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Thursday, 18 August 2005
Page: 121


Mr MARTIN FERGUSON (10:00 AM) —I rise today on behalf of the opposition to indicate our support for the Offshore Petroleum Bill 2005 and the five related bills which are being considered. In introducing these bills, the member for Leichhardt said in his second reading speech that the original Petroleum (Submerged Lands) Act 1967 and incorporated acts have become ‘complex and unwieldy’. He also indicated that some years ago the government saw some need to rewrite the act to provide a more user-friendly enactment to reduce compliance costs for the industry and for state and territory governments which administer it.

My copy of the existing act—and this is interesting—runs to less than 400 pages. The new bill runs to over 600. It is almost as if we are getting something like the tax act when it comes to the issue of the petroleum industry. The explanatory memorandum itself went to over 300 pages. I simply suggest to the chamber that this is an interesting way of simplifying the enactment. No-one else recognised the need to rewrite the act. That was the feedback we received following consultation with the industry with respect to the bills before the Main Committee this morning.

However, the industry and state and territory governments rightly cooperated with the Commonwealth on the issue, perhaps hoping that, with the rewrite of the act finally out of the way, the government might finally get to some of the big issues and priorities that it ought to be confronting with respect to the industry at this point. These issues are fundamental to where we go with our own economic performance as a nation. They include issues like the skill shortage, a major problem confronting the resource sector at the moment. If people have any doubt about that, they should just think about the industry’s desire to deploy billions of dollars in new LNG and gas project investments that are critical to Australia’s future economic wellbeing. One of our problems at the moment with respect to some of those investments is that we simply cannot get the tradespeople to undertake the work on the ground. That is also influencing Australian content with respect to the manufacture of the components for those investments. Because of the skill shortages, tradespeople are not available to manufacture those components locally, and that is adding to the import problems confronting Australia.

Another issue concerns the cost impediments facing the industry in developing remote greenfield sites in places such as the Pilbara and the Kimberley, where the lack of infrastructure seriously disadvantages us compared to global competitors. This is something that some of our eastern state governments ought to be considering with respect to the debate on tax at the moment and the issue of royalties earned by the Western Australian government. Another issue is the reviewing of the upstream fiscal regime to encourage exploration and production and create internationally competitive and nationally consistent conditions.

These issues are pretty fundamental. They are intimately related to the nature of the bills before the Main Committee this morning. They are fundamental to the future of the industry and also the future of our own economic wellbeing as a nation. It is interesting to note that 20 per cent of our export earnings as a nation are related to the export of energy related products. More than ever, we are dependent on the energy industry to earn export dollars for Australia. There has been a dramatic change, and there will be further change over the next couple of years, with increases in exports of our fundamental resources. That is why I take us to the fact that in the financial year 2003-04 the oil and gas industry in Australia provided about $8 billion in export revenue, and the increase in oil prices means that this figure will be significantly higher for the financial year 2004-05.

Everyone can appreciate that this makes the industry in Australia exceptionally important to all of us. In essence it contributes about 10 per cent of Australia’s total export revenue, and its potential for growth is enormous. But there is also a dark side to this story. While we exported $8 billion worth of crude oil, LNG and LPG and a further $1 billion worth of refined products in 2003-04, we imported over $10 billion worth of crude oil, LPG and refined products to feed our thirsty transport sector. Clearly we have a major imbalance. I suggest to the House that we as a nation cannot afford to be complacent about the future of our domestic oil and gas industry. We have huge challenges confronting us as a nation exceptionally dependent on oil and gas.

I take the House to the recent 2005 review of Australian energy policy by the International Energy Agency. That review noted Australia’s thirst for oil and said that the transport sector could particularly benefit from efficiency efforts, with its total fuel efficiency standards being at the lower end of the IEA countries. The review further noted that transport energy use already accounts for 40 per cent of final energy consumption and that it is projected to grow by two per cent annually over the next two decades to 2020. What a challenge we have as a nation.

