PERTH (miningweekly.com) – The Australian Competition and Consumer Commission (ACCC) has raised concerns with freight hauler Aurizon over its proposed acquisition of One Rail.

Aurizon in October last year announced the A$2.35-billion acquisition of Rail One, which comprised bulk rail haulage and general freight assets in South Australia and the Northern Territory, the 2 200 km Tarcoola-to-Darwin railway line, and a haulage business in New South Wales and Queensland.

Aurizon said at the time that it would retain and integrate the One Rail bulk and general freight assets into its own business, while divesting of the New South Wales and Queensland business through a demerger or trade sale.

The ACCC on Thursday pointed out that both Aurizon and One Rail supply rail haulage services for coal in New South Wales and Queensland, and that there were three main suppliers of coal haulage in these states: Pacific National, Aurizon and One Rail.

Aurizon is the largest supplier of coal haulage in Queensland, and the second largest in New South Wales, while One Rail is a well-established third supplier in New South Wales and a recently entered third competitor in Queensland that has had a significant impact.

“By reducing the number of competitors in the supply of coal haulage in New South Wales and Queensland from three to two and removing an important competitor to Pacific National and Aurizon, we have preliminary concerns that the proposed acquisition of One Rail by Aurizon would be likely to substantially lessen competition,” ACCC chairperson Gina Cass-Gottlieb said.

The ACCC is also considering whether the proposed acquisition would substantially lessen competition in one or more regional markets for the supply of rail haulage services for bulk commodities, other than coal.

The watchdog noted that while the parties did not currently compete in the supply of these services, Aurizon had publicly stated its intention to continue to grow its non-coal bulk commodity rail haulage business.

“We’re also considering the impact of this proposed acquisition on potential future competition in the supply of non-coal bulk rail haulage,” Cass-Gottlieb said.

The ACCC is seeking public comment on whether its competition concerns would be addressed by Aurizon’s proposed a divestment undertaking, which will divest One Rail’s east coast business, including its coal haulage operations in New South Wales and Queensland.

The undertaking will allow Aurizon to sell the business either by a trade sale or demerge it as a new separate ASX-listed entity.

The ACCC has released a draft of Aurizon’s proposed divestment undertaking for public consultation as part of its statement of issues.

The ACCC said on Thursday that it had not formed a view about whether the proposed undertaking could resolve the ACCC’s preliminary competition concerns. Feedback from public consultation will assist the ACCC to reach a final decision.

“A critical issue for the ACCC is determining whether Aurizon’s divestiture undertaking will be effective in replacing the competition that would be lost because of the proposed acquisition,” Cass-Gottlieb said.

To address the likely competition issues, the ACCC will need to be satisfied that any new purchaser or the demerged business would be an effective, standalone, long-term competitor in the supply of coal haulage and non-coal bulk commodity rail haulage. 

Divestment remedies via demerger were not common and could present certain risks and complexities which needed to be assessed, Cass-Gottlieb said.

An important issue is whether the financial arrangements that Aurizon has proposed for the new entity, including its proposed debt levels, will affect the proposed demerged business’s ability to become an effective competitor.

The ACCC’s final decision is scheduled for July 14.