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Tuesday, 14 May 1985
Page: 1926

Senator JACK EVANS(9.08) —The Petroleum (Submerged Lands) (Cash Bidding) Amendment Bill is a critical Bill because if it is passed it will change the direction of oil exploration in Australia. It will change the direction in terms of the type of investment, the time of the investment, whether we are going to attract overseas explorers and whether we are going to provide incentives for the small Australian explorers, be they parts of joint ventures or independent explorers, to participate in the potential great future of oil exploration in and around this country. Because it is such a critical piece of legislation, because if it is passed it will be a trend setter and will be seen around the world as a dramatic change in direction by Australia's government in oil exploration and, therefore, will be viewed as either an inducement or a disincentive to come to this part of the world to invest in oil exploration, it needs to be given very critical consideration.

I pay a tribute to the Minister for Resources and Energy (Senator Gareth Evans)-despite comments that I may make shortly it is not a cynical or facetious tribute-for the consultations that he has allowed and generated over the months that this piece of legislation and the drafts which preceded it were being contemplated by the Government and were being considered by representatives of the industry. I place on record my gratitude to the Minister for attending and initiating conferences between industry leaders and other interested parties, be they from political parties or elsewhere, to try to resolve a problem which is potentially dynamite if it is not handled in the right way at this critical time.

In thanking the Minister for those consultations I should also place on record some disappointment at his interpretation of the consultation processes, because it became quite evident that when he had consultations with Premier Burke he caved in pretty rapidly. That proved to us that Premier Burke had certain degrees of power that other interested parties may have lacked, because the Minister's consultations with industry representatives indicated that he was not participating in genuine negotiations. There was dialogue, there was listening and there was understanding on all sides, but there was not genuine negotiation because from day one until this evening the Minister has not budged one inch, one centimetre or one word in relation to this proposed legislation. I therefore believe that the Minister for his own reasons was either unwilling or unable to negotiate genuinely.

One has to look for the reasons for this situation. I have endeavoured to find them because, at the end of months and months of endeavour to get something really worth while for this industry, it is frustrating this evening that the Minister apparently will not allow any amendment or any modification to the original plan. This is potentially destabilising for the industry because it indicates that the new Minister is not a negotiator and is not willing to listen or to take on board the concern of the industry and to take some lead and some guidance from the industry leaders, from the people who represent not only the Australian exploration industry but also overseas interests who are operating in this country.

In searching for some rational explanation I wonder whether the Minister is carrying a brief in which he lacks conviction and whether he is letting us run up to and tonight leap over the precipice simply because he wants perhaps to prove to his predecessor that he really tried hard and that this is the only way in which he can convince his Cabinet colleagues and his Caucus colleagues that they will have to go back to the drawing board and blame it on the Australian Democrats and the Opposition. Maybe he was carrying his Department's brief.

Senator Gareth Evans —Has it ever occurred to you that I do not think much of your arguments?

Senator JACK EVANS —I am looking for some rational explanation because so far I have heard no rational explanation of the case for absolute non-negotiability of the Government's legislation. He certainly has not given any indication that he is carrying an industry brief or that he has an interest in the industry's beliefs and the industry's needs. What I am concerned about is that it is possible that the brief he is carrying was an appropriate brief for his predecessor, Senator Walsh, when Jabiru appeared highly prospective, when explorers may have been knocking on Australia's door to get in at any cost. It may have looked like the North Sea venture being repeated. It may have looked like some part of the United States off-shore oil areas. But that was 18 months or two years ago. The timing for this legislation is now wrong because Jabiru is not highly prospective. It is not the area in which to experiment with a new concept for this country. In fact, if we were to proceed with this legislation, the very thing that I am sure this Government fears, most of all, as did its predecessor-the reduction in oil exploration in this country-may come about because we are looking at making the high risk area and the more expensive area the first of the experimental cash bonus bid system areas.

