Coal System Asset Valuation Final Report

Queensland Rail
February 2005

Final Report

Prepared for

QR

Prepared by
Maunsell Australia Pty Ltd 12 Cribb Street PO Box 1823 Milton QLD 4064 Australia ABN 20 093 846 925 Tel +61 7 3858 6700 Fax +61 7 3858 6705 brisbane@maunsell.com

February 2005

10301905

Maunsell Australia Pty Ltd 2005 The information contained in this document produced by Maunsell Australia Pty Ltd is solely for the use of the Client identified on the cover sheet for the purpose for which it has been prepared and Maunsell Australia Pty Ltd undertakes no duty to or accepts any responsibility to any third party who may rely upon this document. All rights reserved. No section or element of this document may be removed from this document, reproduced, electronically stored or transmitted in any form without the written permission of Maunsell Australia Pty Ltd.

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Quality Information

Document Ref Date Prepared by Reviewed by

Coal System Asset Valuation 10301905 February 2005 Ken Bagget Alan Walmsley

Revision History

Authorised Revision Revision Date Details Name/Position

A B 05/01/2005 3/2/05 Draft Report Final Report K. Bagget K. Bagget

Signature

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Table of Contents
1.0 Introduction 1.1 1.2 2.0 2.1 2.2 2.3 3.0 3.1 3.2 3.3 4.0 4.1 4.2 4.3 4.4 5.0 5.1 5.2 6.0 Facilities 6.1 6.2 6.3 7.0 Appendix A Construction Cost Indices Findings Future Trends 2000-2004 Indices December 2003 to June 2004 Escalation Table 2.1 Table 2.2 Table 3.1 Table 3.2 Table 4.1 Table 4.2 Table 4.3 Table 5.1 Table 5.2 Table 5.3 Table 6.1 Table 7.1 Cost Increases (December 1999 to June 2004) Weighted Cost Increase for Civil and Trackwork Cost Increases (December 1999 to June 2004) Weighted Cost Increase for Civil and Trackwork Construction Cost Indices Bridge Component Weightings Estimate of Bridge Construction Cost Escalation Electrical Indices Material Cost of Overhead Electrification Cost Comparisons Traction Power Cost Comparisons Variation in Building Construction Costs (December 1999 to June 2004) Discipline Price Increases Background Scope Overview Methodology Findings Overview Methodology Findings Construction Cost Indices Procedure to Estimate Bridge Construction Cost Escalation Approximate Division of Bridge Construction Costs Findings Methodology Findings 1 1 2 3 3 3 4 5 5 5 5 7 7 7 8 10 11 11 11 11 11 11 11 11 k a-11 4 4 6 6 7 8 9 11 11 11 11 11

Track Infrastructure

Civil Infrastructure

Bridge Infrastructure

Traction Power & Overhead Electrification Infrastructure

Summary of Findings

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1.0
1.1

Introduction

Background

At present, the asset values from the current regulatory regime, which are reflected in the QR Access Undertaking (2001) (the Undertaking), have been incorporated into the new Draft Access Undertaking (2005) (the Draft Undertaking). The opening asset value for the Access Undertaking (2001) was approximately $2.2 billion dollars (in July 2000 dollars). It is anticipated that the asset values for the next regulatory period, QR Access Undertaking (2005), will exceed $2.2 billion dollars. QR is required to submit an Access Undertaking to the Queensland Competition Authority (QCA) every four years, as part of the new regulatory regime. In calculating this figure, the roll-over of asset values from the Undertaking (factoring in return on assets and depreciation) was included, as well as additional assets that have been acquired by QR Network Access (QRNA) since the start of the Undertaking. Recent projects undertaken or tendered for by QRNA (Rolleston, Hail Creek and Moorvale, for example) have shown a significant increase in the costs associated with civil works and bridge works compared with those costs originally included in QRs regulated asset base at the start of the current Access Undertaking. Whilst the long-term aim is to increase the Depreciated Optimised Replacement Cost (DORC) of these assets to better reflect current accepted engineering values, it is recognised that the significant gap between latest costs and those values included in QRs current Access Undertaking cannot be bridged at once. As such, the proposed increase in values will only partially address the identified gap.

