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Liquid Fuel Emergency Amendment Bill 2017

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2016-2017

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

                                                

 

HOUSE OF REPRESENTATIVES

                                                                                                                        

 

 

LIQUID FUEL EMERGENCY AMENDMENT BILL 2017

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by authority of the Minister for the Environment and Energy,

the Hon Josh Frydenberg MP)



 

LIQUID FUEL EMERGENCY AMENDMENT BILL 2017

GENERAL OUTLINE

The Liquid Fuel Emergency Amendment Bill 2017 (the Bill) enables the Australian Government to enter into commercial oil stockholding contracts, with either foreign or Australian entities. These contracts include purchasing rights to access oil stocks, also known as ‘ticketing’.

Ticketing is a type of commercial oil stock contract that is commonly used by International Energy Agency (IEA) member countries, predominately in Europe. Under a ticket contract, the seller agrees to reserve, on behalf of the buyer, a predetermined amount of oil in return for an agreed fee. During the contractual period, the buyer, in this case Australia, has the option to purchase the stocks, with price being determined by a market-based rate, or could release the stock back into the global oil market. Ticketed stock is able to be held either offshore by a foreign entity or onshore by an Australian entity.   

This amendment is required to provide the legislative authority for the spending of funds on oil stockholding contracts, for the purpose of the principles confirmed by the High Court in Williams v Commonwealth (No 2) (2014) 252 CLR 416. The purchase of oil stockholding contracts forms part of the Australian Government’s plan to return to compliance with the IEA’s Agreement on an International Energy Program (Agreement). The Agreement creates both rights and obligations for Australia as an IEA member. One obligation of this agreement is that IEA members hold oil stocks equivalent to 90 days of the previous year’s average daily net oil imports.

The Australian Government plans to purchase 400 kilotonnes of offshore tickets in the 2018-19 and 2019-20 financial years. This initial purchase of tickets is part of the first phase of Australia’s return to compliance with the IEA’s 90-day oil stockholding obligation. The ticketing contracts will be supported by government-to-government level arrangements or treaties with the host country, a requirement of the IEA.

The Bill empowers the Secretary of the Department of the Environment and Energy, on behalf of the Australian Government, to enter into contracts for oil stockholdings. By entering into the offshore or onshore ticket contract, the Secretary will subsequently have the ability to exercise the various contractual rights of the Australian Government. This will generally include the ability to exercise the option to purchase the ticketed stock, or to release the ticketed stock back into the host country, as defined by the contract.

 

FINANCIAL IMPACT STATEMENT

The Australian Government has provided funding of $23.8 million over four years to support the International Energy Agency’s oil stockholding requirement measure, which includes the measures of establishing the Energy Security Office in the Department of the Environment and Energy, re-establishing an Energy Advisor posting in Paris, funding for the Collective Action Response Measures and implementing the mandatory reporting of petroleum statistics. A procurement process will be held to ensure value for money is achieved when acquiring ticketing contracts.

 

 

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS - PART 3 HUMAN RIGHTS (PARLIAMENTARY SCRUTINY) ACT 2011

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

LIQUID FUEL EMERGENCY AMENDMENT BILL 2017

 

This Bill is compatible with the human rights and freedoms recognised or declared

in the international instruments listed in section 3 of the Human Rights

(Parliamentary Scrutiny) Act 2011
.

 

Overview of the Bill

 

The Liquid Fuel Emergency Amendment Bill 2017 enables the Australian Government to enter into commercial arrangements for oil stockholdings. These arrangements include contracts for purchasing rights to access oil stocks, also known as ticketing contracts, with foreign (offshore tickets) or Australian (onshore tickets) entities.

 

Ticketing is a type of commercial oil stock contract that is commonly used by International Energy Agency (IEA) member countries. Under a ticket contract, the seller agrees to reserve, on behalf of the buyer, a predetermined amount of oil for the period in return for an agreed fee. During the contractual period, the buyer, in this case Australia, has the option to purchase all or part of the reserved oil, with price being determined by a market-based rate, or could release the stock back into the global oil market.

 

This amendment is required to provide the necessary legislative authority to purchase oil stockholding contracts, consistent with the High Court’s decision in Williams v Commonwealth ( No 2) (2014) 252 CLR 416. Entering into oil stockholding contracts forms part of the Australian Government’s plan to return to compliance with the IEA’s membership obligations. Under the IEA’s Agreement on an International Energy Program , stocks held offshore by a host country can be counted towards the requirement that IEA members hold oil stocks equivalent to 90 days of the previous year’s average daily net oil imports, along with stocks normally held onshore.

