Engineering Assessment of Aurizon Network's Capital Expenditure Claim

Queensland Competition Authority Engineering Assessment of Aurizon Network's Capital Expenditure

Engineering Assessment of Aurizon Network's Capital Expenditure Client: Queensland Competition Authority ABN: 43 812 633 965 Prepared by AECOM Australia Pty Ltd Level 8, 540 Wickham Street, PO Box 1307, Fortitude Valley QLD 4006, Australia T +61 7 3553 2000 F +61 7 3553 2050 www.aecom.com ABN 20 093 846 925 Job No.: 60560238 AECOM in Australia and New Zealand is certified to ISO9001, ISO14001 AS/NZS4801 and OHSAS18001. AECOM Australia Pty Ltd (AECOM) (AECOM) (AECOM). All rights reserved. AECOM has prepared this document for the sole use of the Client and for a specific purpose, each as expressly stated in the document. No other party should rely on this document without the prior written consent of AECOM. AECOM undertakes no duty, nor accepts any responsibility, to any third party who may rely upon or use this document. This document has been prepared based on the Client s description of its requirements and AECOM s experience, having regard to assumptions that AECOM can reasonably be expected to make in accordance with sound professional principles. AECOM may also have relied upon information provided by the Client and other third parties to prepare this document, some of which may not have been verified. Subject to the above conditions, this document may be transmitted, reproduced or disseminated only in its entirety.

Quality Information Document Ref 60560238 Date Prepared by Reviewed by AECOM Project Team Mike Stoke Revision History Rev Revision Date Details Name/Position Authorised Signature A 18-May-2018 Draft for Review Jakob Dillon Project Manager B Final Jakob Dillon Project Manager Draft only

Table of Contents Glossary i Executive Summary ii 1.0 Introduction 1 1.1 Background 1 1.2 Scope of Review 2 1.3 Report Structure 2 2.0 The Aurizon Network Capital Expenditure 3 2.1 Overview 3 2.2 Extent of Review 4 3.0 Assessment Methodology 7 3.1 Methodology for Assessment 7 3.2 Assessment Template 8 3.2.1 Scope 8 3.2.2 Standard 9 3.2.3 Cost 9 3.3 Project Documentation Assessment 10 3.4 Interviews 11 3.5 Interpreting this Report 12 4.0 Project Assessments 13 4.1 Growth Projects 13 4.1.1 A.04156 NI Caval Ridge Connecting Infrastructure 13 4.1.2 IV.00035 NR Callemondah Yard Spur 1 Connection 14 4.1.3 A.04599 NI Havilah Culverts Upgrade 15 4.2 Renewal Projects 17 4.2.1 IV.00144 Rail Renewal FY17 17 4.2.2 IV.00145 Track Upgrade Program FY17-19 18 4.2.3 IV.00146 Sleeper Renewals Program FY17-19 20 4.2.4 IV.00168 Turnout Renewals FY17 21 4.2.5 IV.00023 NR Newlands and Moura Supersites 22 4.2.6 IV.00170 Bridge Ballast Renewals FY17 23 4.2.7 IV.00171 Level Crossings FY17 25 4.2.8 A.04622 Overhead Line Equipment Renewal FY14-FY17 27 4.2.9 IV.00177 Structures Renewals FY17 30 4.2.10 IV.00399 Cyclone Debbie Works 32 4.2.11 IV.00359 Goonyella Flood 37 4.2.12 IV.00257 Minerva Renewals 38 4.2.13 IV.00005 NR Blackwater Supersite 39 4.3 Other Projects 41 4.3.1 A.03980 Project Pluto Network Planning System 41 4.3.2 A.04291 Network Asset Management System 42 5.0 Findings and Recommendations 44 5.1 Key Findings 44 5.2 Recommendations 44 5.3 Findings in Relation to the Review Process 45 Appendix A Assessment Form Samples A

i Glossary Acronym Description The Act Queensland Competition Authority Act 1997 ALCAM Australian Level Crossing Assessment Model CAPEX Capital Expenditure CESS Civil Engineering Structures Standards CQCN Central Queensland Coal Network FIAR Feasibility Investment Approval Request FY16 Financial Year 2015-16 FY17 Financial Year 2016-17 IAR Investment Approval Request IDC Interest during construction ITP Inspection and Test Plans mtpa Million tonnes per annum OHLE Overhead Line Equipment QCA Queensland Competition Authority RAB Regulatory Asset Base RFI Request for Information SOAs Standing Offer Agreements TACA Track and Civil Assets t.a.l. Tonne axel loads ToR Terms of Reference

ii Executive Summary Aurizon Network Pty Ltd (Aurizon Network) is a part of the Aurizon Group of companies (Aurizon Group). Aurizon Network operates the below-rail network servicing coal mines in Central Queensland and these services are declared for third party access under the Queensland Competition Authority Act 1997 (the Act). The Queensland Competition Authority (QCA) has approved a Regulatory Asset Base (RAB) for the Central Queensland Coal Region, and the Access Undertaking provides for the QCA to approve any additions to the RAB. The approval process involves annual assessments of Aurizon Network s Capital Expenditure s undertaken in accordance with the access undertaking, which stipulates that capital expenditure must be prudent in scope, standard and cost for acceptance into the RAB. This report provides AECOM s draft recommendations in relation to Aurizon Network s Financial Year 2016/17 (FY16/17) Capital Expenditure (CAPEX), based on a detailed review of the scope, compliance with standards and cost of a selected sample of projects from the. AECOM has applied a small team of specialist staff for this review, including rail engineers of various disciplines and cost management specialists, coordinated by its Advisory group. This review has primarily been a desktop review, with several rounds of requests for additional documentation to clarify particular issues in relation to the projects being reviewed. Where the documentation did not provide sufficient clarity, AECOM conducted a number of in-person interviews with key Aurizon Network staff to obtain evidence that would further support a recommendation. To ensure consistency of approach, each technical reviewer used a standard template for the review, which was designed based on the criteria required by the Access Undertaking. In the course of this review Project A.04291 (Network Asset Management System) was found not to be cost efficient, as an additional charge was incurred for the failure of a for which Aurizon Group was reimbursed by way of a credit. This inefficiency has since been corrected by Aurizon Network (as per the letter to the QCA, dated 31 May 2018) and the inefficient cost removed from the. Our review has found that all of the projects included in the FY16/17 Capital Expenditure satisfy the Access Undertaking criteria, and may, in our opinion, be accepted by the QCA. AECOM last year reviewed the FY15/16 Capital Expenditure and would like to recognise the improvement in the quality of documentation provided by Aurizon Network to support its FY16/17 Capital Expenditure. We thank Aurizon Network for their cooperation and responsiveness in this process.

1 1.0 Introduction 1.1 Background Aurizon Network Pty Ltd (Aurizon Network) is a part of the Aurizon Group of companies (Aurizon Group). Aurizon Network operates the below-rail network servicing coal mines in Central Queensland and these services are declared for third party access under the Queensland Competition Authority Act 1997 (the Act). A map of Aurizon Network s rail network is provided at Figure 1 Figure 1 Aurizon Network s Rail Network (Source: QCA)

2 An access undertaking, approved by the Queensland Competition Authority (QCA) and developed in accordance with the Act, provides a framework for the provision of access to Aurizon Network s rail network. Under the framework, Aurizon Network is responsible for providing, maintain and managing access to, and operations on, its rail network and associated infrastructure. The current access undertaking is the 2016 access undertaking (the Undertaking), which replaced the previous version on 11 October 2016. The QCA has approved a Regulatory Asset Base (RAB) for the Central Queensland Coal Network (CQCN), and the access undertaking provides for the QCA to approve any additions to the RAB. As such, the QCA conducts annual prudency assessments of Aurizon Network s Capital Expenditure s to determine if the capital expenditure should be approved for inclusion in the RAB. The prudency assessments are undertaken in accordance with the access undertaking, which stipulates that capital expenditure must be prudent in scope, standard and cost for acceptance into the RAB. AECOM has been engaged by the QCA to undertake this assessment of the prudency and efficiency of Aurizon Network s 2016/17 Capital. 1.2 Scope of Review Schedule E of the Undertaking details the conditions upon which the capital expenditure claimed by Aurizon Network should be accepted into the RAB. The scope of the review, therefore, covers a prudency and efficiency assessment of the capital expenditure in relation to its scope, standard and cost, based on Schedule E of the Undertaking and the QCA Terms of Reference. In order to assess the prudency and efficiency of Aurizon Network s FY16/17 Capital Expenditure, AECOM has examined a sample of projects, selected in consultation with the QCA, from the. 1.3 Report Structure This structure of this report is outlined in Table 1. Table 1 Report Structure Main Report Section 1 Section 2 Section 3 Section 4 Section 5 Appendices Appendix A Introduction The Aurizon Network Capital Expenditure Assessment Methodology Project Assessments Summary and Recommendations Individual Project Assessments using the Template

