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Economics References Committee
Future of Australia's steel industry

BINDI, Mr Nicholas John, Chief Executive Officer, ICE Engineering and Construction Pty Ltd

Committee met at 12:34

ACTING CHAIR ( Senator Edwards ): I declare open this public hearing of the Senate Economics References Committee. The committee is hearing evidence on its inquiry into the future of Australia's steel industry. The Senate referred this inquiry to the committee on 26 November 2015 for report by 30 June 2016. The committee has received 33 submissions, so far, which are available on the committee's web site. I welcome you all here today.

This is a public hearing and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage witness on account of evidence given to a committee, and such action may be treated by the Senate as contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question the witness should state the ground upon which the objection is taken, and the committee will determine whether it will insist on an answer, having regard to the ground on which it is claimed. If the committee determines to insist on an answer a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

On behalf of the committee I thank all those who have made submissions and sent representatives here today for their cooperation in this inquiry. I welcome our first witness, Mr Nicholas Bindi. I invite you to make a brief opening statement, and then the committee will ask you questions.

Mr Bindi : I am representing ICE Engineering and Construction as its CEO and also myself and my family as local Whyalla residents. I was born and raised in Whyalla by my parents, who migrated to Australia from Europe in the early 1960s. I started working in the steel industry in 1983 has a 17-year-old apprentice electrician. I worked directly within the steel industry for the then BHP, now known as Arrium, for almost 20 years. In 2001 I co-founded ICE Engineering and Construction. The company was formed to provide electrical and instrumentation services to the local steel industry. Over the next nine years we grew the business to become a significant local employer, employing up to 35 local people ranging from various trades, predominantly electricians, to trades assistants, labourers and, most importantly, young apprentices. Additionally, we prided ourselves on using local businesses to provide materials, plant and equipment, and subcontract services.

Our employees and their families hold a great deal of pride in the hard work we completed in those first few years of business. We completed countless improvement projects on the steel works and were major contributors to the construction of the new ore processing plants at Iron Duke, Iron Baron, Iron Knob, Project Magnet and, more recently, the port expansion project. In 2009 the business was acquired E&A Limited as part of our strategy to grow the business nationally based on our reputation, experience and knowledge gained by working here in Whyalla for the steel and mining industries. Since 2009 I have remained in the business and currently held the position of CEO, paying particular attention to the Whyalla business, the foundation and birthplace of our company.

We currently still employ around 35 people in our Whyalla branch, servicing the Arrium business. We have trained in excess of 20 local young people as electrical apprentices over the past 15 years in order to develop tradespeople tailored to work in the steel industry. We are a major supporter of local sporting clubs and community events. Currently the local steel industry provides almost 25 per cent of our total business revenue, and almost 30 per cent of our total labour pool are Whyalla locals, many of whom are those apprentices we trained from scratch.

Should the steel industry close, our local branch would cease to exist here in Whyalla. Thirty-five employees and their families, some 150-plus people dependent on ICE Engineering providing them with employment and an income, will be out of work. ICE will not be in a position to further train and develop the youth of Whyalla into quality tradespeople, as the current skilled workforce of our business will be forced to leave the town to look for work. I feel that the skilled employees in nearly all Whyalla businesses currently dependent on Arrium will do the same, leaving a town mostly with unskilled people dependent on the government for an income.

Additionally, losing 25 per cent of our company's revenue would impact on our national business in several ways. The first is that we depend on our Whyalla core crew to provide specialised skills gained in Whyalla, working in the steel industry around the country as and when required by our customers. Secondly, a number of personnel in our head office, now based in Adelaide, would need to be downsized to suit the reduced revenue and are now not required to support the Whyalla branch. Finally, our business overall would be at risk due to the current economic climate and lack of capital spend around the country, especially in the two key sectors we operate in: mining and steel, and oil and gas.

