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Transcript of media conference: Monday, 19 January 2004: Iraq reconstruction; award of contract to Worley Group; negotiations on a Free Trade Agreement with the United States.



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The Hon. Mark Vaile, MP MINISTER FOR TRADE, AUSTRALIA

Monday, 19 January 2004

Transcript of media conference by Trade Minister Mark Vaile and Worley Group executive director David Housego

Iraq reconstruction; award of contract to Worley Group; negotiations on a Free Trade Agreement with the United States.

MARK VAILE

Thanks everybody. I'll just make a few comments and then leave it open for questions. With me this morning is David Housego, the Chief Financial Officer from the Worley Group.

As you would have seen in some reporting that's been coming out, the Worley Group, as part of a consortium with the Parsons Group from the United States, has picked up a prime contract for the rehabilitation of the oilfields in northern Iraq, which is a contract worth up to $US800 million. The Worley Group has a 35% stake in the consortium.

This is the first prime contract in the reconstruction and rehabilitation of Iraq that has been gained by an Australian company. There have been a number of other Australian companies that have picked up contracts and subsidiary contracts in Iraq. This is a major announcement following the work that is being done particularly by the people at Worley in terms of promoting their ability, their experience in the region and their expertise in working in this particular field.

As you know, we took a delegation of about 12 Australian companies to the United States in April last year to promote the ability of Australian companies to be involved in the rehabilitation and reconstruction in Iraq. During that visit - and of course the Worley Company were part of that delegation - we met with the US Army Corps of Engineers in Fort Worth in Texas, and they've had the responsibility of going through the tendering process and selecting the successful tenderer for this contract.

Again in Iraq, in Baghdad in December, I had the opportunity of meeting their representative, General Nash, in Baghdad, and having a discussion with him about the merits of the Australian bid, and also the interim Oil Ministry in Iraq. Incidentally, the Governing Council in Iraq has taken a decision that the actual production of oil in Iraq will remain the responsibility of the Iraqi government and the Iraqi people, and they've opened up for foreign direct investment into the downstream processes in oil production in Iraq.

Of course, it is a significant industry as far as Iraq is concerned and it is very, very important that the oil and gas sector is quickly rehabilitated so those revenue flows can be generated to help with the reconstruction and rehabilitation broadly of the Iraqi economy.

But the crude production in Iraq at the moment is about 2.2 million barrels per day. The estimated pre-war production level was around about 2.5 million barrels per day. Of course, during the reign of Saddam Hussein's regime, there was no investment, zero investment, in the oil sector, oil and gas sector in Iraq. And of course, the new Iraq is going to be looking towards this sector to generate significant revenues for the country in the future.

And of course, it's been a clearly stated position of the Coalition Provisional Authority that decisions about the ownership of natural resources will be left to the Iraqi government in the future, and very clearly, the ownership of those resources will reside with the Iraqi people.

Ladies and gentlemen, it is very, very important that we recognise the skill and the ability of the whole team at Worley in getting this contract. It's a significant boost as far as our export effort is concerned, and also reinforces very, very clearly the expertise that resides within this sector with many Australian companies.

And I just invite David to make a few comments about the contract and the sort of work that they're going to be undertaking.

DAVID HOUSEGO:

Thank you, Minister. Good morning ladies and gentlemen. My name is David Housego. I'm an executive director and the chief financial officer of Worley.

The US Army Corps of Engineers announced late on Friday in the US, which was Saturday morning our time, that the Parsons Worley joint venture has been awarded the contract to repair the oil infrastructure in the north of the country. Worley holds 45% of this joint venture.

The contract covers a whole range of existing oil facilities - wells, pumping stations, pipelines and refineries, as well as provision of procurement and a lot of technical advice to the reforming Iraqi oil industry.

The Parsons Worley team was chosen by the US Corps of Engineers as being the best qualified with a proven track record of ability to perform the work required. It's a strong acknowledgment of our capability in managing and executing comprehensive projects of this nature.

The awarding of this contract also confirms Worley's strategy in moving into the Middle East a number of years ago.

The contract is an indefinite quantity, indefinite delivery cost plus award fee contract. This means that what will be happening, is that the Corps of Engineers will be issuing task orders to the team, to the joint venture. We'll then determine the best way to perform the work and then structure the team around that task order.

The duration of the contract is two years with three one-year options after the two-year period. The contract value, as the Minister said, has a maximum value of $US800 million with a minimum value of $US500,000.

What's happening at the moment is an initial management team will be mobilised and will be based principally in Baghdad. The joint venture, the team, would expect to be opening an office, a field office in Kirkuk through the next period. We expect we'll be

using Australian, US and Iraqi personnel and companies to work and perform the allocated task orders.

Also just like to emphasise as far as the importance of really engaging the local Iraqi companies and organisations in this, and we have a number that were active participants in the bid process - a very important point.

