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Thursday, 16 May 1985
Page: 2094

Senator GRIMES (Minister for Community Services)(4.43) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill provides for the restructuring of the Snowy Mountains Engineering Corporation, to put it on a more commercial footing and to allow it to participate more effectively in the international engineering market.

The changes are extensive, but simple and easy to understand. They are designed to allow operational flexibility to the Corporation in Australia and overseas, to improve the Corporation's competitive capacity in a wide range of engineering works, to maximise its flagship role overseas and to ensure that it acts with commercial prudence.

On 27 March 1985 the Minister for Housing and Construction introduced a Bill entitled the Snowy Mountains Engineering Corporation Bill 1985 to repeal and re-enact the existing Snowy Mountains Engineering Corporation Act 1970, to give effect to the Government's objectives for the Corporation. A new Act was seen as the more efficient legal route, as the changes to the 1970 Act were so extensive.

A new Act would mean however, that enabling legislation previously passed by the States, conferring powers on the Corporation, would need to be amended. As a matter of prudence this would have to be done before the new Commonwealth Act was brought into effect. The Minister has been advised that this action could take up to twelve months, or even longer, before all States passed the appropriate enabling legislation.

In respect of the existing Act, the States, not unreasonably, did not take action in 1970 to introduce enabling legislation until the Commonwealth Act was proclaimed. In the event some of the enabling legislation did not come into effect until up to two years after the Commonwealth legislation came into operation.

The Government's priority is to implement its objectives for the Corporation at the earliest possible time. It would not wish the proclamation of the necessary legislation to be subject to undue delay. To avoid this possibility and to avoid placing unreasonable pressure on the States the Government now proposes to amend the present Act rather than replace it by a new Act. This alleviates the need for any immediate changes in State enabling Acts and will allow the Corporation to carry out its new function and exercise its new powers as from the date of proclamation of the Commonwealth Act.

This Bill, entitled the Snowy Mountains Engineering Corporation Amendment Bill 1985 not only meets the Government's aim of implementing the Corporation's new functions and powers, but ensures that the end result will be the same as if the Bill the Minister introduced on 27 March 1985 were to take effect. That is, the range of amendments to the existing Act are identical with those that were contained in the original Bill to give effect to the Government's stated objectives.

I will outline to the Senate the key changes to the Act. These are to:

remove existing restrictions on the range of engineering activities open to the Corporation;

include in the statement of functions a specific reference to the Government's intention that the Corporation shall, so far as is practicable, involve Australian organisations in the performance of overseas work, and promote overseas the interests of the Australian engineering industry;

allow the corporation, with ministerial approval, to form companies or other legal arrangements where this is necessary, to assist the progress of involving Australian engineering companies in joint ventures overseas and for other commercial purposes;

replace the present ''corporation sole'' by a five member board of directors, to give the corporation access to a range of management talent from the engineering, marketing, finance and the trade union sectors;

ensure that the Corporation acts in accordance with sound commercial principles; and

update the financial provisions of the Act to accord with current Government policy regarding statutory authorities.

The Corporation was established under the Snowy Mountains Engineering Corporation Act 1970, to preserve and capitalise on the professional engineering expertise developed during construction of the Snowy Mountains scheme. It has provided a major source of engineering expertise to governments and industry in Australia.

Just as importantly, the Corporation has played an increasing role in the provision of engineering design and construction management services in overseas markets. Initially it relied heavily on aid projects for involvement overseas on behalf of the Australian Government. But in recent years Australian aid projects have generally been allocated on a strictly commercial basis and the Corporation has had to operate in a difficult competitive environment. One result is that the Corporation has also been undertaking an increasing proportion of its work directly for international clients.

Until 1983-84, the Corporation had an unbroken record of profitability, returning to government $3.3 million and corporate tax of $10 million.

The Corporation developed an international reputation for the Australian engineering industry through the successful completion of some 1,100 projects in 35 countries, involving total consulting fees for the Corporation of over $200m. Its staff numbers grew from 192 in 1971, to a peak of more than 600 in 1983.

In 1984, Engineering News Record, a major American publication, ranked the Corporation number 60 in the world's top 200 international design firms. Only two other Australian firms have ever appeared in these design listings.

The Corporation's outstanding commercial export record over the 1970s and 1980s was marked by its receipt in 1984 of the Governor-General's award for export excellence. Since its establishment, the Corporation has pursued a conscious policy of assisting the Australian engineering profession to obtain a foothold overseas.

The Snowy Mountains Engineering Corporation inherited the great reputation and skills base created by the Snowy Mountains Authority upon its completion of the Snowy Mountains project-our greatest national engineering work to that time. It has provided proof that Australian skills are marketable in fiercely competitive foreign markets. Its reputation at home and abroad is now synonymous with engineering excellence.