3 2.0 The Aurizon Network Capital Expenditure 2.1 Overview Aurizon Network s FY16/17 Capital Expenditure includes 93 projects totalling $230.5 million, excluding interest during construction (IDC). A breakdown of the by project discipline is provided at Table 2. Table 2 Aurizon Network FY16-17 Capital Expenditure Project Discipline No. of Projects in Value of Projects in, excl. IDC ($ million) Control Systems Control Systems projects include those relating to the assets that communicate with the Universal Control (UTC) system which allows train movements, identifies train locations, operates rail points activates level crossing protections. 27 $23.4 Corridor Assets Assets within or that access the rail corridor, but which are not directly part of the track structure, signalling or telecoms networks, or the electrical overhead systems. These assets include fencing and corridor security, environmental protection, corridor access and level crossings. 8 $2.2 Electrical Assets All elements of the electrical supply and distribution network that provides power for electric traction on the systems. 13 $14.0 Expansion Projects that add capacity to the existing network, such as track capacity or additional electrical capacity. 2 $14.6 System Assets 6 $37.0 Track and Civil Assets (TACA) All assets related to the rail formation, corridor civil works, ballast, sleepers, rail and structures such as culverts and bridges. 36 $139.3 Telecommunications Assets These assets provide data linkages between field equipment and network control, the network control systems, digital and microwave radio systems, and the IT systems. 1 $0.1 Total 93 $230.5

4 2.2 Extent of Review This review involved a sample of 18 of the 93 projects submitted in the, representing 77% of the total value of the. The sample was selected in consultation with the QCA, and based on the nature of the project (growth or renewal), the main discipline involved (track and civil, electrical, telecommunications and structures) and project size (value). The full list of projects in the claim is presented in Table 3, Table 4 and Table 5 below, with the projects included in the sample for this review highlighted in yellow. This report addresses the projects in decreasing order of cost, reporting in the following order: Growth projects (3) Renewal projects (13) Other projects (2). An assessment has been made on 18 of 93 eligible projects, with a total value of $230.5 million. Table 3 Growth projects Project System Asset Type Included Total A.01552 WIRP1: WIGGINS BALLOON LOOP Blackwater Track $0.4 A.01631 WIRP1: ROCKLANDS TO STANWELL DUPLICATION Blackwater Track $0.1 A.01731 WIRP1: DINGO TO BLUFF DUPLICATION Blackwater Track $0.4 A.02803 NI WOTONGA FEEDER STATION Goonyella Electrical Expansion $0.0 A.02976 WIRP1: North Coast Line Blackwater Track $1.0 A.03686 WIRP1: MOURA SYSTEM UPGRADE Moura Track $0.1 A.03735 WIRP1: Bauhinia NORTH Upgrade Blackwater Track $0.0 A.03742 WIRP1: MOURA EAST Moura Track $0.0 A.04003 NI GAPE x110 Newlands Track $0.0 A.04043 WIRP1: WIBL Electrification Works Blackwater Electrical Expansion $0.0 A.04156 NI Caval Ridge Connecting Infrasructure Goonyella Track Y $10.4 A.04599 NI Havilah Culverts Upgrade Newlands Structures Y $4.2 IV.00035 NR Callemondah Yard Spur 1 Connection All Growth Projects (AUGEX) Blackwater Track Y $3.3 $19.9 % of projects in reviewed by Value 90% % of projects in reviewed by Number 23%

5 Table 4 Renewal projects Project System Asset Type Included Total A.02620 DRAGGING EQUIP DETECTORS: COAL SYSTEMS System Wide Network Controls $0.0 A.02966 NR BLACKWATER: POWER SYS ASSETS RENEWAL Blackwater Power Systems $2.7 A.02967 NR GOONYELLA: POWER SYS ASSETS RENEWAL Goonyella Power Systems $1.1 A.03465 NR CQ COAL TRANSFORMER REFURBISHMENTS System Wide Power Systems $0.0 A.03477 CQ COAL TRAIN CONTROL SIMULATOR System Wide Network Controls $0.0 A.03627 NR GOONYELLA CREW CHANGE & STOWAGE LOCA Goonyella Corridor Access $0.0 A.03676 NR BLACKWATER CREW CHANGE & STOWAGE Blackwater Corridor Access $0.0 A.03876 NR Moura Corridor Crew Change Stow Loc Moura Corridor Access $0.0 A.03961 NR Operational Netwk LAN WAN Architectur System Wide Telecoms Backbone $0.0 A.03978 NR Optical Fibre Transmision Ntwk Upgrad Blackwater Telecoms Backbone $0.0 A.04187 NR CSEE Track Circuit Upgrade Rocklands System Wide Operational Systems $0.0 A.04221 NR Microwave Resilience System Upgrades Blackwater Network Controls $0.0 A.04231 NR Ethernet to Corner - SCADA Upgrade System Wide Network Controls $0.0 A.04270 NR Neutral Section Renewal Goonyella Distribution Network $0.4 A.04313 NR Gauge Face Lubrication Asset Renewal System Wide Track $0.9 A.04321 NR Central Coal UPS Upgrade Project System Wide Operational Systems $0.1 A.04339 NR Turnout Renewal Program 2014-15 System Wide Turnouts $0.2 A.04357 NR Gladstone Yard Retaining Wall Upgrade Blackwater Structures $1.3 A.04547 NR Track Upgrade Program FY15 System Wide Rail $0.3 A.04548 NR Weighbridge Renewal System Wide Weighbridges / Overloaders $0.4 A.04563 NR CQCN Structures Renewal Program FY15 System Wide Structures $0.0 A.04621 OH Equipment Renewal FY14 to FY17 - Goon Goonyella Power Systems $0.0 A.04622 OH Equipment Renewal FY14 to FY17 - Blac Blackwater Power Systems Y $3.4 A.04631 Omnicom LiDAR Network Database System Wide Network Controls $0.5 A.04641 TSMS Mobile Replacement Project System Wide Network Controls $0.2 IV.00001 NR Asset Protect. Systems: Braeside WILD System Wide Operational Systems $0.0 IV.00005 NR Blackwater Supersite Blackwater Network Controls Y $3.7 IV.00006 NR Cooling Channel Bridge Upgd (Phase 2) Blackwater Track $0.0 IV.00009 GIS Implementation System Wide Operational Systems $0.0 IV.00010 NR CQCN Corridor Sec. Civil Works 14/15 System Wide Corridor Access $0.1 IV.00011 NR Overheight Detect. System Server Mig Blackwater Network Controls $0.1 IV.00021 NR Peak Downs Relay Room Renewal Goonyella Network Controls $0.2 IV.00022 NR Telecomms Infrastructure Renewal Prog System Wide Network Controls $1.4 IV.00023 NR Newlands and Moura Supersites Newlands/Moura Network Controls Y $4.0 IV.00024 NR Vital Disabling Release System Wide Network Controls $1.3 IV.00025 NR Track Upgrade Program FY16 System Wide Track $4.8 IV.00026 Transmission Renewal Program - Tranche 1 System Wide Network Controls $0.1 IV.00028 NR Autotransformer Renewal Program System Wide Power Systems $0.0 IV.00031 NR FY16 Structure Renewal Program System Wide Structures $1.7 IV.00032 NR FY16 Turnout Renewal Program System Wide Structures $2.5 IV.00033 NR FY16 Sleeper Renewal Program System Wide Sleepers $0.5 IV.00034 NR Callemondah Yard Track Upgrade Blackwater Track $0.3 IV.00036 NR Bridge Ballast Renewals FY16 System Wide Formation / Ballast $0.0 IV.00040 NR Train Detection Renewal Program Goonyella Network Controls $2.3 IV.00041 Connors Range 3G Coverage Goonyella Telecoms Backbone $0.1 IV.00043 NR CQCN Access Roads FY16 System Wide Corridor Access $0.9 IV.00044 NR Callemondah Current Detectors Upgrade System Wide Distribution Network $0.6 IV.00046 NR Interlocking Renewal Program System Wide Signalling Equipment $2.7 IV.00047 NR Digital Microwave Radio Replace FY16 System Wide Signalling Equipment $1.6 IV.00048 NR Formation Renewal FY16 System Wide Formation / Ballast $0.2 IV.00050 Power Resilience FY16 Blackwater Power Systems $2.2 IV.00052 Level Crossings FY16 System Wide Level Crossings $0.3 IV.00056 Diagnostic Computer Renewal System Wide Signalling Equipment $0.2 IV.00108 UTC & DTC Upgrade Program System Wide Signalling Equipment $0.7 IV.00140 NO FY16 Network Maintenance Re-Rail Prog System Wide Rail $0.3 IV.00141 GIS Stage 2 System Wide Operational Systems $0.4 IV.00144 Rail Renewal FY17 System Wide Rail Y $31.5 IV.00145 Track Upgrade Program FY17-FY19 System Wide Track Y $21.6 IV.00146 Sleeper Renewals Program FY17-FY19 System Wide Sleepers Y $11.5

