Ref No:

13 June 2008

Ms. Julia Williams Analyst Independent Pricing and Regulatory Tribunal

3 PO Box Q290, QVB Post Office NSW 1230

IPART further request for consultation details in relation to ARTC's NSW Train Consolidation (TCC) Project

Dear Julia

ARTC notes your further request in relation to the details of consultation undertaken by ARTC in relation to the NSW TCC Project. In particular, you have sought ARTC to set out the steps taken in relation to each of the specific consultation requirements set out in clause 3.4 of Schedule 3 of the NSW Rail Access Undertaking (NSWRAU).

In its previous submission to you, ARTC indicated that in consulting with network users in relation to the NSW TCC Project it sought to adopt a process that was similar to that developed and agreed by the industry for Hunter Valley Capital Expenditure consultation. It should be noted, however, that due to the NSW wide nature of the project, certain elements of the consultation were focussed more broadly than just the Hunter Valley. Further, project delivery was necessarily conducted and timed on a NSW wide basis.

Furthermore, ARTC indicated that the complexity of this project necessitated detailed scoping of the project being undertaken in concert with project delivery. The overall project utilised a wide range of internal and external resources with services being delivered under a range of contracts. The NSW TCC Project was, in effect, a wide number of individual projects managed by ARTC as a set given that in total they would achieve the required objective and benefits. The smaller projects were either disparate or closely related to other projects. As such, during the course of the NSW TCC Project, a number of projects were conducted sequentially where the task of

AUSTRALIAN RAIL TRACK CORPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenger Rail Terminal Rd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax: (08) 8217 4578 E-Mail: track@arcom.com.au

estimating the cost of a smaller project could not be completed meaningfully until subsequent projects were sufficiently advanced.

As such the project was not able to be presented to access seekers following exactly the same approach as applied to a stand alone design and construct project. Notwithstanding this, detailed consultation undertaken as consistently as possible with the Hunter Valley consultation process was undertaken throughout the project planning and delivery stages.

The identification of various elements of the consultation against specific elements of the Capital Expenditure Consultation Process prescribed at Clause 3.4 of the NSWRAU is therefore difficult. Indeed, the process agreed with the industry in relation to capital expenditure consultation in the Hunter Valley is not in itself something that can be easily compartmentalised into the prescribed elements.

In its previous submission, ARTC described in detail the various consultation activities that were undertaken over 3-4 years in relation to the NSW TCC Project. The project was an important element of ARTC business case in relation to its lease of the NSW interstate and Hunter Valley networks. This and the PJSW wide nature of the project required early consultation with industry to be focused on users of the NSW network generally (including users of the Hunter Valley network). Whilst generally aimed at a broader audience than just Hunter Valley network users this early consultation is still relevant to the consultation requirements under the NSWRAU even though, prior to commencing the NSW lease, ARTC was not the infrastructure owner for the purpose of the NSWRAU.

Nevertheless, ARTC will endeavour to identify the various consultation activities previously described in submissions with the specific elements prescribed in Clause 3.4 of the NSWRAU as best it can, but believes a degree of pragmatism is needed where both the prescribed process and industry agreed process are largely focused around specific Hunter Valley capital expenditure rather than projects delivering benefits to the broader NSW network.

The attached table seeks to describe the consultation activities undertaken in relation to the prescribed requirements in the NSWRAU where applicable.

Yours sincerely

Simon 0rmsbf Acting General Manager - Commercial

AUSTRALIAN RAIL TRACK CORPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenger Rail Terminal Rd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax: (08) 8217 4578 E-Mail: track@arcom.com.au

AUSTRALIAN R m TRACK CORPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenger RailTerrninal Rd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax. (08) 8217 4578 E-Mail. track@arcom.com.au

Prescribed element in Clause 3.4 Work with Access Seekers to identify and prioritise future network investments, and to refine capital works programs.

Formally evaluate significant future investments, including alternatives, in consultation with Access Seekers.

