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Tuesday, 12 May 1970

Mr STEWART (Lang) - On 26th September 1969, after the Prime Minister (Mr Gorton) had made a statement announcing the Government's decision to lend S80m to Queensland towards the cost of a power station in central Queensland, the Leader of "the Opposition (Mr Whitlam) said:

Naturally the Australian Labor Party welcomes the Commonwealth's participation in the provision of electricity in central Queensland, which is an area where power 'lias been hardest to come by and is the most expensive in Australia. I should think that it would be quite clear to honourable members . . . that power was the determining factor in the development of the natural resources in the area and the attraction of greater human resources to the area.

He continued:

The only misgiving I have about the announcement is that the advance - it is nol a grant - seems to be on much less favourable terms than the Commonwealth has hitherto made for its advances for similar purposes in other places. ... the financing of the project causes misgivings to my Party in t' at the advance is for a shorter period and at a higher rate of interest than is applied to railway and other projects outlined in the Budget document entitled 'Commonwealth Payments to or for the Stales 1969-70'. The project is, of course, an admirable one and should' help to achieve without delay the objectives, material and human, that the Prime Minister very properly expressed.

Those sentiments are still the sentiments of members of the Australian Labor Party. I intend to outline the general attitude of our Party towards the financing of major developmental works in the States of the Commonwealth. In his policy speech for the 1969 Federal elections the Leader of the Opposition said:

To place financing of new development projects on a continuing basis a'nd to take projects cut of the realm of electioneering, we will establish a Development Revolving Fund. This fund will apply revenue from existing projects to new ones. Within 4 years the Snowy Mountains projects alone will be making $42m net each year from electricity users in Victoria and New South Wales. By then another $10m will be coming back to the Commonwealth each year from railway projects it has hitherto financed in Western Australia, South Australia, Victoria and New South Wales and water projects in New South Wales, Tasmania and Victoria. The fund will allow the Commonwealth to assist in such rail, power and water projects as I have mentioned.

We will establish a Ministry for Northern Development. Mr Chifley regularly conferred with the Premiers of Queensland and Western Australia on northern development. Sir Robert Menzies, Mr Holt and Mr Gorton never did. I shall.

The new department will accept responsibility for the conservation of the unique national assets and tourist attractions of central Australia and north Queensland.

While the Opposition welcomes the Agreement it is far from satisfied with the amount of information given by the Prime Minister or contained in the Agreement. We feel that before the Parliament is requested to ratify an agreement paying out more than S80m of taxpayers money, far more information should be made available. The Prime Minister's first statement in September 1969 took approximately 5 minutes to deliver. His second reading speech on this Bill took 11 minutes. The Agreement signed by the Prime Minister and the Premier of Queensland deals solely with the terms and conditions under which the loan is made. The Parliament has not been told what companies are expected to use the 600 megawatts of electricity for export oriented industries. We have no knowledge of the ownership and control of these companies, lt would be a safe bet that most will be foreign owned and controlled and that the profits from their activities will be sent away from Australia. The Parliament has been given no information about the charges for the electricity. In his second reading speech on 14th April this year the Prime Minister said:

Naturally the negotiations between the Queensland Government and the companies concerned arc confidential.

The Opposition thinks that the Parliament is entitled to have this information before being requested to ratify the Agreement. The average charge per kilowatt hour for electricity in Queensland in 1966-67 was: Residential rate - 2.05c; commercial rate - 3.12c; industrial rate - 1.79c. Queensland's industrial rate for electricity is the highest of any State. Its residential and commercial rates are the second highest of any State. The Opposition would like to know whether the arrangements with the unknown company or companies offer a lower price for electricity than is being offered to industries in other parts of the State.

Another matter that concerns us is the indefinite scope of works to which this loan will apply. The construction of the power station is rather definite but associated facilities and transmission are tacked on and these are significantly indefinite and costly. After electricity has been generated it must be transmitted. At what voltage will the electricity from the Gladstone power station be generated - 66 kilovolt, 132 kilovolt or 330 kilovolt? How far will the electricity be transmitted for the favoured companies? Will the Queensland electricity authority transmit the power to a company no matter how far it is established away from the power station? Will the electricity authority construct the necessary substations and transform the electricity down to a usable voltage? In summary, will the Government transmit the power to the front doorstep of the companies or will it tell the companies that the power is at Gladstone and they should come and get it?