6 Project System Asset Type Included Total IV.00154 FY17 Autotransformer Renewal Project System Wide Power Systems $1.8 IV.00157 Corridor and Security Fencing Renewal Pr System Wide Corridor Access $0.8 IV.00168 Turnout Renewal FY17 System Wide Structures Y $7.6 IV.00169 Formation Renewal FY17 System Wide Formation / Ballast $7.6 IV.00170 Bridge Ballast Renewals FY17 System Wide Formation / Ballast Y $6.5 IV.00171 Level Crossings FY17 System Wide Level Crossings Y $4.3 IV.00177 Structures Renewal FY17 System Wide Structures Y $11.6 IV.00257 Minerva Renewals Blackwater Sleepers Y $4.4 IV.00260 CQ Access Roads FY17 System Wide Corridor Access $0.2 IV.00262 Power Resilience FY17 Blackwater Power Systems $2.0 IV.00267 Asset Protection Equipment Replacement System Wide Signalling Equipment $0.9 IV.00271 UTC and DTC Upgrade Program System Wide Signalling Equipment $2.8 IV.00359 FY16 Goonyella Flood Goonyella Various Y $5.8 IV.00399 Cyclone Debbie Works All Renewal Projects (REPEX) System Wide Various Y $8.2 $173.7 % of projects in reviewed by Value 71% % of projects in reviewed by Number 18% Table 5 Other projects Project System Asset Type Included Total A.02628 COAL SYSTEM: COAL LOSS MANAGEMENT System Wide Environmental $0.1 A.03931 NR Train Control Disaster Recovery Proj System Wide Network Controls $0.1 A.03980 Project Pluto-Network Planning System Ph System Wide Operational Systems Y $1.5 A.04291 Network Asset Management System System Wide Operational Systems Y $35.1 A.04433 Network Billing System System Wide Operational Systems $0.0 A.04565 Track Access System (TAS) System Wide Operational Systems $0.0 IV.00017 Collinsville Passing Loop Extension Newlands Track $0.1 All Other Projects $36.9 % of projects in reviewed by Value 99% % of projects in reviewed by Number 29% Table 6 Project Summary Project Type Sample Total All Growth Projects (AUGEX) $17.9 $19.9 All Renewal Projects (REPEX) $124.0 $173.7 All Other Projects $36.6 $36.9 Total $178.5 $230.5 % of projects in reviewed by Value 77% % of projects in reviewed by Number 19%

7 3.0 Assessment Methodology 3.1 Methodology for Assessment For this engineering assessment of Aurizon Network s FY16/17 Capital Expenditure, the selected sample of projects was evaluated using the methodology summarised in Figure 2. This review has primarily been a desktop review, with several rounds of requests for additional documentation to clarify particular issues in relation to the projects being reviewed. Where the documentation did not provide sufficient clarity, AECOM conducted a number of in-person interviews with key Aurizon Network staff to obtain evidence that would further support a recommendation. Figure 2 Project Methodology

8 3.2 Assessment Template To establish consistency in the technical assessment, a standard project assessment template was developed using criteria derived from the 2016 Undertaking. Each member of the team conducting the assessments was briefed on the format of the assessment and provided with direction on how to complete the forms. In addition to ensuring a consistent approach to the assessments by all reviewers, the standard assessment template is a key mechanism by which AECOM has demonstrated transparency in its review. The completed forms form the basis of this report. A sample of five completed assessment forms is attached in Appendix A. The criteria used in this assessment and included in the standard template were developed in consultation with the QCA and is based on the Schedule A of the Undertaking and the Terms of Reference (ToR). These criteria are outlined in the following sections. 3.2.1 Scope

9 3.2.2 Standard 3.2.3 Cost

10 3.3 Project Documentation Assessment Each project has been evaluated for prudency in terms of scope, standard and cost, and recommendations made based on: 1. Review of project documentation supplied by Aurizon Network, supplemented with an iterative request for information (RFI) process 2. Interviews with key Aurizon Network staff where the information provided was not sufficient 3. The professional judgement of our technical reviewers, where the information available was not sufficient. In this context, the use of project documentation is the preferred and best practice, but not the sole, means of evaluating project prudency. A list of documentation that we would expect to be available to support recommendations of prudency in relation to capital projects is listed in Table 6. For example, we consider that the rationale for every significant renewal project should be available in a strategic asset management plan (or similar document) for that class of assets, and that an approved business case should be available for significant growth projects. We note that the list provided should be seen as identifying topics that require adequate documentation, rather than a requirement for specific documents. Table 7 Documents (or equivalent information) expected to support a sound recommendation Prudency of Scope Prudency of Standard Prudency of Cost Investment Approval Request Approved business case (growth) Project feasibility analysis (growth) Project plan Project completion report Detailed design report Condition assessment report (renewal) Asset Management Plan (renewal) Access Holder Request Evidence of customer approval (60% or more) Investment Approval Request As-built drawings Design drawings Project completion report Detailed design report Certificate of practical completion Signed-off inspection and test plans RPEQ Certification Photographs of completed works Aurizon Standard Specifications and drawings Aurizon Policy document Post-Implementation Review Investment Approval Request Approved business case Project Management Plan Project Program Procurement recommendation Tender recommendation or Exemption from Tendering document Evidence of previous claims Evidence of risk allocations / contingencies Pre-Tender Estimates Project completion report We have assessed and reported the quality and range of documentation made available by Aurizon Network for each project under our review. In summary: Where the documentation provided was alone sufficient to make sound recommendations, we have assessed the quality of documentation as high. This rating indicates that all the information required to make the recommendation was documented and available, to a sufficient level of quality. Where a proportion of the expected documentation was provided at a sufficient quality, but the available information, supplemented by interviews, informal documentation and/or professional judgement, supported a conclusion on prudency, we have assessed the quality of documentation as medium. Where the documentation provided was inadequate in range or quality, and our reviewers were reliant on professional judgement to make sound recommendations, we have assessed the quality of documentation as low.

11 These criteria are summarised in Table 7. Table 8 Project Documentation Assessment Quality and range of documentation High Legend Description Sufficient documentary evidence to support and demonstrate a recommendation. Medium Low Incomplete documentary evidence, but interviews, informal documentation and/or professional judgement support a recommendation. Limited documentary evidence, but professional judgement supports a recommendation. There are a small number of instances in this assessment where prudency of cost has been recommended, supported by a low level of documentation quality. In these instances, benchmark data from comparable projects has been used to determine whether the project cost is reasonable, other than for works that had been competitively tendered. Works that had been competitively tendered have been assessed as prudent because the tender process is assumed to have provided the optimal value for money at that time. Where the cost summaries provided suggested that the project costs fall outside normal industry variability as indicated by benchmarking, they were reviewed in more detail to ascertain if the variances were justified by the scope, size, complexity and locality of the project. 3.4 Interviews In instances where project documentation was insufficient to provide a recommendation, AECOM conducted interviews with Aurizon Network representatives in order to apply more rigour to our assessments. A summary of the interviews conducted where information provided in the interview has been relied upon for a recommendation is provided at Table 8. Table 9 Interviews with Aurizon Network Project Date Outcome A.04291 Network Asset Management System A.04599 Havilah Culverts Upgrade 13-Mar-18 16-Apr-18 The interview provided a good overview of the project Confirmation that the construction defects were addressed to Aurizon Network's standards A.04156 NI Caval Ridge Connecting Infrastructure IV.00035 Callemondah Yard Spur 1 Connection IV.00005 Blackwater Supersite 20-Apr-18 2-May-18 4-May-18 Provided clarification on the contractual arrangements ( ) and the interaction with RAB Outline project benefits and decision process for this project. An interview was conducted with the Civil Asset Manager to understand why the capping layer work was deferred. Provided clarification on the works completed and the rework activities when formation is replaced

12 3.5 Interpreting this Report An example of a review summary for a project is provided at Table 9. As demonstrated, prudency of scope, standard and cost are denoted by ticks or crosses, and as mentioned in the previous section, the level of documentation quality for the assessment is denoted by the colours of the cells. In the example, the project is found to be: Prudent in scope with a high level of documentation quality Prudent in standard with a medium level of documentation quality Prudent in cost with a medium level of documentation quality. And there are no recommended amendments to the claimed amount. Table 10 Review Summary example (NI Havilah Culverts Upgrade) Review Summary Scope a Capital Expenditure $4.2M Standard a Impact of findings on $- Cost a Total accepted $4.2M

13 4.0 Project Assessments 4.1 Growth Projects 4.1.1 A.04156 NI Caval Ridge Connecting Infrastructure Project Overview BM Alliance Coal Operations Pty Limited (BMA) are contracted to haul coal from the Caval Ridge Coal Deposit (Caval Ridge) Aurizon Network was responsible for the design and construction of the required Connecting Infrastructure. Connecting Infrastructure is all required infrastructure to facilitate the connection of the spur to the rail network mainline.. Aurizon Network verified the delivery of all outputs and the project was closed in 2017. Review Summary Scope a Capital Expenditure $10.4M Standard a Impact of findings on $- Cost a Total accepted $10.4M Review Given that NI Caval Ridge Connecting Infrastructure Line is a growth project and was required to accommodate reasonable demand in line with the Access Agreement and the undertaking definition of Connecting Infrastructure, the scope of the project is considered prudent. Design drawings have been sighted for civil works, track works, signalling and overhead and power systems. Project closeout documentation evidences includes a project closeout report and testing reports. The project standard is assessed as prudent as the works follow Aurizon standards and are