Just some comments on safety. Safety and security of all the people involved in this work will be of paramount importance to Worley. We'll be working fully in the joint venture in the team with Parsons who have a substantial and long track record in

successfully executing post-conflict reconstructions assignments for the US Corps of Engineers in countries like Kuwait, Bosnia and Kosovo.

We have comprehensive safety and security plans in place, which will be constantly reviewed to ensure that all we can do is in place to protect and secure all of our people.

In conclusion, Worley would like to gratefully acknowledge the ongoing support and commitment of the Federal Government and Minister Vaile in particular, who has championed the capabilities of Australian companies in the US and in Iraq. The Trade Minister - the Minister mentioned that he led to the US last year in April - and by the way, it's the first of the international trade missions to hit the US looking for opportunities in Iraq - provided Worley and a number of other Australian companies a unique opportunity to showcase their credentials to the key US decision makers.

The Minister's subsequent visit to Iraq also follows the ongoing commitment of the Australian Government to the reconstruction process and the part that Australian companies can play. Thank you.

QUESTION:

With more violence today in Baghdad - I mean, you've raised safety as an issue - but just how critical is it for the workers there now?

DAVID HOUSEGO:

It's obviously, as I said, very important and it's been a key factor in the consideration of the bid and our thinking through the process. I mean, as I said, our partner, Parsons, have substantial experience in this area. We have comprehensive plans in place, and so I'm really not at liberty to go into too much details about what those plans are. But it has been a central factor in consideration and planning for us and I believe we have enough in place to ensure we can work safely in the environment.

QUESTION:

How many Australian workers do you intend to send to Iraq?

DAVID HOUSEGO:

It's a good question. I mean, what's happening, that this project has just really been announcement over the weekend and it's really starting to unfold. And a lot of this will develop over the next six to eight week as we start to mobilise, really start to understand what the Corps wants us to do and get the initial, you know, the task orders in place. So it's difficult to answer that question there.

Worley at the moment has a very comprehensive coverage of the Middle East anyway. We have a - you know, I think we're in eight countries in the Middle East, with about 500 or 600 people in the region already. So we have quite extensive coverage in the region already, and it will really just be a question of mobilisation of the appropriate people for

the right task as they come through.

QUESTION:

Are you talking dozens or hundreds?

DAVID HOUSEGO:

I think it's too early to say at this stage, and I think they'll be mobilising to the team and it'll be really a combination, as I said, of Australian, US and Iraqi personnel.

QUESTION:

Are you paying them danger money? Is danger money part of the package that you will be supplying to these workers?

DAVID HOUSEGO:

I think the people are being paid on commercial rates, and that's part of the - you know, part of the contract is the rates that were submitted to the Corps for evaluation.

QUESTION:

What sort of people will be going? Engineers? Who are we talking about?

DAVID HOUSEGO:

There'll be a whole range of people will be provided, and that again will depend on the tasks that are being done. There's a whole range of work that'll be not just engineering but project management, procurement, some technical assistance and a lot of reconstruction, construction work as well. So there'll be a whole range of skills provided. As I said, over the next six weeks that'll start to emerge exactly what tasks will be done and what people will be needing to perform.

QUESTION:

Do you think this will pave the way now for more huge contracts being awarded to Australian companies in Iraq?

MARK VAILE:

Well, I think that we've already seen a number of contracts awarded. Of course, one of the more high profile ones post-conflict has been the resolution of the oil-for-food program with AWB, the South Australian company SAGRIC has picked up a contract as far as the agriculture sector is concerned. GRM, ANZ Bank, Patrick's, have all picked up small contracts.

But certainly, this, as I said earlier on, is the first prime contract picked up by an Australian company for reconstruction and rehabilitation. And of course, the infrastructure needs in Iraq in the oil and gas sector and public services - and there will

obviously be more contracts coming through the pipeline. And certainly it's a recognition of the expertise and the merit of Australian companies in being able to undertake and discharge their responsibilities.

And one of the points that David made - it's been very telling in all of this - and that is Australia's broad and long-term involvement in the Middle East. This country has already had a - has a significant presence in the Middle East. There are something like 70 Australian companies already headquartered in Dubai, in the United Arab Emirates and other parts, thousands of Australians already working in the area. And this is a great attribute to Australian companies looking at working and picking up further work in the region.

QUESTION:

On the Free Trade Agreement with the US, do you agree with the assessment that there is only now a 50/50 chance of that happening this year?

MARK VAILE:

My assessment - and that's the one I'm interested in - is that there's a better than even chance of this being resolved this year. Our team is starting work in Washington this week as we speak. I'll be travelling to Washington on Friday, be there for the duration possibly of next week in discussions with my counterpart, USTR Ambassador Bob Zeleck. We've said all along that we are the demandeurs and we want to do this deal in this Free Trade Agreement with the United States in the national interest for the sake of Australia today and for decades to come, but we're not prepared to do it at any cost.

