LEWIS, Mr Kevin, General Manager, Human Resources, Rio Tinto Iron Ore

MARTIN, Mr John, Manager, Health, Safety, Environment and Communities, Rio Tinto Coal Australia

O'NEILL, Mr Mark, Chief Adviser, Government Relations, Rio Tinto

[09:31]

CHAIR: Welcome. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We have received a submission from you and we thank you for that. I must say that we have had some positive comment about Rio Tinto at some of our hearings, particularly in Western Australia, and some comment that there have been substantive changes in company attitude from some decades ago. So we pass on that information. Would you like to make an opening statement before we ask questions based on your submission?

Mr O'Neill : Thank you. First of all, we welcome the opportunity to be here today. We really do regard this inquiry as important, from a number of perspectives. It is important because finding and retaining the skilled people needed to deliver our projects and run our operations is a major challenge for the company, as it is across the entire sector, as I am sure you are aware. It is also important for our employees. They all work hard and often in very challenging conditions, and therefore they are entitled to workplace and living arrangements that meet their needs and those of their families. It is also important for the regional communities that are impacted, both positively and negatively, by these sorts of arrangements by major resource developments.

Rio Tinto's projects and operations in Australia span a number of commodities and a diverse range of geographic locations, many of which are remote from capital cities. Workforce arrangements, including FIFO and DIDO, vary across the group and are determined by the particular circumstances applying at individual operations and growth projects. I want to assure the committee that Rio Tinto does seek to support and contribute to sustainable and resilient communities in regions where we operate. This engagement is broad and deep, with one example being the Clermont preferred future strategy, which is referenced in our submission—and John here lives in Clermont, so he can talk more about that. We support local employment wherever possible and continue to invest strongly in communities associated with our operations. In this regard it is also worth noting—and we are proud of this—that we have more Indigenous Australians as part of our workforce than any other private sector employer in the country. In addition to this, our iron ore division has awarded over $1 billion worth of contracts to Aboriginal joint ventures and direct contractors for our Pilbara expansion projects over the last two years alone. We are particularly proud of that because they are real jobs in the real economy.

Notwithstanding this commitment to our local communities there are very good reasons why Rio Tinto has introduced FIFO/DIDO workforce arrangements in some areas and why we believe this will be an essential for each of the resources sector operations in Australia for the foreseeable future. Many of these drivers have already been very well canvassed before the committee: the high demand and resulting competition for labour across the sector, particularly during construction phases; a lack of suitably skilled local people in many regions; a lack of suitable accommodation, services and infrastructure; and the strong preference of many employees and their families to live in areas with greater amenities or existing social and familial connections.

While not wanting to gloss over the undoubted challenges, FIFO/DIDO if properly managed can have many positive benefits for both host and source communities. In particular, these sorts of arrangements can and, in many cases, do contribute significantly to the economic and social circumstances of host communities. FIFO/DIDO programs also provide important opportunities for job seekers living in regional communities in non-mining areas where they may have limited local options, thus enabling the economic benefits of mining to be spread more widely throughout regional Australia. In Western Australia, for example, Rio Tinto iron ore's regional FIFO program is providing much-needed employment opportunities for a growing number of communities across the state, including Indigenous communities. Some examples of this are also outlined in our submission.

As you have already heard from others, competition for labour has meant that employees are benefiting from better conditions. Shift and roster patterns are being designed to allow more flexibility and better work-life balance for commute employees. High quality accommodation and recreation facilities are being offered to ensure that employees have comfortable, healthy and safe living arrangements while away from home. Rio Tinto does acknowledge concerns in some areas about the growth of these sorts of arrangements. However, we do believe that these issues can and should be managed through a collaborative approach between industry, regional communities, governments and other stakeholders.