14 expected to meet the expected mine life of assessment of standard is high.. The documentation quality to inform the. Project costs have been reviewed and fall below benchmarked values. The project was managed effectively with regard to contracted time frames as the work was expected to be completed in January 2014 (Project Plan) and the commission audit was signed off in February 2014. The project cost is assessed as prudent to a medium level of documentation quality as information documentation has been used. 4.1.2 IV.00035 NR Callemondah Yard Spur 1 Connection Project Overview The Callemondah Yard near Gladstone is critical supply chain infrastructure, providing rolling stock turnaround, storage capability and supporting access to workshops and repair facilities. The Callemondah Yard links the main running lines (NCL and Moura) with the terminal facilities of various Operators in the Port of Clinton. This upgrade to connect the Spur #1 Road to the Departure Roads 3/4 which will reduce the Callemondah Yard mini-cycle by approximately 30 minutes, equating to a 5.5% time saving from the current 9.5-hour total cycle. In addition, this construction will create further movement flexibility and remove congestion between the maintenance workshop roads and the departure roads, meeting operator expectations for clear entry and exit routes within the yard. The following benefits for all service providers of this project are derived from separating through services from yard shunting movements: Reduced yard transit time for services Provides redundancy in the event of turnout failure Provides additional paths Additional operational flexibility for arrival/departure road groups Review Summary Scope a Capital Expenditure $3.3M Standard a Impact of findings on $- Cost a Total accepted $3.3M Review The scope of works of NR Callemondah Yard Spur 1 Connection was for the addition of approximately 90 m of new track with two crossovers. Through conversations with Aurizon Network Project Manager, the project was proposed to reduce congestion and waiting time in Callemondah Yard by providing a direct route across the yard, where previously a loaded train would cross between 15-25 turnouts to navigate through the yard. The introduction of turnouts 400/401 reduced the number of turnouts used to access the port. The port mini cycle is the period between entry and exit of the yard precinct. The mini cycle includes, train provisioning within the yard, shunt movement to order trains to the port unloader, train unloading and release back to the Blackwater or Moura system. This upgrade was expected to reduce the Callemondah Yard mini-cycle by approximately 30 minutes which equates to a 5.5% time saving from the current 9.5 hour total cycle. Current month cycle timeframes have been sighted, showing that targets have been exceeded. Reduced mini-cycle time in the yard is expected to improve throughput due to the increased efficiency created. Minutes of a Gladstone Coal Exports Executive (GCEE) with Aurizon Network is considered adequate evidence that the works were reasonably required to accommodate the requirements of relevant

15 access agreements. The scope of work is considered prudent with a medium level of documentation quality as informal evidence has been used. The standard of works outlined in the Funding Request suggests compliance with Aurizon Standards and is considered appropriate. Practical completion, track validation, and operation handover certificates have been sighted and appear to confirm this. The standard of work is assessed as prudent supported by a medium level of documentation quality as design drawings have not been sighted. Actual costs outlined the SAP are less than the budget noted in the funding request. Project costs align to the scale, nature, and complexity of the project and are considered reasonable. The cost is assessed as prudent to a low level of documentation quality. 4.1.3 A.04599 NI Havilah Culverts Upgrade Project Overview Bridges and Culverts allow water to flow under the rail corridor. Aurizon Network uses a variety of culvert types across the CQCN Network. The size and type of culvert is matched to required water flow and formation requirements to achieve top of line (rail level) and minimum cover levels. Four multi-cell corrugated metal pipe culvert structures south of Havilah exhibited advanced signs of deterioration, and were identified as reaching their end of life in 2012, and were subject to external engineering assessments. Each of the four culverts was replaced with a bridge to provide a longerterm, more flood-resilient structure. Two of the four culvert upgrades were completed prior to end FY17, and as such, the costs attributable to those sites (135.53km and 143.10km) have been included in the claim. Review Summary Scope a Capital Expenditure $4.2M Standard a Impact of findings on $- Cost a Total accepted $4.2M Review In 2011, the Goonyella to Abbot Point Expansion project (GAPE) was completed, linking the Goonyella coal system with the Newlands Systems, enabling the transportation of up to 50Mtpa of coal to the port at Abbot Point. Aurizon Network s capital funding request noted that some upgrades were required to handle the heavier 26.5-tonne axle loads, including four culverts at Havilah which were identified to have reached end of life in 2012. The replacement of these culverts was not completed as part of the GAPE scope due to time constraints. Aurizon Network indicated that the Havilah Culvert upgrade project works were required to accommodate the demand of the following access agreements:

16 In determining the best way to approach the project, an options analysis demonstrated a consideration for the design life, flood resilience and whole-of-life cost of the project works. Aurizon Network concluded in the Client Requirement Brief that replacing each existing structure with a bridge would provide long-term flood resilience. The new structures are compliant to a 300LA (Australian Standard) design loading configuration and design flood immunity of Q100 (to top of rail) and Q50 (to top of formation). The project will reduce the number of structures in Condition State 4, which should lead to less reactive maintenance requirements, reduced inspection times, removal of load restrictions and reduction of risk of derailments. It is our assessment that the scope of works was warranted and justifiable due to the poor condition and age of assets, as well as network criticality and consequences. Given that the Havilah Culvert upgrade is a growth project and was required to accommodate reasonable demand, the scope of the project is considered prudent. The documentation quality to inform this assessment is high. Following construction, defects were identified which compromised durability requirements as outlined in Australian Standard AS 5100. The defects register included: - girder hog larger than expected - low cover - voids/inclusions identified via GPR - spalling on the underside of girders - flood rock breakup A follow-up interview was held with Aurizon Network to discuss the treatment and sign-off of the structural defects. We were advised that the repair works in the independent report were completed to the satisfaction of Aurizon Network. We cannot verify whether these works have been carried to the quality recommended in the independent report, but we note that Aurizon Network has signed the practical completion certificate. Documentation was available for most asset replacements (such as condition review design documentation, completion photos, specifications, tender evaluations/recommendations, Practical Completion documents, marked-up as-built drawings, Project Completion Report). Design and construction solutions provided were of similar quality and standard and were consistent with typical solutions provided for similar applications. Standard is prudent with a medium level of documentation quality as informal documentation has been used. Works were undertaken to meet the ongoing drainage requirements. A large portion of the project was competitively tendered, and RFP, evaluation and award documentation was sighted. Detailed design costs are reasonable for the scale of the work. The cost is considered prudent with a medium level of documentation quality as the breakdown of the internal costs for the two culverts was not available.

17 4.2 Renewal Projects 4.2.1 IV.00144 Rail Renewal FY17 Project Overview Aurizon Network has approximately 5,426 km of rail in the CQCN, the majority of which was installed in the 1980s and 1990s and is now beyond its nominal service life. Aurizon Network s rail renewal strategy supports the proactive replacement of life expired rail or defective rail before it can adversely impact safety and operational performance. The Rail Renewal Program is a long-term asset renewal program for life expired and defective rail with a prioritised program of works developed and funded yearly. The basis of the prioritisation process for the Rail Renewal Program is asset condition, largely due to rail wear, with the actual service life of the rail determined by the traffic task, the track alignment and geometry. The FY17 Renewals Program involved the replacement of 91.3km of life expired and/or defective rail. Rail renewal is a risk management activity undertaken to prevent the failure of rail in service, which may subsequently cause derailment or damage to other track structure components. Review Summary Scope a Capital Expenditure $31.5M Standard a Impact of findings on $- Cost a Total accepted $31.5M Review The Rail Renewal Program aims to renew damaged or worn rail assets to ensure compliance with the mandatory CETS - Network Safety Management System SAF/STD/0077/CIV/NET. CETS Module 2 prescribes the standards for the design, construction, monitoring, maintenance and modification of rail used in CQCN. The project was divided into two elements - replacing curves and tangents (straight sections of track). Curves are typically replaced due to rail wear, and tangents are replaced due to a high number of defects from fatigue. The Aurizon Network prioritisation spreadsheet and Client Requirement Brief have been sighted, and demonstrates a robust prioritisation process based on the following criteria: all rail which has reached the end of its serviceable life; all rail that is believed to become life expired during this financial year; a portion of rail that has reached or passed its optimum life-cost (based on cost/benefit analysis of capital costs compared with increased maintenance costs); a portion of the most fatigued and worn rail that is reaching its end-of-life in the near future; and associated clips, pads and biscuits that are damaged or no longer serviceable. Trends in head wear percentages of a number of rail replacements were provided to indicate the rationale for inclusion of those locations scheduled for the year. At each of these locations the replacement of the rail within the financial year was considered appropriate given the rate of wear and Aurizon Standards for limits on head loss. A number of scope change requests for this program of works were sighted, which we attribute to sections of rail have previously been identified as a lower priority, but where condition assessments demonstrated that they were wearing faster than predicted. We consider the scope to be prudent to a high level of documentation quality as good asset management practices have been followed. Civil Engineering Track Standards (CETS) Module 2 (Section 2.12.2) outlines specific thresholds for rail wear where replacement or renewal is required. In addition, CETS Module 2 prescribes the standards for the design, construction, monitoring, maintenance and modification of rail used in CQCN. Based on a review of the IAR and the completion documentation (Find Weld Grind Records, High and Stagger Sheets, Track Validation Certificate), we consider the standard of works prudent, as the

