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Wednesday, 15 September 1937

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Minister in Charge of Development) (10:35 AM) - I move -

Briefly, the object of this measure is to ratify an agreement between the Governments of the Common wealth and New South Wales, and the National Oil Proprietary Limited in respect of the Newnes shale oil undertaking.

It seems hardly necessary for me to stress the importance of the supply of oil for various purposes in Australia, and especially for national uses. The Government has been unflagging in its endeavours to aid prospecting for flow oil, and to foster the production of petrol from shale deposits that exist in extensive quantities in various parts of the Commonwealth. Parliament has already voted £250,000 to assist the search for flow oil. The present measure represents a positive attempt by two Governments, in combination with an outstanding industrialist - Mr. George Davis - to develop the shale oil industry. The objective is the production in Australia of oil in commercial quantities, so ensuring some degree of independence from outside sources.

It is needless to emphasize the ramifications into which this important product extends, and its great value for commercial and industrial purposes. For defence reasons alone the expenditure that is being incurred in this venture is fully justified. The ordinary demands of the Defence Forces for oil and petrol on a peace basis are very great, but are not comparable to the immense quantities that would be required in the event of hostilities. Great expense is being incurred to-day for the storage of supplies of oil for defence, much of which would be obviated by the successful development of local resources. Therefore, apart from all other considerations, however great and extensive, the importance of providing local supplies of petrol and oil for defence necessities, is a sound and adequate reason, if none other existed, for the present vigorous and comprehensive effort.

There is another aspect to which I should refer. The enterprise is of great value and potentiality in relation to employment. It will provide direct employment for from 600 to 700 men, in addition to indirect employment for probably over 2,000 people. Should it succeed, marked expansion of the shale oil industry may be anticipated, to include such fields as Latrobe in Tasmania, and Baerami, Murrurundi, Marrangaroo and other localities in New South Wales, thus greatly widening the avenues of employment.

Newnes will provide the nucleus of an oil production organization which could, in case of need, be extended at short notice. What is equally important, it will become the training ground for young Australian fuel technologists and industrial chemists, who will be of great value to our secondary industries in the future. At present the opportunities for young men who qualify for a mining and engineering course in Australian universities are all too few. They have, as a general rule, to leave their own country and seek positions in other lands, where to-day many of them are occupying high and responsible positions.

Newnes is situated in the valley of the Wolgan, in the Blue Mountains, some 130 miles from Sydney. Yesterday, there were in that valley but few of the prosperous community of other days; those who remained were sustained by memories of former activity, and an enduring faith in the ultimate revival of a great industry. A different picture confronts us to-day. Activity has been resumed, and new hope inspires the people, not only of Newnes, but alsoof the whole of the vast middle-west of New South Wales. Those hills and valleys of the Blue Mountains will shortly be the scene of great industrial activity and ever-increasing employment.

Much has been said recently about the nationalization of oil production at Newnes. It is of importance, therefore, that I should clear up any misconceptions which may exist in this regard. I would point out that the policy of the Scullin Government was consistent with that of the present Government in connexion with nationalization. In October, 1931, the Scullin Government, when approving of an expenditure of- £30,000 on exploratory work at. Newnes, imposed the condition that any further work there must be carried out by private enterprise. There is a substantial doubt, too, as to whether, if the project were nationalized, the Commonwealth Government would legally be competent to compete with private enterprise. Cockatoo Dock, when under government control, was restrained from entering into such competition. At present the two governments interested can take only a small proportion of the expected output of Newnes, and the company will, therefore, need to market the major part of its production in direct competition with private enterprise.

Before proceeding to explain the details of the agreement, T should like to say a word or two on the Davis Gelatine interests, which have been responsible for the formation of the National Oil Proprietary Limited, the company which proposes to develop Newnes. The Davis Gelatine business in Australia employs about 1,000 people, and branches of it, radiating from Australia, have been established in the United Kingdom, South Africa and New Zealand.

Offers were publicly invited by the Commonwealth Government on the 28th May, 1936, from persons and companies desirous of undertaking the production and marketing of petrol and oil from shale in the Newnes-Capertee field. This invitation did not meet with any response, and Mr. George Davis was then approached regarding the establishment of the industry. Because of past failures Newnes was like a dog with a bad name, and many people were not slow to use its unfavorable record in trying to dissuade Mr. Davis from undertaking the enterprise. This did not, however, daunt him, and his decision to embark on the enterprise is now the subject of this measure.

I come now to the main provisions of the agreement. National Oil Proprietary Limited will subscribe capital to an Amount of £166,667, conditional upon the Commonwealth Government providing debenture capital amounting to £334,000, and the State of New South Wales providing debenture capital of £166,000. This debenture capital will carry interest at 4$ per cent., and the principal will be repayable as a first charge against profits at the rate of l/20th each year, subject to the complete repayment of any balance due within thirteen months after the close of a period of nineteen years. In addition to this annual repayment of l/20th of the capital, the company is required, after meeting working expenses, taxation and depreciation, and paying a cumulative dividend of 10 per cent, per annum, to apply any additional profits towards the further redemption of the debenture capital. No advances will be made to the company by the Commonwealth or the State of New South Wales until 166,667 shares of £1 each in the company have been subscribed and allotted, subject to the payment of the whole amount in cash, and have been paid for to an amount of 5s. a share. The company has covenanted to establish the industry by the 1st January, 1940. Failure to do this will involve the payment to the Commonwealth and the State of New South Wales of damages totalling £16,000.