The purpose of this study is to provide QR with an initial assessment of the estimate increase of assets between 2000 and 2004, and then to compare this increase to the construction index being used by the QCA. The outcome of this study will be used by QR in initial discussions with the QCA.

Project
QRNA are seeking advice on the asset value unit rates for the major classes of assets within the category making up rail infrastructure in the Central Queensland coal region. The major asset classes covered in this report are as follows:

Track; Civil; Bridges; Traction Power and Overhead Electrification; and Facilities.

The advice includes the latest valuations available as well as an assessment, where possible, of how these valuations have changed since the year 2000.

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1.2

Scope

Maunsell has undertaken a high level overview of current gross rates that may be applicable to rail infrastructure in the Central Queensland coal system as follows: (i) (ii) (iii) Examination of the disciplines of: Track, Civil, Bridges, Traction Power, Overhead Electrification and Facilities; Examination of the major cost generating items and determination of indicative current rates, where possible; Indication of the general effect on an overall discipline area, based on the increase from 2000 to 2004 of the major cost-generating items; (iv) Presentation of the 2000 rate and indicative 2004 rate in tabular form with comments against items and sources of information recorded; and (v) Commentary as to the likely reasons behind any fluctuations/variations in unit rates and a view on the long-term trend where possible. It is understood that QRNA wish to understand which major categories of rail infrastructure may have increased, since 2000, at a rate greater than the relevant construction index. The relevant construction index being used and agreed between QRNA and the QCA is the "Road Building Index, ABS 6427 Table 16". This report provides a basis for QRNA to discuss the implications of the various infrastructure cost increases with the QCA and agree an approach for a more detailed asset valuation process. The work done in this commission does not represent a detailed asset valuation. The analysis however is of sufficient quality to be able to make an assessment of the indicative unit rate increase of certain elements or asset classes between December 1999 and June 2004. Rawlinsons is considered the most appropriate reference for this desk-top study because it is an independent, respected, and detailed source of construction cost data. Independence is necessary so that the process can be seen to be free of any influence of QR-sourced cost data. Rawlinsons stature, as a very widely accepted and used reference, makes it preferable to alternative sources, including cost trend data from any specific quantity surveyor. Rawlinsons includes detailed data for a very broad range of construction costs, rather than only composite indices, which allows Rawlinsons to be applied to selected construction tasks which are typical of railway bridge construction, earthworks, drainage costs rates and cost trends for precast concrete (e.g. sleepers) and steel (e.g. rail).

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2.0
2.1

Track Infrastructure

Overview

A comparison of trackwork items has been undertaken using Rawlinsons Australian Construction Handbook as a base reference. Rawlinsons is an independent cost estimating service company which is well respected in the construction industry, having being established more than 50 years ago. Handbooks are published annually based on information received from numerous authorities, companies and individuals. Quarterly updates are given in relation to latest trends.

2.2

Methodology

For the trackwork components, three items were selected that together comprise the most significant cost items. Cost rates have been factored upwards to account for the location of the Central Queensland coal systems. Emerald has been taken as a typical destination for comparative cost purposes being typical of the distance from the major points of supply for items manufactured off site. Recent advice from Rawlinsons has indicated a cost increase in the six months to June 2004 ranging from 1% for Melbourne to 12% for Brisbane. A detailed breakdown of the costs has not been provided, however since Central Queensland costs tend to closely follow Brisbane costs, a 12% increase has been applied universally across the items. The major components subject to comparison are listed below: (i) Steel Rails Steel rail is one of the major cost components in railways. Whilst the cost item nominated represents supply, fabrication and delivery of Universal Beams, it is likely the cost increase in percentage terms would be expected to follow closely for steel rail sections. Since there are very limited number of suppliers of steel rail sections, the price is subject to rise and fall more than other items. (ii) Precast Concrete Sleepers The trend on the coal railway systems is for all sleepers to be prestressed, precast concrete due to the heavy axle loads and high tonnages. The primary cost item used in the comparison is the cost of high strength (50 MPa) concrete, which indirectly includes the cost of cement, aggregate and sand. Excluded from the rate comparison is the cost of the stressing strand, manufacturing and transport costs. (iii) Ballast Heavy haul railways are dependent on large quantities of hard and durable ballast. The primary cost item used is the supply of crushed and graded rock, typically basalt. The location of the site is a significant influence on the ballast cost, as there are a limited number of quarries producing ballast to the required specification. Consequently, the transport costs on the large tonnages involved can vary substantially.

