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ECONOMICS REFERENCES COMMITTEE
01/07/2009
Foreign investment by state owned entities

Mr Lyle —We are landholders on the Liverpool Plains south of Gunnedah and we are here today to speak on the Chinese Shenhua acquisition of land in our area. It is a first by a long shot in our area. Very briefly there is six per cent of arable land in Australia at this point in time and of that approximately 0.2 of a per cent is the really heavy, good, black soil flat plains. That is one of the major concerns that we have at this stage.

It is an area that I will probably be crossing over a few times in talking about food security, water and obviously the agricultural side of it, but mainly we get back to the Shenhua exploration licence that they have at the moment. Shenhua came in as Shenhua Energy Company Ltd in the first place. They are now, as we understand, Shenhua Watermark Coal Pty Ltd. Whether that is there for tax reasons or to keep the board happy re an acquisition of such I think is up to you perhaps to look at that situation. The main area that Shenhua are tackling at the moment is the Watermark catchment. This particular catchment is big; it is huge. It comes down over the Kamilaroi Highway, all of this area is south of Gunnedah, and the north-west slopes and plains. It closes the highway for four or five days in big rains and goes right over the top of the railway line. I do not think that Shenhua have any idea of the capacity of the water coming down in that area and what is going on there.

Our major concern is that down on the plains themselves it is like a ball running down a hill as far as pollution is concerned coming from these mines. They are talking massive mining. They are talking 10 million tonnes per annum from three open-cut mines. In our area we have never ever seen anything quite like that. I am probably the first one to say at some stage of the game, ‘Sure, mining takes place.’ But there are the right areas for it and the wrong areas for it and we believe this is one of the very, very wrong areas.

Shenhua have gone to the point where they want to buy the whole area, 195 square kilometres, they have openly stated that. We do not know at this stage who they have approached, who has agreed to sell. We know that some have. There are quite a few at this point in time I think would say that they would sell. There are the smaller farmers along the ridge but I would say that the majority are definitely against selling. That is something that is starting to split the community up. You have situations in Gunnedah where some are for and some are against mining. You also have the developers in Gunnedah who think it is wonderful, which is another bit of a worry. Now some of the farmers think it is great because they have virtually won the lottery. You are talking possibly four times the value for the properties that are being sold. But that gets passed on, what happens as far as council rates are concerned for everybody else et cetera. There are a lot of situations down the line that have to be addressed.

When Shenhua came in with the state government to go for these exploration rights, the state government asked for $20 million at that particular time. They received $300 million. You look at this and you do wonder what on earth is going on. They say that it was tendered out but there is no sign of any tendering anywhere. There is no sign of anything to do with it and you really do start asking a few questions. Some of the farming community has said to me, ‘What is the difference between this and what happened with the AWB?’ That is another issue.

With the 195 square kilometres that they are talking about buying, there is a big question mark there. What are they doing this for? Are they doing it to protect themselves against pollution if there is a problem somewhere inside? Then they can just say: ‘It’s on our land so what? Don’t worry about it.’ I think there is a big possibility of that. I cannot get any response whatsoever from Joe Clayton, who is running the situation up there, as far as a guarantee that, if anything goes wrong, they will take responsibility and fix it.

I will not go into great detail about the aquifers, but I think you would understand that they are water currents underneath the ground. If they are speared it is pretty well impossible to fix that. At the moment, Gunnedah has one of the best water supplies in the world. There are huge bores. There have been no restrictions ever. It is amazing. That eventually flows right through, down into the Murray-Darling system. If that is speared, Gunnedah will go from having one of the best supplies to having nothing. There is no water anywhere else. That is it. It is underground water and that is it.

The other problem we have got out on the plain is subsidence. What happens with subsidence is that when they are drilling underground—and it is approximately 250 metres wide and a two-metre drop—when the gear pulls back out everything drops. Some drops immediately and some takes up to five, 10 or maybe 15 years to happen—it happens over a period of time. So you then have this huge, great concave on the plain itself which cannot be fixed. I have asked them about that and they have said, ‘No, it can’t be done.’

The situation with Shenhua is starting to worry the hell out of the whole area as far as them taking coal. They are the major coal exporter in China and they are digging up coal here to take back. Why? Why do they need our coal? To me it is a case of stockpiling. Take the Breeza Plain. I am sorry to go backwards and forwards on some of these things, but I think they are important. The Breeza Plain is an area—and there are very few of them in the world—that can produce two crops a year. I am talking about winter crops and summer crops. They are big crops. I am not talking a few bags; I am talking tonnes—three and four tonnes. It is a fantastic food bowl; it really is. To wreck it with pollution or any of the other things that I have previously mentioned would be an absolute catastrophe.

