Port seeks to lock in deals

Pilbara News - - News - Nick Evans

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.

Pic­ture: Bill Hatto

Atlas Iron's stock­pile at Utah Point.

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