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Tuesday, 5 December 2000
Page: 20692


Senator O'BRIEN (5:18 PM) —Firstly, can I say we have now had an opportunity to consider the proposed regulations referred to in this Wool Services Privatisation Bill 2000, together with constitutions for the new corporate entities and the statutory funding agreement between the Commonwealth and the new company. I thank the government—or, more accurately, the officers of the department, Mr Sutton and Mr Roseby—for getting us the material.

Since 1998, the Rural and Regional Affairs and Transport Legislation Committee has undertaken a number of inquiries into the reorganisation of the Australian wool industry. We consider it a key rural industry. There is no doubt that the wool industry has gone through a difficult period, but wool growers are a resilient lot and I am confident that this industry has a positive long-term future. As part of these inquiries, the committee has sought to clearly identify all the costs of the proposed changes in industry structures to be met by growers. The reason is simple: it was the government who was spending the money on lawyers and financial experts and the like, and on behalf of the industry we wanted to make sure that the money was spent wisely.

In December 1998 the committee undertook an inquiry into the provisions of the Wool International Amendment Bill. The primary purpose of that bill was to freeze the sale of wool from the stockpile of Wool International. The vast majority of growers and grower organisations were opposed to the freeze. The cost to wool growers of that government decision was estimated to be in the order of $20 million. That was clearly an unwise use of growers' money. In May 1999, the committee inquired into the provisions of the Wool International Privatisation Bill. The cost of the conversion of Wool International was approximately $5 million. In April 2000, the committee inquired into the Australian Wool Research and Promotional Organisation Amendment (Funding and Wool Tax) Bill 2000. The committee was advised that the cost to wool growers of the privatisation of AWRAP would be approximately $23 million. This is a considerable amount of money for growers to have to meet. It has been an expensive process.

The decision to privatise AWRAP followed a successful motion of no confidence in the AWRAP board passed at a meeting of growers on 30 November 1998. That meeting also passed a motion requiring AWRAP to prepare a plan to enable complete commercialisation of the Woolmark Company, and it recommended to the minister that the wool levy be reduced from four per cent to one per cent and be directed solely to research and development. The then minister Mr Vaile asked for the resignation of all AWRAP board members and established the Wool Industry Future Directions Task Force chaired by Mr Ian McLachlan to review the structures for wool marketing and promotion and research and development. That task force reported on 30 June 1999.

The task force report identified two key issues: firstly, the need to obtain value for money in expenditure in research and development and promotion; and, secondly, the need to put wool growers in charge of their industry. In September 1999 the minister, Mr Truss, announced an eight-point plan for implementing the task force report. The plan included the establishment of a wool working party to conduct and report on a vote of wool growers regarding their preferred wool levy funding options and associated service models. The opposition supports the general thrust of the reform of the Australian wool industry. In fact, it has to be said that, when in government, the opposition initiated a number of these changes.

The Rural and Regional Affairs and Transport Legislation Committee inquired into the provisions of the Wool Research and Promotion Organisation Amendment (Funding and Wool Tax) Bill 2000 on 6 April. As we have done on other occasions, the committee questioned witnesses about the cost of the privatisation process. We considered it essential that both the parliament and wool growers knew both the nature and the quantum of the cost to be incurred by the process that they were being asked to endorse. Despite questioning officers from the Department of Agriculture, Fisheries and Forestry and the Office of Asset Sales and Information Technology on the matter of costs, the committee were not advised of an unquantified liability to Cape Wools South Africa through its interest in the Woolmark Company. Cape Wools South Africa was formerly the South African Wool Board.

At a hearing on 8 September this year, the committee further pursued the matter of costs to the industry incurred by this process. We were provided with a schedule of costs, but at no point during these hearings was the extent of liability to Cape Wools South Africa specified to the committee. It has also become clear from later evidence to the committee that the vast majority of wool growers did not know about the agreement between AWRAP and Cape Wools. Mr Nicholls, a member of the Woolgrowers Advisory Group, told the committee:

With the South African issue, I do not believe that any wool grower—not every wool grower but effectively any wool grower—was aware of the extent of the possible residual interest by South African wools in the Woolmark Company and I do not believe that wool growers were aware that it could impinge upon the privatisation and restructuring process. I think its materiality was not put in front of wool growers, and I am disappointed that it was not put in front of wool growers as and when it was developed.

Senator Crane also expressed concern that the agreement between AWRAP and Cape Wools was not brought to the attention of the industry. He said:

I think one of the amazing things about this Cape Wools issue, because it did appear last year for the first time, is that nobody in the industry, including those of us who do read annual reports, picked it up and questioned it.