L 9

Consultation activities Consultation, at this level, was undertaken in the context of the broader NSW network. The NSW TCC Project initially formed part of ARTC's Initial Infrastructure Program (IIIP). This program was a key aspect of ARTC's investment program that underpinned the business case for the lease. At this time, ARTC saw industry support of the lllP as paramount to the success of its lease proposal. The NSW Government would have been unlikely to agree to a lease that did not deliver substantially improved transport outcomes for the NSW business community. A presentation provided to Hunter Valley Network Users in July 2002 detailing ARTC's proposal (including the lllP identifying initial cost estimates for the NSW TCC Project in NSW). This presentation has been provided to IPART.

Leading up to, and follow~ng, commencement of ARTC's lease in NSW, the lllP was further refined through consultation with the industry and based on revised volume forecasts. The lllP naturally evolved to become the separate ARTC's North-South Corridor Strategic Plan and Hunter Valley Corridor Strategic Plan to reflect the two distinct markets involved.

As most of the NSW TCC Project investment and activity related to the ARTC North-South Corridor, the NSW TCC Project was initially included in the North South Corridor Strategic Plan. Industry consultation in relatlon to the North- South Corndor Strategic Plan and the Hunter Valley Corridor Strategic Plan was similar, directed to broadly similar audiences (particularly at the operator level), and in both cases endorsement of the broad strategies were sought at a strategic level.

Over the last several years, versions of the strategy were developed as markets and forecasts changed and industry needs changed. This is ongoing. Each strategy (North-South or Hunter Valley) is published by ARTC for consultation with industry. Consultation documents contain substantial infomlation albeit at a strategic level including approach, cost and benefits. The Hunter Valley Corridor Capacity Improvement Strategy published in May 2005, provided an initial estimate of cost applicable to the Hunter Valley in relation to the NSW TCC Project. This document has been provided to IPART.

In addition to consultation on the broader strategies, presentations in relation to specific projects (including NSW TCC) were made to industry from time to time. An example of a presentation made in February 2007 in relation to the NSW TCC project as it related to the HV network has been provided to IPART.

Access Seekers have not raised any significant issues in relation to ARTC broader consultation activities and compliance with agreed processes previously.

AUSTRALIAN RAIL TRACK CORPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenger Rail Terminal Rd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax: (08) 8217 4578 E-Mail: track@arcom.com.au

Explain the Rail lnfrastructure Owner's planning approach, including the trade-off between Routine Maintenance and Major Periodic Maintenance and Capital Expenditure.

Identify the proposed capital investment needs for the forthcoming year, and include forecasts of Capital Expenditure for at least the following four years.

Explain the inputs to and outcomes of the evaluations undertaken for the proposed Capital Expenditure for the forthcoming year.

ARTC has made the industry aware of its approach to infrastructure planning and investment primarily through the publishing of its investment strategies described above. Both strategy documents describe ARTC's approach to network development showing objectives, investment criteria and modelling. This is needed in order to gain industry support for these strategies. The NSW TCC Project approach and objectives, costs and benefits were described as a part of the North-South Corridor Strategy.

The trade-off between Routine, MPM and Capital Expenditure is regularly discussed at the Rail lnfrastructure Group (RIG) level where general parameters and treatments have been agreed. Specific treatment at a project level is agreed as required.

As the NSW TCC project was primarily technological and operational in nature, maintenance trade-offs were not a key area of consultation. The primary benefit of the NSW TCC project was reduced operational expenditure, which would (in the Hunter Valley) through to reduced access prices. The project expenditure was necessary to deliver this saving. There was no ability to derive this cost reduction from a change in maintenance. The approach used by ARTC in the past (and accepted by Access Seekers in Capital Expenditure Consultation submissions) is to convey this information to Access Seekers through publication and consultation on its Hunter Valley Corridor Strategy. This document has been published for stakenolder comment on several occasions as the strategy develops with updated markets forecasts provided by Access Seekers annually. This consultation is supplement by periodic presentation as necessary on specific elements of the strategies to stakenolder groups, including the Hunter Valiey Capacity Management Forum and the Rail lnfrastructure Group.

