BHP, Fortescue in dust-up over Port Hedland deal
Backroom brawling over secret port access deals is threatening to derail a $350m housing buyback at Australia’s biggest mining port.
Backroom brawling over secret port access deals is threatening to derail a $350m housing buyback at Australia’s biggest mining port, as BHP and Fortescue Metals dust off old enmities.
As the West Australian government tries to rid itself of a seemingly intractable problem by offering industry money to buy houses affected by Port Hedland’s all-pervasive dust, a fight over who will pay for the buyout is at risk of falling foul of hardball corporate politics.
At stake is Fortescue’s desire for a sixth berth at Port Hedland, which could lift its export capacity to close to that of BHP, and the future of residents and property speculators trying to unwind big bets on Port Hedland property made at the height of the mining boom.
Fortescue has long believed that a secret deal signed between BHP and the WA state government, known as the Harriet Point Agreement, allows its larger rival the final say in any new developments at the port.
For years it has sought to get a copy of the 2008 agreement, signed as Fortescue was ramping up its own Pilbara iron ore mines, without success.
It points to the last time it was granted additional export capacity at the port, in 2012, when it won a fifth Port Hedland berth — but BHP was granted two additional spots, which remain undeveloped.
Fortescue is now chasing the right to build a sixth berth and a new ship loader at its Anderson Point facilities, which could add another 60 million tonnes to its export capacity, taking it to 240 to 250 million tonnes, close to BHP’s theoretical 290 million tonne cap.
And, although BHP and the government say the Harriet Point Agreement gives the mining giant the right to comment on new developments, but not the right to block them, Fortescue still wants it gone — or at least made public, so its terms are clear.
And the company believes it has finally found the leverage to make that happen, through the long-running brawl over dust problems at the Pilbara town. The impact of dust blown across the town from Port Hedland’s iron ore berths has long been a point of friction between the residents and the miners, particularly after the massive boomtime expansion that saw iron ore exports rise from 154 million tonnes a decade ago to 506.6 million tonnes last financial year.
Residents say dust from the port has reached unhealthy levels. It certainly makes life unpleasant, at best, for affected locals.
The miners exporting through the port — including Fortescue, BHP, Gina Rinehart’s Roy Hill and Atlas Iron, and Mineral Resources — argue the bulk of Port Hedland’s dust blows in from outside the town, and they have each spent tens of millions controlling and reducing dust emitted from their own operations.
Also complicating the issue are the massive losses on properties bought at the height of the boom by investors and residents, who bet boomtime prices would last forever.
Median house prices in Port Hedland hit $1.3m in 2013, and now sit about 70 per cent lower at around $415,000.
Complaints about dust levels in Port Hedland’s west end led to rezoning decisions by the Liberal government of Premier Colin Barnett and more recently Labor’s Mark McGowan, limiting future use of land to commercial purposes — decisions some property owners blame, along with the dust, for their losses.
Faced with a seemingly intractable problem, the state government’s solution is an offer, funded by industry, to buy back 540 properties in the area most affected by dust drifting from the port.
It is a solution that worked in the south of WA in 2007, when alumina major Alcoa was allowed to buy out owners of houses around its Wagerup operations.
But the latest iteration of the scheme could be derailed by a brawl over how companies will be asked to contribute — and Fortescue’s attempts to link the issue to its expansion berths.
Regional Development Minister Alannah MacTiernan is considering a report completed by management consultant Ross Love into the fairest way to organise the buyback, and the likely cost.
Sources say the bill will come to somewhere between $150m and $350m, depending on how much of a haircut property owners who bought during the boom are asked to take.
But on the sidelines, fresh hostilities have broken out between old enemies BHP and Fortescue over who will pay what.
BHP has proposed a pro rata payment into a fund, based on respective tonnage through the port. That would leave BHP paying about 55 per cent of the total, with Fortescue to pay 33 per cent and Roy Hill about 10 per cent.
Fortescue contests that model, and is refusing to pay anything close to its total, arguing that its wind modelling and dust measurements show only 5 to 10 per cent of the dust in the affected area comes from its operations.
Fortescue boss Elizabeth Gaines said the company believed the contributions to the fund should be based on culpability for the issues.
“For the scheme to be fair and non-discriminatory, we believe the voluntary buyback mechanism should take into account the direct contribution to dust levels, together with the proximity to the West End, the length of time operating in the port and the economic benefit derived over the period of operation for each respective industry participant,” she said.
“Fortescue’s emissions reporting and scientific modelling clearly indicate that our operations do not directly contribute to dust exceedances at the Taplin Street monitor, which is 6km from our site.
“Two decades of data from the Bureau of Meteorology show prevailing wind conditions limit the exposure of the West End to Fortescue’s operations to about six days per year.”
But the Andrew Forrest-chaired company is believed to have indicated it could consider paying a bigger share, provided BHP releases the Harriet Point Agreement and waives any right it has to block or delay Fortescue’s sixth berth.
The brawl is fast becoming a source of frustration for other exporters and the Port authority, who want the dust issue dealt with, and for the state government, which is now considering Mr Love’s report and recommendations.
Ms MacTiernan said she would like to be able to put a buyback model to landowners, including pricing options and some indication of how it would be funded, within a few months.
“We hope to have come up with a formula that would be acceptable to landowners,” she said.
She would not comment on the infighting between the port’s two biggest customers, but confirmed the Harriet Point Agreement was a point of contention. But she said the secret deal should not be a stumbling block to Fortescue’s ambitions, or to the success of the land buyback.
“I don’t think we should obsess about the Harriet Point Agreement. What we should do is find out what Fortescue want to do at the port and see if that can be facilitated,” she said.
BHP refused to comment on the Harriet Point Agreement, but a spokeswoman said the company wanted the buyback issue dealt with. “BHP is working constructively with the state government and industry to ensure that any potential buyback and redevelopment supports current and future port operations and allows growth,” she said.