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Tuesday, December 25, 2007 11:15:26 AM

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Australia regulator approves extension of coal quotas

Australia`s competition regulator gave interim approval to extend the use of a coal-export quota system at Newcastle, the world`s biggest export harbor for the
fuel, to help prevent an increase in shipping delays.

The Australian Competition and Consumer Commission separately said it plans to approve a similar system at Dalrymple Bay port in Queensland for 12 months "only," to provide industry with time to develop a solution to tackle the issue of ships waiting outside the port.

Bottlenecks at Australian ports have helped constrain the supply of the fuel to Asian customers, boosting spot prices to a record and increasing costs for mining companies. The two ports both have quota systems to try to better match port and rail capacity with demand. Newcastle`s quota system, known as the
capacity balancing system, or CBS, was due to end on December 31.

Interim authorisation to continue the Newcastle quotas "simply facilitates the continuation of the existing CBS as a means of limiting the queue of ships and consequential costs" as the regulator considers other proposals to manage coal exports at the port, Graeme Samuel, chairman of the Canberra-based
commission, said in the statement.

The regulator last week rejected an alternative plan by the operator of the two coal terminals at Newcastle to change the way export capacity is allocated by basing quotas on rail transportation contracts. The modified plan was backed by Xstrata plc, the world`s biggest power-station coal exporter, and Rio

Port Waratah Coal Services Ltd, the terminal operator, agreed to the interim plan to continue the existing system through to 2008, the group said in a separate e-mailed statement. Under the system, coal producers have export allocations rationed on a pro-rata basis when demand for exports exceeds the capacity
of the coal transportation system from the Hunter Valley mines through to Newcastle port.

"It is hoped that a medium-term solution, if one can be agreed upon mid-next year, will serve the coal chain up until mid-2010," Port Waratah said in the statement. Proposals to extend an existing system to share capacity at the New South Wales port were made by Newcastle Port Corp and Donaldson Coal Pty, the regulator said.

Rio Tinto Group`s Coal & Allied Industries Ltd last month said that without quotas, the line of ships waiting outside Newcastle to load coal could exceed 70-80 by the end of the first quarter, incurring "substantial" costs.

Separately the competition regulator said it isn`t satisfied that the companies involved in coal transportation to and through Dalrymple Bay port are working to tackle the ship queue. The port`s quota system, known as the vessel queue management system or QMS, has been operating for two years so far.

"The ACCC is concerned that the operation of the QMS for an extended period may hinder the development of a long-term solution to address" the bottlenecks, the regulator said, explaining its decision to limit approval for the system to another year.

(Bloomberg, December 20)
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