Work starts on Australia's 'missing link' railway

Prime Minister John Howard turns the first sod for the new rail link from Alice Springs north to Darwin

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Work on a new north-south rail link in the Australian Outback got underway Tuesday with a ceremonial turning of the first sod by Prime Minister John Howard.

The 1400-kilometer line from Alice Springs in central Australia to the northern city of Darwin will cost about $660 million and should be finished by early 2004.

It will complete the missing link in rail transport between Australia's most populated regions in the south-east of the continent and Darwin, its closest port to South-East Asian markets.

The line has been mooted for 100 years, but earlier attempts to get the project moving were hampered by economic and financing concerns, plus political and interstate rivalries.

Financial aid from three governments

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The line is only going ahead now because the Australian government, the South Australian state government and the Northern Territory government between them are putting in up to $250 million.

Financial institutions will lend about $160 million.

About $250 million of equity is coming from the members of the Asia Pacific Transport Ltd consortium, which will build, own and operate the line for 50 years before transferring it to the government in 2051.

Speaking at a railhead ceremony in Alice Springs on Tuesday, Howard called it a "great moment in history" that would deliver enormous benefits and would provide a major trade route from Adelaide to Darwin.

Some members of the local Aboriginal community were on hand to protest against Howard's record on race relations.

Randy Harl, chief executive of one of the consortium partners, Kellogg Brown & Root, told CNN he was confident that daily freight trains would be running between Adelaide and Darwin by early 2004.

Trains to make journey in 48 hours

Members of the local Aboriginal community turned out to protest Howard's record on reconciliation

He said trains would make the journey in 48 hours and link up with regular shipping services to Asia from Darwin's East Arm Port.

Harl said while the 1400-kilometer line had all sorts of challenges from river crossings to climatic extremes, it was "the kind of thing that we are good at doing." Kellogg Brown & Root, which is part of the U.S.-based Halliburton Group, has about a 20 percent equity stake in the project.

Harl said the timing for the project was right. The regional downturn meant that material costs were lower.

Harl said his company shared the confidence of the Northern Territory government that a lot of economic development was on the horizon.

Prospects improve for Timor Gap gas projects

He said the group's involvement in big resources projects such as the North West Shelf liquefied natural gas (LNG) fields being developed by Woodside meant that it was "deeply interested" in oil and gas proposals for the Timor Gap, the stretch of water separating north Australia from the island of Timor.

The chances of oil and gas projects in the Timor Gap going ahead have firmed in recent days following the signing of an agreement on revenue sharing between Australia and the fledgling administration of East Timor.

The rail line is purely a freight operation. Harl believes that his group will capture a high percentage of the freight that is now moved by "road trains" -- prime movers hauling three or more trailers -- between Alice Springs and Darwin.

"We expect intense competition with road transport in the beginning, but long-term, the train is the more economic proposition," he said.

Critics of the rail project say it is a waste of national resources and, with one train a day each way, will handle only a minute proportion of Australia's trade with Asia.

They say an alternative rail line running north from the southern city of Melbourne to Queensland and the Northern Territory would make better economic sense.

But politicians cite defense and "nation building" issues as additional factors in pushing ahead with the Darwin-Alice Springs missing link.