Dr SOUTHCOTT(11.44 a.m.) —In responding to the comments of the member for Holt (Mr Gareth Evans), it is worth noting that he mentioned the Commonwealth dental program. That program was an initiative that was announced by the previous Prime Minister, Mr Keating, in the 1993 election campaign. It was initially planned to reduce the waiting lists that were existing in the state dental schemes. For 93 years Australia had not had a Commonwealth dental scheme. In fact, for 10 years of the previous Labor government there was no Commonwealth involvement in the dental area.

The Payment of Tax Receipts (Victoria) Bill is formalising for the Commonwealth what has been a very elegant solution in solving a dispute which has lasted for five years and which relates back to contracts that were determined in the late 1960s. It involves a simultaneous exchange of cheques between three different entities. Gascor, the utility for gas in Victoria, has resolved its longstanding dispute with Esso and BHP. As a result of that, it will be making to BHP and Esso a lump sum settlement payment of $1.022 billion, which will be assessable for rent tax and company tax. BHP and Esso, which will be assessed for that tax, will pay $625 million in tax to the Commonwealth. Most of that will be windfall tax we were not expecting, but the $70 million which is not part of the windfall will be used to reduce the budget deficit. The Commonwealth will be paying $555 million to Victoria, passing on the windfall tax it has received from Esso and BHP.

The contracts, established for production in Bass Strait, were between Esso and BHP and the Victorian state utilities, the then SEC and the Gas and Fuel Corporation but the now Generation Victoria and Gascor respectively. Those contracts said that Esso and BHP were required to sell to only the Victorian state utilities and that no other suppliers could provide gas to Gascor and Generation Victoria. These were just two restrictions that resulted from the contracts established in the late 1960s. That has led to a large surplus of gas in the Bass Strait area. BHP and Esso estimate they could produce something like three times more gas than they currently are, but there has never been any incentive because all they were doing was producing for Victoria.

Those contracts had a life of 35 years, and they were established in 1969. At that time, Victoria and the producers, Esso and BHP, decided that indirect taxes levied on supply and production could be passed on to the buyers: the utilities of Victoria. The monopoly that has existed with Gascor, the entity previously known as the Gas and Fuel Corporation, and Esso and BHP has really given them little incentive to develop the gas fields in Bass Strait, because they could supply gas to only Victoria—and Victoria is a mature market. The prices in those contracts were established prior to the two oil shocks of the 1970s. They were established in 1969 and fixed for 35 years.

As the member for Holt mentioned, in 1990 the previous Labor government decided to abolish the complex excise and royalty regimes that had existed in the area of gas production and to substitute them with a petrol resource rent tax, which taxed profits on offshore oil and gas production at about 40 per cent. Since 1990, BHP and Esso have been paying that tax, although the contract did mention the contract initially signed so that they could pass it on to the state government utilities. They have been sending the bills to Victoria, and this is what the dispute has been all about.

The settlement is, at just over $1 billion, roughly the size of the bills unpaid for resource rent tax. When we take into account the difference between the lump sum payment and the amount the Commonwealth will appropriate to Victoria through this bill, the settlement will cost Victoria about $425 million. But it removes what the Auditor-General of Victoria has estimated as a $3 billion future exposure for the lifetime of this contract, based on their requirements under the initial contracts. Alan Stockdale, the Treasurer of Victoria, has said that the settlement of this dispute will not affect current gas prices because Gascor and Generation Vic toria will be increasing their buyings rather than passing the $425 million on to consumers. Net liabilities of those utilities will increase from $600 million to approximately $1 billion.

The reason for the great difference between the contract price, which was 27c per gigajoule, and the market price, which was $4.14 per gigajoule, is that the contract price was established in contracts set up prior to the energy crises of the 1970s. The Victorian government has pocketed the difference. The new contracts to be drawn up between BHP and Esso and the state government of Victoria will run from 2001 to 2009. They will be changed a lot more often; there will not be any 35-year contracts in the future. Also, those contracts will be market based.

An article in today's Financial Review headed `What a Gas! Everyone Wins!' describes this as a `breakthrough' for thousands of Australian businesses being crippled by high energy costs. This solution has removed the last major obstruction to the creation of just one gas market in south-eastern Australia. What it will do is decrease the gas prices paid by consumers and by businesses in New South Wales. It will also be able to create new investment. For example, BHP has proposed building a pipeline from Longford to Sydney. Previously, the situation with the intrastate monopolies has meant that was not viable. It will now be viable.

Another proposal that has been floated is one linking the Victorian and New South Wales grids with a pipeline between Albury and Wagga Wagga. The solution will allow the Victorian government to move the gas industry to a more competitive structure. For the Commonwealth government, there are benefits as well. The restrictions that this removes will open up the gasfields and will lead to an increase in resource rent tax over the next 10 years. In fact, it has been estimated that this could bring in an additional $300 million in income per year from the resource rent tax, just due to the expansion that is possible in the Bass Strait oilfields.

As I said before, South Australia, New South Wales and Victoria have all been regulated, intrastate monopolies. The Santos- led group has been supplying Cooper Basin gas to South Australia and New South Wales, and BHP and Esso have been supplying gas to Victoria. The solution will enable Victoria to meet its commitments, agreed to at the COAG meeting, to establish a competitive national gas market. Those commitments have been dependent upon Victoria achieving a resolution to this dispute.

The contracts which were established in the late 1960s will now be reformed and will remove the restrictions on Esso-BHP selling gas to end consumers in Victoria. They will also remove the obligation on Gascor to take gas exclusively from Esso-BHP to supply all of Victoria which is connected with the Longford pipeline. They also remove restrictions on Esso-BHP to build pipelines in Victoria and also to market gas in the other states.

While initially this will not see a great change—I imagine that Esso-BHP will still largely be supplying gas to Victoria, and the Cooper Basin group will still supply gas to New South Wales and South Australia—in the long term we will see a more competitive situation which will allow an expansion of gas production in Australia and in the long term this solution should lead to lower gas prices for consumers and businesses. I commend this bill to the House.

Mr MILES (Braddon—Parliamentary Secretary (Cabinet) to the Prime Minister) (11.55 a.m.)—in reply—I would like to thank the opposition for its cooperation in regard to the Payment of Tax Receipts (Victoria) Bill 1996. It is unusual for legislation to be brought in, the second reading to be debated immediately and for it then to be passed through the House. So we appreciate that cooperation. I think everybody recognises that this is in the best interests of Australian business and, of course, intergovernmental relationships.

The opposition spokesperson on Treasury matters, the honourable member for Holt (Mr Gareth Evans), mentioned section 51C as being anti-competitive. The government is satisfied that it is pro-competitive and, in the broader scheme of things concerning 51C, he was really referring to a legal technicality. The revised arrangements which this will put in place, we believe, are certainly much better than what was in place under the previous circumstances. Without any further comment, I close the debate.

Question resolved in the affirmative.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.