 

The Bill empowers the Secretary of the Department of the Environment and Energy (the Department), or a delegate, to enter into contracts for offshore and onshore oil stockholdings, on behalf of the Australian Government. By entering into an oil stockholding contract, the Secretary will have the ability to exercise the rights that the Australian Government has under the terms of the contract, including purchasing ticketed oil stocks or releasing oil stocks into the market.

 

 

Human rights implications

 

This Bill does not engage any of the applicable rights or freedoms.

 

This Bill does not contain any measures to regulate Australian businesses or place any obligations on individuals. Entering into oil stockholding contract with the Australian Government would be voluntary and commercial in nature. The contents of the commercial oil stockholding contracts are not regulated by this Bill. The detail of these contracts will be determined by the Department and the host entity, as a result of a tender process and commercial negotiations. This tender will follow the Australian Government’s relevant procurement policy framework to ensure value for money is achieved. Details of the oil stock contracts would be treated as commercial-in-confidence, thereby protecting any sensitive details and minimising any privacy concerns of entities holding Australian oil stocks.

 

Conclusion

 

This Bill is compatible with human rights as it does not raise any human rights issues.

 

Minister for the Environment and Energy, the Hon Josh Frydenberg MP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUID FUEL EMERGENCY AMENDMENT BILL 2017

 

 

NOTES ON CLAUSES

 

Clause 1 - Short title 

 

1.        This clause provides that the Bill, once enacted, may be cited as the Liquid Fuel Emergency Amendment Act 2017.

Clause 2 - Commencement

2.        This clause provides that the Bill, in its entirety, commences on 1 January 2018.

Clause 3 - Schedules

3.        This clause provides that the Act specified in the Schedule to this Bill is amended or repealed as set out in the applicable items in the Schedule.

 

Schedule 1 - AMENDMENTS

Liquid Fuel Emergency Act 1984

Item 1 - At the end of the title

4.        This item amends the long title of the Liquid Fuel Emergency Act 1984 to reflect that the Act encompasses provisions that relate to both domestic liquid fuel security and Australia’s rights and obligations as a member of the of the International Energy Agency (IEA).

Item 2 - Subsection 3(1) (definition of Agreement )

5.        This item repeals the definition for ‘Agreement’ and substitutes it with a new definition for ‘Agreement’. As before, this is defined as the Agreement on an International Energy Program that was signed at Paris on 18 November 1974, but the new definition includes the words ‘as in force from time to time’. This supplies an ambulatory meaning such that, as the Agreement is updated or its meaning has an updated interpretation, the current Agreement or new meaning is to be applied for use in interpreting the Act.

Item 3 - Subsection 3(1)

6.        This item inserts two new definitions into the Act. These new definitions refer to the definitions given in the Agreement. This means the definition of the types of petroleum-based fuel sources will be the same that is applied by the IEA in its counting of a country’s 90-day oil stockholdings membership obligation (the emergency reserve commitment). This definition is given in Article 1 of the Annex of the Agreement, which provides for ‘...crude oil, major products and unfinished oils…’ to be counted to the 90-day obligation when situated in permitted locations or situations.

7.        IEA member countries are required to report total oil stockholding monthly to the IEA, to assess compliance against the 90-day obligation. This is currently done through the Monthly Oil and Gas Questionnaire (MOGQ), which is circulated and reviewed by the IEA. By referring to the ambulatory definition of oil stocks given in the Agreement , which is calculated using the categories and rules in the MOGQ, oil stocks can be interpreted to include new types of fuels that are recognised by the IEA (for example, types of biofuels and hydrogen).

8.        The types of oil stock that are deemed to be types of ‘…crude oil, major products and unfinished oils…’, as counted using the MOGQ, include, but are not limited to: crude oil; condensate; liquid petroleum gas; natural gas liquid; gasoline; diesel; kerosene; fuel oil; heating oil; naphtha; a petroleum-based oil, lubricant or grease; paraffin wax; a petroleum-based solvent; petroleum coke; bitumen; biofuel; and hydrogen.

9.        Australia would not want to enter into a contract for a type of fuel that could not be counted towards Australia’s 90-day oil stockholding requirement.

