Planning for Performance; Building for the Future

Denise McMillan

Chairman, HVCCLT

BITRE Colloquium: June 2008, Canberra

2BITRE June 2008

Coal Outlook

Despite the debate about Climate Change, coal will continue to be in strong demand into the medium term – although “costs” are likely to increase with carbon taxes or equivalent:

• “There will be a 55% growth in coal power generation (2.1m MW) by 2020

• “ By 2020 China will have twice the coal fired power generation capacity of the US; - But only half the capacity per capita

• “ Coal remains the most cost effective option for power generation”….

….…. McLLvaine Report: Coal Fired Boilers; World Analysis and Forecast 2007

3BITRE June 2008

Coal Price Movement

4BITRE June 2008

Demand

Hunter Valley - DemandActual Throughput and Forecast

0

25

50

75

100

125

150

175

200

225

250

275

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Year

To

nn

age

[Mtp

a]

Actual Nominations as at 2005 Nominations as at 2008

5BITRE June 2008

Hunter Valley Coal Chain: The Worlds Largest Coal Export Operation

• 40 Coal Mines • 17 Producers• 30 Load Points• > 80 Different Brands of Coal

• 2 Above Rail Operators• 29 Trains/15,000 trips per year• 2 Track Owner/Operators• Haulage distances up to 350km

• 2 Coal Loading Terminals – KCT & CCT • 5 Dump Stations• 1.5Mt of Working Stockyard• 5 Ship Berths and Loaders, “4 Queues”

• Approx. 1000 vessels per year• Average vessel size is 84kt • Avg 2 Cargoes per Vessel• Multiple Components per Cargo• Tidal constrained river port

• 10% Domestic Consumption• 90% Export – mostly Thermal coal• 70% to Japanese Power Stations

Q: How to maximise system throughput and drive efficient

asset utilisation?

• Turn of Arrival loading port

• JIT cargo assembly process

• 16 independent organisations required to move each tonne of coal

• No control over demand – only two weeks visibility and highly variable volumes

• Avg 5 days clean coal on stock at the mines

6BITRE June 2008

HVCCLT: A Cooperative Planning and Operating Model

• Provides centralised planning services on behalf of its members:1. Short term objective – focus on maximising daily capacity and throughput2. Long term objective – realise cohesive investment planning

• Established under an MoU in July 2005 – operates on a premise of cooperation between the member organisations

• Membership includes all transport asset owners in the Hunter Valley – and the newest operator, NCIG, have expressed intent to participate in the model

• 30 Employees seconded from member organisations

• $5 million investment in state-of-the-art constraint based planning technology and models

• Joint Venture between the organisations that own the train, track, terminal and port infrastructure

• The movement of every tonne of domestic and export coal is planned via the HVCCLT

• HVCCLT provides a ‘system wide’ forum for pursuing operational improvements and making efficient decisions about future investment in infrastructure

7BITRE June 2008

Declared Capacity 2008

Minimum Throughput Estimate :

Base Coal Chain Capacity 118Mt

Less Planned ARTC & PWCS Asset Unavailability 11Mt

Less Risk Adjustment (Demand profile, Reliability, Other) 2Mt

Less 10% Unplanned Capacity Losses 10Mt

Minimum Throughput Estimate (Mtpa) ~95Mt

8BITRE June 2008

HVCC Performance – YtD Performance to 8 June 2008

2008 Cumulative Coal Chain Performance Chart

65

70

75

80

85

90

95

100

105

110

115

120

Jan

08

Feb

08

Mar

08

Apr

08

May

Jun

08

Target Planned Rate

Declared Capacity

Minimum Throughput Estimate

Forecast Throughput Inbound

Delivered Capacity

Planned Capacity

Forecast Throughput Outbound

Mtpa, 1 January 2008 to 08 June 2008

- Planned Rate: 103.0 (98%)

90.1 (95%)89.9 (95%)

- HVCCLT Delivered Capacity:- Throughput Inbound:- Throughput Outbound:

92.4 (95%)104.996.894.594.5

Target Achieved

9BITRE June 2008

Vessel Queue

0

10

20

30

40

50

60

70

80

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

OffshoreVesselQueue

Newcastle End of Month Vessel Queue Actual & Forecast(Updated 1 June 2008)

CBS Commencedby PWCS

Pre-CBS Vessel Queue

CBS Effectively Concluded

Vessel Queue with CBSAvg Approx 18, but with big fluctuations

Effect of June 8th Storms

CBS Reinstated

10BITRE June 2008

HVCCLT: Planning for performance

Track Infrastructure:

– ARTC / RIC

Port Coal Handling Services:

– PWCS

– NCIG

Train Operators:

– Pacific National

– QRN

Is it as simple as

“building more

infrastructure”

?