We have already witnessed many companies, both larger and smaller than ICE, go into administration due to the current dire economic conditions. More recently, and closer to home, we have witnessed the administration of a longstanding and prominent local business, Link Engineering. Unfortunately, the survival of Whyalla and its people is dependent on the local steel industry, and without it we would soon become the largest ghost town in the country.

In closing, it is vital that the government support the Australian steel industry and particularly Arrium during these tough times. It is also vital we all work together to come up with a sustainable solution to get Whyalla through not only this tough period but the next one and the next one after that. The cycle will continue, and things will undoubtedly improve. Some day in the future, I hope we can all look back and appreciate the smart decision made by the government to support the steel industry in Australia and ultimately support the survival of a great place to live, work and bring up your children: Whyalla.

ACTING CHAIR: Thanks very much, Mr Bindi. Congratulations on being a very successful businessman and making the transition from employee into business. That is what this nation is founded on: that spirit of enterprise. It is inextricably linked here in Whyalla, though, with the fortunes of a company which you do not run. You do not have any influence over the day-to-day management decisions and, more to the point, the commodity prices and indeed the production of other countries and the pressures which they bring. So where did Arrium go wrong so that we see them now in the position we saw announced yesterday on the ASX?

Mr Bindi : I am not sure where Arrium has gone wrong. Obviously commodity prices have had a major impact on the state of Arrium's business. Perhaps they overcapitalised in expanding when iron ore was over $100 a tonne, and here we are with a large debt.

ACTING CHAIR: What did they overcapitalise on?

Mr Bindi : There was a lot of expansion in the steel industry in changing the way they made steel from hematite to magnetite and then exporting hematite to overseas countries. So there was a lot of cost at that time. I am not really one to comment on where Arrium went wrong and how their business—

ACTING CHAIR: You have seen the transition from BHP when it hived it off and it became something 16 years ago, and then it has had various incarnations of capital raising for various strategies. Can you point to any one part of the history that has led to the situation we have now have, where it has nearly $3 billion worth of debt and is trying to run a business with the kind of pressure that interest of that magnitude puts on a business? Is there any fork in the road that it should probably have gone down or not gone down that you can point back to?

Mr Bindi : No, I think they were doing what they thought was best at the time and what they thought was best for their business and the wider community.

Senator KIM CARR: Mr Bindi, a good deal of your business comes from Arrium, would it not?

Mr Bindi : Around 25 per cent.

Senator KIM CARR: So it is a bit unfair to ask you to comment on operations—

ACTING CHAIR: You come from the company. You obviously have an understanding. I am interested.

Senator KIM CARR: We do not want to put you on the spot, but it strikes me that you have raised some issues about what the government can do. Perhaps you could be a little bit more free-wheeling in that area. What is your view? What can the government do to facilitate the sustainability of the Australian steel industry?

Mr Bindi : The first one is obvious. They would ensure that Australian government projects use Australian steel.

Senator KIM CARR: Is there anything else?

Mr Bindi : That would help.

Senator KIM CARR: You think that is a critical issue for you?

Mr Bindi : That is going to make a significant difference. A lot of it is dependent on the price of ore and the price of steel.

Senator KIM CARR: So we have got to sell more Australian steel.

Mr Bindi : Sell more Australian steel so businesses like Arrium and BlueScope can deliver what we require.

Senator KIM CARR: Of course, there are policies around the country that vary on this matter. The Victorian government has a position where 100 per cent of the rail contracts have to involve Australian steel. That does not seem to have caused any great problem; it has led to an increase in the amount of demand for Australian steel. In New South Wales, the government has an open-door policy and now we have Spanish steel being used in the rail lines. Are you familiar with this issue about state government procurement?

Mr Bindi : Not fully, but I understand the New South Wales government has recently awarded a project to a Spanish rail supplier.

ACTING CHAIR: Senator Carr, if my question was not really relevant to this witness then probably that one is pushing it to cover New South Wales government policy.

Senator KIM CARR: No. He is a supplier, and I think he would have some understanding of how the steel industry actually works.

ACTING CHAIR: That is why I asked him the earlier question.

