Rail fight threatens coal giants' Australian exports

MELBOURNE (Reuters) - Australia’s top coal hauler, Aurizon Holdings Ltd, is on course for a showdown with the world’s biggest coal exporters after a regulator capped the revenue it can charge at A$1 billion ($783 million) less than the company sought.

BHP Billiton, Glencore, Anglo American, Peabody Energy and others face cuts of nearly a tenth of their coal export volumes from Queensland state, the country’s biggest coal exporter, after Aurizon said the tough revenue cap would cut throughput on its network.

The expected drop in coal traffic would be worse than last year’s losses after Cyclone Debbie, which cut exports by 16 million tonnes and sent prices for metallurgical coal, used in steel-making, skyrocketing.

A mine industry body accused the company of using its power as a monopoly rail operator, and urged it to negotiate further with the regulator.

“This is worth A$4 billion in export income and would cost the state government around A$500 million in lost royalties each year,” Queensland Resources Council Chief Executive Ian Macfarlane said in a statement.

The Queensland Competition Authority proposed a cap on Aurizon’s revenue over the four years to June 2021 of A$3.89 billion, 20 percent less than Aurizon sought, based on a lower return on capital and lower maintenance spending.

Aurizon Chief Executive Andrew Harding called the regulator’s draft decision “extremely disappointing” and said it would cut annual earnings by A$100 million a year through 2021.

Assuming the competition authority won’t overhaul its decision, which will be backdated to July 2017, the rail operator has moved to cut maintenance costs.

The cuts would lower throughput on the network that transports nearly all of Queensland’s coal output by 20 million tonnes a year, or about 9 percent of total coal traffic.

“We cannot spend maintenance money we don’t have,” Harding told reporters, adding that the company had little choice.

“There is potential for further reduction in volumes as we progressively implement further changes,” he warned.

BHP and Glencore declined to comment, but the Queensland Resources Council which represents all the miners urged Aurizon to hold off on its maintenance cuts until the competition watchdog makes a final decision.

“The Queensland Resources Council is calling on Aurizon to step back from its decision,” Macfarlane said in a statement. “This latest announcement shows Aurizon is willing to use its power as the monopoly operator of the network.”

The competition authority said it would consider any submissions filed by March 12, but declined to comment on its track record of barely revising draft decisions in its final rulings. It gave no date for a final decision.

Aurizon’s shares have fallen 15 percent in two months since the mid-December draft decision, but on Monday closed up 2 percent in a weaker broader market.

The company’s underlying profit fell to A$281.5 million ($219.7 million) for the six months to Dec. 31 from A$295 million a year ago when it was boosted by one-off gains from a previous rail network ruling.

Aurizon maintained a forecast for full year earnings before interest and tax to grow by around 11 percent to between A$900 million and A$960 million.

Reporting by Sonali Paul; Additional reporting by Ambar Warrick and Aditya Soni in Bengaluru; Editing by Richard Pullin