CHAPTER 2
The Brew Report
Background
2.1 On 15 April 1996 the Minister for Transport and Regional
Development, The Hon. John Sharp MP, appointed Mr John Brew to review the financial
performance of the Australian National Railways Commission (AN) and its relationship with
the National Rail Corporation (NR) and to make proposals for the future of both
organisations.
2.2 The complete terms of reference for the review were to examine:
- The performance of National Rail as a commercial entity and means of
improving that performance;
- the commercial state of the Australian National Railways Commission
including its commercial and financial relationship with National Rail
- the future prospects of AN as a commercial entity; and
- the full range of options for the future of Australian National and
the services it provides, including the scope for, and net benefits
of, further contracting out or disposal of any part of the business.
[1]
2.3 The terms of reference and objectives of the review excluded
certain functions in that
'the operations of the interstate mainline rail network and interstate
passenger services will be addressed separately by the Commonwealth in
the context of a national rail infrastructure authority and a national
rail passenger service respectively, and are excluded from this review'
[2]
2.4 Mr Brew was assisted in his review by the firm of KPMG
Management Consultants.
2.5 Mr Brew was asked to advise the Government of his findings and
recommendations by 19 June 1996. Mr Brew's report ( The Brew Report) was delivered to the
Minister on that date.
Recommendations of the Brew Report
2.6 The principal recommendations of the Brew Report are:
1(a) Establish a national track access and infrastructure body
in conjunction with the appropriate States. The body should be set up as the owner of all
mainland interstate rail track network and associated infrastructure including terminals.
Consideration should be given to valuing the national track infrastructure network on the
basis of a discounted net present value of the future potential earning stream and taking
into account relevant overseas experience of valuing infrastructure and determining access
charges.
(b) Ensure that any changes meet the requirements of the Trade
Practices Act with particular reference to track, rolling stock and facilities and the
arrangements are in accordance with the competition policy agreement.
(c) Write off such debts as may be necessary and where
appropriate and financially advantageous to ANR and the Commonwealth renegotiate all
leasing deals or other encumbrances over rolling stock.
(d) Transfer nominated unencumbered rolling stock (locomotives
and wagons) and any other assets to NRC unless otherwise recommended in this report.
2(a) Establish the NRC as a freight operator with access to
the national track infrastructure network on the same basis as any other transport
operator seeking to operate freight trains on the national network. This will involve
reviewing the NRC Shareholders Agreement to achieve:
- immediate introduction of proper commercial arrangements
between NRC and the various rail authorities for the supply of services.
- removal of Shareholder subsidies (the so called compensatory
"wedge" payment made under clause 5(4)(b) of the Agreement).
- access to assets and facilities on the same basis as
competitors.
- assets identified as surplus to the needs of NRC to be made
available to the rail industry on a commercial basis.
(b) Reorganise if necessary NRC's capital structure to take
account of the above changes and consider deferring payment of the scheduled 1996 equity
contributions until Shareholders are satisfied that they are required
3(a) Negotiate the transferring to the South Australian
Government or Electricity Trust of South Australia (ETSA) of the Leigh Creek to Port
Augusta coal freight line in conjunction with the balance of the SA Freight business; or
if this is not achievable,
(b) Negotiate the disposal of the Eyre Peninsula, Murray Lands
and Mid North Lines to the South Australian Grain Handling Co-operative; the South
Australian Government or a number of short line operators and in the event that the South
Australian Government or ETSA do not wish to acquire the Leigh Creek line for it also to
be offered to commercial short line operators; or if this is not achievable,
(c) Close all unprofitable lines.
4(a) Transfer the Tasmanian railway system to private short
line operators on a financial basis to be negotiated and subsequently determined; or if
that is not achievable,
(b) Transfer the Tasmanian rail system to the Tasmanian
Government; or if that is not achievable,
(c) Close all unprofitable lines.
5 Close down the Infrastructure Business and contract out to
the private sector the infrastructure maintenance now done by ANR and for the contracts to
be transferred to the national track infrastructure body is brought into operation -
subject to such contracts being let on a competitive, commercial basis.
6 Close down and transfer the workshop facilities at Islington
and Port Augusta to the South Australian Government in order to allow it to provide the
facilities for the development of the State. Transfer appropriate plant and equipment from
the workshops to the proposed rolling stock facility at Dry Creek, or if this is not
achievable offer it to the private sector or failing this, close and liquidate assets.
7 Establish 'Dry Creek' (Motive Power Centre and One Spot) as
a stand alone rolling stock leasing and maintenance facility to be available to the
railway industry on a commercial basis with the aim of selling the facility within 12
months.
8 If agreed by the Shareholders, transfer to the Dry Creek
rolling stock leasing and maintenance facility rolling stock which is the subject of
encumbrances (particularly AN and EL class locomotives) or is excess to NRC requirements.
9(a) As an interim measure establish passenger operations as a
separate business with an emphasis on tourism and with the view at the earliest
opportunity to inviting private sector involvement.
(b) Facilitate access to repair and maintenance facilities for
the passenger train business on a commercial basis.
10 Establish Track Access as a separate business pending
establishment of a national infrastructure body.
11 Within 12 months close the ANR corporate office as it is
not required for the remaining ANR businesses. It should be replaced with an experienced
group of contracted specialists skilled in receivership.
12 Negotiate release from contractual agreements which may
constrain implementation of the above recommendations.
13 Establish appropriate commercial arrangements and provide sufficient
resources to promptly and effectively implement the above recommendations.
[3]
Footnotes
[1] Media Statement, Federal Government
Inquiry into AN and NR, The Hon. J.Sharp, 18 April 1996.
[2] Ibid, p.2
[3] Report, 'Review of Australian National
Railways Commission and National Rail Corporation,' J.Brew, June 1996, pp.8-9.