Industry representatives have been trying to persuade the Minister-but from his comments, without much success-that they have limited budgets, that there is only a certain amount of money available for exploration in this general area, and that if the money is spent up front, and that money goes into government coffers, it simply means that less money overall will be spent on exploration. I would have thought that if this country needed high risk investment in any area, it must be in the off-shore oil exploration area. Every incentive should be given to explorers to take those risks because the benefits for this country in the end, if the risks pay off, are massive. But it seems that, in line with the mini-Budget that was presented tonight, this Government's philosophy is: 'We would rather have a dollar today than a million dollars in 1988, 1990 or 1995'. It is known in some parts of the world as the 'quick buck' philosophy-get it now and it does not matter about the future because that is somebody else's problem.

One thing that has worried me throughout our negotiations has been that the Minister seems to be under the impression that Australia's exploration program is similar to America's exploration program, that our needs are similar and that we should have a rather similar approach. I would like to thank the Minister for the opportunity of meeting Professor Walter Mead, who is probably one of the more renowned consultants to the United States Government on this subject. In fact, he is a very strong advocate of cash bonus bidding. But when it came down to the comparison of the benefits of cash bonus bidding for the United States and cash bonus bidding for Australia, we discovered that we were working towards two entirely different objectives, because the United States primary objective is to get money in the bank up front, as much as possible and as rapidly as possible. That is the Government's policy which is overtly expressed in everything that it does and everything that it says. Once the money is in the bank, as far as the American Government is concerned, that satisfies its needs. The rest of the risk is entirely up to the explorer and the explorer either benefits substantially or fails miserably. However, the Government does very well out of it because it has its money up front.

One of the distinctive things about the United States is that it does not really care whether it produces from its wells in 1985. In fact, in many respects it would prefer to be producing from its wells in 1995, 2005 or even 2055 because it already has the oil that it needs. Its concern is one of more oil later. Australia's concern is one of more oil in the near future. We need exploration to be carried out at a rapid rate, we need discoveries to be made at a rapid rate and, therefore, we need to give every inducement we can to get explorers out into the field to carry out seismic surveys and put down wells. Of course, there is no resource rental tax in the United States and all the money comes in up front.

In Australia it is going to be the opposite. According to Professor Mead, what is going to happen in Australia is that bids are going to be very low because of the fear of a very high resource rental tax. The bids are going to be peanuts. In fact, when he learned of our resource rental tax system he indicated to me that the range would be in the vicinity of $20,000 to $50,000 per bid. That would not worry the Minister-and I am taking his word on this-because this legislation is not a revenue raising exercise. The Minister has made it clear that the objective of this legislation is not to raise revenue. Its purpose is to help sort out the differing bids, one from the other, so that a rational decision can be made in a logical way on the highest bidder. That is an admirable objective which I am not criticising at all. I just make the point that the Minister seems to-

Senator Gareth Evans —That is the prime objective. I have always said that revenue was a secondary objective.

Senator JACK EVANS —Absolutely. Therefore, it would seem that the Minister would not care whether the bids were $20,000 or $20m, as long as they were not all the same.

Senator Gareth Evans —I would have a preference.

Senator JACK EVANS —I suspect that there might be a minor preference there! The key to this, of course, is that if we are going to get only peanuts up front because everybody knows that the successful explorers are going to be paying handsomely into our coffers at the end of the exercise, we are going through one hell of a fuss and taking tremendous risks over this Bill just to experiment for a few thousand dollars.

I would just like to place on the record a couple of the alternatives that have been put to the Minister, because there are alternatives. The first alternative, and the most likely one to evolve out of our deliberations on this Bill, is the existing system. I say that because if everybody holds fast, nobody changes position and the Minister says 'You can all get lost; I am not interested in anything but my Bill' we are going to be stuck with the existing work program bid system. On behalf of the Australian Democrats I have suggested a variation to that; namely, a work program bidding system with a bank guarantee. I acknowledge that there are problems with that system. I simply indicate that it is one of the alternatives. It is a genuine attempt-and I think the Minister will acknowledge this-to solve the problem that the Minister saw as his primary problem, which was how to distinguish between one bid and another. I believe that that primary problem could have been resolved through having a work program costed by experts, including the bank which was going to guarantee that work program. The work program could have been guaranteed by a bank with the risk of forfeiting, say, 15 per cent of the value of the work program if the program were not taken through to, let us say, 75 per cent of the complete program which was included in the bid. There were advantages and disadvantages with that system. Frankly, I do not believe that the disadvantages outweigh or get anywhere near the disadvantages of the cash bonus bidding system.