What is the break-up of charges? We have been given absolutely no information on this aspect. How much will generation cost? How much will transmission and distribution cost? How will the favoured companies get their power? Another significant point arises: The Bill refers to transmission whereas the Prime Minister referred in his speech to local reticulation. These terms, 1 am informed, mean different things to electrical engineers. Transmission refers to the transmitting of bulk power at high voltage. Local reticulation can be taken to embrace not only transmission but also distribution of power at lower voltages to company townships or even throughout company properties. What arrangements have been made or will be made by the Queensland Government for transmission and reticulation? The Prime Minister gave no explanation for the preferential treatment which is being extended to the unknown companies in this case. What does this development possess which makes it different from other industrial and mining developments in other remote areas of Australia? Some of the companies developing in those remote areas have been expected to provide their own power, but in this instance more than $155m of Commonwealth and State money is being used, lt is as good as a loan to the companies concerned. This raises another point: Has the Commonwealth Government or the State Government requested any concessions from the favoured companies for an equity in the ownership in those companies? Has cither government requested or been granted any other concession by the companies or are all of the advantages to go in the one direction with only the intangibles going to the governments and the people of Queensland?

There are further queries which 1 wish to raise. I note that the State Electricity Commission of Queensland has authority to own and operate generating stations but does not do so. fs the Commonwealth Government satisfied that the generation, transmission and reticulation of electricity in Queensland is being operated as efficiently and economically as possible. What generating authority in Queensland will control this new power station? Is this station being provided as part of a co-ordinating group in. the State of Queensland? I request the

Minister for National Development (Mr Swartz), who is at the table, to answer the queries that I have raised or, at least, to guarantee that all of them were considered by the Government before the signing of this agreement.

I now make some comments on the agreement. In his second reading speech, the Prime Minister announced that the amount of the original loan would be S80m and that the loan could now be exceeded if the estimated cost for the power station of S155m, made in 1968, be exceeded. It seems reasonable to assume that this price will now be greater than we have been given. But we have been given no up to date estimate of the anticipated cost, only a formula that die Commonwealth Government will advance 80/155ths of the total cost. The Opposition would like to see something far more definitive. The cost of the Chowilla Dam has been estimated when the agreement relating to that project had been signed. But the project had to be discarded or, at least, postponed because of escalating costs. The Opposition would like to be assured that this will not be the case with this power station at Gladstone.

The loan originally was to have been made available over a 6-year period. But we now find that the period is to date from 16th September 1969 to 30th June 1977, a total of 7 years 9 months. This seems to indicate that the construction of the power station is estimated now to take longer than was at first anticipated. The longer the construction rates the greater will be the cost. I do not suggest that the Commonwealth Government needs to be too strict on time limits for construction. But I do believe that the House should be given an assurance that the work will be carried out as expeditiously and economically as possible.

Clause 3 of the agreement appears to load everything in favour of the Commonwealth. This clause reads:

3.   The Commonwealth shall not be required to make any payments under this agreement unless and until the State produces evidence satisfactory to the Minister that the State has entered into or proposes to enter into agreements, arrangements or options for the consumption of electrical power by organisations which will have in the aggregate a total requirement of installed generating capacity of approximately 600 megawatts of the proposed capacity of the said thermal station. For the purposes of this clause 'organisations' means companies or persons who operate or control or plan to operate or control industrial enterprises in Central Queensland which will export a substantial proportion of their products or will produce goods of a kind which will be supplied to industries producing goods predominantly for export.

I appreciate that both the Commonwealth and Queensland governments are confident that the 600 megawatts will be required by industrial organisations. But the delays or failure to reach agreement could place the Queensland Government in an invidious and embarrassing position. It seems to me that this clause also weakens the negotiating position of the Queensland Government in its dealings with the industrial enterprises which might be interested in establishing an industry in central Queensland. It could easily force the Queensland Government to give better terms on price of power and conditions to the companies to ensure that the 600 megawatt reserve is reached. In this event the return to the Queensland Government would not be nearly as high as anticipated and the ordinary Queensland taxpayer could be forced to shoulder an added responsibility.