This is obviously something that you would know about, but we are unable to purchase land in China. If we want to do that, we cannot just wander over there and say, ‘We’d like to buy a mine.’ They are wandering round the world at the moment—and this is all on the web—with $1.3 trillion to spend. That is because you are dealing directly with the Chinese government. You are not dealing with a company; you are dealing directly with the Chinese government. They have the money and that is what they are doing. I would say they are picking the eyes out of pretty well anything they can find and having a go at purchasing it. When this recession is all over and washed up, they could be looking pretty smart.

Freehold land is land like the land which you have your houses on. It is the same in the country areas. Freehold land nowadays, with all this sort of thing going on, means very little. The mining companies can come in. They have been able to do that for years. I think it goes back to the purchase in wartime of resources for the various governments. When Shenhua first took up the rights it was sight unseen. Whether that had anything to do with the state government or not, we do not know. But we know for sure that no-one had bothered to come and have a look at the thing. They just saw it on a map, saw where the diggings had happened before as far as preliminary sites were concerned, and that was that.

There are various other things to consider, such as climate change. What is the point if we are just going to be boofing coal up into the air? What about clean coal? Where is the evidence for that? A lot of people are talking about it but there are no costings on it. There are no solutions re the underground ramifications et cetera. It goes on and on. They are just not there.

I would be saying exactly the same words whether it was a coalition government in power in New South Wales or Labor or whoever else—it does not matter. We have a water study at the moment which is studying all the goings-on in the whole area—aquifers and everything else concerned with it. The federal government have put money up for that. Minister Macdonald from the state government is quite happy to wander around and say, ‘Look what a wonderful job I have done putting this scheme up,’ but he will not put money up for it. Pam Allan is running that at the moment and doing a very good job—she was a Labor minister for the environment years ago. She has looked after that extremely well, yet Macdonald will not come to the party at all.

We look at the goings-on in the Chinese mines themselves. I think you have to look at the loss of life in their mines, their appalling record over there on human rights et cetera.

As far as the various political parties are concerned, the Nats are helping us, the Liberals are helping us, umpteen Labor people are helping us and the Greens are helping us, but we cannot get any help whatsoever from the New South Wales state government. We have not even had one minister come up and have a look at that site. We have repeatedly invited them. Not one has bothered to come up. I think that is appalling, quite honestly.

I think the FIRB has to be careful not to appease the Chinese government now, with the sacrifice of Watermark, after what happened with BHP-Rio. I think that is a possible area—but that is down the track a bit.

One personal area I will finish up on is the sixties draft. There are about 15 or so fellows in our area who were involved in that and nearly all of them went to Vietnam or Malaysia. Those guys come and chat to me and they are absolutely appalled at what is happening. I will finish on that note. Thank you very much, Mr Chairman, for hearing us this morning.

CHAIR —Thank you for your opening statement. Mr Higgins or Mr Clift, do you wish to add to that?

Mr Clift —Yes, I would like to follow on from that. I would like to thank you for the opportunity to speak today and thank the senators for listening. I am a sixth-generation farmer from the Liverpool Plains. The Clift families settled there in 1835, so we have been there for quite some time. The agricultural land there is very special; there is not a lot of prime agricultural land in Australia. At the moment in our area there is competing land use between coalmining and prime agricultural food production for Australians to live on in future years. Our aquifers are at the head of the Murray-Darling Basin. It seems quite strange that we are trying to save the Murray-Darling and then we are putting in large coalmines, which are probably not the right activity in that place.

It is quite distressing to see that a lot of good Australian men and women have fought to keep Australia the way it is at the moment and here we are with the New South Wales state government releasing an exploration licence to Shenhua, which is a Chinese government owned company. It is not the right way to go in terms of good planning for the future of Australia. Mr Chairman, if there are any questions you would like to ask while I am speaking, fire away.

CHAIR —We will come back to questions.

Mr Clift —I do not have a lot more to add at this stage, so if you would like to ask questions we can go forward as we answer them.

CHAIR —Just as a point of clarification, you talk about the New South Wales government giving them a licence. Does that imply that they can override the owners of the land? Do they have a power to override the agricultural purpose which you are using this land for and conduct a mining operation or are they simply buying the freehold or leasehold of the land and proposing to use it for mining? Could you clarify that.

Mr Clift —They are proposing to buy the freehold land from individuals to carry on their activities.

CHAIR —But they do not have a right to override your use of the land under the New South Wales state law?