ARTC strategy documents are the primary means of conveying ARTC's approach to needs analysis, project and option evaluation, and project timing and cost. Due to its nature the NSW TCC Project was initially included as part of the North -South Strategy, and information provided more-so on a total project basis. Initial estimates of cost and timing have been provided to stakeholders through various industry presentations dating back to 2002 during NSW lease negotiations.

Initial estimates of the NSW TCC Project cost and timing as it would be applied to the Hunter Valley network was provided in May 2005 as part of Version 4 of the Hunter Valley Corridor Capacity Improvement Strategy (p33). This strategy document has previously been provided to IPART. At the more detailed level (Rail lnfrastructure Group) the NSW TCC Project (as it related to the Hunter Valley network) was formally entered into RIG minutes at the request of ARTC as broader NSW TCC Project was moving to implementation phase. It was noted that RAB costs were to be advised by ARTC when available.

Around this time, PN were separately provided 3 year cost forecasts showing reduced Network Control cost forecasts (the primary benefit of the NSW TCC project as it related to the Hunter Valley) accruing from 2007-08. Benefit showed in the order of $1.3m pa. The relevant letter has been provided to IPART. This was separately reviewed with PN later in July 2006.

n U S T W I A N RAIL TRACK CORPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenget Rail Terminal Rd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax: (08) 8217 4578 E-Mail: trac@arcom.com.au

Provide an assessment of the impact of the proposed Capital Expenditure for the forthcoming year on the Regulatory Asset Base.

Identify the projects that will be funded or partly funded by Capital Contributions.

In August 2006, Rail lnfrastructure Group members requested an overview of the project and ARTC agreed to provide a more detailed presentation at a future meeting. The relevant RIG minute is attached.

In December 2006, a presentation to Rail lnfrastructure Group was conducted by ARTC Project Manager and Major Works Manager. Costs estimate of $12M was advised to RIG. This was an initial assessment of the impact on the 2006-07 RAE. The project benefits were further explained to to the Rail lnfrastructure Group. The Rail lnfrastructure Group was advised that the relevant NSW TCC project (TCC - North) was expected to commence in January 2007 and be completed in June 2007. It was noted that full detailed costs could not be provided at this point in time as ARTC was seeking firm costing. ARTC advised that presentation of operational detail would be provided in January 2007.

In February 2007, ARTC advised the Rail lnfrastructure Group that project complexity and network wide scope made detailed costing difficult. Further advice would be provided in March. The relevant minute has been provided to IPART. Further a detailed project presentation of the TCC project as it related to the Hunter Valley was provided by ARTC to Access Seekers in February 2007. This presentation has been provided to IPART.

In March 2007, an Initial TCC project submission including detail expenditure to be included in the RAE was provided and presented to the Rail Infrastructure Group. This submission has been provided to IPART. RIG members sought clarification on a number of items contained within the paper. These queries primarily related to a description of some capitalised costs. All patties were aware TCC - Notin project nad now commenced and was proceeding towards completion. Relevant minutes have been provided to IPART.

In June 2007, a revised version of the submission for endorsement was provided to the Rail lnfrastructure Group. This version has already been provided to IPART. QRN endorsed via email has been provided to IPART. PN sought additional detail in relation to the project benefits that was not queried in initial submission. Relevant minutes have been provided to IPART.

In September 2007, an overview of the project and additional detail on the benefits was provided to the Rail lnfrastructure Group. Relevant minute has been provided to IPART.

In October 2007, a final submission was provided containing additional detail on project benefits. Relevant minute has been provided to IPART.

In November 2007, PN queried the allocation method provided in the revised submission. This had not been previously raised as an issue by PN. Relevant minute has been provided to IPART.

In December 2007, PN and ARTC met to review allocation of costs. ARTC advised indirect (network) costs had been apportioned in line with methodology utilised in Ceiling Test as recognised by CRA in the 2004-05 Unders and Overs review. Relevant minute has been provided to IPART. The matter of Capital Contributions is not relevant to the NSW TCC Project as it related to the Hunter Valley network. Due to the non-commercial nature of ARTC's North-South network, funding for ARTC's North-South investment program consists of around equal portions of funds sourced against ARTC's balance sheet and Australian Government funding. No funding by the Australian Government was intended to apply, nor has been applied to investments related to the 'commercial' Hunter Valley network.

nUSTRAJL4N RAIL TRACK C~RPORATION LTD ACN: 081 455 754 Off Burbridge Road, Passenger Rail Terminal Bd, Mile End SA 5031; PO Box 10343, Gouger Street, Adelaide SA 5000

Tel : (08) 8217 4366 Fax: (08) 8217 4578 E-Mail: tcac~arcom.com.au

Establish a process for Access Seekers' input.