Senator KIM CARR: So the question then is: do you think this issue is just a question of standards, or is there a question that goes beyond standards to the actual purchase or the order books for companies such as yours?

Mr Bindi : Yes, it goes to the order books too. So, with standards, it has definitely got to be apples for apples. If it is not, then it is not fair; it is not fairly competitive. We shop locally. We try to shop locally and support local businesses. Arrium tried to do the same in most instances, depending on the nature of the contract that they were letting. But surely the government should try to do the same and shop locally.

ACTING CHAIR: I fully agree with Senator Carr's sentiment, but it worries me that this morning I heard out at the steel plant that they are still holding a relatively high market share of structural steel works in this country. Between 65 and 80 per cent of supply to this country comes from the steelworks here, which is excellent. That is very good, but there is very little room to move there. We have still been able to maintain the market share. What would you say to that?

Mr Bindi : They are obviously not making the money they need to out of what they are producing.

ACTING CHAIR: The other parts of their business.

Senator KIM CARR: Mr Bindi, we were also told that 100,000 tonnes of steel makes big a difference to the cost structures of the business. If you reduce demand in the scenario that Senator Edwards has just pointed out, a 10 per cent drop in the market share can have a profound effect on the cost structures of the business. Are you familiar with that?

Mr Bindi : Yes. No matter what they do, they have to run the blast furnace at full steam.

Senator KIM CARR: That's right.

Mr Bindi : If the steel that they are producing out at the blast furnace is not going to market, it is obviously getting poured down the tip, which does not help.

Senator KIM CARR: Can I ask about other things that governments can do. Under the previous government there was the Steel Industry Transformation Plan. Are you familiar with any of the work? Did you have any contact with the federal government?

Mr Bindi : No.

Senator KIM CARR: Well, that makes it a bit difficult to pursue that line of inquiry.

Mr Bindi : You may talk to Stephen Young. He is presenting at 3.20 today. He is the managing director of my business, and I am sure he has had some close conversations with the federal government.

Senator KIM CARR: We will go to that. I am interested to know what else governments can do. There is the question about government contracts but there are also actions that governments can undertake to assist businesses build their management capabilities. Enterprise Connect was one agency that the Labor government had to help firms such as yours to build on their strengths and secure more contracts. Is it your view that governments can provide more assistance for individual firms in terms of securing contracts?

Mr Bindi : Yes, I think they probably can. We have done a lot of what we have done over the years off our own bat, without government support, and we have managed to get where we are. But, if there is a shortfall in what we are trying to deliver, or the standard of our systems and processes, then we should be getting positive feedback from the government on where that shortfall is—

Senator KIM CARR: Are you a member of the Steel Institute, for instance?

Mr Bindi : E&A Limited would be, I am sure.

Senator KIM CARR: It has been put to me in the past that part of the problem for smaller firms is securing contracts. When they deal with big firms for big construction projects, the scale of the project is often bigger than they are able to cope with; the standards that they are being asked to bid for are outside Australian standards, so they are not equipped for that method; and the foreign companies that build the big projects have their own supply chains and are not really interested in dealing with Australian suppliers. Have you ever come across this type of issue?

Mr Bindi : We have found in the past that most of the big companies in Australia tend to want to deal with the tier 1 construction company. Over the past year—or maybe a little bit more; two years—we have found that companies like Santos, in particular, are more than happy to deal with the tier 2 and tier 3 companies, where they get a much more simplified approach, a more flexible business to deal with. Arrium have taken that same approach on occasion too, with some of their major projects. It has been tough for them in the past dealing with the tier 1s on major projects, and they find it more financially viable and easier to deal with tier 2 and tier 3 companies.

Senator KIM CARR: Would it be worthwhile for the Department of Industry to provide smaller companies with assistance to be able to break through those sorts of barriers?

Mr Bindi : Yes, I think it would be.