Mr Lyle —I think that if they get a mining right then, yes, in the end they can override the whole caboose and you then have to pack up and go. That brings forward another matter: is this going to end up happening with guys who do not want to leave? There are a lot of them in the area.

CHAIR —That is right.

Mr Lyle —Will they just stay put? I do not know.

Senator BUSHBY —Freehold title in Australia is not actually ownership of the land; effectively it is a much more permanent leasehold. The rights to minerals and other things that might be in the ground actually remain with the Crown.

Mr Lyle —Yes, that is right.

Senator BUSHBY —As a result, that gives the Crown the ability to grant exploration licences over any land.

Senator HURLEY —But not usually mining rights.

Senator BUSHBY —No, you will probably find that most parts of Australia have mining exploration licences granted over them. Whether the holders are actually able to act on those licences is a further step, but exploration licences are granted over freehold land and you cannot do anything about it.

Senator HURLEY —Yes, exploration licences. I agree with that.

Senator BUSHBY —But the minerals actually belong to the state.

Senator HURLEY —Yes, that is right.

CHAIR —I asked this question because I have seen an analogous situation in the south-west of Western Australia, at Capel between Bunbury and Busselton down on Geographe Bay, where mineral sands were mined and the mining companies moved in and took over farms, if you like, and mined there for many years. But in the end they restored the properties and handed them back to the farmers. They must have leased the land, I presume, or had some right to access the minerals. I was very interested in what the legal position was with respect to you. I invite Senator Joyce to open the questioning.

Senator JOYCE —Obviously the process of the inquiry is Foreign Investment Review Board guidelines. It was great to hear some of the key aspects that surround that issue being brought in, because I think it is very important to paint the picture of exactly what is going on so people clearly understand and put a human face on it. Right from the outset, I would like to declare my interest: my family has had an association with John Lyle’s family—my father bought a place from John Lyle some time ago—so I just put that on the record. But this is something away and apart from that after many years.

We talk about the rights of land. We now have a fully overseas-owned entity coming in and taking a position of a right of ownership that basically is superior to the right of ownership that the Australian citizens themselves have in that area of land. In that 190 square kilometres, the overseas entity now, because it has the mineral rights and the freehold on top, has a superior right. People say, ‘That was the right of minerals; the right of the minerals has always belonged to the Crown,’ but actually there has been a diminution of the freehold title over a period of time, hasn’t there, Mr Higgins?

Mr Higgins —Yes.

Senator JOYCE —It might be interesting for the committee to hear about that. Correct me if I am wrong: I think there was a period of time where you did have some more substantial ownership of the mineral rights that were proximate to the encumbrance of your block, and then Mr Wran woke up one day and just removed that right, and it was gone. Can you give me any enlightenment on that?

Mr Higgins —The history is very complex. I can simplify it, perhaps, in this way. Some land grants reserved all the mineral rights for the Crown, as has been mentioned. Other land grants—in New South Wales, anyway—were absolute, so the mineral rights were included in the Crown grant. What Premier Wran did in, I think, the early eighties was to appropriate the mineral rights from that small number of grants where the mineral rights were vested in the freeholder. There ensued a long, litigious course with amendments in parliament, and those rights were eventually restored. There is compulsory acquisition legislation now so that the freeholder who has those restored mineral rights does not have the complete discretion to deal with them; they can be appropriated for value under the current legislation. So that is the mineral rights.

To go back to the general situation, where the minerals vest in the Crown, the 1906 Mining Act in New South Wales prohibited exploration on land that was under cultivation without the consent of the landholder. The 1973 version of the Mining Act prohibited activities under an exploration licence without the consent of the landholder where the minister was satisfied that there would be damage to the surface of the land. The whole of the Mining Act was again revised in 1992, and that is the act we deal with today. In answer to Senator Eggleston’s question, it essentially gives the holder of the exploration licence the right to come onto your land. If you cannot agree on the terms that that access should be governed by then the mining warden will determine those terms. In the end, the freeholder will have to give that access on the best terms that he can secure. So the holder of the mineral right—that is, the exploration licence—can come onto freehold land.

Exploration licences in that situation normally have a term of about five years. Those terms were much longer. They are getting shorter and shorter, as far as I can tell. At the end of five years, the explorer is obliged to prepare a proposal or an application for a mining lease. On the Liverpool Plains, which is the area we are concerned about in the Namoi valley, at the headwaters of the Murray-Darling, the New South Wales Department of Primary Industries has over decades surveyed largely all of the coal resources in that area. What it has put up for sale is the coal, or an option to buy the coal. That is really why these vast sums of money have been paid by BHP, first of all, and now by the Chinese government for these so-called exploration licences. They are really mine development planning agreements. There is no exploration going on. Everybody knows the coal is there. Everybody knows how much coal is there. Everybody knows what the quality of the coal is that is there, subject to a little bit of refinement.

