Scoping study: sale of Australia Rail Track Corporation

Budget Review 2015–16 Index

Rob Dossor

The Government will undertake a scoping study in 2015–16 to determine options for the future management, operation and ownership of the Australian Rail Track Corporation (ARTC).[1] The cost of this study will be met from the existing resources of the Department of Finance.

The ARTC was created in 1997 when the Commonwealth and the states agreed to form a ‘one stop shop’ for all rail operators seeking access to the national interstate rail network.[2] The ARTC’s corporate charter is to:

  • provide seamless and efficient access to users of the interstate rail network
  • pursue a growth strategy for interstate rail through improved efficiency and competitiveness
  • improve interstate rail infrastructure through better asset management and coordination of capital investment
  • encourage uniformity in access, technical, operating and safe working procedures and
  • operate the business on commercially sound principles.[3]

As of 2014 the ARTC owns or leases (from states) and operates over 8,500 kilometres of standard gauge track in NSW, Victoria, South Australia, Western Australia and Queensland.[4] The map below shows the ARTC network, including owned and leased routes.

Map shows ARTC network 

Source: Australian Rail Track Corporation (ARTC), ‘Our Network’, ARTC website.

The ARTC has a monopoly in interstate rail haulage.[5] The ARTC appears to own or manage all interstate rail lines, as well as numerous intrastate lines (but the line between Northgate and Alice Springs is under a long term lease to Genesee and Wyoming Australia).[6]

The 2013 Commission of Audit recommended that a scoping study be undertaken to examine an appropriate access regime, implications for ARTC’s leases and wider considerations stemming from intergovernmental agreements that established the ARTC.[7] The Commission of Audit further noted that the monopoly characteristics of the ARTC could be adequately managed in a manner similar to airport or electricity distribution monopolies.[8] It also found that ‘in recent years some of the capital projects undertaken by ARTC have had marginal benefit-cost ratios, were not needed to meet future demand projections or did not effectively address expected capacity constraints.’[9]

ARTC is estimated to be valued at around $4 billion.[10] In 2012–13 the ARTC made a loss of over $202 million before returning a profit of over $163 million in 2013–14.[11] ARTC has been rated at Aa2 by Moody’s Investor Services (Moody’s)—with a baseline credit assessment of a1. [12] Moody’s stated, ‘the Government’s announcement of the scoping study in itself is credit negative for ARTC’s Aa2 rating because it signals a possible change in intention in relation to the government’s continued ownership.’

Moody’s goes on to say that ARTC’s ratings could be lowered if there were a weakening in the likelihood of support from the Government due to the full or partial privatisation of ARTC.[13] The ARTC could take ‘countermeasures’ to manage any change in ownership, such as changing dividend policy or reducing costs.[14]

The Government continues to invest in rail infrastructure managed by ARTC. The Budget, for example, committed $400 million to enable the Inland Rail Implementation Group and the ARTC to continue providing the Government with a delivery plan for inland rail.[15] Whether the Government intends to continue funding rail projects after a possible sale is unclear. Both Labor and the Coalition have funded rail projects over the years and it may be considered a responsibility of government to provide an appropriate level of service for rail infrastructure.[16]

While the investment industry has welcomed the proposal,[17] the rail freight industry has warned that privatisation could increase costs for consumers.[18] Shadow Treasurer Mr Bowen has said that ‘When it comes to these decisions there are two threshold questions—is it a function which can only be conducted by the Government and is it a good deal for the taxpayer?’[19]




[1].          Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 92.

[2].          M Vaile (Minister for Transport and Regional Development), ‘Boost for Rail Across Australia’, Press release, 27 April 1998.

[3].          Australian Rail Track Corporation (ARTC), ‘Our Network’, ARTC website.

[4].          Australian Rail Track Corporation, 2014 Annual Report, 2014, p.2.

[5].          J Fullerton (CEO ARTC), Victorian Transport Association, speech, 1 March 2013.

[6].          Aurizon may own a Queensland/New South Wales interstate line. M Fagan, ‘Introducing Competition into Natural Monopoly Industries: An Evaluation of Mandated Access to Australian Freight Railroads’, Harvard University, May 2007, p. 6; T Kelsey, ‘Supply Chain Week: Aurizon’, presentation, September 2013.

[7].          National Commission of Audit, Towards responsible government: phase one, February 2014, p. 223.

[8].          Ibid.

[9].          National Commission of Audit, Towards responsible government: phase two, February 2014, p. 9.

[10].       M Ludlow and J Kerin, ‘Rail Track float backed by business’, Australian Financial Review, 12 May 2015.

[11].       ARTC, 2014 Annual Report, op. cit., p.37.

[12].       Moody’s Investor Service, ‘Moody’s: No immediate rating impact from government’s announcement of scoping study for ARTC’, Moody’s website.

[13].       Ibid.

[14].       R Kennedy, ‘Moody’s eyes ARTC sale study’, Business Spectator, 18 May 2015.

[15].       The Inland Rail project will complete a new rail connection between Melbourne and Brisbane, via Wagga, Parkes, Moree and Toowoomba.  ARTC has been tasked with developing a ten year program to deliver the project, under the guidance of the Inland Rail Implementation Group. Australian Rail Track Corporation (ARTC), ‘Inland Rail – A significant commitment’, media release, ARTC website; ARTC ‘Inland Rail’, ARTC website.

[16].       The government provided $426.8 million in equity injections into ATRC since April 2011. Department of Infrastructure and Regional Development (DIRD), ‘Completed Rail Projects’, DIRD website; R Webb, The Commonwealth Government’s Role in Infrastructure Provision, Research paper series, 2003–04, Parliamentary Library, Canberra, 1 March 2004.

[17].       ‘Mandates set to fly as budget resets the selling agenda’, Australian Financial Review, 13 May 2015.

[18].       A White, ‘Rail track sale will “lift costs”The Australian, 20 May 2015.

[19].       C Bowen (Shadow Treasurer) quoted in ‘Rail Track float backed by business’, op. cit.

 

All online articles accessed May 2015. 

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