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Wednesday, 3 December 2008
Page: 8063

Senator CAMERON (5:00 PM) —On behalf of the Chair of the Senate Standing Committee on Economics, Senator Hurley, I present the report entitled Matters relating to the gas explosion at Varanus Island, Western Australia, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

Senator CAMERON —by leave—I move:

That the Senate take note of the report.

I draw the Senate’s attention to the fact that this inquiry was referred to the Senate Standing Committee on Economics on 28 August 2008. Throughout the course of the inquiry, the committee conducted five public hearings—one in Perth, another in Bunbury in the south-west of Western Australia, and three shorter hearings in Canberra.

The committee was asked to examine the economic impact and government response to the explosions that occurred on Varanus Island on 3 June 2008. The explosions disrupted a third of Western Australia’s domestic gas supply. The committee received 32 submissions and heard from a wide variety of people at the five hearings. I would like to thank all those who took the time to write submissions or to appear before the committee at a hearing. I also thank the committee secretariat for their assistance in the conduct of the inquiry.

At the hearings in Bunbury, the committee heard from individuals who had experienced such significant dislocation that their businesses were faced with closure. The committee formed the view that, because industry in the south-west of Western Australia relies so heavily on gas sourced from the Varanus Island facility, there was a disproportionate disruption to that part of Western Australia.

The committee heard some particularly worrying evidence from several contractors in the south-west who were severely affected by the gas shortage. It was reported that Centrelink are limited in the assistance they can provide to independent contractors. The committee suggests that the Department of Human Services should undertake an investigation of these concerns.

In terms of the government response, the committee majority came to the conclusion that the former Western Australian government responded in an adequate manner to the crisis and that their management of the crisis was professional and effective. Some witnesses who gave evidence to the inquiry suggested that the Western Australian government should have invoked emergency powers in the aftermath of the explosions on Varanus Island so that the government could have taken control of the allocation of gas. However, most witnesses, including the Chamber of Commerce and Industry, the Chamber of Minerals and Energy and the DomGas Alliance, were supportive of the decision not to invoke emergency powers.

The committee majority formed the view that, given the circumstances of the incident and the consequences of forcing unaffected energy suppliers to break contracts and arbitrarily take gas away from one user to give to another, the government had limited capacity to invoke emergency powers and, therefore, the steps taken by the Western Australian government were appropriate.

While the committee found that the response by the Western Australian government was professional and effective, the committee recommends that the state government convene a forum of gas producers, suppliers, power companies, industry groups, media outlets and community representatives to discuss and develop a range of standardised emergency responses in the event that another gas crisis is experienced in Western Australia. This is a prudent course of action that should be undertaken in the aftermath of any significant incident, such as the one that occurred at Varanus Island.

For similar reasons, the committee also recommends that the state government should conduct an analysis of the effectiveness and appropriateness of the legislative framework to deal with periods of energy crisis in Western Australia. The new state government should also conduct the review of gas security, which was originally announced by the former state government on 6 August 2008.

The committee found that energy supplies in Western Australia are prone to serious dislocation due to the lack of a mature, diverse and competitive market. Similarly, the reliance on limited sources of domestic gas production and supply is a significant impediment to the continuity of energy supply for Western Australian consumers and industry. There is no short-term capacity to provide significant amounts of reliable and affordable supplies of alternative energy sufficient to prevent a similar crisis if another major gas failure is experienced.

Based on the evidence the committee received it is clear that, due to the prohibitive cost and technical and environmental challenges, the feasibility of developing emergency storage facilities in depleted reservoirs or other repositories is limited and would not result in continuity of supply during a similar crisis. The committee heard from a number of alternative and sustainable energy groups in Western Australia and recommends that the state government actively engage with the alternative energy industry in order to progress energy diversification through increased alternative energy capacity.

As part of the inquiry, the committee was asked to examine:

… the nature of contractual arrangements forced on business and industry during the gas crisis and their status since the resumption of gas supplies from Varanus Island.

Based on the evidence received, the committee could not reach a definitive conclusion in relation to these matters. A definitive conclusion was not possible due to the decision by Alinta, the major gas retailer in Western Australia, not to appear before the committee. I find Alinta’s attitude to the inquiry inexplicable. It is necessary to place on the record that Alinta were offered the opportunity to make a confidential submission and to give in camera evidence on a number of occasions. In an email to the secretariat on 27 October 2008, Mr Troy McKelvie, legal counsel to Alinta’s parent, Babcock & Brown Power, advised the committee:

After giving due consideration to Alinta’s various contractual obligations not to disclose confidential information, we regret to inform the Senate that Alinta respectfully declines the invitation to give evidence.

The committee secretariat yesterday received a specious letter from Alinta in which the company claims that the absence of a subpoena requiring them to give evidence to the committee prevented them from doing so because of a concern that they would not be protected from disclosing matters subject to contractual confidentiality obligations. Alinta’s comments attached to the letter have been accepted as a late submission.

Senators would be well aware that the use by committees of inquiry powers through the issuing of summonses is the exception rather then the rule. Committees usually invite witnesses to attend voluntarily and they usually do so. It is the practice of the Senate to require committees to marshal witnesses by way of invitation, unless there are circumstances that warrant the issue of a summons. At no stage of the inquiry did Alinta advance any request or argument for the issue of a summons. In my view, Alinta’s after-the-event justification for their nonappearance is disingenuous and reflects poorly on their bona fides. Other senators will, of course, draw their own conclusions.

While there was no direct evidence before the committee on this point, it was clear to the committee that there was a perception of price gouging and unfair contracts among some witnesses who gave evidence to the inquiry. Given this, the committee majority concluded that it would be in the interests of the industry and government to examine ways to improve transparency and accountability from the gas and energy industry during periods of crisis. One way of doing this would be for the state government to establish a permanent gas bulletin board in Western Australia to support increased competition and to provide the community with improved information in regard to the gas market in Western Australia. It was really this issue—the need for increased transparency, accountability and diversity in the energy industry in Western Australia—that became most prevalent during the inquiry. The majority report provides some important recommendations about how it may be possible to address this need, and I commend it to the Senate.