These so-called exploration licences are conditional upon many, many things. The first condition is that they apply for a mining lease. In the case of BHP’s site, which adjoins the one owned by the Chinese government, BHP has to do design work for a rail tunnel through the Liverpool Ranges down to the coal loading port of Newcastle, which is the largest coal export port in the world and is about to triple in size. So BHP, in its exploration licence, is obliged to do design works and feasibility studies for upgrading that route to Newcastle. It is also obliged to do design works and study upgrading the railway line north of this area. In other words, this is just the first patch running north to Queensland. Another condition is that it should do feasibility studies for a coal-fired power plant in the area as part of the coal use scheme. So this is anything but an exploration licence. It is a mine planning agreement.

Senator JOYCE —Can I just jump in there. Obviously, there are Foreign Investment Review Board guidelines about the national interest and it must be assessed whether it is in the national interest for the Chinese government to be the owner of a substantial section of the Liverpool Plains in a prime agricultural area. Let us cut to the issue. In your view, why is it not in Australia’s national interest for the Chinese government to own—how many square kilometres is it?

Mr Lyle —It is 195.

Senator JOYCE —to own 195 square kilometres of some of the best agricultural land in Australia and the mining rights underneath it. Why is that not in Australia’s national interest? Currently, under the law in the definition of ‘real estate’ it does not come under FIRB guidelines. It needs a $100 million trigger point. I suppose one of the goals you would be looking at—without putting words in your mouth—is to have that bar lowered so that people do look at what is happening in the Liverpool Plains. Currently, we cannot refer this to the Foreign Investment Review Board. Do you think it should be covered by the Foreign Investment Review Board guidelines?

Mr Higgins —Without the shadow of any doubt it should be subject to the Foreign Investment Review Board review with advice to the Treasurer and a decision should be made by the Treasurer in regard to the national interest. There is a serious defect in the present FIRB scheme. The title we are talking about, the exploration licence for example, is issued by state government. It is not reviewable for that reason also. The New South Wales government could be, shall we say, a renegade government and it is left with final determination of a matter that is not lastly to do with New South Wales, it has to do with the national interest. Here we have the Foreign Investment Review Board not having referred to it matters that are decided by state government even though the ultimate issue for FIRB deliberation is the national interest whereas the New South Wales government is presumably concerned with the interests of New South Wales. There is a non sequitur there. It ought to be remedied and I would make a strenuous submission that any licence issued by a state government does not necessarily comply with the sort of deliberations that the Foreign Investment Review Board should take into account.

Senator JOYCE —Let’s drill down. You are saying the first thing the Foreign Investment Review Board should take under their auspices are licences issued by state governments?

Mr Higgins —Yes.

Senator JOYCE —Are you happy with the $100 million kick-off limit for the Foreign Investment Review Board? Is it all right if China apply for $99,999,99 worth of land so long as they do not buy that extra dollar’s worth? Do you think $100 million worth of rural land is a bar too high? Should it be lowered?

Mr Higgins —It should be lowered. After all, China has already purchased the exploration licence for $300-odd million. That is not reviewed by the Foreign Investment Review Board because it was granted by a state. It is not real estate or any other type of interest as far as I can determine that would in any case come under the Foreign Investment Review Board rules even if it were issued by another party. Then there is the aggregation of the real estate over that area. Bear in mind that we are dealing with a body of minerals which is 190 square kilometres. We have real estate on top of that. None of those farms are even close to $100 million. They are $5 million or $10 million at the most and they will be aggregated one at a time but each of those is a separate issue.

Senator JOYCE —It is creeping acquisition. You go piece by piece by piece so that you never trigger the guidelines. Also they could separate it into different companies—Chinalco buys that and Shenhua buys that and—surprise, surprise—none of them is over $100 million. Do you think that there should be a related entity test in the Foreign Investment Review Board guidelines that says: ‘You’re all part of the government of the People’s Republic of China so, if you are buying land in Australia, we are going to add it all up into a bundle. That can be a trigger. If it adds up to more than $100 million we will look at it en globo’?