Senator SIMMS: Thank you for your presentation today. I understand there is some technology developing in this space now around steel production that happens in a less greenhouse-intensive way, in terms of greenhouse gases. Is that an area that you have looked at through your business?

Mr Bindi : No, not really. We provide the electrical and instrumentation services that are specified, in a scope of work or a contract, by our client.

Senator SIMMS: Just to follow up on Senator Carr's line of questioning around government involvement: has the government sought your views at all on the pressure that your business might be under at the moment and asked your views on what it could do to provide support?

Mr Bindi : Not me personally.

Senator SIMMS: Your business?

Mr Bindi : No. I am the CEO of the business and they have not come to me. That is not saying they have not come to our managing director.

Senator XENOPHON: You employ 35 people—correct?

Mr Bindi : Correct.

Senator XENOPHON: How many contractors rely on your business in turn?

Mr Bindi : Locally?

Senator XENOPHON: Yes.

Mr Bindi : We quite often tender projects and win projects that are multidiscipline, so we will have fabrication as well as electrical and instrumentation as a principal, if you like. So we would use Ottoway Fabrication, Heavymech, on occasion Link Engineering, BIS, civil guys around the town—so there will be BIS and all the other civil contractors that will need to price work for us to deliver the project.

Senator XENOPHON: I am just trying to understand what the flow-on effects would be of the 35 direct employees you have. Are there times when you would create work for another 20, 30 subcontractors or other companies?

Mr Bindi : Not so much now, because the spend level out there is quiet at the moment, but in the past we definitely would have employed, on a major project for OneSteel, another 10, 15, 20 subcontractors to deliver work for us.

Senator XENOPHON: You specialise in project management. Looking at your website, you do main switch rooms, motor control centres, distribution boards, control panels. So you are involved in panel manufacture and managing electrical infrastructure installation. In terms of competing for work, are you at a disadvantage because you compete with companies that use cheaper, imported steel?

Mr Bindi : No, not as an electrical contractor, I would not have thought.

Senator XENOPHON: Because you are so specialised?

Mr Bindi : Yes.

Senator XENOPHON: I do not want to get into the same problem as the acting chair or Senator Carr did, but are you able to comment, in terms of your direct knowledge of the industry, on whether the industry would grow and be bigger and more prosperous if it did not have a problem with, say, low-cost imports coming into the country?

Mr Bindi : I would probably prefer you to defer that question to Stephen Young at 3.20, because he is across our group, which is a multidiscipline group providing services in fabrication, mechanical construction, civil, electrical and instrumentation.

Senator XENOPHON: This issue has been touched on in relation to the whole issue of government jobs. Do you ever tender for interstate jobs or are you particularly local in your focus?

Mr Bindi : We work nationally, so we tender for projects right across the country, particularly in Western Australia, Northern Territory and Queensland.

Senator XENOPHON: I do not necessarily want you to point the finger at any particular governments, but is there a contrast between procurement policies in terms of local content around the states and territories when you do business with them or try and do business with them and tender for a project?

Mr Bindi : What I have experienced is that most businesses try to shop local. So if we are coming from South Australia to work in the Northern Territory—for example, out of Darwin or McArthur River, they tend to have a preference towards the local business.

Senator XENOPHON: So then that puts you at a disadvantage. What about governments, though? You would have heard the news about the New South Wales government procuring 100 kilometres worth of steel rail lines from Spain, not from here.

Mr Bindi : We do not do a lot of work for the government direct. Our major clients are in the oil and gas industry and mining, both here and in the Pilbara.

Senator XENOPHON: Based on your experience, is it your view that your business would be busier in terms of number of employees, strength as a company, and taking on subcontractors and other companies, if there were a clearer 'buy Australian' policy for procurement?

Mr Bindi : Certainly.

Senator XENOPHON: Thank you.

ACTING CHAIR: Thank you very much, Mr Bindi. I think most of us here in South Australia know Mr Young very well, and we look forward to hearing his contribution later today. Thank you for your attendance here. You are welcome to stay, if you want to.