11BITRE June 2008

10 Year Capacity Master Plan 2008 to 2012 Summary Base Case - Current Plan

85.090.095.0

100.0105.0110.0115.0120.0125.0130.0135.0140.0145.0150.0

2008 Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Del

iver

ed T

hro

ug

hp

ut

(Mtp

a)

Base Case - Current Plan

The Challenge

Critical Items Required to Meet Base Case Delivery

Track Coal Terminal Trains Load Points “Rules”

ARTC• Complete current HV

Corridor Strategy on time, critical projects include;

– MB-Antiene duplication (Q2 2009)

– 3rd Track Maitland to Whittingham (Q1 2012) AND

RIC• Complete current

Gunnedah Strategy on time

PWCS• Complete Project 3Exp

inbound on time (ie Q2 2009) AND

NCIG• Compete Stage 1 on time

(Q1 2011)

Train delivery schedule;

• Q4 2008 - 2 x Consists• Q1 2009 - 4 x Consists• Q1 2010 - 1 x Consist• Q2 2010 - 1 x Consist• Q3 2010 - 1 x Consist• Q4 2010 - 1 x Consist• Q4 2011 - 1 x Consist

Total of 11 NewConsists

• Current load point performance

NOTE:• Poor load point performance is somewhat

masked in Base Case by release of additional Port capacity (NCIG) and timing

of infrastructure upgrades • Load point performance impacts vessel

turn around and greatly diminishes full return on infrastructure upgrades

• Current rules

Base Case unable to achieve a “target” demand of 145Mtpa of delivered capacity and results in unacceptably high vessel turn around times

Target delivered capacity

Full MB-A Dup& 3 Exp aligned

NCIG

3rd TrackMaitland to

Whittingham

12BITRE June 2008

HVCCLT Model – The Opportunities

Strengths

• Clearer definition of issues

• Integrated planning is now occurring

• Formal structure

• System assets utilisation is being maximised

• Each member still has full responsibility for assets

13BITRE June 2008

HVCCLT Model – Opportunity

Weaknesses

• Is a cooperative collaboration… - Fragile

• Disparate data sources can lead to non shared understanding

• Staff are still employed by member organisations – perceptions of independence

• Model currently excludes producers as members

• Pieces of the chain are ‘linked’ – not ‘bonded’….

14BITRE June 2008

“Hardware” vs “Software”: Coal Chain Complexities & The HVCCLT Model

Capacity Development: Use & Allocation

• Demand Profile?

• What ‘Toys’ ?

• Funding

• Risk Profile

• Risk Sharing

• Contractual Alignment

• Queue Management

15BITRE June 2008

Moving Forward

• Common understanding and alignment between Producers, Ports, Track & Operators

with respect to:

– Demand Profile

– Asset suite to deliver reliable capacity

– Investment Triggers

– Contractual & Commercial Alignment

Certainty of Outcome

16BITRE June 2008

HVCCC – Proposal

• “Greiner” Review Outcomes:

– Agreement of Coal Chain Principles

– Establishment of HVCCC as legal entity

– Producer & Service Provider Board representation

– HVCCC to employ staff directly

– Industry commitment to 10 year take or pay rolling contracts

– Contracts & performance to reflect capacity utilisation

17BITRE June 2008

HVCCLT – Overview of planned Investment

Appendix I – For information only

HVCCLT members recognise that infrastructure planning must be undertaken as a holistic system plan

HVCCLT members are working together to ensure all plans are complementary and will meet future system needs

Note plans are constantly reviewed and future works may change subject to delivery schedules, demand expectations or better options are resolved.

The following is an outline of current planned investments

to future system development

18BITRE June 2008

• Port Waratah Coal Services Limited (PWCS) is an unlisted public company owned by the Hunter Valley Coal Industry (70%) and Japanese Coal Customers (30%)

• PWCS is the worlds largest coal handling facility and currently exports coal valued above $5 billion per year

• PWCS’ terminals are an important part of regional, state and national economies - coal exported through PWCS facilities counts as Australia’s largest commodity export

• PWCS owns and operates two coal handling facilities in the Port of Newcastle, Carrington Terminal at a capacity of 25 million tonnes per year and Kooragang Terminal at a capacity of 77 million tonnes per year following the completion of the Project 3D expansion in March 2007

Port Waratah Coal Services

19BITRE June 2008

• Expansion to 102 Mtpa (Project 3D- new pad & stacker) was completed in March 2007, nine months ahead of schedule and under budget

• Development Application approval to increase the throughput capacity of the Kooragang Terminal to 120 Mtpa (total PWCS approved capacity of 145 Mtpa) was received on 13 April 2007

• Board considered expansion at May 2007 Board meeting

• Announcement of further expansion of Kooragang Terminal at a cost of $458 Million to 88 Mtpa (combined PWCS capacity of 113 Mtpa) made on 20 June 2007

• Expansion beyond 113 Mtpa (fourth operating berth, western extension of stockpile pads C and D, the remainder of upgrades to the original stacking stream and the replacement of the remaining two original Kooragang Terminal stacking machines) will be considered in the future in order to meet long term Customer requirements