If you were writing the guidelines, you would ask, ‘What is in the national interest?’ Let us look at the Liverpool Plains. Obviously, we have to have mining or our economy will sink—we understand that. I presume you are saying that it shouldn’t be precluded from prime agricultural land—and I think you said 0.2 per cent of land is heavy black soil land. Other places such as the Hay Plains and the Darling Downs would also come under that. Why is this land different? You want the Foreign Investment Review Board to look at a whole range of issues including aquifers. Tell me what you think the Foreign Investment Review Board should be looking at.

Mr Lyle —They will not sign off on damage done. That is probably one of the main gripes. BHP will not either. If any damage is done to aquifers or anything at all, they will not sign off, so you are in court fighting the Chinese government. It gets worse than that with who owns what with the power stations. The New South Wales government as of yesterday—and goodness knows what has happened this morning—owned seven power stations and five of them were in the Hunter. They want to sell those. Premier Rees wants to sell the whole lot at some stage. I do not know whether he has sorted that out with the unions or not and where he is at with that at the moment, but they are definitely for sale. Shenhua were the main interested party.

We could have coal being mined in our area by foreign government-owned companies and being transferred straight down the road directly to their own power stations in the Hunter Valley. When I was a youngster, which was a long time ago, power stations and whatever were national interests. They stayed with the country. They had nothing to do with anyone outside. I know they have sold them in Victoria and elsewhere, but to me it is desperately wrong. There are all sorts of other things they can sell other than power. That is something the state should keep control of, run efficiently and well, but it is not.

Senator JOYCE —Will the state government’s selling of those power stations to the Communist People’s Republic of China go before the Foreign Investment Review Board?

Mr Lyle —No, it will not.

Senator JOYCE —If you could wave a magic wand and be the boss in Canberra for a day and were changing the Foreign Investment Review Board guidelines, what would you bring into consideration under the act?

Mr Higgins —That is the ultimate question. We would like to discuss that with you right now, but we would also like to make a carefully considered written submission in due course. I will attempt to deal with some of the key issues. This matter raises the question of sovereignty and the notion of strategic issues. Ultimately, if the Chinese government purchased every piece of real estate in Australia—and it can do it by creeping acquisition under the present arrangements—then Australia would cease to exist, as I understand the notion of polity. The issue of sovereignty is real.

John Lyle mentioned that it is widely reported that they have a war chest of $3 trillion. I read an extract from a newspaper the other day—and you can always believe what is in the newspaper—about the Chinese taking an interest in the Perilya mining company. They were desperate for some more funds. The Foreign Investment Review Board approved it with no conditions attached. The investor was to take up 50.1 per cent of the business, and it was China’s Zhongjin company, which is another government owned company. The reporter’s information is that, according to the Chief Executive of Perilya, there were no other funds in the marketplace to take up that interest. We are talking about depressed capital markets at the moment and a huge war chest in the hands of a totalitarian regime that is able to make these decisions quickly and acquire strategic interests. That in itself is an example of a sovereign government investing in Australian private assets. It can do it, whereas the private capital markets of the world cannot. It is a matter of scale.

There is another scale issue which touches on some things that were already raised, and that is that modern mining goes through the country and extracts the minerals at a rate that is increasing exponentially. It bears no relationship to mining with young children and donkeys. Whole landscapes are laid to waste quickly. The miner disappears and the community cleans up the mess. The New South Wales state government would remake the entire landscape of New South Wales in the image of the Hunter Valley if it only had enough Chinese money to do it. That is the implication of the statements made by the New South Wales Minister for Mineral Resources, Mr Macdonald. He also says that agriculture is a threat to mining. It is in that context that I raised the state approval matter earlier that takes it outside of the Foreign Investment Review Board.

In terms of how the national interest test would be constructed, I think it is a very difficult question that you ask. When you have a 90-pound gorilla in the market able to muster up resources like that at any time to take a strategic interest in a sovereign Australian resource and hold it or do essentially what it likes with it and then to buy the land over the top of it, to minimise it as best it can all other compliance issues—environmental ones and so on—then I think it is a very serious situation, especially, as you have already pointed out, given that creeping acquisition is perfectly feasible under the present regime.

Senator JOYCE —A lot of the comparisons have said that Australia was built on foreign investment and that the Japanese were doing this back in the 1970s, but what they always fail to say is that the Japanese had to do it in a strategic partnership with 51 per cent ownership by an Australian group. That is the part seems to be forgotten. How much of Shenhua is owned by Australians? How much of the mining lease will be owned by Australians after they purchase it? What will be the Australian citizens’ ownership of that whole project if it goes forward?

Mr Higgins —Nil.