The downside is that, at the same time, oil production in Australia by 2020 is likely to be less than half of that today, and demand is likely to exceed production by at least threefold. So this requires urgent government attention. It is also well known that, while Australia is still attractive for oil and gas exploration and production, its potential is limited in a number of ways. These are serious issues that the government has to confront now that it has the rewriting of the bills out of the way. Firstly, it is limited by its very geology and the remaining potential of the established basins, particularly the oil potential. Secondly, it is difficult to get projects off the ground quickly, often because of remoteness, lack of infrastructure and lack of a skills base. Thirdly, high-risk frontier basins for oil pose environmental hurdles and are still less financially attractive than other opportunities around the globe.

At a time when Australian consumers are paying record prices for petrol, it is more important than ever that we do as much as we can to make sure that Australia has both a domestic oil and gas industry and a refined products industry to give us policy options to withstand future global oil shocks. These are very serious issues that seem to be escaping government attention at the moment.

I raise these issues because we as an opposition consider that the current government is more consumed with selling off Telstra than addressing the fundamental problem of Australia’s reliance on imported oil. That is a fundamental choice the government has to make in getting its priorities right. What is more important: the sale of Telstra or our reliance on imported oil? I suggest that there is no choice.

In 2003-04 Australia’s oil import bill was $6.6 billion. In addition, we imported $200 million worth of LPG and $3.6 billion worth of petrol and diesel. Unfortunately, this bill is growing. Instead of increasing our reliance on imported oil, the opposition suggest that we can and should move to get the most out of our remaining oil resources. That means engaging seriously with the industry about the appropriateness of a fiscal and regulatory regime and acreage access. These are issues that the government should be seriously discussing with the industry in a very positive way now.

While Australia is running out of oil, we should not forget that we as a nation have abundant natural gas reserves. Perhaps it is time to look at the development of that gas to make us more self-sufficient in transport fuels. There are choices to be made by Australia. Australia’s competitors in the gas industry are, unfortunately, way ahead of us, and pulling further ahead. Let us take for example the Middle East and countries such as Qatar, which already have major gas to liquids projects making ultraclean refined products for the global market. We are now falling behind not only in pursuing exploration and development but also in research and capacity in the movement from gas to liquids.

The Qataris have made a huge investment in Ras Laffan Industrial City of somewhere around $10 billion. Unlike Australia, they have a vision for the future. They recognise the wealth that can be generated from their gas industry and they have made the investment that is required to underpin it in the long term. It is actually about having vision and a bit of leadership on these fundamental issues. They have declared that their ambition is to be the gas to liquids capital of the world. They are already a major LNG player and a formidable competitor for the Australian LNG industry.

By contrast, the Howard government does not seem to recognise the enormous disadvantage facing those companies trying to commercialise remote gas fields in the Pilbara, the Kimberley and the Timor Sea. Some of these are clearly frontier areas, and I say that having visited them on a regular basis in a variety of portfolio responsibilities. When you go to these areas, you see the difficulties confronting the industry—for example, the lack of infrastructure, with no ports, no roads, no airports, no townships, no power supply, no water supply, no hospitals, no schools, no people. So the costs confronting the industry are very high, significantly higher than those of our competitors in the Middle East and elsewhere. It therefore requires government to become a partner by actually fronting up to some of these potential developments.

On the serious matter of infrastructure, as I said earlier in my contribution today, this government is not listening to industry and exporters. It is not listening to the states that are trying to address these problems, such as Western Australia. Western Australia has been very much in the media recently in the context of the tax debate being pursued by the Treasurer. We should not lose sight of the fact that Western Australia comprises one-third of our great continent, Australia. It produces 30 per cent of the nation’s exports by value and generates $23 billion in revenue each year for the Commonwealth. Yet the Howard government will not engage seriously in a mature partnership with Western Australia, even though the nation as a whole benefits from what is being generated in export earnings and employment potential by Western Australia. Unfortunately, the Howard government can only criticise the Western Australian government for not cutting its taxes as required by the GST agreement, at the same time as closing its eyes to the contribution that Western Australia makes to the economic health of the whole nation. It is unwilling to join with the Western Australian government in providing the infrastructure that is so vital to the development of these further potential export opportunities.

