Published on Webdiary - Founded and Inspired by Margo Kingston (/cms)

Adelaide to Darwin railway- Kellogg, Brown and Rooted?

By Richard Tonkin
Created 20/05/2008 - 06:26

It still amazes me that the CEO of Halliburton so recently slipped in and out of South Australia so quietly. His previous visit was to represent private interests at the opening of the Adelaide to Darwin Railway. Instead of the bells and whistles of yore, all we heard was that Lesar had already been and gone. Halliburton subsidiary KBR, says their website “led the delicate financial negotiations between the three governments, the financial backers and the consortium that saw the private sector contribute about 60 per cent of the project cost ($850 million of the $1.4 billion project). The deal won two international finance awards." The company, apart from being constructors, kept a 38 per cent share of the specially formed operators Freightlink, and former head of Halliburton Australia Malcolm Kinnaird became Chairman of the board.

Within eighteen months there was an obvious cash -flow problem: KBR reported to the U.S. Government [1] that

In 2006, we recorded $58 million of impairment charges related to an investment in a railway joint venture in Australia. This joint venture has sustained losses since the railway commenced operations in early 2004 and incurred an event of default under its loan agreements by failing to make an interest and principal payment in October 2006. The write-down of our investment in this joint venture in the first and third quarters of 2006 resulted from lower than anticipated freight volume, a slowdown in the planned expansion of the Port of Darwin and the joint venture's unsuccessful efforts to raise additional equity from third parties

"... and a delay in mining operations that resulted in reduced freight" wasn't sent to the SEC, but was added in a later Halliburton media release [2]. What mining operations might that be? Uranium, do you think? Well, Freightlink did go on to run a three month trial transporting uranium for BHP, and it had been expected that the uranium oxide ore from the new Honeymoon mine would run up to Darwin on the tracks. Northern Territory Minerals Council chief executive Kezia Purick [3] said a while back that uranium ore could only go offshore via Darwin, so it's more than a fair guess that Halliburton had expected the Howard Government to have moved more efficiently in creating a nuclear industry.

Yesterday Freightlink announced it was on the market. Today's newspapers carry the story of Honeymoon being mothballed. Of course, Freightlink's collapse has nothing to do with that either. Does it?

Another bit of trade the railway had been expecting had been the transport of the Army's new M1A1 Abrams tanks. Defence Minister Hill even announced the expansion of the training base near Port Augusta on the strength of the defence rail movements. The only trouble has been that nobody had figured out (or been told) before the tanks would arrive here that they'd need special rolling stock to carry them, and the delay meant that the first tank has only (in April) had its first run up and down the line [4].

That's neither here nor there, really, I suppose. It seems though, that Defence Minister Robert Hill was a bit rash in expanding the base before he knew that such a move was appropriate. Coultana could have become a very expense White Elephant!

I loved this little paragraph in today's Northern Territory News [5]:

Mr Fullerton said the company inherited a large amount of debt from the construction phase that the company was unable to manage.

It's amazing, don't you think, that a project can come in on-time, under budget, and still have all these financial problems. I wonder what went wrong?

What's peculiar is that the 2006/07 financial year saw Freightlink increase its trade by 70 per cent and at the same time an after-tax loss of more than 50 million. [6]

They lost the amount that the project had been fined for defaulting on payments. One of life's amazing little coincidences, I guess.

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