That brings me to what seems to be one of the key issues before the committee: how should vital community infrastructure—health services, education, emergency services, housing and so on—be provided in regional areas under pressure from resources sector expansion and, importantly, who should pay? There is no doubt that this is a perennial issue—it is not new to the mining boom—and the answers are not straightforward. However, it is worth noting that governments do have a responsibility to adjust to changes in demographics and the geographic demand for the basic services they have traditionally been responsible for delivering. Government revenues across the board have increased along with the output of the resources sector. However, it is less clear that service delivery in some areas has kept pace with that. In 2011, for example, Rio Tinto paid around $5 billion in corporate income tax and over $2 billion in state royalties. And I understand that overall, in the past decade or so, state royalties have increased four to five times in line with increased output from the sector.

CHAIR: That is not in terms of a percentage—you are talking about bulk?

Mr O'Neill : Yes, multiples. Finally, much has been said, including in submissions to this inquiry, about the pipeline of resources sector investment coming Australia's way. Indeed, Rio Tinto is a big part of that story with billions of dollars worth of projects underway or committed. Demand for our commodities represents a huge opportunity for Australia. However, it is also true that the cost of building and operating projects in Australia has risen significantly in recent times. There has been plenty of recent public commentary about the need for policymakers to be conscious of the need to safeguard the competitiveness of Australia as an investment destination. That needs to be very much borne in mind, as I am sure it will be, when considering the appropriate policy responses to the important issues before this inquiry. Imposing further costs and complexities on an industry already under significant pressure could seriously impact on the sector's ability to deliver the projects that are needed to underpin Australia's future prosperity. Thank you. We welcome your questions.

Ms LIVERMORE: Thanks for your submission. It is excellent—very comprehensive and very real. The case studies really do illustrate the points that you are making. I want to focus on the examples you have given in response to No. 3 in the terms of reference. You talk a lot about the consultation that you go through and the way the company plans and interacts with communities, whether it is building accommodation in the case of WA or whether it is building and locating a FIFO workforce. So you talk about the processes that your company goes through. Can you talk about how that planning and consultation interacts with any state or federal government processes that go on and, included in that, any improvements that you think need to happen in those government planning processes that would assist you in what you are trying to do with your consultation and planning?

Mr O'Neill : I will answer first and then Kevin and John might like to add their west and east coast perspectives, which could be quite different. For any major project, and I am sure you will understand this particularly after serving on this committee, the planning process is lengthy and very complex. There are environmental approvals, but there is also an enormous amount of thought that goes into major projects in terms of accessing a workforce, suppliers and so on. So it is a very complex planning process and projects usually do not get approval until a long way down that path, because it is the planning process that can actually illuminate what the final cost of a project might be. So you need a very complicated and very complete process of discovery, and one of the key factors that you consider is workforce needs.

Over a period of time I guess it is fair to say that the workforce costs in Australia have escalated. So it is now very front of mind when people are planning projects and it is a very significant part of determining whether a project goes ahead. But during that process in all of our projects there is very early engagement with the first level of government, which is local government if we are taking a bottom-up approach. We have got better at that over a period of time. It is a particular issue on the east coast rather than in the west, but we do engage local government pretty early and we do share information. We also, of course, have a number of state approval processes to go through. Again, that involves some coordinated engagement. Federal government approvals tend to be more about environmental approvals and so on, so perhaps we do not get into such detail with the federal government.

I would say that from an individual company perspective that process works quite well, although people will always complain about the amount of time it takes. But I think the issues here are really about how government assesses the cumulative issues that arise. When you have one company that may be engaging with the local government, state government and federal government on a single project or even a couple of projects, that is fine. But when you have multiple projects with different players, all attempting to approve and commence projects in a similar time frame, that is when it really gets complicated. I suspect that the processes for coordinating all of that are probably not adequate.

Ms LIVERMORE: Do you have any suggestions in that regard? I represent the Bowen Basin and Clermont in my town. I really endorse what you have said about the Clermont Preferred Futures Project. I am in a community that is feeling quite buffeted by the scale of development and the pace of change. I think that there is probably a desire for someone to be able to map out what is going to happen and what this is going to look like in the next 10 or 15 years. If there are any suggestions you would have in terms of how that could be achieved and perhaps what level of government should take the lead on that sort of process, that would be quite helpful.

Mr O'Neill : I have one further comment, I guess. It is difficult to envisage a one-stop shop given that there are multiple levels of government involved.

