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Wednesday, 1 June 1994
Page: 1018

Senator BOLKUS (Minister for Immigration and Ethnic Affairs and Minister Assisting the Prime Minister for Multicultural Affairs) (9.44 a.m.) —I table a revised explanatory memorandum and I move:

  That this 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

Mr President, the proposed sale of the Moomba-Sydney Pipeline System is an important part of both the Government's asset sales program and the Government's micro-economic reform agenda. That I am standing here today speaking to this bill represents a considerable achievement on behalf of the Government to bring the Pipeline sale to fruition. Every sale of a major Government asset is unique but few have presented the complexities associated with this sale.

The Government's first attempt to sell the Pipeline was halted in December 1990 when the Senate rejected legislation to commercialise haulage tariffs. At that time the Government announced that it would not sell the Pipeline unless it could do so on a commercial basis.

Late last year the Government reaffirmed its intention to sell the Pipeline on the basis of a negotiated conditional sale of a 51 per cent stake to AGL, the Australian Gas Light Company, and a competitive tender for the remaining 49 per cent. In so doing, it has had regard to the fact that AGL holds a first right of refusal to acquire the Pipeline against both the Pipeline Authority and the Commonwealth, confirmed by the NSW Supreme Court in late 1991.

The agreement with AGL specified a range of conditions precedent, including that the Commonwealth would not proceed with the sale unless there is a successful completion of the competitive tender for the non-AGL stake.

Other key requirements are that buyers of the Pipeline enter into a new commercial gas haulage agreement with AGL and an agreement governing the use of, and access to, the Pipeline easements; and that there be resolution of the rights held by the Cooper Basin Gas Producers, appropriate approvals from the Trade Practices Commission, and authorisation by the NSW Gas Council of the proposed new gas haulage agreement. It is also necessary to establish an appropriate regulatory framework for the operation of the privately-owned Pipeline.

The primary purpose of this bill is to institute the necessary arrangements to complete the sale by facilitating the transfer of specified assets and liabilities, other than debt, of the Pipeline Authority. It also provides for continuing employment of those staff who accept employment offers from the purchasers and preserves their accumulated benefits. The bill embodies regulatory rules that would apply specifically to the Pipeline under private ownership, and provides for the limited operation of the Pipeline Authority post-sale and for its eventual abolition.

The Pipeline transports natural gas from the Cooper Basin gas fields in South Australia to Sydney, regional centres in New South Wales and the ACT. It comprises approximately 1300 kilometres of trunkline from Moomba in South Australia to Wilton on the outskirts of Sydney. The trunkline includes two compressor stations at Bulla Park (west of Cobar) and at Young in New South Wales. It also includes pipelines from Young to Wagga, Young to Lithgow, Junee to Griffith, and from Dalton to Canberra and spur pipelines to Cootamundra, Oberon, Junee, Orange and Bathurst.The Pipeline is currently owned and operated by the Pipeline Authority, a Commonwealth Statutory Authority established by the Pipeline Authority Act 1973. It has approximately 120 staff located throughout New South Wales, including Young and Cobar, with the head office in Canberra.

The Pipeline was constructed in the period 1974-76 after the Authority took over the project from AGL. In 1974, the Authority entered into an agreement with AGL to carry, on a cost recovery basis, the gas AGL had contracted to buy from the Cooper Basin Producers over the thirty-year period to 2006.

The labyrinth of existing contractual arrangements accords AGL extensive rights, which will be relinquished in the context of the Pipeline sale transaction. These existing rights include a guarantee by the Commonwealth of the Authority's performance in hauling gas, absolute priority to the existing and future capacity of the Pipeline until at least 2006, haulage of gas on a cost-recovery basis until 2006, a right of first refusal to acquire the Pipeline, and a right of veto over any sale.

As a part of the sale, AGL would enter into a new agreement with the privatised pipeline company for the haulage of gas (to be known as the "Gas Transportation Agreement"), thereby providing clear structural separation and transparency of the Pipeline's operations from those of AGL. This agreement would involve commercial haulage tariffs and facilitate arrangements for third party access to the Pipeline. In return for releasing the Commonwealth and the Pipeline Authority from existing contractual commitments, AGL will receive compensation of $30 million.

