Elk Valley Coal pleads for competitive freight rates
COMMENT: One might note that Elk Valley Coal Corp is complaining that it is constrained in its negotiating room because it has no options other than CP to move its coal to port. Put that situation in the mirror and waddyaget? CP has only one customer. Seems like a standoff. Or a perfect opportunity for a mutually satisfactory deal. An imperfect but balanced market, sort of.
For those who don't have a clue what triggered this news item, a "Competition Policy Review Panel" was convened in July 2007. Here is what it is tasked to do:
The Competition Policy Review Panel
* The Competition Policy Review Panel was announced on July 12, 2007, following a pledge in Budget 2007 to review Canada’s competition policies and its framework for foreign investment policy.
* The Panel is chaired by L. R. Wilson. Other members are Murray Edwards, Isabelle Hudon, Thomas Jenkins and Brian Levitt.
* The Panel is targeting to report to the Minister of Industry and the Government of Canada by June 30, 2008.
Objectives
With increased global competition and national governments competing to attract global capital, the Panel believes there are two goals for Canada’s economic performance:
1. To promote Canadian direct investment abroad, and create the domestic conditions to foster the development of Canadian businesses.
2. To maximize Canada’s attractiveness as a destination for talent, capital and innovation.
Mandate
* The task of the Panel is to provide recommendations to the government on how to enhance Canadian competitiveness.
Read more here.
Download the Panel's consultation paper, Sharpening Canada's Competitive Edge.
The Panel's website, www.competitionreview.ca
Teck Cominco was responding to the request for submissions, the deadline for which closed on January 11. Submissions will be posted on the website "within a few days."
"The Panel will [also] hold a series of regional and thematic consultations in selected cities across Canada with interested parties in January and February 2008." But it's January 19th now, and there's nothing on the website about these meetings - perhaps it's an invitation-only deal which will tend to skew mightily the demographic the Panel talks to.
Elk Valley Coal pleads for competitive freight rates
By Scott Simpson
Vancouver Sun
Friday, January 18, 2008
VANCOUVER - British Columbia's biggest mining operation is describing itself as a railway monopoly "captive" in need of freight rate relief in a new submission to a federal competition review panel.
Elk Valley Coal Corporation is asking the Competition Policy Review Panel to scrutinize national rail transport policies with an eye to compelling railways - primarily Canadian Pacific - to offer more competitive pricing for their services.
At the very least, it asks, railways should be obliged to price freight service "on the basis of cost" rather than market advantage.
The Elk Valley operation, a series of five southeast B.C. mines operated and co-owned by Vancouver's Teck Cominco, is worried that it's at a competitive disadvantage to rival Australian producers of metallurgical coal used for steelmaking - some Australian mines have a choice of railways to move their product.
Coal is the number one commodity transported by rail in Canada and accounts for 30 per cent of annual tonnage through the Port of Vancouver.
But a submission to the panel says lack of rail competition means overall costs are so high that a downturn in global coal prices would render some Elk Valley mines unprofitable.
"There is no competition for rail services at any of Elk Valley's mines," said president and CEO Boyd Payne in a press statement. "Each mine is captive to the carrier that serves it."
In its submission to the panel, Elk Valley says it is competitive with Australia on mine operation costs "but excessive transportation costs push the company into the fourth quartile of overall cost for the steelmaking coal industry and makes it vulnerable to volatile prices.
"Elk Valley pays far more for transportation than its competitors in Australia even after adjusting for Elk Valley's greater distance to tidewater."
The submission calls on the panel to effect what it calls "structural changes" in the negotiating relationship between railways and their shipper-customers - principally through the imposition of freight pricing schemes that reflect the true cost of rail operations.
On a year-by-year basis, railways and shippers have recourse to a Transportation Act mechanism called final offer arbitration in which a neutral third party determines if freight rates are fair.
But Greg Waller, Teck Cominco investor relations vice-president, said in an interview on Friday that it's a temporary, short-term solution "that only provides you with one year at a time."
"And in this business we need to make investments for the long term. We need to have the assurance of a cost structure for a period of time longer than one year.
"Whether the price goes up or down, the fact is that our costs are very high in terms of making an investment for the long term."
Canadian Pacific communications director Mark Seland said the railway was "surprised" by the Elk Valley submission and noted that there are no active arbitrations about its pricing schedules.
He said it would not be in CP's best interest to render its customers uncompetitive, because their distress would contribute to a decline in the railway's own revenue.
He also noted that CP's present contract with Elk Valley expires in 2009 and suggested that "it's not coincidental" that that criticism of the current arrangement is surfacing.
© Vancouver Sun
Posted by Arthur Caldicott on 19 Jan 2008