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Pilbara Rail
Research_

Pilbara Rail, DIY protagonist

Innovators leave their mark on infrastructure for generations
The Better Infrastructure Initiative have created five case studies based on DIY infrastructure protagonists who have little tolerance in waiting for government. Pilbara Rail is one of those examples.

 

Protagonist:          Lang Hancock & partners, BHP Billiton and Rio Tinto
Domain:   Proprierty rail network
Where:   Pilbara, Western Australia
When:   1962 - present

The opportunity

Lang Hancock discovered iron ore in the Pilbara in the early 1950s. It, however, lay dormant for over 10 years until both the Commonwealth and the Western Australian governments lifted regulatory restrictions on the export of iron ore and private tenement granting that had been in place since World War II.1

These initial projects in the Pilbara required the development of some of the world’s largest iron ore mines as well as dedicated rail links connecting the mines with newly constructed ports at Dampier and Port Hedland. The rail developments were undertaken privately as a part of the vertically integrated production and logistics controlled and managed by the developers Lang Hancock and partners, Rio Tinto and BHP Billiton.

Motivation

The enormous size of each of the Pilbara iron ore operations and the scalability of the resources means that not only were there large amounts of rail capacity to service their initial export contracts, but that unfettered additional rail capacity was required.

Eliminating logistical bottlenecks as supply rapidly expanded to meet additional international demand was crucial.

The enormous size of each of the individual iron ore developments, the dispersed nature of the initial projects under different ownership and the extraordinary physical demands required of the rail service to meet individual corporate export requirements meant there was no clear pathway for shared infrastructure. Operational flexibility through vertical integration of the production and logistics chain was more highly valued by operators than potentially lower access costs.

The developers of the Pilbara were strongly entrepreneurial and fiercely independent and resisted the interference of government or third parties in their operations. Attempts to create third party access to rail infrastructure in the Pilbara although legally permitted have failed. Fortescue Metals Group has since developed its own rail network and is now resisting Brockman Resources’ attempts to gain access to its lines under Part IIIA.

Source of capital

  • Mt Newman and Goldsworthy (BHP Billiton), Hamersley Iron and Robe River (Rio Tinto) projects were financed by equity provided by BHP, Rio Tinto or their antecedent corporate entities.
  • Fortescue is owned and financed by equity provided by Fortescue Metals Group and debt provided by local and international debt capital markets investors.
  • Roy Hill is owned by Hancock Prospecting Pty Ltd and its partners POSCO, Marubeni and China Steel Corporation.

Impediments

The Pilbara is one of the world’s most isolated and inhospitable natural environments. These foundation iron ore projects were thousands of kilometres away from significant population centres or anything capable of providing large-scale development support.

Before development, large sections of the Pilbara and Kimberley did not have access to bitumen roads or landing strips capable of supporting light aircraft. Mine development included the planning and commissioning of almost every other aspect of supporting infrastructure, including roads, rail and ports necessary to deliver iron ore product to client markets in Japan and Korea.

The Pilbara is one of the world’s great mining success stories, with over half a century of unbroken expansion and profitability and a track record of successful adaptation of extraction and infrastructure methods that have been constantly refined, reinvented and redeveloped as market conditions dictate.

Unexpected outcomes

  • The introduction of Part IIIA of the Trade Practices Act 1974 (Commonwealth) grants power to the Minister to declare certain infrastructure assets eligible for open access agreements by third parties where it would not be economically feasible to develop alternative infrastructure.
  • While the shared access arrangements reflected established market practice in rail systems in industries such as the East Coast coal sector, as described previously the physical separation and rapid development pathway of the various foundation Pilbara projects means a very different infrastructure access regime philosophy developed in Western Australia that is highly resistant to sharing infrastructure.2
  • Fortescue Metals Group pursued Rio Tinto for access to the Hamersley and Robe River rail lines to transport its product. However, it eventually decided to develop its own rail facilities after a fruitless ten years where it won virtually every preliminary court case supporting its third party access rights under Part IIIA, but ultimately lost its case for access upon review by the Australian Competition Tribunal.3 Fortescue opted to build its own rail line during favourable market conditions rather than risk further delays in trying to negotiate workable access agreements with the incumbent parties and ultimately losing their legal claims for third party access.

Read more case studies. 


Definitions of core plus appears to vary between sectors, however in the case of infrastructure the term is used in this paper to describe activities of asset owners and operators that seek to open up new opportunities to lift returns (and risk), in many cases outside of regulated areas. Value added activities with customers such as pursuing retail revenue at airports as well as opportunistic actions like incentives for demand management during the peak are examples of core plus infrastructure.

Commonwealth of Australia (2016). Australian Smart Cities Plan, 2016. Available at: https://cities.dpmc.gov.au/18190/documents/48080

Bowditch, G., Policy Outlook Paper No.1, Re-establishing Australia’s Global Infrastructure Leadership.

DIY infrastructure protagonists empower communities to be centred on customers and services.
Garry Bowditch