Similarly the Cooper Basin Gas Producers also have a number of rights, arising out of the Deed of Covenant and Consent, which have been in existence since 1974. These include a veto over any sale of the Pipeline and a range of rights in respect of haulage of gas which have not been utilised over the past two decades other than priority of carriage of the gas sold to AGL.

The bill incorporates provisions designed to ensure that the private owner of the Moomba-Sydney Pipeline System will be able to operate on a normal commercial basis post-sale. As part of this aim, the new pipeline company could not be fettered by any ongoing veto rights held by each of the Cooper Basin Gas Producers. In this respect the bill provides for the extinguishment of these veto rights, should the Government be unable to reach a negotiated outcome before the sale, whilst recognising the Producers' rights to compensation on "just terms" should they suffer a loss.

The bill also provides flexibility in relation to the other rights held by the Producers, relating to the haulage of gas by the Pipeline. These include the option of transferring to the new pipeline company the obligation to satisfy these rights or, as with the veto rights, the alternative of extinguishing the rights.

However, the Government is very hopeful of concluding in the near future a negotiated settlement with the Producers, which may require amendment of the bill.

In purchasing the Pipeline a key factor for any prospective buyer is certainty regarding the regulatory environment that will apply. At the time the sale agreement with AGL was concluded in mid-November 1993 it was anticipated that passage of the Interstate Gas Pipelines Bill would have instituted the regulatory framework within which the new owner of the Pipeline would operate following completion of the sale in June 1994. However, as part of the agreement reached by the Council of Australian Governments on 25 February 1994, the Government deferred the Interstate Gas Pipelines Bill in favour of the development by mid 1996 of a comprehensive package of competitive measures for the gas industry. While I fully support this decision it has meant that alternative regulatory measures have had to be developed in order to facilitate this sale.

These measures, which form Part 6 of the bill, constitute a comprehensive regime which specifically addresses the Moomba-Sydney Pipeline system, to govern that Pipeline's operations under private ownership. The regime introduces substantial improvements in the nature of third party access to the Pipeline, and thus represents a further demonstration of the Government's commitment to pro-competitive micro-economic reform.

The bill currently before the Senate facilitates third party access to the Pipeline by obligating the owners of the Pipeline:

to provide open access on negotiated commercial terms and conditions, with the Trade Practices Commission to arbitrate where required;

to maintain effective separate accounting and separate management control of gas transmission pipeline operations and to provide for the Prices Surveillance Authority to monitor haulage charges; and

to provide information to relevant parties on haulage charges and terms and conditions for pipeline access.

These measures should ensure that:

users of the Pipeline should not be able to frustrate new users obtaining access to spare and developable capacity on reasonable commercial terms;

all users, including existing users, should have access to presently uncommitted or new capacity on fair and equitable terms;

tariff setting principles should be demonstrably fair and reasonable, "transparent" and should apply to all new haulage agreements; and

the "lumpiness" of capital investment required to expand capacity should not fall disproportionately on the incremental user of the MSP.

The legislation does not prevent the Trade Practices Commission from investigating any behaviour that it considers may breach provisions of the Trade Practices Act 1974.

The regulatory regime will be administered by the responsible Ministers and existing institutions, that is, the Trade Practices Commission and the Prices Surveillance Authority or any general industry competition authority agreed following the Government's consideration of the Hilmer Report. In performing its arbitration role, the Trade Practices Commission would have regard, amongst other things, to any future national regime for third party access to essential facilities. It is recognised that relevant State authorities may need to be involved in arbitration hearings conducted by the Trade Practices Commission.

The regulatory regime was developed with the assistance of the Trade Practices Commission, and is intended to provide a suitable regulatory environment to facilitate the Commission's approvals for the sale to proceed. AGL and the Cooper Basin Gas Producers have been consulted on the proposed regime. Having regard to those consultations, the Government intends to introduce an amendment to the bill intended to clarify certain aspects of the proposed regulatory regime.

The proposed regulatory arrangements will replace the existing unsatisfactory and potentially uncompetitive contractual arrangements applying to the Pipeline's operations. If instituted they will create an environment for the development of increased competition in the gas industry, based particularly on the statutory requirements for the Pipeline operator to provide open access to the Pipeline and information on haulage charges and underlying terms and conditions.