If you look at the resource projects on and around the Burrup Peninsula in Western Australia, for instance, you see that the area generates $4.5 billion in direct revenue for the Commonwealth and one-tenth of that goes to the state. The state is investing in productive capacity for the region to the tune of $183 million, yet the Commonwealth goes missing. At the moment, when the Prime Minister goes to Western Australia he will announce some small grant from the Regional Partnerships program for a broken-down sporting club, but when it comes to doing something of real benefit to the region in terms of infrastructure he goes missing in action.

The Commonwealth is about taking the benefits from what is occurring in north-west Western Australia and giving nothing in return, other than during election campaigns when it tries to buy a few votes in a place such as Karratha through the Regional Partnerships program. In essence, not one cent is being provided by the Commonwealth for these projects. Also, I want to appropriately suggest to some of the states that want to penalise Western Australia for the royalty wealth it is collecting in the resource sector that they ought to be very careful because some of these states are also benefiting from what is occurring in Western Australia.

It is time to recognise that, resources wealth benefits the whole nation, including the eastern states of Victoria and New South Wales. The whole nation must therefore bear its share of the costs of the infrastructure that is required to underpin the resource sector for the resource-rich states. We cannot have it both ways as a nation: saying that it is the responsibility of Western Australia to develop this resource capacity but that it is not the responsibility of the Commonwealth and other states and territories to share the associated cost burden of developing the infrastructure associated with these projects.

I also believe that, if the Commonwealth wants a healthy oil and gas sector, it has to play a role in investing in it and contributing to its international competitiveness, which includes the debate about skills and the serious shortages that exist both at a tertiary education level and at a trade level in Australia at the moment. The facts show that we are going backwards. The fact that we have to rely on going overseas, as we did in the fifties, to overcome our skills shortages is an indictment of all of us, as the political representatives of our various political parties, and an indictment of this parliament. This should have been fronted up to years ago rather than relying on migration to settle our shortages of skills in Australia.

I would also suggest to the House today that we have to get to a position by which the states and territories of the Commonwealth start to work together in a cooperative model. The Howard government is about confrontation. This government has refused to work cooperatively with the state of Western Australia and instead has been dealing directly with a long list of failed project developers around the nation. They include, for example, Syntroleum and Methanex, two examples of failures in Western Australia.

Let us go through some of these issues. I would like to remind the House that Australian taxpayers lost around $20 million to Syntroleum, an American company, which lured the Department of Industry, Tourism and Resources with the promise of a $900 million gas project in Western Australia, which it never delivered. We paid out at least $15 million for a technology licence that we cannot use. Politicians ought to work out a cooperative model with the resource sector and state and territory governments rather than sitting in Canberra and trying to pick winners. It just does not work. To add insult to injury, taxpayers paid $3.5 million in withholding tax for the company while they managed to collect well over $2 million interest on Australian taxpayers’ money. That is not a bad investment from their point of view. Who lost? As usual, we the Australian taxpayers lost and that money cannot be recovered.

According to the department, there have only been two projects that have failed under the strategic investment incentives program. Guess who? They are Syntroleum and Methanex. It reflects badly on the department and it also reflects badly on the ministers responsible at the time for these decisions. Other disasters, such as the Australian Magnesium Corporation, where taxpayers lost up to $170 million, which we all know about, were apparently funded through other programs. They were also absolute disasters from the Australian resource sector’s point of view and from the taxpayers’ point of view.

Unfortunately, as I have said, we have a government that is not interested in a cooperative model with the state and territory governments and the resource sector. We have a government that is more consumed with trying to pick winners, which more often than not have turned out to be failures. It is a government that likes to gamble with taxpayers’ money, almost as though it is at a poker game with taxpayers’ money. It is a government that lacks the maturity to engage meaningfully with the state and territory governments and industry and work on a common vision for Australia’s future. Earlier this morning, I referred to why we have to start confronting that—because of our heavy reliance on imports in terms of our energy needs now. It is a disgrace that a resource-rich country, such as Australia, should have this predicament at this time in the 21st century.

The challenge to the government today is to deliver a transparent resources policy that focuses on nation-building, prudent development of Australia’s resources and the prudent development of strategic infrastructure. That also means that the government has to reassess its performance. Very shortly, it will have been in government for 10 years. It is about getting a modern agenda, which meets the challenges that confront a modern, forward-looking nation. That is what we have always prided ourselves as being—a nation that plays above its weight, be it on the sporting field, the economic field, the social field or in our capacity to assist less privileged nations internationally. We have always prided ourselves on being leaders both locally in our region and internationally in the broader global environment.