Item 4 - After Part IV

10.    This item inserts a new part to the Act that empowers the Secretary of the Department responsible for the administration of the Act, on behalf of the Australian Government, to enter into, and exercise options under, oil stockholding contracts.

11.    This addresses the principles confirmed by the High Court in Williams v Commonwealth (No 2) (2014) 252 CLR 416.

12.    This item, through allowing for the entry into oil stockholding contracts and purchase of ticketed stock by the Australian Government, will assist in giving effect to the Agreement. This includes the 90-day oil stockholding obligation, as described in paragraph 19.

13.    ‘Ticketing contract’ is a type of commercial oil stockholding contract that is commonly used by IEA member countries. Under a ticketing contract, the seller agrees to reserve, on behalf of the buyer, a predetermined amount of oil in return for an agreed fee. During the contractual period, the buyer, in this case Australia, has the option to purchase all or part of the reserved oil stock, with price being determined by a market-based rate under the contract, or could release the stock back into the global oil market. The entity selling the ticket could be either a public or private owner of oil stocks.

14.    Under Article 3 of the Annex to the Agreement, IEA member countries can credit stocks held in another country to their 90-day stockholding obligation, when supported by an appropriate bilateral arrangement or treaty between the two governments. This is ‘offshore’ ticketing. 

15.    ‘Onshore’ ticketing would involve Australian entities ticketing with the Australian Government, where the oil would be held within Australia. Under the IEA rules, stock held within Australia is already counted to the 90-day oil stockholding requirement. However, if a ticketing market were established in Australia, there may be a financial incentive for some types of entities in the oil sector to hold surplus stock.

16.    Under a ticket contract, there are generally two options; the option to purchase the stock (all or part of the reservation), and the option to release the stock. It is not the intention for subsection 40A(1) to regulate the terms of the commercial contracts. The commercial contracts would specify these terms and conditions, including the rights of the Australian Government and the obligations of the ticket seller.

17.    Purchasing the stock under paragraph 40A(1)(b) would involve the Australian Government buying, and potentially uplifting, the reserved stock, or part of the stock, as per the contractual terms.

18.    The Australian Government, under the terms of the contract, would also be able to release the stock by terminating the ticketing contract. This would have the effect of releasing the stock, which was previously reserved for the Australian Government, back into the oil market.

19.    As a signatory to the Agreement, Australia has both various rights and obligations as an IEA member. The 90-day oil stockholding obligation assists in enabling contribution to an IEA declared collective action emergency. A collective action is when the IEA responds to an actual or potentially severe oil supply disruption in the global market. After an assessment of the situation, the IEA may need to coordinate a specific drawdown of stock from the emergency reserves of its members. Demand restraint, fuel switching measures and use of spare production capacity may also be utilised. A release of oil in a collective action event aims to diminish any economic damage associated with a severe disruption of oil supply in the global market. There have only been three collective actions in the past 40 years. The most recent event involved a response to the disruption of oil being supplied from Libya in 2011. The other collective actions triggers were from the aftermath of Hurricanes Rita and Katrina in 2005, and prior to the Gulf War in 1991.

20.    Ticketed stock could be purchased or released into the global market by Australia if an IEA collective action occurred, with the action taken being dependent on the emergency situation at the time.

21.    There is no requirement under section 40A that the Australian Government hold any or a particular amount of oil stockholding contracts.  

22.    It is intended that the powers of the Secretary under section 40A to enter into or act under the terms of an oil stockholding contract are able to be used at any time.

23.    The item, at subsection 40A(2), makes clear that subsection 40A(1) does not limit the executive power of the Commonwealth in regards to entering into oil stockholding arrangements. 

 

 

Item 5 - Section 46A (heading)

24.    This item provides that the title of the section will be amended to include the Secretary and their delegates as exempt from suit when utilising powers delegated under subsections 49(1) or (2) of the Act.

Item 6 - After paragraph 46A(b)

25.    This item provides that the Secretary, or their delegate, will be exempt from civil law proceedings in relation to the powers utilised under section 40A in entering into contracts or purchasing oil under a ticketing contract, when these powers are used correctly under the law.

Item 7 - At the end of section 49

26.    The new item at subsection 49(6) provides that the Secretary can delegate, in writing, the powers to enter into oil stockholding contracts, and the subsequent power to exercise the rights under the contract, to a Senior Executive Service (SES) employee, or acting SES employee, in the Department of the Environment and Energy.

27.    The Secretary could issue directions to their delegate and the delegate must comply with these directions when exercising the delegation.