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Tuesday, 5 May 1987
Page: 2332

Senator PARER(8.00) —This evening we are debating the Petroleum Resource Rent Tax Assessment Bill 1987 and allied Bills. I have two problems with this legislation. The first is that it imposes a secondary tax to which, as a matter of principle, particularly in this area, I am opposed. The second problem is that the tax is not truly a tax based on profit as it does not allow deductions incurred for exploration outside designated permit areas.

Twenty years ago there was great concern within the Australian community about the lack of oil in Australia. As everybody knows, oil and oil products, with current technology, are the lifeblood not only of this nation but of the world. About 20 years ago the then Government was greatly concerned because of the import bill that would be looming in the years to come, the effect on the balance of payments and also the natural concern that every country has in respect of the source of supply of this vital material. The prospect of oil supplies being chopped is very real.

The foresight of the then Government led to the discovery of the relatively significant resources in Bass Strait. Over a decade ago a shortage of liquid fuel throughout the world was predicted. The Organisation of Petroleum Exporting Countries got together and as a result we had two oil crises in the 1970s. These had an enormous impact on the oil-dependent industrialised countries. The price of oil skyrocketed and problems in the Middle East put at risk continued supply from major oil provinces in the world. Because of Bass Strait we in Australia were largely insulated against the worst of those oil shocks. In fact, as a nation we gained because of the switch by the industrialised countries from oil dependency to dependency on coal and uranium. There was a transfer from generation of electricity from oil to generation from coal.

Uranium came to the fore because it was recognised as a source of energy which did not need to be transported in large volumes. This brought about the so-called resources boom which brought with it howls about windfall gains. Federal and State governments could not contain themselves in their enthusiasm to apply secondary taxation. As a result, coal prices increased. There was a massive demand for steaming coal which had been in the doldrums for many years. Governments of the day decided that they wanted to share in the so-called windfall gains as though this boom would go on for ever. We saw the Queensland Government repudiate agreements that it held with various mining companies. It increased royalties under the pretext that if it did not do so the Federal Government would take the money anyway. The Whitlam Government imposed a coal export duty which over the years has been reduced. Today, only one company pays that export tax.

The domestic oil producers also attracted a plethora of new taxes. Some governments continued to apply these taxes after the boom was over. That was inevitable because governments start to rely on these sorts of taxes for revenue. They are either unable or unwilling to remove them when the boom is over. Of course, companies must take reduced prices where supply exceeds demand. This means that they cannot make a profit, any future development ceases and expansions come to a halt. Surely, we should learn from history. It is a nonsense to apply secondary taxation to these sorts of resources. Yet that attitude still pervades the thinking of governmental people. In the second reading speech by the Minister for Industry, Technology and Commerce (Senator Button) he said:

Petroleum resources are, in their most basic sense, community property and the Government believes that the community as a whole should share in the potentially high returns from the exploitation of these scarce, non-renewable resources.

The Department of Resources and Energy tells us that by 1990 or 1992, unless we discover more oil, we will be importing something like $3 billion worth of oil per annum. The Government talks about the community sharing in these potentially high returns, but if the industry is prevented by silly taxation from exploring and finding new reserves the community will pay very dearly for the imports.

Let us look at the position in Australia. It has been claimed by oil explorers-these are the people who know because they take the risks-that Australia is not a prospective continent for oil. I can recall 20 years ago talking to overseas geologists here. This was before Bass Strait was discovered. I asked what chance there was of discovering oil in Australia. They always told me that it was very slim. In fact, I can recall being told that the only prospective area, from their geological knowledge of the day, was the Bonaparte Gulf. As I mentioned earlier, the first major oil discovery was Bass Strait. Some people would say that it was discovered more by good fortune than anything else.

Australia is not a greatly prospective continent for oil. It does not have the sorts of geological structures that everybody knows are a feature of the Middle East. It has been suggested by Broken Hill Proprietary Co. Ltd that the assessed resource base, which might range from two billion barrels to four billion barrels-that potential presumably is off-shore-offers the potential for a large exploration target. Such a target could have substantial implications for the nation's level of self-sufficiency and economic well-being. That is what we have to think about. Our oil resources are diminishing and we should make every effort as a country to encourage more people to put down more holes in the hope that sufficient resources can be discovered at least to keep us somewhat self-sufficient into the future.

I turn to the figures on oil reserves of different countries. The United States of America has 34.5 billion barrels, Mexico has 48 billion and the United Kingdom has 13.2 billion. In the Middle East, Saudi Arabia has 166 billion. Australia has two billion barrels. Our share of total reserves is 0.2 per cent. Estimated undiscovered crude oil reserves are very limited in Australia. From the charts that have been produced by various authorities, it would appear that our undiscovered crude oil reserves are in the order of 1.8 billion to two billion barrels, as compared with the 42 billion of the Union of Soviet Socialist Republics and the 26 billion of the United States of America. Unfortunately, the technical risk to which all oil companies are exposed is exacerbated by matters such as the resource rent tax, which threatens high risk off-shore exploration both by its high rate and its failure to embrace a broader base of deductibility for unsuccessful exploration.