We have to focus on the priorities that are confronting Australia rather than saying that the priority was to rewrite the acts before the House today. That is a job well done by the bureaucrats responsible for the rewriting of the acts in cooperation with industry and the state and territory governments. Let us move beyond legislation and confront the real issues that are going to take this industry forward. That requires the minister to start thinking about his job rather than running around creating fires with the Northern Territory government over who should be in control of the export of uranium. That might be important, but it is not as important as some of the issues covered by the legislation currently before the House.

When you think about it, we have a government that is sailing on the wave of a once-in-a-lifetime economic boom. That is what we are a actually benefiting from at the moment. We have an economic boom that is underpinned by the resources sector and unprecedented growth in Asia, particularly China. All we need is a hiccup in the Chinese economy and we will have an earthquake right through the Australian economy. We are so heavily reliant on the resources sector at the moment. Twenty per cent of our export earnings as a nation come out of the energy resources sector. This is being driven by what is occurring in Asia and very much by what is occurring in China. Then there are prospects some time in the future from the growth of the Indian economy.

So there is a chance to do something of substance for the future. We should not be squandering the opportunities. We should be addressing the big issues confronting the resources sector. The issues I have referred to are pretty fundamental, and they are known to all in the Australian community: skills, training, infrastructure, strategic industries and innovation for the future. The government should be grappling with these big issues and working on a cooperative model with state and territory governments and the industry—all the sectors that influence what is going to happen in the petroleum industries. If we do not do that, there will be real capacity constraints. We must make sure that, as a nation, we overcome these potential capacity constraints in the resources sector, which is so central to our whole economic performance as a nation.

I want to talk about the crisis in the skills sector because it is exceptionally important. The House should note that the gas sector is talking about well over $10 billion worth of investment in this country in the next 10 years. Just think about that: $10 billion. And this is just part of the potential investment around Australia at the moment. I am thinking of the potential expansion of Brisbane Airport, the Gateway Bridge duplication and the Scoresby corridor in Melbourne. There will be billions and billions of dollars of infrastructure development over the next 10 years.

The North West Shelf venture has now made a final investment decision for train No. 5, which is worth about $2 billion. The Gorgon joint venture is aiming for a final investment decision sometime this year. Investments on this scale not only place pressure on local and regional labour markets but impact on the whole nation because they draw labour from around the world. They also impact on the existing wages system with respect to the companies’ desire to compete to attract labour to these projects, so they potentially have an inflationary impact on the Australian economy.

This government deserves to be condemned for failing to invest in skills development in flagrant disregard of repeated warnings from the OECD, the Reserve Bank and the industry peak bodies about chronic skill shortages. This failure is now making Australia less attractive in a situation of intense global competition to attract capital and less competitive, unfortunately, as an investment location. Companies such as Woodside and BHP do not love us: we actually have to compete to get their investment dollars. If companies like Woodside, BHP Billiton, Chevron, Shell, BP and Exxon cannot meet market demand in the Asia-Pacific region from Australian investment because of skills shortages or slow approval processes and investment hurdles, they are not going to wait for Australia to catch up; they are going to go elsewhere.

Unfortunately, this seems to have escaped the minds of the Howard government. The companies are not going to sit idly by, waiting for us while we say: ‘Gee, we’ve got a skills problem. We had better create some tech schools that will not produce a tradesperson until 2010 or 2011.’ They want to do it now. They actually want to make the investment decisions now because the market is there. They are going to go elsewhere. They have already gone to Qatar. That is a lost opportunity for Australia because there is no leadership.

This means potentially that our share in the global trade in resources, on which we have always prided ourselves, will be diminished not just in the short term but for decades ahead because investments relate to an extended time line. The risk is that Australia’s development will be delayed. Meanwhile, our trade competitors are seeing huge investments that will underpin their future capacity and put them ahead of Australia. We just will not catch up in the long term. So I say that, rather than squandering a once-in-a-lifetime surge in regional economic growth and our terms of trade by failing to invest in our productive capacity, skills training and infrastructure, we have to do it as a nation.