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2.3

Findings

Cost increases from December 1999 to June 2004 range from 34% to 61%, as shown in Table 2.1.

Table 2.1 Cost Increases (December 1999 to June 2004)

December December2 Item Steel Rails Supply Precast Concrete Sleepers Ballast Primary Cost Item Steel supply and delivery 50 MPa concrete Crushed rock (ballast) Unit tonne m3 m2 1999 $1,638.00 $153.60 $15.12 003 $183.60 $18.12 June 2004 $205.63 $20.29 $2,352.00 $2,634.24

Change % 61 34 34

In order to provide some meaningful impact of the wide variation in cost increase, weightings have been applied to each of the items according to typical costs per kilometre of track. The weightings are the approximate percentage that the item represents in relation to the overall discipline. For example, a 40% weighting for rail implies 40% of the combined track discipline cost. The weightings were taken from the work done by Maunsell on the Melbourne - Brisbane - Emerald Inland Rail study. These are somewhat arbitrary weightings, however due to the similarities in track structure type and remoteness, and are considered appropriate for use on the QR coal system. The weighted cost increase for civil and trackwork was found to be approximately 45% as shown in Table 2.2.

Table 2.2 Weighted Cost Increase for Civil and Trackwork

Weighting Item Steel Rails Supply Precast Concrete Sleepers Ballast Primary Cost Item Steel supply and delivery 50MPa concrete Crushed rock (ballast) % 40 30 30

Change % 61 34 34

Weighted Change % 24.4 10.2 10.2 44.8

Average cost increase =

Major items in track and civil construction excluded from the analysis include the cost of trackwork construction, welding of rails, ballast regulation and tamping. These items are influenced by the cost of plant, fuel and skilled labour. Trends in cost variation for these items are dealt with elsewhere in the report.

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3.0
3.1

Civil Infrastructure

Overview

A comparison of civil construction items has been undertaken using Rawlinsons Australian Construction Handbook as a base reference.

3.2

Methodology

For the civil construction components, four items were selected that together comprise the most significant cost items. As with the trackwork, cost rates for civil construction have been factored up to account for the location of the Central Queensland coal systems, with Emerald taken as the destination for comparative cost purposes. Recent advice from Rawlinsons has indicated a cost increase in the six months to June 2004 of 12% for Brisbane which has been applied universally across the items. The major components that are subject to comparison are listed below: (i) Capping Layer The capping layer or Top 600 material rates includes supply, grading, rolling and compacting. Being a crushed rock product, it has similar cost influences as the ballast, however there are more readily available sources of material that meet the QR specification. Quarries producing road base for the Department of Main Roads (DMR) and local councils can usually provide capping layer material. The transport costs and therefore the unit costs are less subject to change than ballast. (ii) Bulk Earthworks The bulk earthworks rates include excavating, hauling up to 1 km, spreading and compacting light soils. The significant factors influencing earthwork rates are the cost of plant, fuel and, to a lesser extent, labour. (iii) Cross Track Drainage Small and Large The cross track drainage is the most significant drainage cost item. The rates used are for 300 mm and 900 mm diameter Class 4 concrete pipes, which are used to provide indicative cost trends for small and large culvert crossings. Major waterway crossings are included in the bridges section of this report.

3.3

Findings

Cost increases from December 1999 to June 2004 range from 34% to 61%, as given in Table 3.1.