Ms LIVERMORE: What is a realistic time frame? If you are sitting companies down and saying, 'Let's visualise a road map,' what is a realistic time frame to expect companies to talk about meaningfully in terms of their projected development?

Mr O'Neill : It is difficult when things are being dictated by the external demand of customers. Projects often become viable almost overnight with changes in commodity prices, so it is difficult. I do not want to borrow models from other countries with other political systems, but it seems to me that a three-year to five-year planning horizon in this environment is about as long as is sensible in the first instance and maybe then there could be a visionary look at what might be the case in 10, 15 and 20 years time given how we are projecting demand for Australia's commodities. But initially it would be a three-year to five-year time frame. We know that there is a lot of work being done federally with this forward-looking stuff.

We know the state governments are trying to get a handle on it and local governments are in some areas. The problem at the moment is how you get all of those relevant agencies talking to each other. Perhaps there is a need for some sort of central—I do not want to say 'command and control'. Certainly somebody who has the helicopter view of what is happening in every area in Australia is lacking currently, so some sort of advisory body that is able to keep tabs on that would not be a bad idea.

Mr Martin : My thought would be the road map that the Clermont Preferred Futures Project has mapped out. You talked about the cumulative effects in communities, and I have certainly seen those effects in communities where I have lived. One of the key aspects of that work was the partnering and engagement with local council. We would certainly welcome more players, whether directly related to mining or other industries. Council are keen to have those people as partners on board. Rather than having individual arrangements between councils and companies it is trying to have a broad local government arrangement with the key industries and additional mining players. That is certainly something that could happen at Clermont.

CHAIR: Talking about Clermont, in the Isaac Regional Council—and I think there has been a bit of a turnover in councillors since we were there; I hope we did not cause that!—there was no doubt a lot of feeling around issues of land and land release et cetera and massive growth, fly-in fly-out mining camps and all of those issues hitting a local government area and not feeling as though they had the rate base to take care of that. In fact, they were looking at flying in and flying out council workers because they could not get workers; and, even if they could, they could not afford to accommodate them in the town.

Given the Clermont example and the futures arrangement you have with Isaac council, how do you address it when you see their perspective? We are hearing that McDonald's in Mount Isa, for instance, is flying in and flying out burger workers. There are myriad examples. In Port Hedland there are schoolteachers who love their community but cannot afford to live there anymore. It is this other impact of the high-speed economy on the slow-speed economy where we are getting a lot of issues raised.

Mr Martin : It is certainly a key issue that was identified in the preferred futures work at Clermont. I suppose there is a two-pronged approach with regard to that program. The first one is Rio Tinto supporting private investment in housing in the local community. We have done that by basically signing up to leasing arrangements to provide developers with some security. A key part of that program is also affordable housing. We are talking about housing that is set aside for medium-income workers who are there to provide services, whether it is health, local government or private, who otherwise are being pushed out of the community because of housing, as you are suggesting. That is certainly a key aspect of that. Rio Tinto has directly donated some land and the Isaac Regional Council has established a trust around affordable housing. We have also been very keen only to commit to 50 per cent of the private development to allow other service providers and other community people to have access to housing.

CHAIR: When you are talking about providing long-term leases to developers so they can go ahead and develop private-sector accommodation, how do you reconcile that with some of the areas where there are long-term arrangements being signed in some of the camps as well? We are finding this friction between the need for a camp in terms of the construction period and the economics of the camp demanding that the camp be full for as long as possible, on the other side of the equation having the community asking for long-term leases to establish residential accommodation. How do you reconcile those two? Do you have any examples where you can?

Mr Martin : In the preferred futures work the balance between residential and FIFO was certainly a key aspect. The commitment was around a 50/50 split between FIFO and residential. In the Clermont community specifically there is change, with the Blair Athol mine heading towards closure and the Clermont mine ramping up the need for additional workforce. It was clear that the community would not be able to support that ramp up immediately, so Rio Tinto continue to work there to bring on residential development with council and with developers to have a staged approach to increasing the residential aspect.