Another proposal was put by the industry. I believe that far more investigation and far more endeavour would be needed to make that alternative program work. I would like either to incorporate that proposal in Hansard or read it to the Senate. If the Minister is happy, I will seek leave to incorporate the telex in Hansard.

Senator Gareth Evans —I was going to incorporate it myself.

Leave granted.

The document read as follows-

1. The present cash bidding Bill be withdrawn and the Government pursue the necessary amendments to existing legislation to permit it to--

(a) Declare 'guaranteed activity permits' where successful applicants will be required to guarantee their initial work programmes for the first two or three years of the life of a permit on a dry-hole, trouble-free basis:

(b) Institute a review system as practised in the North Sea by the U.K. Government to short-list applicants for these specially-designated permits and subject them to a detailed technical review on a range of criteria which will establish the optimum application.

2. Under the 'guaranteed activity' system the successful applicant to be penalised for non-compliance with programme commitment by having to pay to the government a sum equivalent to the difference between work carried out and work committed on award of the acreage. Capacity to meet such a financial commitment should be one criterion of consideration of a company or joint venture for short-listing for application review.

3. The system could be structured to allow further for subsequent years' work to be similarly committed on a year-by-year basis.

4. It is necessary for some government discretionary power to be applicable as to timing where force majeure, unavailability of contractors or equipment, or exploration disaster interfere with timely fulfilment of a commitment.

5. The successful work programme and the financial commitment should be matters of public record.

6. Except for the 'guaranteed activity permits' the Act should remain in force in its present form.

Senator JACK EVANS —I thank the Senate. Just picking out a couple of points from the telex, the benefit of that alternative is that it is a guaranteed activity system based on a work program. It provides for a commitment in respect of which the explorer would pay the Government a sum equivalent to the difference between the work carried out and the work committed on award of the acreage. In addition to that broad principle there are criteria which would enable the Government to set its own standards on oil exploration in this country for many years to come. As an illustration of this, I mention typical criteria which may have to be modified and adapted to Australian conditions and which currently apply to the United Kingdom's North Sea exploration areas. The work program is a fundamental part of this process. In addition to that, the Minister and his Department would have responsibility for assessing the technical competence of an explorer to undertake a program of exploration and production; the capability to produce the funds; the history of the applicant, particularly the Australian history if that is available; the exploration work already done by the applicant, which is relevant to the areas applied for; and the extent of the contribution which the applicant has made or is planning to make to the economy of the country, including any contribution to the strengthening of the balance of payments, the growth of the industry and employment in this country. One would have thought that the Minister would grasp that with both hands because ideologically that must be a path down which this Government would like to tread. Another criterion of the United Kingdom operation is as follows:

The extent to which the applicant has involved or plans to involve, UK owned and controlled organisations in his exploration, development and production activities on the UK Continental Shelf through the generation of new technology, the placement of research and development contracts and the provision of opportunities for the design, demonstration and testing of products and techniques;

My goodness, fancy a Labor government knocking that back! It is hard to believe. There is another criterion that is even harder to believe:

whether the applicant subscribes to the Memorandum of Understanding to grant reasonable access to representatives of independent trade unions to his offshore installations.

Another criterion is:

the applicant's record in respect of training for employment on offshore installations.

They are just samples. I beg the Minister not to respond by saying that they cannot be used in Australia because the conditions in this country are different. Of course they are different, but there are criteria which would benefit this country in the same way that the United Kingdom has benefited from establishing those criteria for itself. Is it beyond the wisdom of this Government, this Minister, and his Department to discover criteria which would benefit this country in the same way and use those in addition to the work program bid? I am sure that it is not, and I wonder why we have not tried a little harder to establish such criteria.

I make a final plea-and it is the last of very many-to the Minister: Please take the existing work program bid system back to the drawing board for minor modifications. Add the sorts of criteria that can benefit this country and provide incentives as well-incentives that will get the oil exploration industry in and around Australia up and running. On a personal level that will establish the Minister as a Minister who is willing to listen to the industry, who is willing to lead the industry down a productive, positive path and not an obstructive, damaging path which is the way the industry sees this Bill.