20082008----20242024 Interstate and Hunter Valley Rail Infrastructure Strategy 30 June 2008 1 1 Introduction Purpose of this Strategy some States took the view that their rail freight businesses Purpose of this Strategy would be best privatised as vertically integrated concerns. The primary purpose of this Strategy is to assist Infra- By the early 2000’s, all of the Government rail freight structure Australia with its audit of nationally significant operators had been privatised with the exception of the infrastructure by setting out ARTC’s expectations of poten- Queensland Government owned QR. In conjunction with tial growth on the interstate and Hunter Valley rail net- this process, rail freight had also been fully separated from works over the 2008 – 2024 period, and identifying the passenger services, again with the exception of QR. infrastructure that may need to be developed to avoid bottlenecks to volume growth, and remove bottlenecks to Through the mid-2000’s period, three of the rail freight efficiency. businesses that had been privatised as vertically inte- grated concerns became vertically separated, with the This first section of the Strategy provides a high level track reverting to Government control in two of these overview of the industry, ARTC and current investments. cases. As this evolution continues there is a reasonably clear The Structure of the Australian Railway pattern to the ownership and operation of the Australian Industry rail network developing as follows: • The interstate standard gauge network has been At the time of Federation, the State's rail systems had vertically separated and most of the network con- been developed as a series of stand-alone networks, radi- solidated under ARTC control, as discussed in the ating from the major ports to serve the hinterland and following section. Figure 1 shows all Australian rail bringing rural produce and passengers to the major cities lines by the entity financially responsible for them. along the coast. Three separate track gauges were adopted by the States, effectively making their networks • As a result of mergers over the last decade, the incompatible. The railways in each state were massive, above-rail freight business is dominated by two vertically integrated enterprises managing all aspects of operators, Pacific National and QR. In the intermo- the rail system, and in many cases manufacturing many of dal market SCT also has a significant presence. the major capital items and undertaking most new con- There are also around six smaller, niche operators struction. across a range of markets. All rail freight operators, with the exception of QR, are privately owned. This structure remained largely unchanged until the 1960’s when there was an increase in momentum for a • All urban passenger railways remain run by State common gauge for the national rail network. Over the next Governments as vertically integrated businesses, two decades Melbourne, Perth and then Adelaide were with the exception of Melbourne where manage- linked to Sydney and Brisbane on the “uniform gauge” ment has been privatised on a franchise basis. With network. This network was completed in the mid 1990s the imminent separation of the Brisbane urban with the standardisation of the Melbourne - Adelaide line. passenger business from the rest of QR, all urban passenger networks will be fully separated from Management of the network also increasingly recog- freight operations. nised the ongoing shift in logistics, from a hinterland to port system, to a largely intercapital system. The Australian • The iron-ore railways in the Pilbara region remain Government take-over of the South Australian railways and vertically integrated and privately owned. improved co-operation between the State rail networks through the 1980s gave way to the creation of a single Two major structural issues remain unresolved. interstate rail freight operator, National Rail, in the 1990s. First, a significant portion of the Australian rail network Through the 1990’s, two significant forces drove the was designed and built to service the movement of agricul- evolution of the industry structure. On the one hand was a tural produce to the ports, and the flow of passengers and view that the future of rail freight lay in competition be- other goods between capital cities and rural populations. tween rail freight operators and that the separation of the Much of this trackage remains in use, even though the rail infrastructure from operations (“vertical separation”) significance of these markets has declined enormously was fundamental to effective competition. At the same and in most cases rail has no realistic prospect of being time there was a strong belief that the introduction of able to sustain its business commercially. private sector ownership into the industry would drive productivity and customer service. While this view was not No clear pattern has emerged for the management of incompatible with the argument for vertical separation, these non-commercial “regional” lines. In NSW, ARTC man- 2008-2024 INTERSTATE AND HUNTER VALLEY RAIL INFRASTRUCTURE STRATEGY 2 Figure 1 --- Australian rail network by entity financially respresponsible.onsible. ages the Country Regional Network on behalf of the NSW early 1990’s which as already noted led to a view that the Government. Queensland’s regional network remains part interstate rail network would be best managed separately of the vertically integrated QR. Victoria’s regional network to the above rail operations. recently reverted to Government control, with management by the V/line country / regional passenger business. South This led to the signing in 1997 of an intergovernmen- Australia’s small number of regional lines are leased and tal agreement by the Australian Government and the managed by the private sector Genesee and Wyoming mainland States to improve the performance of the rail business. Western Australia’s lines are leased and man- network across state borders. aged by Babcock and Brown Infrastructure, on a vertically separated basis. Tasmania’s rail infrastructure recently The Intergovernmental Agreement provided for the reverted to Government ownership but remains managed creation of the Australian Rail Track Corporation Ltd (a by the incumbent operator, Pacific National, on the Govern- public company who’s shares are held by the Common- ment’s behalf. wealth of Australia) to take ownership of the interstate track of Australian National 1 and those states that wished ARTC suggests a separate review of regional lines to to transfer control of their interstate networks. The agree- assess the market and logistics changes which have im- ment also envisaged ARTC more generally undertaking a pacted regional rail services, and to develop an appropri- role of supporting the development of an integrated na- ate strategy for regional rail infrastructure which can add tional standard gauge network. value to Australia’s regional transport needs. ARTC started out in 1998 with ownership of the track Second, there have been repeated attempts to intro- in South Australia including the Trans Australian Railway to duce third-party operations on the Pilbara rail lines to help Kalgoorlie, and soon thereafter took a lease of the Victo- reduce the capital costs of the establishment of new min- rian interstate standard gauge network. ing areas. At this stage none of the legal or commercial attempts to achieve third party access have been success- Early discussions with NSW, Queensland and Western ful. ARTC considers the Pilbara rail infrastructure to be Australia focussed on the development of agreements that nationally significant and therefore of relevance to Infra- would allow ARTC to sell access to their parts of the net- structure Australia. However, ARTC does not seek to com- work. This was achieved in Western Australia. However, ment on any aspects of this business. after a number of years it became apparent that a satisfac- tory arrangement was unachievable in NSW and an alter- ARTC Background native approach was needed as the NSW track forms an 1. Australian National was created by the Australian Government in ARTC was established by the Australian Government in 1978 and combined the railways of South Australia and Tasmania 1998 to coordinate the national rail network. It grew out of with the already Commonwealth owned “Trans-Australian Railway” the National Competition policy reforms initiated in the between Port Augusta and Kalgoorlie. 2008-2024 INTERSTATE AND HUNTER VALLEY RAIL INFRASTRUCTURE STRATEGY 3 important core for many of the key interstate corridors. engineeringly elegant. This means that its focus is very much on identifying what the market will respond to and One of the critical issues was the need to ensure an tailoring the infrastructure investment to suit. integrated approach to investment and operating protocols on the network. This became particularly problematic Applying these market focussed principles results in where divisions in ownership across a corridor meant that different strategies for different market corridors as illus- one owner could freeload on the investments of another trated in Figure 2. and / or implement inconsistent operating protocols and agreements that made consistency and continuity of ac- On the East-West corridor ARTC has already achieved cess not possible. significant growth. With rail’s share of the land transport market on the corridor siting at around 80%. Recognising the inherent problems with the reselling approach