As far as economies at camps, at the sorts of ratios we have talked about in the preferred futures work, there is no particular issue with that. On a broader scale I am not really in a position to comment around the Murrumba situation.

Mr Lewis : It is certainly our preference and view over the long-term in the Pilbara that our workforce up in Karratha and Dampier be predominantly residential. There is an imbalance at the moment as we go through a construction phase, but our long-term view is we will build as many houses as we need there and as we can, but land supply and infrastructure is always going to take some time to catch up.

CHAIR: Which is the cheaper workforce? We are getting mixed numbers.

Mr Lewis : To be honest, I could not give you an accurate answer to that question. It would depend. There are a variety of factors—rosters, costs of building and all those sorts of things—that would trade off, and it would be hard to get to a very accurate answer, but we are committed to both being the longer-term solution. We will have FIFO operations which are very remote from any towns, and there will continue to be FIFO operations. Where we have towns, our preference is to have predominantly residential workforces in those towns for those operations.

Mr TEHAN: Would it be fair to say that there are probably more economies of scale on the construction side, where you need a large workforce for a short amount of time to do FIFO, but then on the operational side it is more beneficial to have it residential? Or is that too simplistic?

Mr Lewis : Over the longer term, it is probably more cost-effective to have an operational workforce that is residential—over the years, once construction costs are taken into account. But that is our aim for our operations that are based around residential towns. For other operations or mines that are many kilometres from any residential town, FIFO will not always be the only economic option, given the mine life and that sort of thing, for operating those mines.

Mr TEHAN: In terms of mine operation, is it easy or difficult to plan for the life of the mine, given that a mine can change dramatically over time? In the area that I come from, there is a goldmine, for instance, and the dollar, the gold commodity price and their ability to find ore very much determine whether the mine is going to close in a year or have another 15 years of life. Determining the lifespan of these projects is not as straightforward as some might think.

Mr Lewis : Obviously, at the start of a mine, we would plan it on the basis of a certain mine life that the mining engineers and geologists will assure us is correct. But these things do change over time as new deposits are found in the area and as the economics of some of those deposits change, so mine lives do tend to be extended over time.

Mr TEHAN: Would the same be said for investment decisions? The investment climate a year ago was very different from the investment climate now and therefore, in terms of workforce planning and things like that, it is not quite as straightforward as you might think. You might be all set to make a large investment decision but then, if economic circumstances change, you might delay that for five years or put it on hold, especially with the dollars involved in getting these up and running.

Mr Lewis : It is certainly the case that to get final approval to go ahead with any major investment in or expansion of a mine is a multi-gated process, and during that process of study—through approval, feasibility et cetera—the economic conditions might change and affect the final investment decisions.

Mr TEHAN: Thanks.

Mr McCORMACK: In your case study of the ERA Ranger mine, you say that the number of houses at Jabiru in the Northern Territory cannot be increased at this point. Can you elaborate on why the number of houses cannot be increased?

Mr O'Neill : The Ranger mine is governed by a number of agreements, including agreements with the traditional owners there—Ranger is actually in the middle of Kakadu National Park, although the land that it is on and that Jabiru is on is not actually part of the park. But there is a footprint that was agreed for Jabiru, so there is a physical constraint. There have also been some longstanding discussions underway to hand more of the ownership of the town back to the traditional owners. So it is a unique situation there. It is not a matter of saying, 'There's another big area of land there.' It is really very constrained, for a number of reasons.

Mr McCORMACK: Okay. I just thought it might have been similar to the Moranbah exercise.

Mr O'Neill : No, no; it is not. It is significantly to do with the history of land tenure up there; and, while Jabiru was created as a company town, it is very much a town where the traditional owners have a very significant stake—and quite rightly so—so it is not really the company's decision.

Mr McCORMACK: Sure. Thank you.

Ms LIVERMORE: I have two quick questions. Firstly, how does your company map its impact or footprint?

I see where you have outlined the number of workers you would have flying out of, say, Busselton or Broome. How do you map your impact and manage that? The example I have been familiar with is that you cannot really separate Mackay from what happens in the Bowen Basin; but is it necessarily officially a mining town or not? Could you just talk about the way your mining company approaches that question?