And so, in answer to your question, there's a better than even chance that we're going to complete the negotiations over the next two weeks and then get that through the Congress by the middle of the year. But that remains to be seen. But obviously we will be looking after the national interest during the course of those negotiations.

QUESTION:

What message exactly will take to Washington when you go for these talks? You're obviously not going to budge on the PBS. What message will you take there?

MARK VAILE:

Look, we've made a number of issues very, very clear. We're down to the detail as far as agricultural access to the US market is concerned, some of the issues with regard to fine tuning regulations on both sides of the Pacific. I'll be going with a message of cooperation, one that we need to stick very firmly to some of our principles and certainly some of our policy positions, and the PBS is one of them - we've made no bones about

that from the outset - and seeking to have a comprehensive outcome across all sectors. I mean, it's important that we just don't focus on one sector or another. This is a very, very important negotiation for the entire economy across all sectors of our economy, and we can't just get too focused on one sector. We've got to find the right balance.

QUESTION:

Is the Australian film industry off the negotiating table?

MARK VAILE:

The Australian film industry was never on the negotiating table. I mean, there were aspects of our cultural policy that we've been in discussion with our US counterparts about. And I've explained quite publicly over quite some period of time that, as a result of the FTA, we will still be able to see Australian faces delivering an Australian message

to the Australian population. I mean, that's never been in question, and there's been a lot of hype about this issue.

We are talking about future delivery platforms and how entertainment is going to be delivered in the future. And of course, as part of that process, we want to be able to continue to ensure the ability of the Australian industry to be sustainable, to continue to develop the internationally acclaimed talent that we have in terms of actors and actresses and production and direction and the writers, and we need to have an Australian industry to do that. We have a unique circumstance here in Australia, and we've made that point very, very clear.

But the Australian film industry has never been on the table to be negotiated away.

QUESTION:

I was just wondering, where does this contract leave Worley in terms of the consensus profit forecast in the market?

DAVID HOUSEGO:

That's a good question. We've released all the information that we have available to date about the likely financial impact. And at this stage, all we can say is that the information we released contains that. It is too early to tell at this stage. I think over the next six weeks, as we come to grips with the scope and size and timing of the contract, we should be able to come back and get some more information out to the market at the appropriate time.

QUESTION:

Do you expect a re-rating of your shares?

DAVID HOUSEGO:

I think that's up to the market. I mean, we don't comment on how the market rates us or prices us.

QUESTION:

Mr Vaile, your colleagues don't seem as optimistic as you on the FTA. Mr Downer was talking it down yesterday. Mr Howard says there's only a 50/50 chance. Do you think they're being just a bit more realistic than you?

MARK VAILE:

Look, I think that it's been a position that the Government has continually taken that we don't want to unnecessarily raise expectations. This is a very complex and difficult negotiation. If it weren't, someone would have done it before. It's never been tackled before and that's because it is so complex and so difficult.

So we don't want to raise expectations, but at the same time, we've come a long way in these negotiations, and the environment that exists at the moment in terms of the relationship, not just at a political level but at a commercial level between the two countries, is unprecedented. And I think that we need to take advantage of that if at all possible, otherwise we'll be abrogating our responsibilities as a government to future generations of Australians in all sectors of the economy. I mean, this is incredibly important to the future of the Australian economy.

QUESTION:

Does that include the Prime Minister stepping in and speaking with the President?

MARK VAILE:

Well, I read some comments in the media this morning where the Prime Minister has indicated that he would be prepared to talk to the President, and that will certainly be welcome. I mean, again, the relationship between Prime Minister Howard and President Bush, as far as that goes historically between our two countries, is an incredibly strong one and one that is almost on a personal basis. And so that sort of intervention, if necessary, will be very, very welcome because I know that the Prime Minister sees this policy pursuit of an FTA with the United States as being one of great importance for our government in terms of what we've been doing in establishing a very strong economic foundation for the Australian economy, then reaching out to all markets of the world to engage our economy with all markets of the world. And of course, the US being the largest market in the world, we've targeted that as being significantly important, just as we have targeted the market in China with the discussions that were taking place last week, as being one of the most important markets for the future.

And so, we're doing this strategically in the national interest for future generations of Australians.

QUESTION:

How difficult is it though for you, as your job as Minister, for you to continue solo in these negotiations?

MARK VAILE:

I'm not continuing solo. I might be the front man, I might be the person that has to confront and eyeball my counterpart in America, but I can assure you the entire government is behind our effort to achieve a successful outcome on behalf of Australia and the national interest.

My colleagues, in their respective portfolio responsibilities, are all completely supportive. I received a fresh mandate from Cabinet just prior to Christmas in terms of our pursuit for the FTA. Whilst in Washington, I'll be maintaining contact with the key

ministers involved, as well as the Prime Minister as we progress this forward.