Mr Lyle —To answer your question, Senator Joyce, we felt that maybe there should be five independent representatives on the panel that makes the decisions, because it is going to get worse and worse. Some pretty major decisions are going to have to be made concerning the acquisition of not just land but all sorts of things in Australia. One area that we have not touched on this morning is what security checks actually took place when this area was designated for Shenhua. When you get down to the nitty-gritty of it all, you are nicely spaced between Williamtown and Amberley and those sorts of places and you are talking about selling power stations as well. It is pretty scary stuff. It really is, I think.

Senator HURLEY —You have raised a number of quite serious environmental and agricultural concerns about this possible development. It does sound as if there are a number of difficulties. But I think you did also mention a tender process. You have mentioned BHP’s involvement. If Shenhua did not develop this, would somebody else develop it?

Mr Lyle —We do not know. We really do not know.

Senator HURLEY —Would you have the same objection if BHP were doing this?

Mr Lyle —It would depend on how they went about it. I think that has to come into it. Shenhua are wandering around up there at the moment, quite seriously, like the cat that has just got the cream. They are telling us: ‘We’re away. We’ll be mining here in three years time.’ So whether a deal has been done or not, who knows? We really do not know.

Senator, quite seriously, I think it would have to be looked at if it happens. It is down the track perhaps; I do not know. I do not think you can just say no to all mining, but it would have to be looked at. We would have to get guarantees, as I stated earlier, that if there is damage done it is addressed. At the moment, no-one will do that, and that is very worrying as far as we are concerned. If the Breeza Plain becomes contaminated, they will not receive the grain down at the terminals in Newcastle—they will not do it.

Senator HURLEY —You are saying that Shenhua have refused to address any contamination issues.

Mr Lyle —Yes.

Senator HURLEY —Has an environmental impact study been done?

Mr Lyle —No. That is what is meant to be coming up with this water study. They have done their own environmental study. They did it in two days.

Senator HURLEY —Does that qualify as an environmental impact statement under the state government law?

Mr Lyle —No.

Senator HURLEY —So it is yet to be done?

Mr Lyle —Yes.

Mr Higgins —That was a very small thing in connection with the exploration activities. They did a fauna count. They were going to do it in two days, with no independent person with them while it was done, and that was going to be their benchmark for their environmental—

Senator HURLEY —It was done by Shenhua employees?

Mr Higgins —Yes, or consultants.

Senator HURLEY —That will feed into the environmental impact statement that is required by the New South Wales state government?

Mr Lyle —Yes.

Mr Higgins —Yes, that was to feed into the environmental effects management plan for the exploration stage—the test drilling and that sort of thing. That is the way these things are done in New South Wales. They are completely devoid of any kind of integrity or independence. The henhouse is managed by the fox.

Senator HURLEY —But that is not related to the fact that the company proposing the mining here is a foreign company; that would happen here regardless, I presume.

Mr Higgins —That is correct. So, in answer to your question, the issue is the same. For example, BHP says it does zero harm wherever it goes—that is its published environmental standard. BHP at the same time will not put up a bond. Presumably it does zero harm so it would not be any difficulty for BHP to put up a bond because it would no doubt get it back. But that is the culture in mining in New South Wales.

Senator HURLEY —Until the environmental impact statement is done, you do not really know what the requirements will be for rehabilitation or remediation if there is any harm.

Mr Higgins —We do know this much: the flood plains of the upper Namoi and the lower Namoi, for that matter, are about as flat as you can get and you cannot mine coal under such land without causing subsidence. It ceases to be safe if the land above the panel of coal they are taking out does not subside because then it could subside at any time and kill everybody and destroy the plain, so it must subside. The coal is taken out in panels, one beside the other, several kilometres long and a hundred metres wide, so the surface of this essentially flat flood plain of the highest agricultural quality is now so many uneven depressions. So far as we know, it would be impossible to farm it in the way it has been farmed until now, and there is no farming method yet developed that would deal with it.

The other aspect of the matter is that subsidence mining will mix all the waters in all of the aquifers that are above the panels of coal taken out. That will expose them to mineralisation that has been locked up for aeons. That will acidify the water and the water will slowly, over tens and hundreds of years, drain down the Murray-Darling Basin towards Adelaide. These things are quite certain; it is unarguable that those will be the effects of any longwall mining in that area. But, no, it does not make a distinction between one miner privately owned and another owned by the Chinese government.

There is this distinction though. BHP, which holds the tenement next door, has not sought to buy all the land. It has purchased some but it has by no means sought to buy it all. The Shenhua operation has sought to buy all of the land and one can only speculate about why that is so. It certainly would remove, shall we say, the nuisance value of private landholders above their tenements. That nuisance might have many expressions, whether compliance with environmental regulation, occupational health and safety issues, or just plain nuisance, and it is just a matter for speculation.