I have a second question too. In the examples that you have given, the successful outcomes that you have described seem to be where you have worked very closely and in strong partnership with local governments. In your experience, do local governments have the appropriate powers and authority that they need to engage with companies and achieve those win-win outcomes for communities and the mining developments that are happening around them, or do they need more powers and more capacity?

Mr O'Neill : Just before we have a go at that—and it might be a case of talking about it from the west coast and the east coast—by 'mapping impact', do you mean the economic impact or—

Ms LIVERMORE: The social impact and the economic impact, yes.

Mr O'Neill : Okay. Kevin, do you want to—

Mr Lewis : In terms of mapping impact, we have very detailed workforce plans for the next five years in the Pilbara and how the expansions will ramp up: where they are, where we will need workforces, whether those workforces are going to be in FIFO camps or whether they will be residential. In terms of where they will be FIFO, as you mentioned we have our regional FIFO program where we are working very closely with the communities that we do regional FIFO from, and they have been very supportive. Albany, Exmouth, Derby, Broome and some other communities have been very supportive of our regional FIFO programs, and we are certainly working on an ongoing basis for them to understand how many employees we are looking at and how many of them might be sourced from that regional community. So there is that ongoing connection.

Ms LIVERMORE: I guess I was thinking that traditionally mining companies would take some responsibility for what happened in the town adjacent to their mine—they would build a community centre or fund a community development officer at the council and those sorts of things. If you start having significant FIFO workforces, at what point do you cross over and start accepting some sort of responsibility for Busselton or Broome or wherever a proportion of your workforce comes from in terms of, 'Hang on—that council needs a bigger carpark for their airport,' or whatever it might be? How do you manage that?

Mr Lewis : That is certainly a piece of work we are doing at the moment. We have about 540 employees who do what we would call regional FIFO—flying in from those communities—and a fair chunk of those would be Indigenous employees. We have appointed someone in our communities team whose role is to work with those communities that we are sourcing people from to understand what those communities' needs are and how we can work with them to help them on just those sorts of things you have talked about. So we are just developing a strategy in that area.

Ms LIVERMORE: So obviously you are not shying away from the issue.

Mr O'Neill : It is important to add that often the FIFO arrangements—and this is particularly the case in WA—have resulted from particular local governments approaching the company and saying, 'Would you mind doing FIFO out of our place?' because there is an employment issue and because they want to retain people in the community. So, often, you have that early engagement from the council's perspective because they can see benefit. John, have you got some comment on—

Mr Martin : You mentioned Mackay. From our perspective we have a limited FIFO workforce out of Mackay, but I think you have touched on the community impacts, and that is something that we are certainly mindful of. Rio Tinto is involved with the Bowen Basin leadership group, particularly around health initiatives for the broader Bowen Basin, so we are mindful of the impact we have on the broader community—and not just across Clermont; it touches the whole Bowen Basin region. Certainly we are mindful of the impacts we have, and we continue to understand—though less formally at this stage—what impacts we do have.

Mr O'Neill : I am not sure that we have answered fully the second part of the question as to the power and authority of local government and if it is appropriate. I think it is really quite difficult to comment on that. Certainly we do have a very significant engagement with local government but it seems to me that that is an argument between state and local governments as much as anything where a state government has got a certain authority. Obviously, the decisions that state governments do make profoundly impact on local government. I imagine that state governments would probably argue that local government has too much power—and vice versa. I am not sure that we could really give you a learned view on that.

CHAIR: We will wrap it up there. Thank you very much, gentlemen, for taking the time. There will be a copy of the Hansard issued to you. If there are any issues with that, please let us know—and also if there are any issues that you would like to follow up by way of recommendations. We have run out of time but I think we can glean them from your submission anyway. This is a Commonwealth committee and there are limited powers in terms of what we are talking about, being local government and state government, as was said a minute ago. This committee has limited powers in terms of what it could recommend, but if there are things that you think would be beneficial, particularly as to those friction points by way of policy, we would like to follow that up.

Mr O'Neill : Thank you, Chair, and we thank the committee members.