As I said, I appreciate that both governments are confident that industry will come to the area as soon as low cost power is provided. The Queensland Government is so confident that already it has sought an assurance on the availability of additional finance to enlarge the capacity of the power station should this be necessary. On behalf of the Opposition I give an assurance that if either tough negotiating on the part of industrial enterprises for better terms and conditions or influx of major power-using industries faster than anticipated causes embarrassment to the Queensland Government, a Federal Labor government would grant immediate financial assistance to the Queensland Government. The Australian Labor Party believes in the development of Australia even if, in some instances, the facilities have to be provided before the demand appears.

I now have some general comments on interest charges on loans from the Commonwealth to the States for the development of this and similar projects. I am indebted to the honourable member for Melbourne Ports (Mr Crean), who will be the Treasurer of the Commonwealth after the next election, for the preparation of these notes. In Australia the various State governments own all the electric power resources, either directly operated as government departments or more usually organised as statutory corporations or commissions, or in a series of regional boards. The proposed power house construction at Gladstone, to have a capacity of 1,100 megawatts, is to be a State undertaking. The capital construction of such undertakings is substantial. For instance, at 30th June 1969 the State Electricity Commission of Victoria had fixed assets, on a depreciation basis, of approximately $ 1,000m. The project envisaged here involves capital expenditure over an approximate 8 years of SI 55m.

The capital raising problems of electrical undertakings are well expressed in this extract from the 'Jubilee History of the State Electricity Commission of Victoria':

And the Commission was estimating in 1955/56 that it would have to spend at least $570 million in the next nine years, more than it had spent in its whole thirty-six years ot existence.

In fact, it did, and also met about $80 million of loan redemption.

In this, it was aided by an improved loan market which provided nearly $320 million; it received over $S0 million in loans from the State Government, and higher tariffs brought in $140 million.

At the end of that nine year period it was producing nearly 20 per cent more power than was originally planned.

Today, despite actual competition from oil and the potential rivalry of natural gas, discovered in 1965, the Commission expects to stabilise within a few years, at a rate of increase somewhat less than that to which it has been accustomed.

This means a doubled electricity demand every ten years - with expenditure to match.

This passage indicates that capital money became available in Victoria from 3 sources. The position is broadly similar elsewhere. The 3 sources are: Firstly, direct borrowing in the market by the authority; secondly, advances from State funds; and, thirdly, the excess of revenue over expenditure in the running of the undertaking.

The first 2 of course involve an interest component which becomes part of the cost of operating. The third source involves charging more to electricity users than actual production costs. In some respects the first 2 sources are akin to debenture finance in a private undertaking. Money is borrowed from outside the business and interest is paid on it. This interest is a cost' to the business. The third source is akin to the profit element in business. There is some difference in that, since the electrical undertaking is a government concern and some of the borrowing is directly from government sources as against direct public raisings, there is therefore some element of 'internal bookkeeping' or a transfer from 1 government pocket to another. This sort of argument is advanced by those who see some justice in the transfer to the States of money which the Commonwealth derives from surplus revenues. The transfers are called loans to the States and bear interest. Also, in regard to the third source which has been likened to the profit element in a private business, the practice in private enterprise is to charge prices high enough not only to cover taxes and profits but also to provide a surplus sufficient to cover the costs of the capital expansion of the business.

The particular example which we have before us concerning the Gladstone power station comprises a mixture of finance from Commonwealth sources and State sources and, whether or not the Commonwealth funds are surplus revenues or loan funds, interest is to be charged at 6.4%. There is no doubt that if no interest were charged on these funds or if the funds were advanced at a lower rate, the cost of generating electricity could be considerably less. The interest bill on $155m at 6.4% would be in excess of $10m when amortisation is considered. It is difficult, of course, without some projection of costs at the time of production, to determine how significant an element in total cost interest would be. On the other hand, as the only customer at this stage seems to be Comalco, it. is equally difficult to determine where the benefits of lower cost electricity would finally rest. If Comalco could only be induced to Gladstone on a subsidised basis and the benefits of decentralistion were thought to outweigh this cost, then a case could perhaps be made out for subsidy, although it is not really as simple as this because an unwitting advantage could be given to this firm at the expense of somebody else somewhere else, and the fairer method might well be to charge for power at its proper economic price and to pay the equivalent of the interest component, say to the Gladstone municipal authority, to provide community amenities.

