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Thursday, 20 May 1926

Senator PEARCE (Western Australia) (Minister for Home and Territories) . - I move-

That the bill be now read a second time.

This measure embodies an agreement between the Commonwealth Government and the Anglo-Persian Oil Company to provide additional capital to the extent of £100,000 for the Commonwealth Oil Refineries Limited, and also a subsidy of 12s. 3d. a ton on crude oil treated up to the 30th June, 1925, and 7s. 6d. a ton on crude oil treated from the 1st July, 1925, to the 30th June, 1926. Similar subsidies are to be paid by the AngloPersian Company. I shall give a short survey of the events that have led up to the introduction of this bill. In May, 1920, an agreement was entered into between the Commonwealth Government and the Anglo-Persian Company by which a company was formed with a capital of £500,000, of which £250,001 was subscribed by the Commonwealth, whose share interest was represented by that figure. Thus the Commonwealth Government had a controlling interest in the company. The idea was to establish refineries in Australia to deal with indigenous oils when found. The AngloPersian Company agreed to make available to the Commonwealth Oil Refineries Limited up to 200,000 tons of crude oil per annum in order to enable the refining of this product to proceed in Australia. The object of the Commonwealth Government in entering into that agreement was to prevent the exploitation of the consumers in Australia by producers of oil in other countries. I shall endeavour to show that already this arrangement has had a substantial result in that direction. There are two great privatelyowned oil groups, namely, the Royal Dutch, which is the Shell group, and the Standard Oil group. The parent AngloPersian Oil Company is controlled by the British Government in much the same way as the Commonwealth Oil Refineries Limited is controlled by the Commonwealth Government, similar arrangements having been made as regards the share capital. I do not propose to review the considerations that prompted the Commonwealth Parliament to make that arrangement. The arguments brought forward in i920 as to the grip that these privately-owned oil interests have throughout the world are well known to honorable senators, and in any case all interested may look up the arguments that have been reported from time to time in Hansard. The conditions that existed at that time still obtain, but in a more intensified form. Whereas there were, to a large extent, monopolies in this particular industry at that time, they have since increased their power. The Com- monwealth Oil Refineries Limited was established, but its capital was exhausted in the construction of the refinery at Laverton, the wharf and tankage at Spotswood, and the depots and connecting pipe lines. In June, 1924, a further agreement was made by which the capital was increased by £250,000, making a total of £750,000, in order to enable the company to dispose of the product which it was then in a position to refine. Since that time an altered position has arisen in that, in the last year or eighteen months, a new system of distribution in bulk has come into vogue. The utilization of motor transport, the establishment of country depots, and the installation of what are known as Bowsers or kerbside petrol pumps, from which oil is sold retail, have entirely revolutionized the method of distribution of this product. It is obvious that if the Commonwealth Oil Refinery is to be able to compete with its rivals and accomplish the purpose for which it was established, namely, to exercise a controlling influence in the fixation of prices of petrol in Australia, it, too, must be up to date in its methods of distribution. Therefore, the present bill proposes to provide additional capital to the extent of £100,000, of which £50,000 will be supplied by the Commonwealth, and £50,000 by the Anglo-Persian Oil Company, for the purpose of installing a more up-to-date and complete system than is now in operation for the retail distribution of petrol. It follows that this further sum may not meet all the liabilities of the Commonwealth. It may be that further capital will be required, and that further measures "will be necessary to protect fully the consumers of Australia; but the Governmentis hopeful that the measure now being taken - which I have every reason to believe will receive the unanimous endorsement of honorable senators - will be an indication to the oil companies that this Parliament is determined to protect the consumers in this country against exploitation. If those companies learn that lesson, it may be that we shall not have to take further action. Petrol and oil are so important, however, in these days of motor transport, that the Government and the Parliament could not sit supinely by and see this very important product subject to monopolistic action by any private interests in the Commonwealth. Parliament has shown that it recognizes the importance of this matter by the ready reception it gave to the proposals put before it by the Government for financial aid to enable companies to discover indigenous oils in Australia. That very substantial assistance, which has been much appreciated, is now in course of actual distribution to companies in approved areas, and we are hopeful that it may have a favourable result in giving Australia ' indigenous supplies of crude oil. Other legislation has been introduced to encourage the development of shale oil deposits and the production of power alcohol, so as to make Australia selfsupporting in this respect. I should like honorable senators to remember that the Commonwealth Oil Refineries Limited came into existence in the face of powerful and very efficient opposition. It had to fight its way on a market well supplied with recognized brands of petrol, and like many other new enterprises, had to overcome a certain amount of public prejudice. This is one reason why the company showed a loss in its operations for the first, two years. In its first year, it was not in a position to supply all its customers. It is admitted, also, that, at the outset, the product was not all that could be desired. There was, I am informed, an aroma about it that did not add to its popularity. Some people say that the same objection may be urged against it to-day; but I understand that this is not so, and that the initial difficulties have long since been overcome, lt is admitted now by impartial people that the Commonwealth Oil Refineries' motor spirit compares more than favorably with any other on the Australian market.

Senator Duncan - Is the Commonwealth Oil Refineries' product available again? It was withdrawn for a few weeks in Sydney.

Senator PEARCE - I cannot say what is the position in Sydney; but I know that the Commonwealth Oil Refineries' motor spirit is available in this State. Owing to the initial difficulties which I have mentioned, there was not, in the first year, a sufficient demand for the product to enable the refinery to be worked at its full capacity, with the result that production was somewhat costly. The position improved in the second year, as the motor spirit became better known and its reputation established. Consumption increased to such an extent that during the later portion of the second year the refinery was being worked at full capacity, so that, whilst there was a loss on the second year's operations, the deficit was a diminishing quantity. It is anticipated that this year the refinery will be working at its utmost capacity, so that we shall have a minimum cost of production. The overhead expenses will be no more than when the refinery wad not working at its full capacity.