In the broad sense, a process for Access Seeker input to ARTC investment program in the Hunter Valley has been established, and supported, by ARTC and Access Seekers. Essentially, this consists of the development and communication of investment strategies with the broader coal industry through such forums as the Capacity Management Forum, Industry Reference Group and the Hunter Valley Coal Chain Logistics Team. Within strategies, more detailed communication and evaluation of projects at the Rail lnfrastructure Group provides a process for Access Seeker input at this level.

There has generally been no substantial Issues raised in submissions in reiation to the process for Access Seeker input currently available.

In relation to the NSW TCC Project and, as it related to the Hunter Valley, ARTC has provided a process for Access Seeker input which is largely consistent with the industry accepted process described above, notwithstanding the unique nature of the NSW TCC Project requiring some flexibility to be afforded.

ARTC has previously advised the Rail Infrastructure Group and IPART that the complex and inter-related nature of the NSW TCC Project made the determination of detailed costings difficult to make available for consultation through Rail Infrastructure G-roup with the same timeliness as a Hunter Valley stand alone design and construct project as is normally the case. After providing Access Seekers with details of costs, benefits and timing, and seeking input, at a strategic level over the preceding 2-3 years, ARTC initiated consideration of the NSW TCC Projsct as it related to the Hunter Valley at the more detailed project level through the Rail Infrastructure Group six months prior to commencement of those aspects of tine NSkV TCC Project that impacted on the Hunter Valley commenced. The above descriptions of Rail lnfrastructure Group consideration of this project. Indicate that there were many opportunities for Access Seeker input provided and, in PN's case, taken.

Initiating consideration of the NSW TCC Project as it related to the Hunter Valley at the Rail lnfrastructure Group level is unlikely to have improved the outcome given the provision of detailed cost information needed was linked to the progress of the broader NSW TCC Project occurring at the same time.

ARTC has previously indicated to IPART that it was unfortunate that the unique and unusual nature of the TCC project resulted in a somewhat cumbersome and drawn out approach to consultation at the Rail lnfrastructure Group level in thls instance. The ability of Rail lnfrastructure Group participants to question and seek review of submissions is a necessary part of the endorsement process, but does not always occur efficiently and in a timely manner (as ARTC believes has been the case here). Due to the network wide and inter-related nature of the TCC project, it was not an option for ARTC to delay the completion of the broader consolidation project by holding back activity in the Hunter Valley whilst the consultation process was played out. All Rail Infrastructure Group participants were aware that the commencement and completion of the project took place whilst this consultation was undertaken. To some extent, this knowledge may have removed the sense of urgency in undertaking the consultation.

RAIL INFRASTRUCTURE GROUP MEETING

AGENDA - MINUTE UPDATE FROM MEETING THURSDAY 3rd August 2006 Location: ARTC Offices Train Control Centre - Broadmeadow Attendees: Pacific National: C Wilson; A Sturt; D Mayo

QR National: W Gould, J Freeman ARTC: T Frazer, S Ormsby, D Macklinshaw, Rebecca Whackett

Apologies: Jamie Freeman (QR National)

Date of I Discussion ( Action I Responsibility/Status 1

1.7 Train Control Project 6th ~ u l ~ I Ongoing. I Cost elements of project to be added to the I Simon Ormsby to

HV RAB need to be represented to the RIG arrange for endorsement. I

-- - - Discussion

Gary Josh will provide costs, going well. Focus at the stage is staffing, positions have gone out and we are working though that. - two risk management workshops with contractors to ensure smooth running in lower hunter during this time

Action

Gary Josh to provide presentation TCC project for lower Hunter and maybe a general overview of north - Simon to arrange

Simon Ormsby