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Table 3.1 Cost Increases (December 1999 to June 2004)

December December2 Item "Top 600" Capping Layer Bulk Earthworks Primary Cost Item Roadbase 300 mm Excavation, fill and compact Unit m2 m3 m m 1999 $15.12 $8.64 $102.60 $555.60 003 $18.12 $11.46 $137.40 $768.00

June 2004 $20.29 $12.84 $153.89 $860.16

Change % 34 49 50 55

Cross Track Drainage Small Concrete pipes (300 mm dia) Cross Track Drainage Large Concrete pipes (900 mm dia)

In order to provide some meaningful impact of the wide variation in cost increase, weightings have been applied to the each of the items according to typical costs per kilometre of track. The weightings were taken from the work done by Maunsell on the Melbourne - Brisbane - Emerald Inland Rail study. These are somewhat arbitrary weightings, however due to the similarities in track structure type and terrain, are considered appropriate for use on the QR coal system. The weighted cost increase for civil and trackwork was found to be approximately 44% as shown in Table 3.2.

Table 3.2 Weighted Cost Increase for Civil and Trackwork

Weighting Item "Top 600" Capping Layer Bulk Earthworks Primary Cost Item Roadbase 300 m Excavation, fill and compact % 40 40 10 10

Change % 34 49 50 55

Weighted Change % 13.6 19.0 5.0 5.5 43.7

Cross Track Drainage Small Concrete pipes (300 mm dia) Cross Track Drainage Large Concrete pipes (900 mm dia)

Average cost increase =

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4.0
4.1

Bridge Infrastructure

Construction Cost Indices

The variation in bridge asset values between December 1999 and June 2004 has been investigated through several sources producing construction cost data for Brisbane and adjusted as necessary for Central Queensland. The variation in price indices between December 1999 and June 2004 are shown in Table 4.1.

Table 4.1 Construction Cost Indices

Source ABS Producer Price Index Building Materials (other than housing) ABS Labour Price Index, Construction Rider Hunt Construction Tender Cost Index Rawlinsons Building Price Index Consumer Price Index ABS Road Building Price Index

December 1999 Index 118.9 107.3 616 125.79 124.1 103.1

June 2004 Index

% Change

134.8 127.5 762 178.14 146.53 122.3

13.4 18.8 23.7 41.6 18.1 19.2

Comments on the Indices

All the indices are for Brisbane. Rawlinsons also gives a regional factor for Central Queensland (Emerald) which is unchanged over the period of interest. Therefore, comparison of indices for Brisbane is valid for Central Queensland. The ABS indices for materials and labour do not cover some other elements of cost, such as contractors margins (which are sensitive to the state of the market). The Rider Hunt and the Rawlinsons indices are compiled to indicate the trend of total building costs. The Rawlinsons index shows markedly higher cost increase than do any of the other indices. However, this index and the Rider Hunt index are focused on building construction rather than civil engineering construction.

4.2

Procedure to Estimate Bridge Construction Cost Escalation

The current Rawlinsons Australian Construction Handbook 2004 gives detailed prices (applicable at December 2003) for very many construction tasks, including civil engineering bridgeworks. To enhance this

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detailed data to derive a better estimate of the trend of bridge construction costs than afforded by the general building cost indices, the following procedure was adopted: From cost data for previous bridge projects, total bridge cost was divided into several typical components; Individual tasks or groups of tasks from Rawlinsons which typify those major components were selected; The total bridge cost escalation was determined from a weighted average escalation of the components; and To update the result to June 2004, factor that result by the trend in the Rawlinsons Building Index between December 2003 and June 2004.

4.3

Approximate Division of Bridge Construction Costs

The following components of bridge construction costs were chosen by reviewing estimates and tendered rates for previous projects. The division of costs is highly dependent on the type of bridge and the specific location and character of the site, including geotechnical conditions. Details of the QR bridges which are the subject of this study have not been provided. However, it is understood that they are predominantly concrete girder bridges. The trend in cost increases in preliminary items has not been investigated. These are assumed to be in line with the major components considered.

Table 4.2 Bridge Component Weightings

Bridge Cost Component Civil Works Piling Substructure Beams Deck

Weighting 10 20 15 30 25

Civil Works
Civil Works associated with bridge construction include excavation and backfilling for foundations and walls, batter protection, and drainage behind abutments. The Civil Works component index is derived from a combination of rates for excavation in sand, clay, and rock, fill from borrow, and stone pitching.