18 project was compliant with Aurizon Standards, which are generally in line with wider industry practice for rail size and type. The documentation quality to inform this assessment is high. The project forms part of an ongoing program of works, as outlined in the IAR. While additional scope was added to the FY16/17 year, associated budget approval was obtained and the project was completed within the specific budget. Approximately was attributed to external procurement with works procured through a competitive selection process. We have sighted competitive tenders, evaluation criteria, developed contracts and various invoices. The remainder of costs are internal. While cheaper than budgeted for, unit rates per km were higher than the stretch-target of per km at a cost of per km. We note that the delivered lengths of works are volatile in March and April 2017 which is likely attributed to Cyclone Debbie. This cost falls under the 2015/16 budget of and is considered acceptable. The project is considered prudent in cost. The documentation quality to inform this assessment of cost is high. 4.2.2 IV.00145 Track Upgrade Program FY17-19 Project Overview The Track Upgrade Program is a coordinated program of renewing track structure, including sleepers, rail, fastenings, and in some locations ballast. This program was coordinated with the aim of maximising the efficiency of multiple asset renewal activities by only mobilising to a site once. The prioritised scope of work encompasses the upgrade of approximately 20km of track where life expired rail and corroded fist fastened concrete or deteriorated timber sleepers occurred together. The project involves upgrading the track structure to 60kg rail, 28tal concrete sleepers with galvanized Pandrol E clips and in select locations new ballast. Sites have been identified for Track Upgrade in the Goonyella, and Blackwater systems. A track upgrade site is determined by combining a site that has worn rail in need of replacement, and an area of fist or timber sleepers that require replacement. In some cases (depending on the condition of the ballast), the scope may also request that the ballast be replaced at the same time. The Track Upgrade Program aims to deliver supply chain benefit through increasing transit time, increasing reliability and maintaining compliance to standards and regulations. Review Summary Scope a Capital Expenditure $21.6M Standard a Impact of findings on $- Cost a Total accepted $21.6M Review The FY17 Track Upgrade program is a continuation of previous renewal projects and is expected to continue until FY19. The Track Upgrade Program is a coordinated program of renewing the track structure (sleepers, rail, fastenings and in some locations ballast). The current track standard calls for 28 tonne axle load (t.a.l.) sleepers. The original prestressed concrete sleepers installed in Queensland were 22.5 t.a.l. concrete sleepers with Fist fastenings. These were installed in track between the early 1980s and the early 1990s. The design service life was over 50 years for the sleepers and 25-30 years for the fastening components. Considering the age of the assets, we consider that work is required to maintain reliable operation of sleepers in CQCN and minimise: delay minutes attributed to these assets the number of derailments due to sleeper spread and other sleeper failures

19 the incidence of maintenance activities and other track limitations such as speed restrictions or track possessions for repairs The scope for IV.00145 in FY17 was driven by the amount of worn rail that needed to be replaced. Consideration was also given to maximising the productivity of the mobilised resources in that location by evaluating if further works were required at that site, such as the additional replacement of fist or timber sleepers. The prioritisation framework used to establish scope of the FY17 program, the FY17 Scope Priority model was sighted. Prioritisation was based on the assessed condition and criticality of the track. A sample of inspection photos and notes were also sighted. Given the age of these assets, many of which are approaching or have exceed their design life, a program of works to renew the track structure is reasonable in order to reduce risk, and maintain the safe and reliable operation of the network. Aurizon Network has used a robust prioritisation method to establish scope of works for this year based on criticality to the network and assessed condition. The scope of this project is therefore considered prudent with a high level of documentation quality. A sample of signed project completion certificates have been sighted, including a: dilapidation report; inspection test and plan report sleeper replacement; inspection test and plan report track restressing; inspection test and plan report site close out; track validation certificate; and final completion certificate. Based on review of the IAR and these completion certificates, we conclude that the standard of works was consistent with Aurizon standards (SAF/STD/0077/CIV/NET CETS Module 2) and the configuration of adjacent infrastructure. We consider this project to be prudent in standard with a high level of documentation quality. The project demonstrates value for money through the consolidation of works during each mobilisation. Works at a specific site were undertaken together to maximise the efficiency of asset renewal activities by mobilising to a site once. The End of Financial Year Report notes that 19.31 km of work was completed compared to a 17.93 km, while remaining under budget. Materials and labour were sourced under existing purchase arrangements, with no escalation of labour costs. The project forms part of an ongoing program of works and considered prudent and efficient in cost with a high level of documentation quality as the delivered works were approximately.

20 4.2.3 IV.00146 Sleeper Renewals Program FY17-19 Project Overview A sleeper is a fundamental component of the track structure and performs critical functions to ensure the reliable passage of trains. The purpose of the Sleeper Renewals Program was to replace ineffective timber sleepers and corroded fist fastened sleepers at a number of sites within the Goonyella, Moura, Newlands and Blackwater systems. In the past, the practice has been to delay or postpone sleeper renewals for various reasons, and programs tended to fall behind with resultant compromise of reliability, load and speed capacity and transit time aspects of train operations. This has progressively led to deteriorating sleeper condition network wide but particularly on the coastal areas and areas of high coal spillage, where corrosion is limiting the gauge holding/rail rollover safety requirements. As individual sleepers fail, the incidence of clusters of failed sleepers increases, leading to elevated risk of gauge spread derailment. This renewals program aimed to renew or replace sleepers which were damaged or beyond their useful life to facilitate current and future traffic, and provide an asset suitable to the corrosive environments within the coal network. Review Summary Scope a Capital Expenditure $11.5M Standard a Impact of findings on $- Cost a Total accepted $11.5M Review The scope of the Sleeper Renewal Program includes the replacement of 22.5 tonne axel load (t.a.l.) fist sleepers and selected timber sleepers on a face with 28 t.a.l. Pandrol e-clip concrete sleepers. Aurizon Network has implemented an ongoing sleeper program to carry out replacement of Fist sleepers on a priority basis determined by the inspection regime of the track assets. This is in addition to manual replacement during routine maintenance. The program also replaces derailment-damaged sleepers previously left in the track and the upgrade of timber sleeper track with high sleeper replacement and maintenance requirements. The prioritisation process was based on the current condition of the sleepers, the impact of traffic and likely tonnages for that area, the level of restriction to operations that had been enforced and the availability of access to the track locations. The prioritisation spreadsheet was sighted which shows a clear relationship between the condition of the assets (using a rating of 1 to 5 for sleeper condition), the criticality and the FY17 scope. Aurizon Network s Civil Assets Manual AZN.NA.MAN.12.6170.010 provides granularity on the 1 to 5 rating system that has been used. Change requests and a technical scope track form were sighted to capture scope variances within the financial year. The scope is considered prudent with a high level of documentation quality. The use of concrete e-clip sleepers with a load rating of 28 t.a.l. is consistent with Aurizon standards which are generally in line with industry practice. Standard drawings, technical standards, testing reports and closeout documentation have been sighted, and as such, the project standard is assessed as prudent. The documentation quality to inform this assessment of standard is high. The project works have been adjusted to suit timetables. has been spent from a budget, and the balance of costs has been deferred to FY17/18. The objective of the project is to upgrade end of life assets to minimise whole of life costs and reduce unplanned rail closures, demonstrating consideration for value for money. Materials and labour were procured through standing offer arrangements and released from inventory to the project, and internal Aurizon Network staff members were used for construction. The end of financial year report shows that actual costs were, in most cases, less than budgeted and appear to be reasonable for the works carried out. The project cost is considered prudent with a high level of documentation quality provided.

21 4.2.4 IV.00168 Turnout Renewals FY17 Project Overview Turnouts are a fundamental component of the total track structure, providing a means of switching traffic to a different rail line, providing flexibility of operations and capability for accessing multiple sources and destinations of freight. Aurizon Network assessed most of the existing turnouts to be operating above their design requirements, be life-expired and require constant maintenance to allow the safe passage of traffic. The renewal was completed with the objective of preventing turnout failure, which may subsequently cause derailment or damage to other track structure components. Turnout renewals were based on the wear rates of individual sites to ensure that those turnouts most critical to traffic movement and with the lower remaining asset life were replaced / renewed. Review Summary Scope a Capital Expenditure $7.6M Standard a Impact of findings on $- Cost a Total accepted $7.6M Review The current turnout standard calls for 60kg/metre rail and 28 t.a.l. concrete sleepers with galvanised Pandrol e-clip fasteners to facilitate current and future axle loads. Most of the existing turnouts were 47kg or 53kg rail on timber sleepers and have been operating above their design requirements. With an average condition rating of 2.01, the renewal of a series of turnouts on the network were undertaken in order to bring these up to maintain safety and reliability on the network. From the Capital Funding Request, the replacements were expected to reduce delay minutes by increasing turnout capacity, reducing maintenance, and increasing the reliability of path switching. The prioritisation spreadsheet was sighted for the turnout replacements and C16 renewals, which shows a clear relationship between the condition of the assets (using a rating of 1 to 5 for sleeper condition), the criticality and the FY17 scope. Aurizon Network s Civil Assets Manual AZN.NA.MAN.12.6170.010 provides granularity on the 1 to 5 rating system that has been used. Aurizon Network managed the scope dynamically as they evaluated asset condition. Following site walkouts with the Asset Manager, Project Manager and local Track Inspection, the project scope was revised and captured through Change Requests. Scope of work samples was reviewed and included the existing condition, scope and the delivered works. The scope of work is assessed as prudent with a high level of documentation quality. As constructed drawings have been reviewed to evaluate the standard of the works undertaken. In addition, Signed Track Validation Certificates, Inspection and Test Plans, and photos (during and postconstruction) were sighted. The standard of works is reasonable and consistent with Aurizon standards and the configuration of adjacent infrastructure, and is therefore assessed as prudent. The documentation quality to inform this assessment of standard is high. This project is part of a larger program of works, with the objective to upgrade end of life assets to minimise whole of life costs and reduce unplanned rail closures. The replacement also considers the operational cost of ownership, promoting the economically efficient use of the investment. The works were procured through standing offer arrangements and the use of Aurizon Network staff members demonstrated a consideration for value for money and cost efficiency. In addition, the project was delivered under budget. Given the works were within the allocated budget and procured in line with Aurizon Network s procurement policies, this project is considered prudent and efficient in cost with a high level of documentation quality.