To facilitate the sale, the Government proposes to create a new Commonwealth trading company which will not trade until the date of the sale, illustratively called "Newco" for the purposes of the bill. The Commonwealth will sell shares in the company for a nominal amount to AGL and to the 49 per cent purchasers. Thereafter, the Commonwealth would execute an asset purchase agreement with Newco under which, among other things, assets (and certain liabilities except debt) would be transferred to Newco in exchange for the purchase consideration, which is expected to be in the order of 510 to 550 million dollars. The bill provides the legislative framework for those Pipeline Authority staff who accept an offer of employment with Newco to transfer to the new company with continuity of service.

The sale arrangements with AGL were negotiated on the basis of the Government providing Newco with initial working capital of 4 million dollars, as well as providing funds to cover accrued leave liabilities for those staff who transfer to Newco upon the sale. The bill provides for payments of up to 6.5 million dollars to honour these obligations. These payments are expected to be largely recovered in higher sale proceeds.

As part of the execution of the asset purchase agreement, Newco would enter into the new Gas Transportation Agreement with AGL and into an easement agreement with the Commonwealth relating to the joint ownership of certain easements by the Commonwealth and Newco. The easement agreement will limit Newco's rights to the use of the easements only for the operation and maintenance of the Pipeline. Newco will not be able to prohibit the building and operation of other pipelines on the same route. The bill does not restrict the post-sale application to the Moomba-Sydney Pipeline of State Government pipeline licensing laws.

The bill provides for the Commonwealth to assume the debt obligations of the Authority to meet the Authority's private debt commitments and to discharge its public debt, and reflects transactions necessary for this assumption of debt to be properly recorded in the Commonwealth's accounts.

In this connection, it should be noted that since its establishment in 1973 the operations of the Pipeline Authority have been underwritten by debt financing. Construction of the Moomba to Sydney trunk pipeline from 1974 to 1976 was funded by loans from the Budget. Since that time the Authority's operations, including the construction of lateral pipelines, have been funded by public and private borrowings in addition to revenue earned from the haulage of gas.

Assumption of the debt is necessary to avoid complications which may otherwise make the Pipeline difficult to market and to avoid any Commonwealth involvement with the business after the sale. At 30 June 1994, the Pipeline Authority is expected to have about 191 million dollars in debt on its balance sheet. This is expected to comprise about 130 million dollars of Commonwealth-guaranteed privately held inscribed stock and bank loans, and outstanding Commonwealth loans of approximately 61 million dollars.

A change of ownership for any organisation often leads to apprehension and insecurity for staff during the transition period. While many may view the change to be an opportunity, this is not always the attitude which prevails. The Government is sensitive to the impact on staff of the plans for the Pipeline's transition to private ownership, and it is therefore a central objective of the sale to ensure that staff of the Authority are treated equitably and fairly.

The bill provides for the prospective owners of Newco to make offers of employment to Authority staff, which will apply from sale day. Offers would be made on the basis of terms and conditions of employment which are broadly equivalent to those which currently apply to employment with the Authority. Administrative arrangements for assessing whether an employment offer is broadly equivalent will be embodied in a "staff transfer agreement" to be made between the prospective purchasers of Newco, the unions representing staff, and the Authority. Staff accepting such offers would transfer to Newco with continuity of service preserved and full protection of rights accrued under Commonwealth employment.

In addition the bill provides for resolution of the case of those staff who reject an employment offer from Newco on the grounds that the terms and conditions are not broadly equivalent to those applying with the Authority. It is envisaged that the "staff transfer agreement" would establish an appeals committee with an independent chairperson, which would apply an agreed set of equivalence criteria. The bill provides for relevant staff to transfer to Newco after the sale day should they accept a revised offer.

Staff who do not receive an offer of employment from Newco, and those who reject an offer which is determined by the appeals committee to be not broadly equivalent to their existing terms and conditions of employment, would be eligible for redundancy benefits. Those who reject an offer which is determined to be broadly equivalent would be deemed to have resigned and therefore would not be eligible for redundancy benefits.

Provision is also made for the entire job offer and staff transfer process to take place after sale day, should it not be possible to implement it beforehand.

The Government is committed to preserving continuity of employment for those staff who transfer to the new pipeline company and to preserving entitlements accrued by those staff while in the public sector to point of sale. Therefore, the bill provides for a number of "transitional and saving provisions" in respect of a variety of Commonwealth legislation, such as the Long Service Leave (Commonwealth Employees) Act 1976 and the Safety, Rehabilitation and Compensation Act 1988. These provisions will ensure, in particular, that employees of the Pipeline Authority do not lose the benefits that they will have accrued prior to the sale of the Pipeline. They are similar to the provisions provided in the Qantas, CSL and SMEC sale legislation and ensure fair and consistent treatment of Government employees regardless of the method of sale.

