The Rail Operator’s Perspective THANKS FOR INVITING US Mike Mohan Chief Executive Officer Australian Railroad Group

The Rail Operator’s Perspective Background Problem identification Potential solutions WE WILL TRY TO GIVE YOU THE RAIL OPERATORS PERSPECTIVE ON GRAIN TODAY. AFTER SOME BACKGROUND, WE WILL DO SOME PROBLEM IDENTFICATION AND THEN SUGGEST SOME POTENTIAL SOLUTIONS

The Rail Operator’s Perspective Background

10 – 12 million tonnes annually ARG Revenue Mix 10 – 12 million tonnes annually

Western Australia Grain Lines 3,000 kms of grain lines 150 CBH owned rail served bins One of the best grain networks in Australia

South Australia Grain Lines Eyre Peninsula Eyre Peninsula contributes 33% of SA’s grain harvest 50% of this task is currently transported by rail 90% of grain transported by rail is to Port Lincoln Mainland

Problem Identification The Rail Operator’s Perspective Problem Identification

Returns on Grain Operation Low returns on capital deployed in grain

WA real rate $ per tonne trend & task 1989\90 1990\91 1991\92 1992\93 1993\94 1994\95 1995\96 1996\97 1997\98 1998\99 1999\00 2000\01 2001\02 2002\03 2003\04 2004\05 0.0 2.0 4.0 6.0 8.0 10.0 MT Real rail rate Rail task (MT) $/t Real rate erosion Rail and truck competition

Harvest Volumes Western Australia Source: Co-operative Bulk Handling Limited

Variable Track Maintenance Condition

Unrecovered fuel price increases Fuel prices ARG Average Fuel Expenditure and Fuel Cost per Barrel (AUD$) Unrecovered fuel price increases

Grain Line Economics Rail grain economics impacted by: Light Density Variable Track Condition Not on policy parity with Truck “Private” rail sector pays own maintenance costs Circuity Low Speed Loading facilities Light Axle Loadings Rail Access Competition & Truck Inherited “Government” contracts Leads to low or negative returns and underinvestment

The Rail Operator’s Perspective We like the grain business

The Rail Operator’s Perspective Potential Solutions

Grain Line Opportunities – Public Sector Public Investment Public Subsidy Rationalization Modal Equity

Grain Line Opportunities – Private Sector Line Rationalization GIG & GNR Subsidy Capital Infusion CSO Alternative Ownership Marketing Alternatives Access rationalization on light density lines Modal equity Investment incentives

Rail versus Truck Market Share South Australia market share West Australia market share GIG key role is to educate Gvt and provide impartial views through SD+d Truck Competition is pervasive

US & Canadian Outcomes Similar situation 25 yrs ago Neither country has an “open access” environment Free market orientated legislation Accelerated abandonment and rationalization Short lining Deregulation / Pricing freedom Private investment where returns could be generated Public investment in track rehabilitation where private sector not viable Equipment and track investment tax incentive Government loan guarantees

The Rail Operator’s Perspective This can be done