22 4.2.5 IV.00023 NR Newlands and Moura Supersites Project Overview The purpose of this project was to implement asset protection systems in the Newlands and Moura Systems, in order to improve rolling stock wheel defects, overloaded wagons and wayside monitoring systems. The project entailed the delivery of a Main Line Weighbridge and Wheel Impact Load Detector (WILD) at both Newlands and Moura Supersites, to aid the early detection of faults that have the potential to cause damage to network infrastructure such as track, bridges and culverts. These asset protection systems are able to reduce the likelihood of derailments. Review Summary Scope a Capital Expenditure $4.0M Standard a Impact of findings on $- Cost a Total accepted $4.0M Review This project is for the design installation and commissioning of a Newland Supersite and Moura Supersite for the purpose of asset protection. The basic requirements of these sites are the provision of a suitably sized hut, power and telecommunications. The hut locations need to have vehicular access, and are to be located in close proximity to the track that has the correct topography and the appropriate train operational characteristics. Previously monitoring equipment has not been consistently deployed and been located in different locations throughout the network. It is referenced in the project proposal report that Aurizon Network s asset protection asset strategy (not sighted) supports the requirement for Asset Protection Supersites which provide the infrastructure to house rollingstock performance monitoring and various asset protection systems. These asset protection systems detect rollingstock operational / condition defects that have the potential to damage fixed infrastructure such as track, bridges, culverts, and the overhead traction system that may result in derailments or increased replacement or maintenance activities. The asset protection equipment provides daily reports and trending data to operators that will lead to reduction of infrastructure problems through provision of early detection and alarms to Train Control and/or the rollingstock Defect Co-ordinator. Appropriate rectification actions contribute to a reduction of incidents due to: Infrastructure damage attributed to wagon overloads and wheel impacts. Derailments attributed to wagon overloads and wheel impacts. The justification for the supersites is that it reduces maintenance times to travel to disparate monitoring sites the back end facilities to support the site, Power and Telecommunications, can be shared hence reducing the operating and maintenance costs for the site. increased safety from reduced derailments reduce maintenance of damaged infrastructure increased operational runtime the installation of mainline weighers will provide Aurizon Network with the ability to transfer the ownership of the Train Load-out weighbridges to the relevant operators. This reduces the distributed maintenance currently required on these sites and the mainline weigher acts as the standard to ensure all of the load-out weighbridges are weighing within tolerance.

23 The Moura and Newlands Supersite selection process investigated four separate site options locations. A suitable strengths and weaknesses analysis of each site was undertaken. The project scope is prudent to high level of documentation quality. The Telecommunications installation included the equipment building, pits and conduits and telecommunications design. The as-built detailed design drawings for Newlands have been reviewed and demonstrate a standard suitable to this type of installation. As-constructed drawings have also been reviewed for civil, structural and electrical works. The project completion report (dated 5 April 2017) outlines the completed works. We note that the WILD at Moura, WIM at Newlands and Moura have not been completed and have been removed from scope. No Site acceptance test certificates or practical completion documentation has been sighted for the electrical, Telecommunications or Wayside Rollingstock Examiner. Project standard is assessed as prudent to a medium level of documentation quality. The project has been delivered under budget with the final cost noted in the Project Closure Report reconciling with SAP costs. The works were competitively tendered with documentation sighted for the RFW, tender evaluation, and award for the civil works (contract). The project cost is considered prudent to a medium level of documentation as the item breakdown in the project competition report does not reconcile to the original estimate. 4.2.6 IV.00170 Bridge Ballast Renewals FY17 Project Overview Aurizon Network identified that contaminated ballast on bridges was causing track stability issues resulting in poor alignment and increased maintenance intervention. The ballast cannot be cleaned using standard undercutting process used on track away from bridges due to clearance and loading constraints. Replacement of the ballast and a range of other activities were proposed at a number of bridges to improve the track condition, extend the life of the new ballast (ballast mats and ballast depth), and improve safety. Review Summary Scope a Capital Expenditure $6.5M Standard a Impact of findings on $- Cost a Total accepted $6.5M Review Coal fouling and other contaminants impede ballast s drainage functionality. As the ballast becomes increasingly fouled normal track maintenance techniques (i.e. resurfacing) are no longer effective and result in the increasing occurrence of track geometry anomalies and rail faults. These defects cause the track to settle unevenly, resulting in a weakened track structure that requires regular maintenance, including frequent reactive maintenance. It also presents an increased the risk of derailment, train partings and broken rails. Typically these risks are managed through the use of speed and load restrictions. This project involves the repair and replacement of areas of ballast that present an increased risk to the safe operation of the Network and have impacted or are expected to impact train operations through the imposition of speed and/or load restrictions. The scope of works for the FY17 program includes areas of ballast that have been nominated due to poor assessed condition, defects, speed restrictions, new technologies, and corporate plan constraints. Inspection reports support the prioritised scope of works. The Project Execution Plan shows a prioritisation process that clearly links criticality (consequence) and condition to the selected scope. Scope changes have then been managed appropriately by Change Requests.

24 The assessment undertaken identified that the project was required to reduce risk to an acceptable level, and accommodate the requirements of Access Holders by decreasing the need for speed and load restrictions on the network. In addition, Aurizon Network implemented a robust prioritisation process based on criticality and condition to determine the scope of the works, and as a result, we consider the scope of works for this project to be prudent with a high level of documentation quality. Works are comparable with the rest of CQCN and other heavy rail networks in Australia to treat ballast contamination on bridges. Site information packages were sighted for several locations which included: speed data, site photos and as-built drawings. Close out documentation was also made available for most locations. Documentation supports that the work was carried out in accordance with Aurizon standards. We consider this project to be prudent in standard with a high level of documentation quality. Information site packs have been provided which give details of: scope of work cost breakdown quality checks resources risk procurement details possession approach. Unit rates are typically consistent with the budget (outlined in the funding request). The total cost when compared with the completed work - outlined the validation certificates - is considered reasonable. The cost is prudent, with a medium level of documentation quality as change requests are not reconciled into register. For the type of work undertaken the project is considered cost efficient.

25 4.2.7 IV.00171 Level Crossings FY17 Project Overview Level crossing upgrade is undertaken annually as part of Australian Level Crossing Assessment Model (ALCAM) program. This program is carried out to reduce the average ALCAM risk score in the Central Queensland Coal Network (CQCN). The scope of this project is for the following works: FY18 Design works Upgrade 6 level crossings across the CQCN system (4 in Blackwater, 1 in Goonyella, and 1 in Newlands). Signage upgrades (50 sites), LED upgrades (1 designated site), ALCAM field assessment (100 sites), Flangeway Installation at 7 designated sites. Review Summary Scope a Capital Expenditure $4.3M Standard a Impact of findings on $- Cost a Total accepted $4.3M Review The Australian Level Crossing Assessment Model (ALCAM) is an assessment tool used to identify potential risks at level crossings and to assist in the prioritisation of crossings for upgrades. The risk model is used to support a decision making process for both road and pedestrian level crossings and to help determine the most cost effective treatments. Aurizon Network used the ALCAM to identify a number of higher risk level crossing across the network which required upgrades. More detail on the type of upgrades required at each crossing is provided below. The scope of the project is in line with Aurizon Network s Asset Management Condition-based Assessment Policy to: Ensure that the level crossing assets are adequately managed in line with the Level Crossing Policy Ensure all public, pedestrian, private, and maintenance crossings in the CQCN are suitable and safe for use for running trains and vehicles Ensure the average Australian Level Crossing Assessment Model (ALCAM) risk score in the CQCN reduces in order to keep incidents and near misses are minimised. The prioritisation methodologies vary for each of the project activities.

26 Major renewal and C58 works Work is dependent on the Track Pumping Condition which has been sighted. Sample photos have been provided for certain locations Signage Upgrade for ALCAM reduction Closure of crossings Flangeway Installation Figure 3 Tryphinia Road 123.342km Central Line, Up and Down - Surface pumping A level crossing signage upgrade is undertaken annually as part of Australian Level Crossing Assessment Model (ALCAM) program. Prioritisation is dependent on the ALCAM risk score and the incident rolling average. The method that Aurizon Network has used to select the FY17 scope of works has been made available. As a part of Aurizon Network s annual level crossing safety program, 17 crossings were targeted for closure in FY17 (seven of these locations commenced closure during the FY16 program and will close in FY17). The project s funding request notes that closures require consultation with relevant stakeholders including Network Assets, Asset Maintenance, TMR districts and councils, private property owners, Community Engagement, Enterprise Real Estate (ERE) and Aurizon Legal Sections. This selection process has not been sighted but the rationale of closing as many under-utilised and high ALCAM score crossings as possible is reasonable. Aurizon Network advised that multi-criteria analysis was carried out by the Network s Civil Engineering team to review the 763 level crossings in the CQCN and create a program of flangeway installations based on assessed condition. From this a prioritised list of flangeway installations was developed for the next ten years. This evaluation has not been sighted. The project scope is assessed as prudent to a medium level of documentation quality. The prioritisation detail has not been sighted for the closure of crossings and the flangeway installations, however we consider the process reasonable. All works within the program were delivered to Aurizon standard and are consistent with other railway operations, such as ARTC. Aurizon Network is trialling a rubber-seal flangeway product developed by PolyCorp. Provisional type approval and RPEQ signed drawings have been sighted to support this. We would expect that for the 2017/2018 year that the provisional type approval is updated, or full type approval is obtained. Project standard is prudent with a high level of documentation quality. The project closure report and SAP outlines the completed works and the cost per object. It is difficult to reconcile the costs to the original estimates; however, most items can eventually be reconciled to either the original level crossing estimate or the January 2017 financial report. In most cases, items