Mr Nicholls stated:

I believe the wording was designed to ensure that the sensitivity was not detected.

Senator Ferris described it as a `snow job'. Senator Crane said the schedule of unquantifiable liabilities amounted to an `open cheque book'. This situation was entirely unacceptable to both the industry and the Senate, and somebody should be held account-able for, firstly, creating the problem and, secondly, attempting to cover up the problem.

It is of considerable concern that AWRAP, while meeting its obligation to keep the responsible minister informed of significant matters to do with its operation, failed to properly inform Australian wool growers about its arrangement with Cape Wools. It must be noted that the circumstances surrounding the arrangements entered into by AWRAP with Cape Wools, and the financial implications of these arrangements for growers, only became public when details were leaked to the opposition. In particular, the failure of AWRAP to properly disclose the terms of an agreement with Cape Wools South Africa in its annual report is of considerable concern. Successive ministers also failed to meet their responsibilities to the parliament by not properly informing members and senators of the true state of the authority, as they were obliged to do.

The government was formally represented on the AWRAP board when the new membership agreement with the then South African Wool Board was signed in 1997. Mr Alan Smart, Acting Executive Director of the Agriculture and Forestry Group in the Department of Primary Industries and Energy, was the minister's representative on the board until 20 July 1997. Mr Paul Sutton, who headed the Wool and Dairy Branch of the department, replaced him. Mr Sutton was also responsible for providing the minister with policy advice on the wool industry and the statutory authorities that served it. Mr Sutton was therefore both a member of the AWRAP board and also the minister's key policy adviser on matters relating to the operations of AWRAP.

On 16 June 1997, the then chairman of AWRAP, Mr Alec Morrison, wrote to the then minister, Mr Anderson—the current Deputy Prime Minister—seeking approval for IWS International, now the Woolmark Company, to assume the assets, liabilities and operations of IWS. The nature of the agreement with Cape Wools South Africa was specifically drawn to the attention of the then minister. Under the heading `SAWB put option', the AWRAP letter drew Mr Anderson's attention to the clause in the members' agreement that gave Cape Wools South Africa the right to require AWRAP to buy all of Cape Wools's shares in the AWRAP subsidiary. Mr Sutton told the committee:

What I can say is that there was a very comprehensive submission prepared by the AWRAP board for the government's approval of the whole incorporation process.

Mr Sutton said the department had advised the minister to approve the arrangement and he had done so. So the former minister for primary industry—now the Deputy Prime Minister—had the detail of this obligation on AWRAP to pay out Cape Wools specifically brought to his attention. He was asked to formally approve the arrangement, and he did. But, as if that was not bad enough, Mr Anderson was given another chance to save Australian wool growers many millions of dollars, and that is a matter that I intend to raise in the committee stage of this debate.

The next minister, Mr Vaile, then left AWRAP without an effective board from 3 December 1998 through to the appointment of Mr John Priest and Associate Professor Andrew Vizard on 28 April 1999. According to the 1998-99 annual report, the board did not meet until 21 May 1999. So this organisation, caught up in a dispute with Cape Wools involving a great deal of wool growers' money, was left by Mr Vaile without a board. The problems caused by Mr Vaile's failure to appoint a new board are clear from the chronology of events provided to the committee by Cape Wools South Africa. This is simply inexcusable, and I intend to pursue this matter also in the committee stage.

Despite the efforts of Mr Anderson and Mr Vaile to distance themselves and the government from a direct role in this mess, it is clear that the government has had a direct role all along. In fact, Mr Rodney Price, the Chairman of the Interim Advisory Board and the man brought in by the government to fix the Cape Wool problem, told the committee that he was an employee of the Commonwealth and he confirmed that the Commonwealth was a party to the agreement, because he told the committee, `They actually own AWRAP.' Successive ministers have had a personal knowledge of, and on at least one occasion a direct role in, both the terms of the agreement between Cape Wools South Africa and AWRAP and the processes followed in an attempt to settle this matter since 1997.

The committee was also provided with an opinion prepared by Marcus S. Jacobs QC, who stated in part:

There are serious commercial issues—

relating to the conversion of AWRAP—

one of which may possibly involve Commonwealth liability notwithstanding the provisions of section 61 of the Australian Wool Research and Promotion Organisation Act 1993 and of which Mr Yarra—

who was the Director of the Office of Asset Sales and IT Outsourcing—

may not have been aware when he gave evidence before the Committee on 2 October, and when he, at p. 65 of the transcript of that evidence, said that he expected that there would be no residual liabilities of the Commonwealth, when the new legislation was in place.