QUESTION:

Is your job on the line if you don't get it right?

MARK VAILE:

Oh, that's a matter for the Prime Minister, but I wouldn't think so. I mean, as we just discussed, we've tended not to raise expectations too much. If we can achieve this, this will be an enormous fillip for the Australian economy, it will be an enormous win for Australia as a whole, and obviously a big plus for our government. But we also continue to say that it is a difficult task and one that we're prepared to pursue but one that if we don't achieve it this time around is not an enormous negative because we will continue to work towards that goal into the future if we don't achieve the outcome this time round.

But I certainly feel that there is a better than even chance over the next couple of weeks that we will achieve this.

QUESTION:

And how difficult are negotiations in the middle of an election year in America?

MARK VAILE:

Well, obviously it adds a fascinating dimension to the effort and the targeting of selling our message in Washington, but it needs to be more broadly based than just the Administration, just the Bush Administration. We need to talk to all the people in the House of Representatives and the Senate that are going to have to vote this through in June/July. And so it's created a mammoth task as far as not just concluding the negotiations but then the work during the course of the next six months to sell that agreement on the Hill. But we're equal to that task if we get the opportunity, and we have already started that process going. But we've got an election on in Australia sometime between now and the end of the year as well, and so obviously it's not just an election year in the US, it's an election year here in Australia. And what this does do though is reinforce in the minds of the people of Australia that we are a government and we have been a government that's been prepared to take on the difficult challenges, take on the difficult tasks, be prepared to argue the case on its merits for change, for reform and for reaching out in the way we have in terms of what we've done in restructuring the Australian economy and, off that base, projecting ourselves into the global community to take great advantage of what's available as far as the Australian economy is concerned. And this is just - what we're doing here is the epitome of what our government has always been prepared to do in terms of arguing the case, sometimes against conventional wisdom.

QUESTION:

So you're under pressure from both sides. Do you think you'll be able to please everyone?

MARK VAILE:

Well, look, negotiating an outcome in trade negotiations is about balance and compromise to an extent, and we need to work through all those issues, but at the same time, take all the interested parties with us.

We have had a very broad and deep consultative process taking place in Australia with industry people, with state governments and with the broader community. This is not being conducted behind closed doors. There are some aspects that are confidential and commercially confidential and we need to keep those that way. But we have engaged very, very deeply, and so part of the process is taking all those people with you so when

you get to a point where you need to agree on an outcome, you should have the overwhelming majority of people in support.

QUESTION:

Do you believe Australian farmers can win in the middle of an American election?

MARK VAILE:

Well, Australian farmers need to win in the middle of an election campaign. I mean, one of the things that we've been doing over the last couple of years in terms of our dealings and negotiations with US negotiators is not just lobbying to end the Farm Bill or to eliminate tariffs and quotas and restrict those. We've been working with American farmers in their lobbying effort to open up global markets through the WTO. We've been working with American farmers to get a greater understanding of the capacity of Australian agriculture. And that capacity is not there to swamp the American market. We just want fair access to compete in that market just as many American companies today in all sectors have fair access to compete in the Australian market. And a lot of Australian companies such as Worley are able to match it with many of those American companies.

QUESTION:

Just wondering if there were any other contracts of this magnitude in the pipeline for which Australian companies might win?

MARK VAILE:

As I said, prospectively there is a lot of work to be done in Iraq. Obviously I experienced that first hand when I visited there in December, and I didn't just stick to the Green Zone, the safe precincts of Baghdad Airport. We went to Saddam City where I visited the Oil Ministry and was able to see what the requirement is as far as the reconstruction of infrastructure in terms of transport, water, sewerage, electricity, roads, communications. It is enormous.

So the answer to the question is yes, there is an enormous amount of work to be done. We obviously have a responsibility and the broader global community has a responsibility to ensure that in the interests of the future of Iraq for the Iraqi people that work gets done and gets done by professional companies like Worley, and there are going to be more opportunities in the near future.

QUESTION:

Would Worley have got the work had Australia not been involved in the war?

MARK VAILE:

I think that that's one of those hypothetical questions that's almost impossible to answer because we were, we are, we're engaged there now. There are still Australian Defence Force personnel in situ in Baghdad, playing a much lesser role, obviously, in the security sense. So that's a hypothetical that can't be answered.

The fact is, we were involved. Our government took a decision to be involved in the war in Iraq for all the right reasons. That has now been proven, and the Iraqi people that I

spoke to when I visited Baghdad last year told me first hand the decision that our government took was the right decision.

And so, we arrive at the present point in time where there's a task at hand, and you know, congratulations to Worley for the work that they've done in getting this contract and we wish all Australian companies that are bidding for contracts in the future all the very best.

Thanks very much, everybody.

ENDS