Chinese take away Pilbara rail deal

China's largest construction group will make its mark on the Australian rail scene after securing an agreement to build a rail network in the Pilbara.

China Railway Engineering Corporation (CREC), one the world's largest rail construction groups, will build and finance the railway component of Fortescue Metal Group's $1.85bn iron ore project in Western Australia.

Fortescue and CREC signed the build and transfer agreement in Beijing on August 23.

“This is not some memorandum of understanding, it's a binding agreement,” a Fortescue Metals group said.

In mid September, Barclay Mowlem signed a MOU with CREC to form a joint venture to build the line. It will cover all earthworks, culverts, bridges, sleepers and rollingstock requirements.

The rail link is the largest part of the Pilbara project, which also includes the $410m iron ore mine and $470m for new facilities in Port Hedland.

Closed shop

Alternative iron projects in the Pilbara have been frustrated by a lack of access to existing privately owned rail networks. But the very real prospect of a third independent project – from the mine and rail through to port facilities – represents an important development for other potential projects and Chinese buyers.

“The Chinese love that,” a spokesman for Fortescue Metals said. “There has been a lot interest from China in what Fortescue is doing.”

Although the rail component has not yet been fully costed it is thought the value of the CREC contract will work out to be between $500m and $700m.

The rail project will held under a separate entity called Pilbara Infrastructure, in which Fortescue will retain a maximum 40% interest, the company said.

“Fortescue will stick to what it does best – that is exploring for and mining iron ore,” the spokesman said. “It doesn't need to run a railway or a port.”

When completed in 2006, the independent 400km heavy axle load line, will run from mine sites in the Chichester Ranges to Port Hedland, the export hub.

Stranded deposits liberated

“This long overdue facility will liberate otherwise stranded major deposits across the Pilbara and ensure that Australia doesn't continue to lose its share of important growing overseas markets,” Fortecue's chief executive, Andrew Forrest, said.

The company intends the rail link to be open to third party access, which could pave the way for even more iron ore projects.

Under the contract, CREC will design, build and commission the line and then transfer the facility back to Fortescue once agreed performance specifications have been met.

“CREC is fully confident about its capacity to build a heavy axle load railway in the Pilbara, a project able to deliver significant economic benefits to north Australia and China,” CREC president Qin Jiaming said.

He added that Barclay Mowlem's involvement with CREC would provide Fortescue with both international expertise and local knowledge.

CREC already has $ US 12bn worth of work in hand and has built 40,000 km of rail networks in China and around 1800km of rail bridges and 1800 km of tunnels. - Rail Express