So on the face of it, it appears that, despite claims to the contrary, the Commonwealth might also have an ongoing legal liability in relation to this matter. As has occurred on a number of earlier occasions, the Rural and Regional Affairs and Transport Legislation Committee was asked to recommend to the Senate that a bill be passed without having access to related material such as regulations. Senator Crane referred to the problems faced by the committee because it did not have all the information it required to make an informed judgment about the merits of legislation before it. He said that he hoped all the information could be made available to the committee prior to the legislation passing through the Senate.


Senator Crane —It has been.


Senator O'BRIEN —Senator Crane says it has been, but it hasn't. Nearly all that material has now been provided, some of it reluctantly. However, some of the material sought by the committee remains outstanding.

During the debate in the committee stage, I will seek an explanation from the Parliamentary Secretary to the Minister for Agriculture, Fisheries and Forestry, Senator Troeth, as to why the government has chosen to withhold some information from the Senate. A number of industry representatives told the committee that it should recommend that the Senate pass the bill. Senator Forshaw has touched on this matter. Their support to progress the bill was not unqualified. I asked the President of the Wool Council, Mr David Wolfenden, whether the industry wanted the bill passed regardless of the liability that might flow from the dispute with Cape Wools. Mr Wolfenden said:

Hopefully, you would like to knock it off if you thought the liability to wool growers was totally open ended or what ever it might be.

And we are supposed to draw a conclusion from that as to at what point we should draw the line and say that it should not be passed on.

While representatives of the industry told the committee in the public hearings that the bill should be passed, the view put by the industry in the in camera hearings was far less clear. The Senate has taken the very rare step of requiring the publication of the in camera evidence given by industry representatives. In that evidence, Mr Wolfenden told the committee:

But we also believe that the parties to the agreement, and the position of the government in that agreement, in that setting forward of a process, does make them a party to this agreement and they therefore have a liability to this process.

I interpret that to mean that he thinks they should pay some of the bill. Mr Gooch, a member of the Woolgrowers Advisory Group, told the committee:

I don't think there will be unqualified support should the ongoing levy payers be involved in the process of repaying this liability.

I think we have to find some mechanism where the liability should be quarantined to the participants in the original agreement—

that is, Mr Gooch asked the committee to impose an obligation on the government regarding the Cape Wools liability. It is interesting to see the contribution on page 28 of the in camera Hansard of the committee proceedings of Monday, 2 October, where Mr Nicholls said:

The dilemma I have is that the Cape Wools issue has to be resolved. It is going to be resolved whether it is a statutory authority or a privatised company—in other words, whether or not we pass the bill. So the issue is: who is going to pay? With respect to that decision, quite rightly, wool growers are saying that it should not be future levy payers because it is not consistent with the purposes for which the levy will be raised, so you cannot use that money. David Wolfenden has correctly identified that there are some reserves, there are some assets that can be sold, but until this issue was put in the public arena, wool growers believed that the Woolmark Company was a viable business. They had questions about its robustness. If it were put in private hands and given a commercial focus, they believe there was a possibility of it being a viable business. Decisions by past board members and management have resulted in that being severely compromised. Are you going to pass the poisoned chalice over to class B shareholders? That is the issue. If you do, you will wear the acrimony of those wool growers, those voters, when they find that the boards that governments appointed destroyed their asset and they received no compensation.

These comments are hardly unqualified support for the passage of the bill. This is hardly surprising, given the comments that were made on the public record suggesting that opposition senators who had trouble making such a recommendation should change their position and agree to pass the bill. In other words, these gentlemen were not prepared to say on the record what they really wanted to tell the committee, but the committee felt there was no other option but to publish that for the industry.

As I said at the beginning of my contribution on this second reading debate, we on this side of the chamber have sought details of all costs to growers of the reform—and, as I pointed out, those costs have been substantial—but we have taken the view, in line with the attitude of the government, that they are costs that should be met by the industry. That continues to be our view in relation to the costs flowing from this bill. But it appears to me—and this clearly is the view of the industry—that, in part at least, the costs flowing from the Cape Wools settlement are not legitimate costs associated with the reform process but costs incurred through incompetence: the incompetence of the former AWRAP board and the two senior ministers, Mr Anderson and Mr Vaile. The industry is arguing that the government should be brought to account on this matter, and I am inclined to agree with them.