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Piling
The use of precast piles is assumed. The Piling component index is based on the Rawlinsons rates for precast piles, although these are for reinforced concrete piles rather than the more common pretensioned concrete piles. The escalation in Rawlinsons rates for precast and bored piles are virtually identical, so that uncertainty of pile type does not have a material effect on the indices used.

Substructure
Substructure includes footings, pilecaps, abutments, piers, and walls. The Substructure component index is based on a combination of Rawlinsons rates for concrete, formwork, and reinforcement.

Beams
Beams are assumed to be precast prestressed concrete. The Beams component index is based on Rawlinsons rate for the largest listed precast pre-tensioned beams. Whilst these beams are typical of the scale of short-span rail bridges the technology and materials and therefore cost indices for long span bridges would be similar.

Deck
Deck includes deck slab, joints, and barriers. The Deck component index is based on a combination of Rawlinsons rates for concrete, formwork, and reinforcement in conventional bridge decks.

Table 4.3 Estimate of Bridge Construction Cost Escalation

Bridge Component Civil Works Piling Substructure Beams Deck Total Weighting 10 20 15 30 25 100

Component Indices December December 1999 2003 106 132 210 272 1624 2029 504 710 1634 2040

June 2004 148 305 2272 795 2285

% Change 41 45 40 58 40

Weighted Change % 4.1 9.0 6.0 17.4 10.0 46.5

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4.4

Findings

The weighted cost increase for bridges was found to be approximately 46.5% and is based on empirical cost data from a reputable industry source. It is not significantly different from the corresponding Rawlinsons Building Price Index escalation of 41.6%, but it is far in excess of the Consumer Price Index (CPI) increase of 18.1% and the 19.2% quoted in the ABS Road Building Price Index. Much of the difference has arisen in the first half of 2004. (For comparison, the respective percentages at December 2003 were approximately 30%, 26.4% and 16.1%.) This study is very broad in nature and more detailed and specific investigation would be required to increase the level of confidence in the result.

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5.0

Traction Power & Overhead Electrification Infrastructure

The majority of the asset value for traction power systems is in fixed plant items. Specialised electrical plant does not generally follow CPI or the construction price index. This asset review has been carried out at the plant equipment level. Where possible, historical cost data has been compared with current price. Historical cost data was used to determine the breakdown of material and labour for overhead electrification. Appropriate cost indices and commodity price increases were applied to this breakdown to determine the percentage change between January 2000 and December 2004.

5.1

Methodology

Overhead Electrification
The majority of the cost of overhead electrification is driven by the component prices and labour costs for installation. The indices considered are shown in Table 5.1.

Table 5.1 Electrical Indices

Item Consumer Price Index Electrical Construction Index (2) Labour Price Index - Construction Commodities Copper (3) Aluminium Steel
(1) (2) (3) (4) (5) (5) (4)

Unit $/tonne $/tonne -

January 2000 124.1 109.7 107.3 $1800 $1650 141.5

December 2004 (1) 146.53 115.1 127.5 $3100 $1800 162.2

% Change 18.1 4.9 18.8 72 9 14.7

ABS 6427.0 Sep Qtr 2004 Electronic equipment and other machinery Provided by the London Metal Exchange in $US/tonne Provided by the London Metal Exchange in $US/tonne ABS 6427.0 Table 37 Selected Major Building materials, Steel

In January 2004, the copper price returned to the January 2000 price, and has since jumped 70% in six months. Driven by growth in Asia, it is unknown if this price will continue to climb at this rate, or be sustained over a long period of time.

Commodity costs are for supply of material only. Installation and labour costs have been calculated using the Labour Price Index as a percentage of total STK historical project cost.

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Traction Power
For traction power plant, four items have been identified as the major supply components of the QR long haul traction power system. These are factory-supplied items that do not historically follow the consumer price index. Transformers 30MVA 132/50kV Transformers 10MVA 25kV Auto-transformers

Transformer prices are dependant on the price of copper, core steel, fabrication cost of the tank, electrical bushing costs, manufacturing technology and international competition. Feeder Substations Two Transformer Single Track Feeder Substation Two Transformer Double Track Feeder Substation

Due to the complexity of this equipment, currently available tender prices have been compared with QR contract prices from 2000 (CPI adjusted to 1 January 2000).