It is no wonder when you actually do a hard-headed assessment of where we are that you find economic growth is slowing or that the budget predicts a permanent downgrade in expected future growth rates from 2008-09 on. That is because we are not seen as locking in decisions at this point in time. It is no wonder that, despite record demand and record prices, the rate of export growth is just two per cent, down from 10 per cent when the government came into power in March 1996. It is also no wonder that Australia’s current account deficit is now 6.5 per cent of GDP, higher than at any point in 50 years. This is what happens when a government fails to drive the economy or, alternatively, drives it with consumption and not productivity. It is just unsustainable, and that is now coming up in the economic indicators.

So I argue today, in contributing to what I regard as being a very important debate on the offshore petroleum industry, that the top priority of the government should be investing in the machinery of wealth creation in the economy’s supply capacity. We should be taking advantage of our good fortune in benefiting from record demand and prices for our resources by driving the next round of productivity and participation growth to provide for a competitive future. We simply will not get this opportunity again. It is there to be grabbed, and if we drop the ball then, sadly, that is going to impact on future generations’ capacity to actually enjoy the benefits of what we are enjoying at the moment because of the Asian demand for our resources. We should be using this as a platform to lock in future growth for future generations. Frankly, if we do not do this we ought to hang our heads in shame because we will be letting down our children, our grandchildren, their children and their grandchildren. While ours is a pretty lucky country, we would be walking away from our responsibilities at the moment.

Recent OECD research shows that a 10 per cent increase in the average number of years of education of the working age population would increase per capita GDP by between four and seven per cent. There is just no choice: we have to invest in the education of our young people and in the skilling of the whole work force. We will get a huge return on that investment. There is also a message to industry, who in the eighties and nineties walked away from their responsibilities to train. Training is not a cost to industry; it is an investment in the future development of industry and in even more record profits for companies. I am pleased to say that some of the resource companies that closed their apprenticeship centres in a range of major resource towns are now deciding to reopen these apprenticeship centres and also to do more about cadetships to get young engineers on board and train them. Having made the wrong decisions in the past, they are now starting to look at themselves in the mirror and look at their failures and accept their mistakes, so at least there is some sign that we as a nation are learning from the mistakes of the past. Unfortunately, structured training fell between 1996 and 2007 from 1.7 per cent to 1.5 per cent. Let all of us do something about turning this around.

This is an important debate. It is about making sure that we think about foreign debt, which has exploded from $180 billion in 1995, when the coalition rolled out the debt truck, to $422 billion now. The facts speak for themselves and again are an indication of what we have to do. Every day Australia loses $154 million to foreigners from a current account deficit that is the fourth largest in the world. Who would pride themselves on that? We have heard the Treasurer saying how good the coalition are economically, yet he is responsible for us as a nation losing every day $154 million to foreigners from the current account deficit. If that is their record of achievement, I tell you what: I would not want that hanging around my neck. Anyway, the Treasurer seems to have other priorities. I must say he is taking at the moment a lot of interest in the ageing of the Australian population—and in particular the ageing of one individual—but anyway it is for him to decide and those are his priorities rather than mine. The government has to front up to its responsibilities. It is lazy and it is neglecting the requirement to increase our exports. It is failing to invest in Australian skills, ideas and infrastructure, which in turn is putting upward pressure on interest rates and putting Australia into hock as never before.

My concerns today are that these bills contribute nothing to the big issues facing the oil and gas industry in Australia—issues such as skills and training, infrastructure and the strategic development of industry for Australia’s long-term wellbeing. I hope the government pays some serious attention to these issues. Rewriting the bill is easy; actually getting the fundamentals right is far more difficult because those fundamentals create the platform for further economic growth. The bill is there; the industry can use it but there are other issues that determine whether we have a capacity to increase exports and enlarge the Australian economic cake. It is a choice for government. My fear is that this government is incapable of fronting up to those serious issues because it is more concerned about side issues, such as the sale of Telstra and the jelly backed approach to the National Party, than the issues that confront the Australian economy at this time. (Time expired)