27 are under budget or do not have a material difference to the budgeted costs. Track validation certificates have been sighted for several locations. The works for this project were sourced internally. This cost of the project is considered prudent with a medium level of documentation quality. 4.2.8 A.04622 Overhead Line Equipment Renewal FY14-FY17 Project Overview The overhead line equipment (OHLE) renewal project is one of two OHLE renewal programs for the network. The scope is to replace damaged, aged and deteriorating components which have exceeded their design life, at locations within the Blackwater system. Replaced components include: Section insulators Neutral sections Termination assemblies Insulators Bonding conductors. Review Summary Scope a Capital Expenditure $3.4M Standard a Impact of findings on $- Cost a Total accepted $3.4M Review The Capital Funding Request (CFR) outlines the scope of this project, which involved the replacement and renewal of overhead line equipment on the Blackwater system which had exceeded its design life. Overhead line equipment is necessary to support electrified rail infrastructure on the CQCN by distributing power from the traction power substation throughout the system. A renewal program of OHLE was put in place for the inspection, repair and replacement of the parts of this infrastructure which were damaged or had exceeded their design life. Such infrastructure included: Section insulators Structure numbers Neutral sections Neutral section earthing upgrades Termination assemblies Insulators Bonding conductors Installation of designated earthing points (DEPs) Earth wire Clamps Grading rings During the project evaluation stage, the Capital Funding Request states that the Blackwater OHLE was installed in the 1980s, and is showing signs of aging, damage and deterioration of components. This is consistent with assets of this age which typically have a design life of approximately 30 years. The CFR further outlines the cost of doing nothing, i.e. letting the assets continue to age to failure, as the implementation of speed restrictions in affected areas. Such restrictions would have the potential to diminish the system throughput capacity, and impact Access Agreement requirements. In this respect the project was aligned with the Coal Infrastructure Master Plan 2009, Section 8 and internal approval was gained within Aurizon Network. In addition, doing nothing would mean increasing incidences of spot repairs, and higher likelihood of requiring a full, more costly, replacement of the system.

28 It is not clear from the funding request how the scope of work was selected for each year or how the different assets were prioritised, and we have not seen evidence of any condition assessments being carried out or asset management plans which can be linked to the scope of works. An interview with the Aurizon Network project manager revealed that the renewals program was based on Aurizon Network inspecting the areas accessible during the ballast cleaning closures, so as to not disrupt the network with further closures, and identifying what needed replacing in consultation with the asset manager. Given the age of the infrastructure, it is our view that the works were reasonably required to reduce risk to an acceptable level and maintain the safe operation of the network without compromising access requirements. Therefore we have assessed the project as prudent in scope. Given the lack of evidence of a condition assessment or asset management plan to support the specific scope of works identified, we assess the documentation quality for the scope of works as medium. The works are consistent with similar works undertaken within the Blackwater System and are consistent with Aurizon Standards. Evidence of actual works undertaken has not been sighted, we have examined Inspection and Test Plans (ITPs) and the Overhead Asset Renewals End of Financial Year Report to establish the types of work completed and where. Inspection and Test Plans (ITPs) have been reviewed for the following chainages: OC 43.723km to OC 67.627km Main CW 156.911km to CW 162.095km Down The Overhead Asset Renewals End of Financial Year Report 2016/17 provides details of the works carried out in FY17 and the quantities involved (Table 11). Section 2 of the Report provides commentary on the evaluation of the project and states that the worked spanned over approximately 177km for the Blackwater system. Table 11 OHLE Works Complete Works Completed Overhead Line Equipment Construction Quantities - Blackwater Mast Number Stickers Replaced 171 OPGW Clamp & Line Guard Installed 543 ACI Bonds (from EW to base of mast) Installed 38 Feeder Wire Ties Installed 525 Bird Deterrent Pipes Installed 531 Catenary Wire Forked Collar Sockets Installed 79 Contact Wire Forked Collar Sockets Installed 39 Lap Insulators Installed 84 Catenary Splices Installed 4 Overhead Line Equipment Rectification Earth Wire Splice Installed 50 Feeder Wire Splice Installed 15 Drapes Installed 56 Vegetation Management 4 Grading Ring Installed/Repaired 4 Broken Strut Tube Insulators Replaced 25 Broken Top Tube Insulators Replaced 26 Broken Feeder Insulators Replaced 7 A signed practical completion certificate for the program of works has been sighted which declares that the work has been completed in accordance with the acceptance requirements specified in

29 Aurizon s Standard Drawings and the approved business instruction NET-ELE-BI-5175-Electric Traction System Construction and Commissioning. In addition, the PCC states that inspection, testing and all clearances satisfied the criteria contained within this approved business instruction. Based on evidence provided in the PCC and the EOFY Report for FY17, we assess this project to be prudent in standard with a medium documentation quality. The CFR provides evidence that a number of options were considered and evaluated prior to the scope being established. As outlined in the Capital Funding Request, this program of works was approved and undertaken as a means to extend the life of the overhead line equipment, and potentially avoid or delay a complete, more costly, replacement of the entire system. In addition, renewing aging infrastructure would reduce the number of unplanned repairs on the equipment. The CFR therefore demonstrates that Aurizon Network sought to minimise whole of life costs and total project costs. The project also demonstrates value-for-money in a number of ways. The works were proposed to be undertaken during already scheduled closures, which showed consideration of Access Holders, and an attempt to minimum disruption to operation of train services. By utilising crews and equipment already on location for other works, supplemented with other staff (procured through tendered labour hire rates), the project demonstrates value for money with regards to the sourcing of labour and equipment, and the circumstances prevailing in the market and locality. The total costs claimed for the project are below the total project budget. The project closure report also notes that upgrading the assets has reduced the spot OH maintenance required in each of the systems where the OHLE renewal activities have taken place including the need for non-planned or emergency possession and isolations to rectify out of tolerance equipment. As the costs appear reasonable for the scope, the project is considered prudent in cost. The documentation quality is assessed as limited information was available to reconcile scope and costs.

30 4.2.9 IV.00177 Structures Renewals FY17 Project Overview Bridges and Culverts allow water to flow under the rail corridor. Aurizon Network uses a variety of culvert types across the CQCN Network. The size and type of culvert is matched to required water flow and formation requirements to achieve top of line (rail level) and minimum cover levels. Culverts and bridges along the network were predominantly installed during the 1960 s, and many of these are now operating above their design capacity due to running larger and heavier trains. This has led to the accelerated degradation of structures, namely culverts. Overstress or condition deterioration of culverts can lead to their collapse, and loss of top and line of the overlying track. The purpose of the renewal project to renew and upgrade culverts across the network. The renewal or upgrade of the culverts will increase the strength of the culverts to align with Civil Engineering Structures Standards (CESS), providing increased confidence in the asset and progressively aligning the track infrastructure to enable future growth. The FY17 scope included the upgrade of 30 life expired culverts, 9 of which were in the Blackwater system and 21 in the Goonyella system. The project also encompassed design works for the proposed FY18 renewal scope. Review Summary Scope a Capital Expenditure $11.6M Standard a Impact of findings on $- Cost a Total accepted $11.6M Review Documentation was provided for most of the asset replacements, including inspection reports, design documentation, completion photos, specifications, tender evaluations/recommendations, Practical Completion documents, marked-up as-built drawings and Project Completion Reports. Specifically, the Structures policy document recognises the requirements for QCA auditing, and seeks to ensure all information is available to enable the completion of these audits. The assessment determined that the scope and the standard of the program were prudent and appropriate. The documentation quality to inform this assessment of scope is high. Aurizon Network has a robust condition inspection program that was initially conducted by consultants and is now coordinated and managed by internal staff. Staff members are appropriately trained to conduct these inspections (Level 2), and documentation (including Level 3 inspection reports) is audited by the Principal engineer, as documented in the Structures Policy. Detailed processes are captured in the Civil Engineering Structures Standards (SAF/STD/0080/CIV/NET). The trigger for asset renewals is documented in the Structures Policy. Renewal criteria are defined and based on structure condition rating (from inspections), criticality, consequence and temporary short-term management strategies. The overarching prioritisation methodology subscribed to the probability and consequence of failure, as well as the criticality of the bridge to the overall network. This is in keeping with suitable risk management and lifecycle optimization practices. The structures replaced within the required timeframe of this audit were justifiable, based on condition, age, load deficiencies and criticality. We note that a number of un-documented processes occur in the prioritisation process, including the inspection of the nominated asset, assessment of asset safety and engineering judgement by the Principal Structures Engineer. Prioritisation is required because of the sheer number of assets in condition state 4 that require replacement but are unable to be addressed in one fiscal year. Assets are selected for replacement due to construction type, location and similarity of repairs, a process which is partially documented in the Structures Policy. The final replacement list is put forward by the Principal Engineer. No inspection reports of bridges were sighted, and Aurizon Network advised that all bridges were in good condition, with culverts being the predominant replacement priority of the network.