However, in practice the issues are not even as clear cut as this and some other relevant aspects are brought out in the following extract from a British White Paper on 'The Financial and Economic Obligations of the Nationalised Industries', which was issued by Her Majesty's Stationery Office in 1961:

If the profitability of capital development is assessed on different (and easier) financial criteria from those adopted in industry generally, there is a risk that too much of the nation's savings will be diverted into the nationalised industries.

Again, if the prices of the goods and services which the nationalised industries provide are uneconomical^ low, demand for them (and for investment to produce more of them) may be artificially stimulated.

Thus, the operation of the nationalised industries, with an unduly low rate of return on capital is sooner or later damaging to the economy as a whole.

A recent book entitled 'Technology, Engineering and Economies', by Philip sporn makes these observations which are relevant:

A sound economic evaluation of any major capital project is independent of the social, political or other motivations, and is independent of the particular economic system on which a society is organised.

If a given society is not to be led astray, and if it is not to make a mess of the indispensible business in the proper allocation of its limited total resources, it is important that the proper - and this means total - costs be used in the evaluation.

Having done this, the society is then in an excellent position to assign priorities.

This does not prevent it from upgrading the priority of any socially desirable project at the expense of another less costly.

But the intelligence and sound judgment with which this will finally be done will always be materially enhanced by having properly determined values and costs.

Subsidies, desirable and granted, do not change cost.

A government can, in fact, make money available at no rate of interest - even below zero rate - a low rate of interest or a high rate of interest, but whether it does one rather than the other is not in itself good or better social policy. Good social policy involves a considered examination of many factors, economic as well as social. That, generally, is the attitude that the Labor Opposition will take to financing developmental projects of this type. They will be considered in a priority field and in the interests of the community generally. It will not be done on an electioneering basis, as this Government has done so many times in the years that it has been in office.

The Parliament has not been given nearly enough information on this project to enable anyone to know whether the interest charges are too high or too low. I repeat that the Parliament should not be expected to approve of an agreement to lend over $80m without having a total cost evaluation before it. The Prime Minister in his second reading speech referred to Queensland as a sleeping giant. The Labor Party believes it is time that that sleeping giant was awakened. The extract from the policy speech of the Labor Party which I quoted earlier in my speech is an indication of the approach we would take. We have every confidence that central Queensland will surpass the most optimistic estimates of its developmental potential. The Prime Minister admitted that the establishment of an aluminium smelter at Gladstone could produce, in a few years, 320,000 tons of aluminium per annum with an export value, at present prices, of approximately SI 65m. The advent of a chemical industry would further enhance the export potential of the area.

Central Queensland has a vast area of natural resources which are exciting in their magnitude and variety. A look at the report on the resources and industries of centra] Queensland by the Department of National Development and the Queensland Department of Industrial Development shows that this is the case. Central Queensland has a large potential for water conservation schemes and offers good ports and harbours. It can accommodate whatever population is needed to run its industrial complex, support industries and commerce. In raw materials alone it offers coking and non-coking coal, beach sands, salt, pyrites, limestone, copper, nickel, gold, silver, natural gas and several others. Its coal reserves alone are estimated to be in excess of 2,000 million tons and this coal can be used to provide the low cost power to supply power intensive industries. From these industries will come subsidiary industries forming part of an industrial complex almost too great to imagine.

In the next decade the transport facilities and other services in the area will be under great strain, and the Queensland Government will need to plan with imagination and foresight. Finance will, undoubtedly, be one of its problems, and the Commonwealth

Government will be called upon for further loans. These must be forthcoming. Australia cannot stand still. It is on the verge of great expansion and all State governments must be in a position to know the terms and conditions under which financial assistance will be granted by the Commonwealth.

I have given the guidelines of Labor's policy in this direction. It is a policy which shows confidence in Australia and Australians. It is a policy which will gain great returns for both Federal and State governments. Under a Federal Labor government loans for developmental works similar to the Gladstone power station will be a feature of government. We support the agreement, after allowing for the qualifications and criticisms I have outlined.

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