Senator HURLEY —I think you have already said that you do not know who the other tenderers were.

—We have been told—not directly by the minister or anybody like that—that there was a tender and, if there were, that is excuse for the money going up to $300 million. They say that it was tendered, but now we do not know. It is all speculation as far as that is concerned, but I do not know whether it was ever tendered, quite honestly.

Senator HURLEY —I think that was the statement that was made, was it not?

Mr Lyle —That came from the minister’s department, I think, or something like that. Who knows?

Senator HURLEY —The minister said—and this is dated 15 August last year:

... the licence is for exploration only, not mining.

and he went on:

The exploration phase alone is expected to last for several years ... There is strict environmental regulation, which ensures that exploration does not have any significant impacts on aquifers.

But as you said, you do not place a lot of faith—

Mr Lyle —Does it mention tendering there, Senator, or not?

Senator HURLEY —It says:

The NSW Government will grant an exploration licence for the Watermark area near Gunnedah for a period of five years following a rigorous tender process ...

Mr Lyle —Okay. I have not heard of anyone else—

Mr Higgins —It is strictly not correct. There was not a tender process; it was asking for expressions of interest, which is a subtle difference. But the Mining Act makes a distinction between a licence granted on an application and a licence granted pursuant to a tender. These were all expressions of interest that were called for and the net result was that the preferred person expressing interest was invited to apply for a licence.

Senator HURLEY —And you are not aware of other people that might have expressed an interest?

Mr Higgins —I am not aware of those others who expressed interest.

Senator JOYCE —I really want to drill down to just one thing. You imagine that the Foreign Investment Review Board should take into account prime agricultural land. I might be biased here, but I would clearly see the Breeza Plains as some of the best agricultural land in Australia, without a shadow of a doubt. You drive across it and it just does not have a match. If it did have a match, it would probably be areas of the Haystack Plains, and there are some cane growing areas around Tully—and I am not quite across all of Tasmania. It is possible, isn’t it, to look at some agricultural land and say that this is not the rolling hills of Dangelmar; this is something completely and utterly different. This is not Weabonga—and Hansard will be tearing their hair out now because they have got to translate all of this—this is something different. What we have here is the Breeza Plains. Would you be able to identify key areas of what you see to be the prime agricultural land of our nation? You cannot say everywhere because some areas are way beyond other areas and they should certainly be taken into consideration in FIRB guidelines.

Mr Lyle —There are definitely areas like the Breeza Plain and you go right out to the mountains at the back there with Windy Station. All that area all comes into it. Then there is some very good country around as you go up to Moree and up through there in pockets. Then you have Dalby and Emerald and exactly the same situations are happening there. It is all encroaching and coming in further and further. Three-quarters of the Gunnedah Shire is under some sort of an exploration licence. It is pretty worrying stuff living there. You worry about it all the time. It is with you.

Senator JOYCE —For the record Moree Plains Shire Council is the richest agricultural shire by production in the world. It is not just unique in Australia; it is unique on a global basis. What happens if this country is owned predominantly by somebody else? What is the difference to our nation?

Mr Lyle —We should be producing the food and selling the food ourselves. We should be producing the minerals and selling them ourselves, not somebody else, particularly not a government-run show like China coming in here, buying all that country and doing what they like. What is to stop them buying up the Breeza Plain?

Senator JOYCE —Nothing.

Mr Lyle —And producing the food. Out it goes to their own food supply and stockpile. They can stockpile coal and iron ore and do what they like. It really is the case of the old cow. We are selling the cow and not the milk. It is pretty frightening stuff. The power station bit really does terrify me. I just think this is the last straw. It has not happened yet, but it is not far away I would suggest.

Senator JOYCE —Is there anything in your consideration of the Foreign Investment Review Board guidelines that stops foreign entities from owning the core or the premium product of agricultural land—owning the whole lot.

Mr Lyle —No, there is not.

Mr Higgins —The net result would be that Australians would become tenants in their own land buying food produced by a foreign government on what used to be Australian soil. It is quite bizarre but it is a matter of degree. To come back to answer your earlier question as to what test the Foreign Investment Review Board should apply, I think perhaps you were leading to some prescriptive test such as it is prime agricultural land? Then those areas are excluded or subject to specific considerations. I think that is probably one way that it could be developed.