5.2

Findings

The estimated percentage increase of cost of materials for overhead electrification infrastructure is shown in Table 5.2.

Table 5.2 Material Cost of Overhead Electrification Cost Comparisons

Overhead Electrification (Long Haul Rail) Weighted Increase in Cost Weighted Change Weighting % Change % Structural 45 14.7 6.6 Overhead Cable 25 34.5 8.6 Electrical Components 20 4.9 1.0 Miscellaneous 10 4.9 0.5 Material Cost Increase (%) 16.7 Material Cost 75.0 16.7 12.5 Labour Cost 25.0 18.8 4.7
The typical historical labour cost of construction at the end of 1999 was approximately 33% of the total material cost. Applying the labour price index of 18.8% (refer to Table 4.1 in Chapter 4), there has been an overall cost increase of approximately 17% since January 2000.

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Although commodity costs are likely to stabilise, it is expected that overall construction costs will stay buoyant in line with other construction indices. It can be expected that the cost of overhead electrification infrastructure will continue to follow CPI for the next couple of years. The following traction power items were priced and the change in supply price from 2000 is shown Table 5.3.

Table 5.3 Traction Power Cost Comparisons

Item 30MVA Power Transformer 10MVA 25kV Auto-transformers 2trfs Single Track Feeder Station 2trfs Double Track Feeder Station
(1) (2)

Cost 2000 $600,000 $275,000 $1,150,000 $1,350,000

Cost 2004 $700,000 $230,000

(1) (1) (2) (2)

% Change 16% -17% -5% -4%

1,090,000 1,300,000

ABB Transformers Brisbane. Based on current design. Areva T&D Australia.

The 2004 costs are budget prices only, provided by suppliers that have previously manufactured equipment for QR. It is expected that 2004 budget prices will be slightly lower than actual. Transformer prices are from multiple suppliers for both sizes. They do not show a general trend in the transformer market. Current feeder station costs are budget only, and show a decrease in cost. It would be impossible to conduct a breakdown and pricing of these items with any real accuracy, or apply any index apart from the construction cost index for electrical equipment. Hence the Australian Bureau of Statistics (ABS) Electronic Equipment Index and other machinery index is most appropriate to be applied in the long term. The index shows an increase of 4.9% in the last four years.

There is no indication that the cost of major traction power equipment is increasing in line with CPI. The increase in raw material costs that have inflated the cost of other rail infrastructure have not been reflected in high voltage electrical equipment. This has been due partly to more efficient design and manufacturing processes and increased competition in the transmission and distribution sector. It is expected that costs will not increase dramatically in the short term.

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6.0
6.1

Facilities

Construction Cost Indices

The variation in the building construction costs in the period from December 1999 to June 2004 has been investigated with the use of several different sources of construction cost data for Brisbane.
Table 6.1 Variation in Building Construction Costs (December 1999 to June 2004)

Source ABS Labour Price Index, Construction ABS Producer Price Index Building Materials (other than housing) ABS Selected Major Building Materials, Steel ABS Selected Major Building Materials, Concrete Rider Hunt Construction Tender Cost Index BRIX Building Economist Cost index Rawlinsons Building Price Index Consumer Price Index

December 1999 Index 107.3 118.9

June 2004 Index 127.5 134.8

% Change 18.8 13.4

141.5 116.4 616 835 125.79 124.1

162.2 137.2 762 944 178.14 146.53

14.6 17.9 23.1 13.05 41.6 18.1

Comments on the Indices

All the indices are for Brisbane except for BRIX. The BRIX Building Economist Cost index reflects the cost of employing and purchasing materials. The indices are based on a National Award and represent national trends only. The ABS indices for materials, labour, steel and concrete do not cover some other elements of cost, such as contractors margins (which are sensitive to the state of the market). The Rider Hunt and the Rawlinsons indices are compiled to indicate the trend of total building costs. Note that the Rawlinsons index shows a markedly higher cost increase than do any of the other indices. However, these indices are focused on building construction rather than civil engineering construction. Rawlinsons also gives a regional factor for Central Queensland (Emerald), which is unchanged over the period of interest. Therefore, the indices for Brisbane are valid for Central Queensland.

