure which aims to limit the demurrage costs associated with excessive queues until coal chain expansion projects are operational.
"Under the condition of authorisation, PWCS will be required to report annually to the ACCC on the progress made in the Hunter Valley against the coordinated program of investment and the extent to which use of capacity is being maximised", Mr Samuel said.
PWCS estimates demurrage savings under the new scheme, based on a similar sized queue returning without an allocation system in place (the queue reached a peak of around 50 ships in 2004) of between US$106 million to US$179 million.
"The ACCC is satisfied that under the system the total volume of coal exports from the Hunter Valley is unlikely to be reduced, particularly given additional flexibility measures introduced under the new scheme.
"It is also satisfied that the medium term system is unlikely to remove the pressure to invest in expanding the capacity of the Hunter Valley coal chain, including at the port, given current investment plans and continuing demand".
The ACCC has granted authorisation until the end of 2007.
During the period of authorisation, a built-in trigger mechanism will ensure that the medium term system will not operate unless the expected demand exceeds capacity by at least three million tonnes.
More information regarding the application and a copy of the Determination are available by following the 'Authorising anti-competitive conduct' and 'Authorisations' links on the ACCC's website.