Northern rail link seeks new owner

Receivers looking after Australia’s northern rail link say it should have a new owner soon and still has a bright future.

In January 2004, the dream of a century finally became reality when the link from Alice Springs to Darwin opened, extending a line from Adelaide that had stopped short in the continent’s remote interior.

It opened with the idea of creating a rail freight corridor that would ultimately allow goods to be shipped partly by rail from Australia’s Asian neighbours to its more heavily populated south and east.

On an operational level it quickly succeeded. In the first five years, it attracted several major mining concerns, claimed 90% of the general freight between Adelaide and Darwin and also attracted some freight from Asia.

But like other major infrastructure projects before it, the link had trouble covering its construction costs.

The burden of debt on the A$1.3bn (US$830m) price tag ultimately proved too much for the original operator, FreightLink. In November, after a failed attempt to sell the line, it went into receivership.

Receivers KordaMentha are currently looking for a new owner, and say they are confident a new operator will be found. Gabrielle Trainor, a lawyer acting for KordaMentha, says bids will be sought this month. Meanwhile, the line is operating normally.

"Like a number of [similar] big infrastructure assets, it became clear that the level of debt was unserviceable, " she tells IFW. "These assets are still viewed as very long-term. At an operating level the business was going quite well. It was just servicing this underlying debt that was the problem.

"The date for bids has been extended now to the back end of March. I think there has certainly been a lot of interest shown. They have extended the time at the request of a couple of parties."

At the time receivers were called in, FreightLink chairman Malcolm Kinnaird stressed that at an operational level the railway had been a success, with strong growth and operating earnings in the year to 30 June 2008 of A$28.6m, up 73% on the previous year.

It had also converted 90% of the general freight between Adelaide and Darwin to rail, generating "significant economic benefits" for South Australia and the Northern Territory. Its clients included four minerals projects.

He said the outlook "under a more appropriate capital structure" was positive and he was confident a solution would be found. The project came with significant support from the Northern Territory government, which was keen to improve links to and from the territory’s capital, Darwin.

Trainor says in principle there is no question about whether the business could attract a new operator.

"The question is always at what price."