Like many private consulting engineering firms, the Corporation recently suffered from the decrease in available work in Australia and overseas.

The world-wide economic recession, reduced aid flows from the oil exporting nations to Third World countries, and the debt problems of many developing countries led to reductions in overseas development programs. At the same time there was a sharp increase in competition from international engineering firms, who were faced with drastic downturns in activity in their traditional markets.

Unlike private enterprise, the Corporation did not have the capacity to quickly shed staff, at minimal cost, to an appropriate level. In 1983-84, faced with a declining market, the first-ever operating loss, and severe cash pressures, the Corporation sought outside assistance to evaluate and review its operations.

Following a review by management consultants, improved accounting, costing and management information systems were introduced. The Government announced in July 1984 its support for the continued operation of the Corporation, based in Cooma, together with the provision of a cash injection of up to $6 million largely to fund a voluntary retrenchment program. This was to enable the Corporation to streamline its operations pending decisions on a longer-term restructuring.

Following these decisions, the Corporation's staff was reduced from a peak of 623 in February 1983, to 387 in February 1985, and will be further reduced to an expected 360 by June 1985. This has been achieved through natural attrition and voluntary retrenchment. The Corporation retains an effective mix of professional skills which will enable it to take full advantage of emerging opportunities.

Certain key appointments have also been made which will increase the Corporation's capacity to operate on a commercial basis. In particular, Mr J. L. Liebelt, a former group executive director of CRA, has been appointed interim chairman to advise on the restructuring process.

This Bill gives effect to the Government's decisions concerning the long-term restructuring of the Corporation. The Government is determined that the Corporation shall once again become a commercially viable organisation capable of maintaining a competitive presence in international markets. The Bill provides that the Corporation shall act in accordance with sound commercial principles and aim to raise revenue sufficient to permit the payment each year to the Commonwealth of a reasonable return on capital, in addition to the payment of income tax.

A five person board, comprising a chairperson, a managing director and three other directors, will be responsible for determining the policies of the Corporation and conducting its business.

The board will be required to inform the Minister of its policy decisions and provide the Minister with regular reports on its operations. The Minister shall, of course, be able to direct the Corporation as to the exercise of its powers and the performance of its functions.

Any such directions will be included in the Corporation's annual report to Parliament. It would not be the Government's intention to seek to intervene in the detailed activities of the Corporation, but rather to ensure its compliance with overall government policies and sound financial principles.

In accordance with this greater commercial focus, the Government has removed the outdated restrictions which have hindered the Corporation from diversifying into new kinds of engineering activity. It is clear that in a rapidly changing international market-place the Corporation needs to be able to move into areas of expanding business and provide a comprehensive range of advanced engineering services.

At the same time, the Government has explicitly recognised the Corporation's outstanding international reputation, its unrivalled commitment to the export of engineering services, and its long history of involving other Australian organisations in its overseas endeavours. The Government has therefore decided to formally recognise the Corporation's role in promoting the overseas activities of the Australian engineering profession by including in its statement of functions a requirement that the Corporation shall endeavour to:

expand its activities and enhance its professional reputation overseas;

so far as is practicable, involve Australian organisations in the performance of its functions overseas; and

promote overseas the interests of the Australian engineering industry.

It will be up to the Corporation's board, which the Minister for Housing and Construction shall be appointing as soon as possible following the passage of this Bill, to determine the policies to give effect to these functions and to decide how it will seek to involve Australian organisations in its overseas activities. On balance, private Australian engineering organisations are sure to benefit. They will experience stronger, but fairer, competition from a revitalised Snowy Mountains Engineering Corporation. In overseas markets, however, the Corporation will be committed to work in partnership with other Australian interests.

The steps that the Corporation has already taken to restructure its operations, contain costs and improve its management systems will mean a substantial improvement in the Corporation's financial position. The Corporation has advised the Minister that following a projected net loss of some $3.5m in the current financial year, it will make every endeavour to break even in 1985-86.

The Corporation will nevertheless be continuing to pursue cost cutting initiatives, including the consolidation of its operations at a single site at Back Creek, Cooma, and negotiations with staff associations and the Public Service Board to bring employment conditions more into line with the consulting engineering industry norm. The Corporation has informed the Minister that it is also developing proposals for superannuation arrangements for new employees outside the Commonwealth superannuation scheme. Any such proposals will be dealt with expeditiously.

I believe that the proposed amendments to the Snowy Mountains Engineering Corporation Act, including the installation of a board of directors, will ensure that the Corporation continues to be a viable commercial engineering organisation of which Australia can be proud. Furthermore, a revitalised and restructured Corporation operating on sound commercial principles will reduce any potential call on taxpayers funds in future years. I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.