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Tuesday, 12 May 1970

Dr PATTERSON (Dawson) - I would have liked the honourable member for Lilley (Mr Kevin Cairns) to deal more with some of the points which the honourable member for Lang (Mr Stewart) made, particularly in regard to the rate of interest. The honourable member for Lilley said that because this was the interest rate applicable to similar projects in other parts of Australia we have nothing to growl about. Just because this rate of interest has applied to projects in other areas it does not necessarily follow that it should apply to this one.

In fact it has become very clear over the years that the Federal Government in financing development projects is adopting the role of some back alley money lender. For example, it is recognised that the Commonwealth loan for the reconstruction of the Mount Isa railway line had the toughest conditions of any loan negotiated between the Federal Government and a State. The interest bill on that capital loan of $34m is $23m, so Queensland's industry and taxpayers will have to pay to the Commonwealth a total of $57m. This was the point that the honourable member for Lang was making when talking about a revolving fund. If the Commonwealth Government charges a very high rate of interest, that money, when repaid by a State, should come back into the coffers and at least be put into a revolving fund so that it can be earmarked for use in further development. I think that most people will agree with this. There was a very large interest component in the Commonwealth loan for the development of the brigalow country. When assistance for beef roads was first negotiated and the Commonwealth first financed their construction there was an interest component with respect to the sealing. Some of this money - and I think the honourable member for Lilley would recognise this - comes from revenue.

I am not arguing, and will not argue, about the specific level of interest rates, because one knows full well that in working out a benefit cost analysis the rate of interest is tremendously important in the economic justification of a project. With respect to the Ord River project, for example, by taking a high rate of interest as the discount factor one can get a completely different evaluation result than one gets by taking a low rate of interest. I think the honourable member for Lilley would agree with that. It is important in a benefit cost analysis in the determination of priorities to know what is the best rate of interest. I agree with him about priorities. In fact, it is quite interesting to hear an honourable member opposite suggesting that not enough thought is being given to priorities. I agree. I have been arguing on this line for some time. We should have a list of alternatives. If we had had before us, with respect to water, the Ord River project, the Nogoa project and the Bundaberg scheme together instead of having only one at a time - an ad hoc approach - perhaps there would have been a better measure of priorities with respect to investment. The same thing applies to other projects.

As has been stated, interest rates are extremely important not only to the final cost of reticulated power, brigalow development or whatever the project may be. The interest rate charged by the Commonwealth to the States is most important to the amount of the repayments by the States to the Commonwealth. The honourable member for Lilley talked about the method cmployed by the World Bank to determine priorities. I believe also - and I have hammered this point - that the Federal Government can learn a lot from the techniques employed by the highly successful development teams of the World Bank. In Australia development projects are evaluated by experts from various government departments. Those people meet and formulate a report which is usually analysed by an interdepartmental committee, and after a lot of backfilling the report is finally formulated into a Cabinet submission. It was suggested by the Vernon Committee of Economic Inquiry that we should develop highly specialised teams to concentrate on development alone. In these teams would be people whose principal job was to evaluate development proposals and compare alternatives and give the Government the facts about the alternatives so that the Government could make up its mind which was the best proposition in which to invest funds on behalf of the people of Australia and in the best interests of Australia, taking into account of course the welfare of Australia and the commercial principles involved. If we did this we would have a better order of priorities than exists today.

The ad hoc approach of the Federal Government to development in this country for over 20 years has not resulted in the best use of resources. There can be no doubt that in the allocation of Federal funds to the States for development the 2 most important criteria are the contribution that will be made to our balance of payments and the development of a region. The Federal Government must consider the ability of the project to earn export income and its ability to decentralise development. These criteria have been the backbone of practically every development project that has been financed by the Federal Government. After the credit squeeze in 1961 the Commonwealth financed the coal ports, beef roads and brigalow projects. Basic to these 3 projects was a consideration of export income earning capacity as weil as development or resources. This approach has flowed on in the various forms of Commonwealth assistance to the States for development projects.