Another way is that the Foreign Investment Review Board do a comprehensive cost-benefit analysis. At the moment there is no intellectual policy framework to determine what the national interest is. We would like an attempt at defining that. There is certainly no macroeconomic modelling that the Foreign Investment Review Board does which would be, if you like, the cost-benefit analysis of allowing a foreign government to own Australian land. That would be a very difficult exercise, but I think this is a very difficult question and it requires very careful consideration. There is a long list of issues that would need to be included in that cost-benefit analysis and I do not know how you would quantify many of them.

There is the socioeconomic fabric of the communities affected by mining developments where the miner has also acquired all the land. We would say that the Foreign Investment Review Board would need to have considered both the grant of the minerals title and the acquisition of the overlying land. There are Indigenous and European cultural issues and heritage and intergenerational equity issues. We are selling the farm to do what? Buy imported beer while Chinese or other foreign nationals run what used to be Australian farming land, mine Australian minerals and take the profits offshore incidentally. If I could come back to that in a minute, I shall. There is the climate change issue. We would start to lose control of that if we are talking fossil fuels. Water and prime agricultural land have already been mentioned and the strategic issues have been mentioned.

China I think made an announcement just yesterday that they had finished stockpiling in China for the time being their requirements for iron ore going forward. That has massive effects on market prices and activities in Australian mines and on all those jobs we hold so dear and jobs that have not yet been created. A cost-benefit analysis in an economic exercise would be very difficult, but if there is none now it should be done on a case-by-case basis or alternatively specific assets should either be off limits or have special rules attached to them.

If I can come back to revenue and strategic holdings: if a foreign government owns Australian natural resources and real property and extracts the minerals for its own purposes then it is doing so under our tax regime and for strategic purposes and for the benefits of vertical integration if it were a trading corporation. We are dealing here with a totalitarian state, not a state that might be a democracy under the rule of law, so there is always a strategic issue. In an ordinary, free market economy the benefits of vertical integration are quite clear. A car maker in Japan, for example, would want iron ore and coal to make steel. If they owned the coal and the iron ore in the ground in Australia, mined it and shipped it home, they would not pay any Australian any margin of profit for exploiting that. They would pay a few wages and a little royalty to the New South Wales government and spend the rest of their efforts to ensure that the profit attributable to Australian operations in their coal and iron ore mines is at a minimum so that their Australian tax obligation is at a minimum. These are ordinary commercial considerations in a situation like this.

There is not much benefit in this sort of an operation for Australia. There are a handful of jobs, and they are getting fewer. There is a small amount in royalties to the state government and there is ruination of the landscape afterwards. The benefit of jobs is always writ large whenever this is discussed. North-east of Boggabri is a large, open-cut mine—and I will not name it. I am reliably informed by the manager that there are 45 permanent jobs in that mine and that 12 of those jobs are filled by local residents from the town of Gunnedah, which has a population of about 8,000, and from Boggabri, which has a population of about 800. As you can see from those figures, there is no real material benefit from those local jobs. There is no doubt a multiplier effect going into the local community into other businesses, but it is not a large employer.

The New South Wales Minister for Mineral Resources, Ian Macdonald, recently said that there would be 3,000 to 4,000 jobs in the BHP mine, which is the mine adjoining the Shenhua mine, and a multiplier effect on the local community of some number. The figures do not add up. Jobs figures are always boosted—and the factor on that is probably about 100 times. The benefits in the cost-benefit equation have to be looked at very carefully. The Australian Bureau of Statistics figures on precisely what the contribution of mining is to the Australian economy are very revealing. It is very small: 1.2 per cent of our employment and less than four per cent in total revenue to those businesses.

I think the way the Foreign Investment Review Board must try to review these things is to look at the cost and the benefit. On that score, some figures have been done on the BHP tenement. That is said to have a life of 40 to 50 years. The figures produced so far for local agricultural are that in about 70 years the revenue from local agriculture will equate to the revenue from the mine.

CHAIR —We will have to finish there because we are a little bit over time now, unless there are any other burning questions.

Senator HURLEY —No.

Mr Lyle —Mr Chairman, on behalf of the three of us, I would like to thank you very much for giving us your time. The farming community from home are very worried about all this. As we had reasonably short notice for this hearing, would we be able to give you a submission as soon as we possibly can? There are a few other issues we would like to touch on in a submission, so that would be most helpful.

CHAIR —Yes, we would be very happy to accept a submission from you. It should be directed to be secretary of the committee, at the address on the webpage.

Mr Lyle —Thank you so much. It is much appreciated.

CHAIR —Thank you for appearing and for your evidence.

[12. 12 pm]