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6.2

Findings

From the tables provided by ABS, it can be shown that the labour costs have increased evenly throughout the period from December 1999 to June 2004. The material costs in buildings other than housing have a more irregular contour compared to the labour costs. Due to the introduction of the Goods and Services Tax, a minor decrease in the period of March 2000 to October 2000 is shown. After this period, it has increased consistently, and a large increase occurred in the quarter of June 2004, largely due to increases in building materials used in buildings other than housing. Steel and concrete indices remained unchanged up to March 2002, since when a rapid and continuing increase has been recorded. Rider Hunts indices remain steady up to March 2002. Subsequently, the construction indices have steadily increased up to the current recorded quarter. This shows the same rapid increase from the month of March 2002 as the ABS. According to The Building Economist December 2004, over the last twelve months there has been significant price movement in many building trades and this has had the effect of increasing tenders by up to 12 %. Trades such as concrete, reinforcement and steelwork have seen rises. The growth in the construction sector in Queensland has been greater than in other states, and there are no signs of this trend changing over the next few years. The rapid increase in the raw material price in the industrial sector is reflected by the continuous increase in the demand for minerals, such as coal, from overseas countries. This indicates trends towards continuous increases of approximately 13 - 18 % per annum for the next two years in the construction business. This value can be compared to The Building Economist December 2004, which provides an estimate future annual increase of 13.4% in Queensland over the next two years.

6.3

Future Trends

According to The Building Economist December 2004, the current increase in the building sector is of approximately 13.4 % per annum. The Building Economist predicts a future increase in heavy industrial resource-related construction of about 17.3 % for 2004/2005, and 8.4% for 2005/2006. For the mining sector, a growth of 17.2 % this year and 11.2% next Financial Year has been forecast.

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7.0

Summary of Findings

Table 7.1 represents the overall summary of price increases versus the industry reference.

Table 7.1 Discipline Price Increases

Discipline Area Track Civil Bridges Overhead Electrification Traction Power Equipment Facilities
(1) (2) (3) (4)

December 1999 to June 2004 % Change 44.8 43.7 46.5 17.1 4.9 23.0 (4)

Industry Reference 19.2 (1) 19.2 (1) 19.2 (1) 18.8 (2) 4.9 (3) 18.0

ABS Road Building Price Index Labour Price Index - Construction Electrical Construction Index Electronic Equipment and Other Machinery Based on Rider Hunt Tender Cost Index

Table 7.1 is subject to all the caveats highlighted in Chapters 2 to 5, and reiterated below. (i) Steel Rails Since there are very limited number of suppliers of steel rail sections, the price is subject to rise and fall more than other items. (ii) Precast Concrete Sleepers Excluded from the rate comparison is the cost of the stressing strand, manufacturing and transport costs. (iii) Ballast The transport costs on the large tonnages involved can vary substantially. (iv) Bridge Construction Costs The division of costs is highly dependent on the type of bridge and the specific location and character of the site, including geotechnical conditions. Details of the QR bridges which are the subject of this study have not been provided. (v) Beams Beams are nevertheless much smaller than would be used for long-span railway bridges. (vi) Traction Power System These are factory-supplied items that do not historically follow the consumer price index.

It is clear from the above table that price increases in the areas of track, civil works, bridges and facilities have increased at a rate greater than the reference index adopted by the Queensland Competition Authority.

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However, in traction power equipment and overhead electrification, increases are considered to be in line with the relevant industry reference.

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Appendix A

2000-2004 Indices

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Appendix A

2000 2004 Indices

December 2003 to June 2004 Escalation

Rawlinsons July 2004 Quarterly Update gives a building index increase for Brisbane between December 2003 and June 2004 of 12%. This is a very high figure, indicative of the strength of the Queensland construction market.

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