Senator Foll - Are we to understand that when the refinery is operating at full pressure it is working three shifts ?

Senator PEARCE - Yes. The difficulties, therefore, have now been overcome. I wish now to emphasize the benefits to Australia from the establishment of this company and the consequent control of prices. It is obvious that, in the case of a commodity in so much demand, some form of control must be beneficial to the community generally. Let me give honorable senators some most significant information, upon this subject. On the 25th September last, the Shell - British Imperial Oil Company - and the Vacuum Oil Company dropped their Australian prices by L£d. a gallon. This move was significant, in view of the fact that, before the end of that month, the price in the United States of America rose 2 cents a gallon. The representatives in Australia of both companies must have known when they dropped the Australian prices that the rise in the United States of America was pending. Having dropped Australian prices, they made an arrangement with small oil-vending companies, that had begun operations in Australia in a modest way, with the result that, on the 23rd January, 1926, they had a regular field-day amongst garages in the capital cities of Australia. They made what appeared to be a most philanthropic arrangement with the owners of garages for the establishment of kerbside pumps under what seemed to be the most advantageous terms. So attractive was the offer that garage proprietors willingly tied themselves up to these companies. Now comes the significant part of the business. On the 30th January, just seven days later, these companies raised the Australian prices by l£d. a gallon, and sought to justify the move by urging that oil prices

Lad been raised in the United States of America by 2 cents a gallon in September. It is well to bear in mind, however, that in September they dropped prices in Australia by 1-kl. a gallon. The public, resenting the increase in January last, began to inquire whether there was any other oil company's product on the market, and they ascertained that the Commonwealth Oil Refineries' motor spirit was available at the old price. Consequently, there was a sudden increase in the demand for the Commonwealth Oil Refineries' product. It is worth noting that in February, only a month later, there was a further rise of 2 cents a gallon in the United States of America; but the Vacuum and British Imperial Oil Companies did not deem it prudent to follow the rise by again increasing prices in Australia. The Neptune Oil Company, which distributed the Waratah motor spirit, has been absorbed by the British Imperial Oil Company, and the Golden Crown Company has been absorbed by the Vacuum Oil Company. I may add that the Common wealth Oil Refineries Limited refused to increase its prices in January last. By its refusal, and by its action in improving its distribution organization, it has undoubtedly saved the consumers of Australia a considerable amount in the purchase of motor spirit. I venture to say, also, that it prevented the other companies referred to from further increasing prices in February. If the Commonwealth Oil Refineries Corporation is to play an effective part in the refining and distribution of liquid fuel in Australia it is necessary that this agreement should be entered into. It has to be admitted that even under this agreement the requirements of the Commonwealth cannot be effectively and fully provided for. At present the company must confine its operations to the State of Victoria, with such extensions as it can make to the other States. If the experience of the last twelve months is repeated, Parliament will have to consider whether the operations of the company should not be extended by providing additional refineries, and extending its distributing factors to other States, or whether some arrangement in regard to the distribution of petrol not under the control of the two companies I have mentioned should not be undertaken through this agency. We hope that will not be necessary; we trust that the intimation given by Parliament in agreeing to this bill will be sufficient to restrain these companies, and cause them to be satisfied with doing a fair share of the business at a reasonable profit.

Senator Foll - Can the Minister say whether the increased consumption is being maintained - that would indicate that the quality of the product is equal to that being sold bv the other companies?

Senator PEARCE - Proof of that is to be found in the fact that the full output is being absorbed. There is no falling off in the demand.

Senator Kingsmill - Has the Minister any comment to make concerning the proposed subsidy of 12s. 3d. per ton on crude oil ?

Senator PEARCE - That is a subsidy to make up for the loss incurred during the first two years. That will not apply during the coming year. In the first year the company made a loss equivalent to 25s. per ton on crude oil. That could be carried on as a debit in the books of- the Commonwealth Oil Refineries, and as an overdraft at the bank on which interest would have to be paid. During the second year the company may make a further loss equivalent to 15s. a ton of crude oil. The Commonwealth Government and the Anglo-Persian Oil Company consider it preferable to wipe off tha amount in order to avoid interest. Having done that, and with a demand for its full output, the company should not now show a loss, but hopes to show a profit.

Senator Abbott - If the company does not control the prices of the raw product landed in Australia will this agreement prevent consumers from being exploited by other organizations ?

Senator PEARCE - Under the original act it is provided that the Anglo-Persian Oil Company shall undertake to provide crude oil at a rate determined under certain conditions, and also to carry the oil on the freighters belonging to the AngloPersian Oil Company at a specified rate. Under that agreement the Commonwealth is fully protected as to the prices to be paid for crude oil and also the freight to be charged. On each occasion when this agreement has been renewed satisfactory arrangements have been made in regard to the prices to be paid for crude oil and also the freight to be charged.

Senator Foll - The Government has a voice as well as the Anglo-Persian Oil Company in determining the price of the crude oil and also the freight?

Senator PEARCE - Yes.

Senator McLachlan - What was the actual amount of money lost?

Senator PEARCE - In the first year it was about £24,300, but the loss for the second year cannot be determined until the 30th June of this year. It is assumed, however, that the payments of 7s. 6d. per ton of crude oil will cover the loss for the second year.

Debate (on motion by Senator Needham) adjourned.

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