Port Waratah Coal Services

20BITRE June 2008

NCIG established August 2004

Objective : To increase total export capacity for Port of Newcastle via construction of a third coal terminal

Members (shareholding):

BHP Billiton – through Hunter Valley Energy Coal (35.46%)

Centennial Coal (8.78%)

Donaldson Coal (11.60%)

Peabody Energy (17.68%)

Felix Resources (15.4%)

Whitehaven Coal (11.06%)

Newcastle Coal Infrastructure Group- NCIG

21BITRE June 2008

Project Approval granted 13 April 2007

Quarter 4 2007 : Commence construction of the project and dredging

Quarter 2 2009 : Complete dredging

Quarter 1 2010 : Commence operations (first ship loaded)

End 2010 : Commence full operations – 30 Mtpa

NCIG Status & Timetable

22BITRE June 2008

PWCS – Kooragang : 88 Mtpa – mid 2009

PWCS – Carrington : 25 Mtpa

NCIG – Kooragang : 30 Mtpa – 2010

TOTAL : 143 Mtpa 2010

Port of Newcastle – Future Capacity

23BITRE June 2008

ARTC Investment

• Project 2007-2012 Strategy 2007-2012• Timing Strategy Cost• Order of

Magnitude

• Newcastle-Muswellbrook• Sandgate Grade Separation Completed• 80 km/h approaching Minimbah Bank Completed• Muswellbrook Loop & Junction Completed• 80 km/h approaching Nundah Bank Completed• Antiene to Grasstree duplication Q1 2009 $ 29,891,000• Bidirectional signalling Maitland to Branxton Q3 2009 $ 22,500,000• Bidirectional signalling Grasstree – St Heliers Q3 2009• St Heliers – Muswellbrook duplication Q3 2009 $ 27,000,000• Minimbah Bank 3rd road Q4 2009 $100,000,000• Newdell Junction Q1 2010 $ 7,200,000• Drayton Junction upgrade 2011 $ 6,000,000 • Minimbah – Maitland 3rd road 2012 $270,000,000

• Muswellbrook – Ulan• Ulan line CTC Completed• Mangoola (304km) loop Q4 2008 $ 9,030,000• Rylestone Rd (381 km) loop Q4 2008 $ 9,000,000• Wollar (410 km) loop Q4 2008 $ 10,726,000• Aerosol Valley (370 km) loop 2010 $ 9,000,000• Worondi (348 km) loop 2010 $ 9,000,000• Radio Hut (319 km) loop 2012 $ 9,000,000• Muswellbrook – Bengalla duplication 2012 $ 30,000,000

24BITRE June 2008

ARTC Investment

• Project 2007-2012 Strategy 2007-2012• Timing Strategy Cost• Order of

Magnitude

• Muswellbrook – Narrabri• Togar loop extension Completed• Murulla loop extension Completed• Gunnedah loop (RIC) Completed• Willow Tree loop extension Completed• Werris Creek loop extension Completed• Ardglen loop extension Q2 2008 $ 9,782,000• Breeza loop extension (RIC) Q3 2008 $ 3,500,000• Curlewis loop extension (RIC) Q3 2008 $ 3,500,000• Werris Creek to Gunnedah CTC (RIC) Q3 2008 $ 10,000,000• Gunnedah – Narrabri CTC (RIC) 2010 $ 10,000,000• Emerald Hill loop extension (RIC) 2010 $ 3,500,000• Boggabri loop extension (RIC) 2010 $ 3,500,000• Braefield passing loop 2010 $ 9,000,000• Murrundi loop extension 2011 $ 6,500,000• Werris Creek Bypass 2011 $ 17,200,000• Parkville loop extension 2011 $ 6,500,000• Scone reconfiguration 2011 $ 1,700,000• Watermark passing loop (RIC) 2011 $ 9,000,000• Muswellbrook – Koolbury duplication 2011 $ 35,000,000• Quipolly passing loop 2011 $ 9,000,000• Wingen passing loop 2012 $ 9,000,000• South Gunnedah passing loop (RIC) 2012 $ 9,000,000• New Liverpool Range alignment 2012 $290,000,000• Burilda loop extension 2012 $ 9,000,000•• TOTAL PROGRAMME COST > $1 Billion

25BITRE June 2008

Conclusion

Together, the members of the NSW HVCCLT are committed to delivering the most efficient ‘Pit to Port’ shipment of coal for customers.

– The current structure ensures current system assets are being used to deliver the maximum amount of coal throughput.

– Short term, HVCCLT focuses on planning & performance of current assets

– Medium term, investment in complementary infrastructure and operating systems is already underway to ensure we can meet known demand.

– Long term, HVCCLT members will engage in rolling review of whole of system investment strategies to create a holistic plan ensuring demand and capacity are always in alignment going forward.