Various transactions associated with the arrangements for sale of the Pipeline may attract liability for stamp duties. In the absence of other action, this would depress the expected returns to all taxpayers throughout Australia from the sale of the Pipeline and benefit taxpayers in a particular state only. As with other asset sales, to avoid these difficulties, transactions relating to the Pipeline sale are to be exempted from stamp duties. The bill also makes quite clear that the new company which is to own and operate the Pipeline will not have any immunity post-sale from such duties legitimately imposed.

Part 7 of the sale bill embodies amendments to the Pipeline Authority Act 1973 which would upon sale of the Pipeline enable the Authority to continue operating on a limited basis.

It is envisaged that following the sale the Authority would commence construction of the proposed ethane pipeline from Moomba to ICI's Port Botany petrochemical plant, which is to be upgraded to utilise a more suitable feedstock. The Authority would commence construction of the pipeline on a project management basis for a privately-owned entity. If it proceeds, this project is expected to have significant national benefits, because of potential for greater import replacement, increased exports of ethylene based products, and employment spinoffs stemming from the maintenance of employment levels at Port Botany and the jobs created in the construction phase. The design and planning of the ethane pipeline by the Authority and ICI has been underway for some time.

The Authority's involvement in the project is subject to it negotiating various conditions, including contractual arrangements which are acceptable to the government. The project has the broad support of the New South Wales Government. If the project proceeds, the Authority's role would be terminated when the relevant State Government environmental and planning approvals are obtained by the private sector owner. The Authority has secured necessary Commonwealth environmental and planning approvals for the project, which broadly mirror State requirements.

It is intended that the Authority be abolished, and part of its Act repealed as appropriate, following termination of its role in the ethane pipeline project and completion of any other post-sale responsibilities. Part 8 of the Bill provides for the Authority to be abolished on or before 31 December 1996. Should the ethane project not proceed, and the transfer of staff to Newco takes place on 30 June as planned, the Authority would be abolished upon finalisation of its residual business relating to Moomba-Sydney Pipeline.

The Authority's operations post-sale will be funded by cash balances carried over, supplemented if necessary by short-term borrowings. The amendments to the Pipeline Authority Act provide for the Minister of Resources to exercise some discretion as to the appropriate size of the Board commensurate with the Authority's post-sale responsibilities.

The Minister may appoint up to seven Board members and a minimum of three.

In view of the Authority's role following the sale, the bill includes a clause requiring TPA to operate in accordance with the responsible Minister's written determination of policies and objectives.

Determinations by the Minister may cover the range of policies, responsibilities and obligations of the Authority, including those of a financial nature.

The Minister may issue more than one determination, and amend or revoke an existing determination as necessary. All determinations are to be tabled in both Houses of the Parliament.

The bill now before the Senate contains a range of legislative measures required to effect the sale of the Pipeline system on the basis I have described. The sale has attracted a good deal of international and domestic interest.

Short-listed competitive bidders were invited to undertake due diligence, and have participated in a program of site visits and presentations by the management of the Authority and relevant Commonwealth and State agencies.

Final binding bids for the non-AGL 49 per cent stake in the Pipeline were received on 20 May, and the Government is considering the final sale package.

As I have said, the Government plans to complete the sale by 30 June.

Mr President, this bill seeks to institute a sound legislative framework for the sale of specified assets and liabilities of the Pipeline Authority.

It is a key element in assisting the Government to achieve its objectives for the sale. Instituting this framework will enable the Government to resolve once and for all the inherent uncertainty and ambiguity of the present contractual arrangements between the Authority and AGL.

In instituting arrangements which will promote competition in access to the Moomba-Sydney Pipeline System, a key element of the nation's gas infrastructure, the Government is demonstrating its commitment to micro-economic reform of the gas industry in Australia.

At the same time, the Commonwealth will achieve a fair value in divesting an asset for which public ownership is no longer appropriate. I commend the bill to the Senate.

I present the explanatory memorandum to the bill.

  Debate (on motion by Senator Reid) adjourned.