The Commonwealth will grant protection, to petrol produced by the company up to 10,000,000 gallons per annum, against imported petrol and petrol pro duced from imported crude oil, to the extent of the customs duty, excise duty and primage at present operating, for the period ending on the 31st December, 1964. If these rates are reduced, a bounty equivalent to the amount of the reduction will be paid, by the Commonwealth on petrol produced by the company.

The Commonwealth will permit the entry into Australia, free of customs duty, of the cracking plant required by the company, and of such other plant as, in the opinion of the company and the Commonwealth, cannot be satisfactorily and economically manufactured in Australia. In addition, products required by the company for ethylizing its petrol will also be admitted duty free.

The Commonwealth and the State of New South Wales will, as far as may be considered practicable, give preference to the company for a period of 25 years from the date of the ratification of the agreement, in purchases of petrol for' government departments, provided that the prices and quality of its petrol are equal to those of other petrols.

Another matter of considerable local importance is that the company will pay to the Commonwealth, within one month from the date of the ratification of the agreement by the Parliaments of the Commonwealth and the State of New South Wales, a sum of £3,500 in respect of the option which the Commonwealth holds over certain machinery, plant and other property, at Newnes. It is the intention to apply the whole of this sum towards the payment of wages of men and certain other debts which were contracted by a Mr. A. E. Broue, who held an option over plant and machinery at Newnes during 1931. The disposition of this money was set out in an agreement which Mr. Broue entered into with the Shale Oil Development Committee Limited.

Some further explanation of this provision of the agreement is probably necessary. During 1930, the plant and machinery at Newnes was purchased from Messrs. John Fell and Company by a company known as Shale Oil Investigations Proprietary Limited, which was formed for this purpose by certain of the Broken Hill mining companies. In 1931, Shale Oil Investigations Proprietary

Limited granted an option over this plant and machinery to Mr. A. E. Broue. who carried out certain work at Newnes. In the same year, the Scullin Government appointed the Shale Oil Development Committee Limited. The functions of this committee were to conduct investigations into the production of oil from shale at Newnes, and to endeavour to influence private enterprise to operate the project. The committee, in turn, obtained an option over the plant and machinery from Mr. Broue. on the understanding that, if the option were exercised, a sum of £3,500 would be paid by the committee iu respect of wages and other debts incurred by Mr. Broue in connexion with Newnes. Although the Commonwealth Government has now no legal obligation in this regard, as the agreement between M.r. Broue and the committee has expired through effluxion of time, the committee has all along insisted that any company that may be formed to develop Newnes should pay a sum of £3,500 for the option to enable these debts, particularly wages, to bo met.

The Government of Now South Wales has undertaken to grant the company mineral leases, and to exempt shale from the payment of royalty. In addition, Newnes products will enjoy a preference of 20% on freights over the railways of New South Wales.

If, within the period ending on the 31st December, 1959, petrol is produced from Australian flow oil to an extent that it is impossible for the company, as a result of such production, to operate except at a loss, the .Commonwealth, and the State of New South Wales, have undertaken favorably to consider the granting of adequate relief to the company.

A very important paragraph of the agreement provides that the company shall, before commencing production, install, at its own cost, such additional plant as may be necessary to permit of the production of fuel oil suitable for use in the Australian Navy. The Commonwealth Government insisted on this provision, which gives 'to the enterprise a wider importance from the viewpoint of security.

The first schedule to the agreement is of particular importance. It provides that it shall be a cardinal principle of the company that it is to be, and shall remain, under the control of persons whoare British subjects. No foreigner shall be qualified to hold office as a director of the company or to be employed as oneof the principal officers of the company, and no share in the company shall be held by, or in trust for, or be in any way under the control of, any foreigner or foreign corporation, or any corporation under foreign control. This provision should be interesting to those who feet strongly that oil production in Australia should be under British control.

I trust that the measure will be accorded the support that a new national enterprise of such magnitude and importance merits. Successive governments- have for years conducted investigations into the possibilities of the production of petrol from shale in this country. This bill represents a real effort to achieve results. Australia has been far behind other countries in this great national work, and this agreement constitutes a well-thought-out plan ito make up lost ground.

In conclusion, I may add that it is with a measure of personal satisfaction that I submit this measure to the Senate. On my first visit to Newnes, and, particularly, to the Capertee Valley, I realised the immense possibilities which lay in this proposition for the production of oil from shale. Perhaps my 'Scottish instinct was in the ascendency when I learned of the tremendous expenditure that had been incurred there without success. At any rate, I came to the conclusion that this was an enterprise by which we might, at least, commence the production of oil in Australia on the most favorable economic basis which we have yet discovered. What the future may hold for this country in the production of flow oil I do not know, but of all measures that would make in any degree for Australia's independence in respect of oil fuel in time of war, the production of oil from shale is the least uneconomic, and, I venture to say, will prove, in view of the technological discoveries from year to year, a most important factor in the economic life of Australia. I commend the bill to honorable senators.

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