Port seeks to lock in deals
Pilbara Ports Authority is pushing Utah Point iron ore exporters to lock in hard take-or-pay contracts over exports as the State Government readies the terminal for sale.
Mid-tier iron exporters Mineral Resources and Atlas Iron face a $2.50a-tonne cost increase next month when a government discount at the facility expires. The price rise looms as benchmark iron ore prices slide back towards $US50 a tonne.
The companies have opposed the sale as they believe it will increase their export costs and are lobbying the Government for an extension of the discount, arguing they have been overcharged for using a facility that has delivered 50 per cent profit margins in the past two years.
Department of Treasury submissions to a Legislative Council committee examining the sale show the PPA is seeking hard take-or-pay contracts in exchange for lower prices.
“Should users be willing to introduce more conventional ‘take-orpay’ terms to the contracts, it is understood that PPA would be willing to amend pricing to take into account the revised risk profile,” the submission said.
Existing take-or-pay arrangements at Utah Point include only a portion of user charges, and cut out if the benchmark iron ore price falls below about $US42/t.
New versions should include obligations to pay for a significant proportion of allocated capacity, whether used or not, and be backed by “creditworthy entities or guarantees”, Treasury said.
Atlas Iron boss David Flanagan said that was not feasible for Atlas, because its debt covenants prevented it from signing such a secured contract. He said analysis by users showed Utah Point could still deliver commercial returns if it dropped its prices by $3.25/t.
In its submissions, the PPA defended criticism that users had been overcharged, saying the prices had been agreed in negotiations “between sophisticated parties”.
PPA chief executive Roger Johnston indicated it was Atlas’ problem if it had not negotiated an appropriate commercial arrangement.
Mr Flanagan rejected that, saying Atlas had no option but to deal with a monopoly service provider.
“What’s better for the State — having a port which facilitates trade or maximises profit at the cost of jobs and opportunities for the private sector?” he said.
Atlas Iron's stockpile at Utah Point.