I imagine the condition of permission to build the railway in the first place was that access to others was to be made available at a price that did not allow FMG to use its monopoly power to extract profits above the rate of return that the Capital Asset Pricing Model dictates?/predicts? (I have no idea any more what the CAPM is but it sounds perfectly reasonable that 'excess' profits, or economic rent, as economists call it, (the type of profits Ms Gillard thinks are unnecessary!) was not intended to be conferred on FMG with respect to the railway asset. I wonder if the the upper and lower limits were to allow FMG some flexibility in estimating the likely capacity usage or maybe for changes in the risk free rate of return (throughout the interest rate cycle?), which would be a component of the price charged?
In the event that new capital was required for rolling stock to accommodate new customers or for the railway to need new bits duplicating (e.g. for more passing sidings?), then the capital required should earn the same rate of return. ERA's ruling sounds very good news for us. Hopefully, the railway is infinitely expandable at the same rates of return on capital employed that FMG is allowed to make on it? If this ERA ruling has guaranteed us low cost access to get our product to the coast, then our share price is due for a rise, although we still need port capacity, so we have not quite solved everything yet, but we seem to be making progress. Just my view. No expertise in the matter. N.B. if the railway is infinitely expandable with charges for use in the same range, then the actual date we sign an agreement with FMG to use it is not that important?
FMS Price at posting:
4.6¢ Sentiment: Hold Disclosure: Held
