THE sheer audacity of BHP and Rio's defence of their refusal to comply with state agreements to haul third-party coal in Western Australia was on show when senior executives gave evidence to the Competition Tribunal in Melbourne this week.
The tribunal's decision on third-party access issues is part of a long-running debate, while the mining giant's most immediate hurdle is in Brussels, where Neelie Kroes is about to rule on their iron ore production joint venture. BHP's Marcus Randolph declared third-party access would cost the company $8.5 billion or roughly one-third of the synergy benefits on offer from the merger.
On what basis he makes this claim is one issue.
But better still, in the course of his evidence, Randolph points to potential solutions to his problem.
Randolph reportedly confided that BHP's aim was to prevent other operators using his rail line for as long as possible.
Just as Telstra has excelled in the art of public obstruction to maintain its monopoly profits on its copper wires, BHP and Rio have used the judicial system to prevent anyone getting close to access to its lines.
Successive courts and other decision-makers have ruled against the mining giants but they simply refuse to accept the umpire's decisions.
This is on the access issues, but left unanswered is why they can't provide haulage as they agreed in order to get the land for the rail line in the first place.
In its early musings on Pilbara rail access, the National Competition Council raised the prospect of dual train lines to ease any congestion issues, an idea which Randolph tacitly endorsed by saying it would be cheaper for BHP to build a new line than to let someone on his track.
The point is no one, not Andrew Forrest or anyone else, really wants third-party access. He would happily settle for haulage rights, that is using BHP or Rio rolling stock when it suits one of the majors for appropriate rent.
That after all is what both companies agreed to with the WA government to win access to the land in the first place.
Rio's Sam Walsh didn't express much support for that concept, noting that haulage returns were nowhere near the 50 per cent profit margins he was earning on his iron ore sales.
That too isn't exactly the stuff to get you racing to the violins in sympathy, should the company eventually be forced to grant haulage or, more to the point, actually stick to its agreement.
On paper, the proposed joint venture between BHP and Rio must make it easier for them to provide haulage rights.
Just what work if any the companies have done on rail synergies is not known and there are myriad complications given each has different rail car dumping systems, IT systems and the like. But certainly with Rio having an easily expandable port at Cape Lambert and BHP a more difficult expansion at its Port Hedland port, clearly the Rio Hamersley line can be used to haul the ore closest to its route and vice verse, which frees capacity and leaves the option of adding a few more cars to the end of the train for the minnows' ore.
In a recent speech in Western Australia, federal Competition Minister Craig Emerson mused that Part 111A of the Trade Practices Act should be reviewed.
Just why is not clear, because it contains so many hurdles it makes it hard to invoke in many cases.
A facility is only declared if it is uneconomical for anyone to provide another service, it would promote competition, it is of national significance and it would not be contrary to public interest.
A declaration also only means the two sides are bound to arbitrate over fair access terms.
So it's not like BHP will lose their 50 per cent profit margins in a hurry.
Emerson wondered whether companies would "size their infrastructure capacity to meet only shorter-term needs in order to avoid having to deal with rivals seeking access to short term excess capacity".
He asks then whether BHP will say it needs a 100 tonne port today, but maybe will need a 150 tonne port tomorrow, but won't build it in case they let the Trade Practices Act loose on us.
The next time BHP or Rio builds spare capacity in case they might need it later would surely be the first time.
The minister specifically exempted the Pilbara issue from his musings because he rightly did not want to intervene in a legal process.
Just why he raised the issue is not clear.
As he noted at the time: "I have no immediate answer" but just thought the question was worth asking.
In fact, he has already done what needs to be done by allowing future infrastructure projects to get upfront clearance, which would avoid future wrangles.
If it was as easy as that, then BHP and Rio would not have spent millions on lawyers to delay the inevitable, which of course is precisely what they are doing because they won't accept the umpires' decisions. Doing so would require them to argue for fair compensation, which is not so heinous.