31 Designs were in accordance with appropriate design standards AS5100, AS1597, AS4678 and others, and seek to incorporate safety-in-design and whole-of-life considerations. Design life standards are defined in the Asset Maintenance and Renewal Policy. Gold-plating and over-design were not observed for the projects reviewed; rather the structures team prefers to keep an asset in service for as long as possible to minimise expenditure and maximise life, only replacing structures that are critical and at risk of failure. Emergency replacement works also comprise this budget, which is based on failure of the asset prior to its replacement, which enacts an emergency response to ensure the continuing service of the line. Tender evaluation documentation and approvals were observed for some packages of work, but not all. Issued-for-construction drawings were observed for most culverts. In addition to the Project Completion Reports, evidence of completed construction included photos, Issued-for-construction drawings marked up with final survey points, Practical Completion certificates and Audit and Compliance Check Sheet. Complete records for all construction were not sighted for every asset. Lessons learned and future improvements were noted. Some minor discrepancies were identified during the course of the assessment: The inclusion of items into an Asset Management budget (such as Insurance and levies, Approvals) remained unexplained and not documented. It is unclear whether these items belong to capital or operational expenditure. Approval signatures not sighted on capital expenditure requests (Structures Renewal FY17 IAR, Structures Renewal FY17 CFR, IV00177 Structures Renewal FY17) No signature or sign-off date on Project Closure Reports. In summary, Aurizon Network demonstrated the need for the replacement of assets in this project (due to condition, age of asset and load capacity deficiency), the prioritisation/selection of the assets to be replaced (via a risk assessment process dependent on the probability, consequence and criticality of failure), the justification for the funding (based on previous capital expenditure programs), the appropriate methodology proposed for structure replacement, and the completion of the program as required. Designs and construction solutions were of suitable quality in keeping with Australian standards and best practice. The standard is assessed as prudent. The documentation quality to inform this assessment of standard is high. This project is part of a larger program of works over numerous financial years. Aurizon Network s procurement process was adequately followed, with works competitively tendered. Pre and post-award documentation have been sighted for all locations and the work has been delivered under budget. The design costs to address construction defects ( ) have not been included as part of the claim. The project is considered prudent in cost. The documentation to inform this assessment of cost is high quality.

32 4.2.10 IV.00399 Cyclone Debbie Works Project Overview On 28 March 2017, Tropical Cyclone Debbie hit the Queensland coastline south of Bowen, bringing an extended period of heavy rainfall and high winds to northern and central Queensland. Widespread daily rainfall totals of 150-200mm and wind speeds of 263km/h were recorded in certain areas. This weather event damaged infrastructure across each of the Newlands, Goonyella, Blackwater and Moura Systems, which impaired Aurizon Network s ability to provide Access across the entire Central Queensland Coal Network (CQCN). Systems were closed for periods ranging from 10 to 30 days, with Goonyella the worst affected. During this closure time and following the reopening of the network to traffic, significant repairs were performed across all four (4) systems. While the primary objective of the works conducted on the CQCN was to restore the systems to their pre-weather event condition, standard asset renewal methodology was followed, such as restoring assets to an increased standard where current engineering standards, more recent weather and hydrology information, latest flood mitigation strategies, total cost analysis and customer requirements supported it. The criteria applied by Aurizon Network to define works scopes as capital expenditure are: 1. the total materials cost (incurred or to be incurred) for that work order is greater than $40,000; 2. for linear assets, the physical distance over which the renewal of infrastructure is required to be undertaken for that activity, is greater than 75 metres; and 3. the work is not ballast undercutting. Review Summary Scope a Capital Expenditure $8.2M Standard a Impact of findings on $- Cost a Total accepted $8.2M Review The claim includes a significant number of small scopes of work to address the damage caused by Cyclone Debbie and the subsequent flooding. Aurizon Network used existing contracts with pre-agreed labour rates to procure the works, with the exception of damage requiring highly specialised consultants. Where possible, contractors were procured who had with experience working on the network and familiarity with the sites and safety requirements. We have reviewed a sample of projects:

33 BW-013 Work scope included signalling equipment repairs between 90.000 and 102.500 km in the Blackwater System, where flood waters caused damage to trackside signalling equipment and location cases. Recovery works involved cleaning and repairing damaged signalling equipment and returning to working operation. Based on the location case damage report and photos, the scope of work is considered prudent. The standard of works outlined in the Client Requirements Brief was to Aurizon Standards and testing certificates have been sighted. The standard of work is assessed as prudent. The project was completed by internal resources due to knowledge of equipment and Aurizon Network requirements. The equipment used was from Aurizon Network s normal procurement process for access spare equipment. Cost is assessed as prudent. Figure 4 Before and after flood works

34 GA-004B This scope of works includes embankment stabilisation works and reinstatement of rock fall fencing for 37.345 to 37.540 km in the Goonyella system. We note that Black Mountain is a high risk area and the installation of a rockfall mesh is a cost-effective measure when compared with other methods such as shotcrete with steel mesh and rock bolts. We consider that the project scope is prudent. The RPEQ design certification of the landslide remediation has been sighted and the design pack includes: RPEQ letter Form 15 design certification Construction specification Design drawings (project plan, sections, scaling plans, general details). We assess the project standard as prudent. The specialist nature of this work required the direct procurement of Geovert to enable the works to be completed safely and efficiently. Geovert were one of three specialists in Australia able to do the work required. The specialist Geovert resources were in Kuranda working for Queensland Rail at the time and were able to be diverted to perform recovery works. Other alternative specialists would have had to supplement their teams with resources from outside Australia. There was no standing offer arrangement in place as the business has limited requirement for these skills. The installation of the mesh minimises the whole of life cost of the location, and as such, the cost is considered prudent. Figure 5 Before and after flood works

35 GA-084 GA-087 The work scope in the Goonyella system was for: GA-084 (43.110 to 43.130 km): access major erosion report GA-087 (43.800 km): major access road repairs and repairing a large scour/failure on the downhill edge. Photos show the extent of the flood damage which could impact the stability of the embankment. The scope of the remediation work is assessed as prudent, as the repairs are warranted. WSP was engaged as the engineering consultant for both locations. A design report was sighted which provides an interpretation of the site investigation results, slope stability analyses and recommended temporary and permanent remedial works. The standard is assessed as prudent. Aurizon Network also sought a third party opinion from EDG Consulting on the remediation scheme proposed by WSP for GA-087. To reduce the construction cost for the remediation works, EDG Consulting recommended that Aurizon Network construct restoration to the condition prior to failure rather than reconstruct to current design standards. Fixed panel rates were used for materials and labour. Costs are assessed as prudent. Figure 6 Before flood works and during repair (GA-084) Figure 7 Before flood works and during repair (GA-087)

36 MA-064 Work scope was to address track washout (ballast, flood-rock and formation) between 60.800 to 61.000 km in the Moura System. The Detailed Damage Inspection Reports outline that the remediation included removing debris off the track, reconstructing formation, replacing/undercutting ballast, renewing a face, removing flood rock track from the neighbouring property, and installing flood rock. The scope is assessed as prudent after the review of the before and after photos. The standard of works outlined in the Client Requirements Brief was to Aurizon Standards and is considered appropriate. Testing and project completion documentation has been sighted. The standard of work is assessed as prudent. Existing standing offer arrangements were used for the civil contractors Rhomberg and Sterling, reflecting practice in line with the Aurizon PCP. Based on this, we consider the project cost as prudent. Figure 8 Before and after flood works In summary: The scope has been assessed as prudent to a high level of documentation quality The standard has been assessed as prudent as the works are consistent with Aurizon Standards. The documentation quality to inform this assessment is high. The works have typically used panel rates works which represent value for money. We note that AECOM reviewed similar projects included in Aurizon Network s Cyclone Debbie Flood, and found that procurement and program management were undertaken efficiently in those projects, allowing for the time pressure the projects were under. Project cost is assessed as prudent with a medium level of documentation quality as informal documentation has been used.

37 4.2.11 IV.00359 Goonyella Flood Project Overview In February 2016, Aurizon Network s Goonyella System suffered extensive flood damage as a result of a severe weather event. On 5 February the weather event brought heavy rainfall which subsequently led to the flooding and track washouts across the Goonyella system. The event caused minor and major washouts of track formation and ballast, subsequently removing sleepers and rail from design alignment. Differing methods of repairs were undertaken through the system to allow for the passage of traffic at reduced speeds. Review Summary Scope a Capital Expenditure $5.8M Standard a Impact of findings on $- Cost a Total accepted $5.8M Review The Goonyella Flood works capital claim is for a two locations in the Goonyella system. They have been nominated in the Capital Funding Request document and are summarised below. This capital claim excludes the incremental maintenance costs incurred as a direct result of the flood which formed part of a Review Event approved by the QCA in May 2017 for $1.9 million (Aurizon Investment Committee Presentation, 8 June 2017). The scope of works was reviewed for each site location: GY01 & GY02 The scope of work involved reconstruction of the track between 138.700 and 139.175 km. The works included debris removal, formation reconstruction, ballast replacement, track slewing, resurfacing and track stabilisation, rail re-stressing, access road construction, mast foundation checks and site clean-up. GY05 & GY06 The scope of work involved reconstruction of the track between 156.332 and 156.511 km. The works included debris removal, formation reconstruction, ballast replacement, track slewing, resurfacing and track stabilisation, rail re-stressing, access road construction, mast foundation checks and site clean-up Based on the before and after photos, the work was considered necessary to restore Access to the network. The scope is considered prudent with a high level of documentation quality.