The same considerations apply to the power house at Gladstone. Export income is of vital importance to the Federal Government but of little real importance to the State of Queensland. As far as the Queensland Government is concerned, the great benefit of development there is that, firstly, it will bring in additional revenues and, secondly, it will promote development itself. This in turn, through the multiplier theory, will generate further development and further revenues. The estimated cost of the power house together with reticulation to the town of Gladstone is approximately

SI 55m. That estimate, J understand, is based on 1968 prices, so the real cost today would probably be somewhat higher. The power house will have an approximate total installed generating capacity of 1,100 megawatts, and approximately 600 megawatts will be reserved by the Queensland Government for specific development in central Queensland. The amount of the Commonwealth financial assistance will of course depend on the total cost of the construction of the power house at Gladstone under the agreement entered into between the Commonwealth and Queensland. The agreement provides for a variation in the amount of financial assistance above or below $80m according to any variation which occurs in the total cost above or below $80m. This means therefore, that th: amount of financial assistance to the State of Queensland can be expressed as approximately 80/155ths of the total cost of the project. Tt is admitted that this can vary. lt is well known that before plans were made to develop a giant power house in central Queensland the Government of that State was giving serious consideration to the establishment of more thermal power stations in the area. It was recognised that the toy power houses - as I have called them many times - were simply not attract ing heavy industrialisation processes to that State. The so-called toy power houses did a good job for rural services and light industry but the greatest retarding factor in the development of heavy industry in central and north Queensland was the complete absence of abundant and relatively cheap power. That was the missing link.

The development of the Weipa-Gladstone bauxite-alumina complex was the initial shock which triggered off a chain of development throughout Queensland. Until that point of time Queensland had various complexes such as Mount Isa and the copper refinery at Townsville, but it was not. until the integration of the huge bauxite deposits at Weipa and the alumina complex at Gladstone that the State received the initial shock which set off the chain reaction in development. The integration of the basic natural resources of Queensland and the northern part of Western Australia could result in Queensland's becoming the most industrialsed State in the Commonwealth within 50 years. It is simply a marrying of the coal, water, limestone and iron ore. This, with the tremendous infrastructure of the deep sea ports, provides the format of major development. The giant power house at Gladstone will be the nerve centre of concentrated mineral and chemical processing which will bring imense wealth to northern Australia as well as Australia generally in the earning of export income. The paucity of large scale, relatively cheap power has been the greatest retarding factor in the industrialisation of Queensland. This was seen quite clearly in a positive case several years ago when Queensland lost an aluminium smelter to New South Wales. Queensland lost the project because it simply could not provide large amounts of relatively cheap power unless it was heavily subsidised by either the Commonwealth or the State. The companies concerned with aluminium production had no alternative but to go to New South Wales and also to have some processing done in Tasmania.

The conditions for the industrialisation of an area include, firstly, the evolution of an industrial nucleus which has the effect of catalysing or generating future growth. Although the missing link was power, we knew for many years that major industries wanted to go to Queensland. Now that missing link has been provided. For successful export industrialisation there is a pressing need for low cost raw materials. We now have low cost raw materials in the north of Australia. Most geologists and professional people will agree with me when I say that as regards mineral discoveries and development the surface of Australia has not yet been scratched. In the short time since mineral development and exploration have become concentrated tremendous deposits of iron ore, and steaming and coking coal have been found. This availability of these raw materials is something which most other countries envy.

Japan is sending huge bulk carriers to Western Australia for iron ore, and she is now developing large carriers for the coal trade between Australia and Japan. Japan is coming down to Western Australia and Queensland, carting back the raw product to Japan and then exporting the steel to markets such as the United States of America. If Japan can do it why can Australia not do it? It would seem that this is the next stage of development. In addition to the low cost raw materials which we know we have. Queensland has an abundance of water. The next requirement is low cost power, which is now to be provided. Another necessary condition is for low cost steam and some method of effluent disposal. Until the last few years effluent disposal was looked upon as not a very important factor; effluent was just turned out into the sea or into the rivers. One has only to go to my own area of Mackay to see what pollution from the disposal from factories has done to organic matter. The position has to be rectified. No responsible government in the future can allow any major industrial complex to be developed unless the plans contain a proposal for the successful disposal of effluent. Another condition necessary for the successful industrialisation of an area is the location of ports. It is not much good finding tremendous quantities of coal, for example, in the middle of the Simpson Desert. One of the great problems with the valuable phosphate rock deposits in Queensland is their distance from the sea. Of course that project will be developed in time. Broken Hill South Ltd is doing a feasibility study now. The great benefit of the iron ore in Western Australia and the coal in Queensland is their proximity to the coast and to deep sea ports. Australia is very fortunate in having natural deposits of such magnitudelocated close to ports.

There we have the conditions for industrialisation on a scale such as that contemplated at Gladstone. But there must be low cost raw materials, the necessary integration between coal and iron ore, low cost power, low cost water to generate steam, and effluent disposal. Then there is the necessity to co-ordinate the deep sea ports with the industrial complexes. I ask for leave to continue my remarks at a later stage.

Leave granted; debate adjourned.

Sitting suspended from 6 to 8 p.m.

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