Senator Cook was in the chamber prior to the dinner break and he made a remark on which I must comment. He said that the Petroleum Resource Rent Tax Assessment Bill would mean a reduction in tax. I know that Senator Cook has some expertise in this field, but somehow he has not read the policy in respect of new oil. There is no secondary tax on new oil. His comments are very similar to comments that I hear in my State of Queensland. The State Government makes remarks from time to time about giving concessions to the coal companies as though it was giving subsidies when in fact the companies are taxed out of existence. The State Government makes a remark about giving a concession to the industry-this is similar to the remark that Senator Cook made-so that the general public, quite incorrectly, thinks that the Government is doing a favour to the companies. There are no favours involved. The danger is that people will not spend their money looking for oil because of the punitive measures introduced by this Government at a time when we need to find more oil. It is not as though there is a mass of it out there and as though people are queuing up to try to exploit it. There is no such thing. It would be worthwhile for honourable senators to reflect on the fact that one of the minor oil companies in Australia, but a totally Australian oil producer, Crusader Oil NL, made an announcement just two or three days ago that it intends to go to Canada rather than persist with exploring for oil in Australia. In its announcement, the Crusader company blamed the Australian Government's neglect of the industry for its move to Canada. The Chairman of Crusader said that Canadian Government incentives and lower interest rates prompted the move. The availability of highly prospective exploration and development acreage in Canada and low operating and drilling costs also encouraged the buys. He also said:

The Canadian Government has recently announced a subsidised incentive program for exploration and development drilling in which the Government provides the direct funding for one third of the cost of a well up to a maximum of $C3.3 million ($A3.5) a year for each qualifying company.

So Canada, concerned about its future reserves and self-sufficiency, is offering incentives to companies to go there and look for oil which would be to the benefit to Canada in the long run. On the other hand, we have here this archaic thinking that a massive resource is out there, just waiting to be found at no risk and so the Government says: `Let's get them'. Although the Government may believe that it is a little difficult, its attitude is still the same. The attitude of the Minister is: `We believe that the community should share in the potentially high returns'. If oil is not found, there will be no high returns. Not only that; the community will pay dearly if we are looking at a further import bill somewhere in the early 1990s of another $3 billion or more on top of our existing balance of payments deficit. I do not know what we will do.

It might be argued down the track that we have alternatives; that if somehow this oil is not discovered, if somehow supplies from our traditional suppliers are chopped off-for example, if there were a blow-up in the Middle East-we have alternative sources of supply. No doubt people will point to the oil shale in Queensland or the liquefaction process of getting oil from coal. All I can say is that such projects have been around for a very long time, and the only country in which they operate is South Africa, at the plant established by SASOL-the South African Coal, Oil and Gas Corporation. That was not an economic decision; it was a political decision taken many years ago. Oil from coal has traditionally been like the carrot in front of the donkey-the donkey never gets to it. That is simply because of the prices that exist at a particular time.

I think I heard Senator Cook say earlier: `What needs to be done?'. I will give a few things that need to be done. Firstly, we must find more oil in Australia, otherwise we will have diabolical problems in less than 10 years time. Secondly, we must give encouragement to people to find oil-not introduce additional taxes, resource rent taxes or any sort of secondary taxation that will be an impediment to people going out and risking their money. Some people may say that there really is not a risk because we have prospective areas. But the rate of success in discovering oil off-shore throughout the world is very low, and the risks are very high. In Australia the situation is even worse. The prospectivity in Australia is even worse. No doubt the figures are debatable, but I have heard that only one in 90 wells is likely to produce a viable resource. What we need to do is to add to this nation's reserves, not introduce impediments that will stop the major companies from seeking out resources that can be used for future benefit of every Australian.

Mr Griffith of BHP Petroleum Pty Ltd made a remark at a recent conference of the Australian Petroleum Exploration Association. I know that BHP will be put down for saying this but it is what it believes. Of course, BHP is a very great Australian company. Mr Griffith said:

. . . recognising the size of the continent, and the poor data base generally available, the search for such a target or targets will be costly and, by definition, high risk. Unfortunately the technical risk has now been exacerbated by RRT, which threatens high risk offshore exploration both by its high tax rate and its failure to embrace a broader base of deductibility for unsuccessful exploration.

He went on to say-this is the point that we should all keep in our minds:

Certainly BHP will now seriously reconsider its attitude to higher risk ventures in the Australian offshore, given the increasingly stringent criteria controlling exploration investment. The leakage of BHP funds overseas could well increase as a consequence.

Finally, to point out the importance of discovering more oil, of retaining our self-sufficiency and of not relying on what in the future could be very uncertain sources of supply, it is worth my referring to the various charts that have been produced in respect of liquid fuel demand and exports. On current prices of around $18 a barrel-let us bear in mind that there is a possibility that that price will go up-without any future discoveries, it is expected that by the year 1990 we will import just over $3 billion-worth a year of liquid fuels. If the cost were $25 a barrel, that would take the cost to $5 billion a year. It is not beyond the bounds of possibility that there could be disturbances in the great oil provinces of the world that could force the price up to that figure. It is not a very high figure when one considers the price in the late 1970s and early 1980s. At prices of, for instance, $36 a barrel, that gives a figure of more than $7 billion a year.

To repeat what I said at the beginning of the debate, we are opposed to the resource rent tax; we believe that secondary taxes distort the market. Every encouragement should be given to companies to drill and to find oil that can be used for the future benefit of Australia. If companies are frightened off by disincentive-and the resource rent tax will be a disincentive-and we do not discover oil, we will have problems in not too many years. This Government, and anyone who supports the legislation, will be held responsible for those shortages.