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Economics Legislation Committee
17/10/2012
Estimates
INNOVATION, INDUSTRY, SCIENCE, RESEARCH AND TERTIARY EDUCATION PORTFOLIO
Australian Nuclear Science and Technology Organisation

Australian Nuclear Science and Technology Organisation

[10:32]

CHAIR: I welcome Dr Paterson and officers from the Australian Nuclear Science and Technology Organisation. Senator Bushby.

Senator BUSHBY: I have some follow-up questions to some questions that Senator Abetz has asked previously, and I think most recently Senator Sinodinos was asking some questions about it. It is to do with PETNET. In the Productivity Commission's report from the Australia Government Competitive Neutrality Complaints Office, it made this recommendation on page 16 of that report:

For ANSTO to comply with competitive neutrality policy, it would need to adjust PETNET Australia's business model such that it can be expected to achieve a commercial rate of return that reflects its risk profile and full investment in PETNET Australia.

What steps has ANSTO taken to comply with that recommendation?

Dr Paterson : Good morning, Senator, good morning, Chair. In respect of the findings of the Australia Government Competitive Neutrality Complaints Office, we had sought a meeting with them and the meeting has indeed taken place. As a result of the modelling that we were able to provide them, they have asked us to make a formal submission of that modelling for the future which is based on the current assumptions. As you are aware, the finding of the Australian government's Competitive Neutrality Complaints Office was not a finding of breach of any of the complaints that had been made. It was really forward looking, based on the modelling that we had supplied. We had indicated that our review period for that modelling is a year. Based on the information of the annual review, we held that meeting. We have made that submission to them. We believe that submission shows clearly that the development of the business, the change in the operating environment with the introduction of new cameras—which we regard as very positive—and the general uptake of nuclear medicine through the PET modality in New South Wales, is all moving in the direction that will lead to the full resolution of this matter.

We are very encouraged by the development in the last year in the marketplace. We are very encouraged by the number of private and publicly funded cameras that have been established, This was slightly ahead of our projections, and therefore has given an improved submission in respect of the future modelling. I need to emphasise, of course, that we cannot in any precise way predict the future. Therefore, I cannot say unequivocally that in the future we will not come to this committee or any other stakeholder, and come up with a model that may be more negative than the current situation. For example, patients per day per camera is increasing. We still are well below in New South Wales the type of throughput that is being secured in American hospitals, for example. As that throughput increases and more patients have the benefit of diagnoses arising from the use of this technology, we will see, I believe, further uptake of the critical supply of FDG. I will also note that the PETNET facility is the only facility in Australia that has a GMP certification, and a certified pharmaceutical product. I think that it is important to recognise that this is a difference between any other supplier in this marketplace.

Senator BUSHBY: How may that well be relevant to someone making decisions?

Dr Paterson : I think this is crucial for any cancer patient who is benefiting from a diagnosis. FDG targets the cancers and attaches to them so that we can image them effectively. I believe any patient would want to know that the most rigorous standards and the full certification is available to them when they undergo these radiomedicine diagnosis. That is the standard that we have set, and that is the standard that we hope will become generally available to all patients, under all circumstances, in the use of this critical nuclear medicine diagnosis procedure.

Senator BUSHBY: In summary, in terms of what you are taking, you are saying that you revised the modelling and you met with the Productivity Commission, and you believe that modelling, together with developments in the market, will sort out those issues that the Productivity Commission have highlighted.

Dr Paterson : Yes, I think that is a very good summary. In addition, it is important to note that the original modelling that we did was not done for the Competitive Neutrality Complaints Office but is the standard submission that we make in terms of meeting our audit obligations on an annual basis. This is very rigorously scrutinised and we do not make these submissions lightly. They must be tested. The hypotheses are tested and, indeed, audited. We are very pleased that some of the discussions that we had with the Competitive Neutrality Office, in relation to their concerns about this matter, before they completed their report have been validated by the upgraded modelling. The formal status at this point is that that modelling is with them, and we have not yet had a reply from them.

Senator BUSHBY: So you are still waiting. In your previous testimony, you stated that pricing in the market was within the same price window as presented to the ANSTO board in 2007. You also stated that Royal Prince Alfred, which is not registered with the TGA, is pricing their product much more cheaply that yours. Have you been able to win customers from the RPA, despite their lower price? I suspect that point you made a minute ago about the additional benefits of your product may well be part of that. Have you done so? Does ANSTO have any collaborations with those facilities and, if so, in what form?

Dr Paterson : Firstly, I do not have any idea of whether we have specifically secured any supply that was previously done by the RPA. We won the New South Wales tender and that tender is still in force, and we are making supply to New South Wales publicly funded hospitals under that tender. We believe that the RPA is the dominant player in the marketplace for supply to the New South Wales public hospitals that are funded by the state.

I have a great appreciation for the group at the RPA. I have met with them and our researchers have worked with them for many years on issues of nuclear medicine. They were an early leader in the establishment of PET as a modality for diagnosis, and they are well known for their commitment to the development of nuclear medicine. I do not think the market related issues have in any way diminished our respect for them and our intention to work with them on aspects of research such as clinical trials and the expansion of nuclear medicine. We are a small enough community in Australia to find opportunities to collaborate even if we do not always agree about the detailed dynamics in the market.

Senator BUSHBY: I have a couple of questions on this before I move on to the molybdenum manufacturing plant. In the report of the AGCNCO, based on PETNET's own numbers, PETNET was expected to make an internal rate of return of 5.3 per cent in 10 years and 9.2 per cent in 15 years. Are those targets still accurate and, if not, have they changed?

Dr Paterson : I will take that on notice. Basically, those rates of return change every year because of conditions that are outside of the direct control of people in the market, and they relate to interest rates, long-term government bond rates and so on. It is quite a complicated modelling exercise. We will provide you with the updated rates of return that are anticipated. As indicated, every year this thing is going to move about, and we will be happy to keep people updated.

Senator BUSHBY: I understand that ANSTO and PETNET are currently in the Federal Court accused by Cyclopharm of breaches of the Corporations Act. What stage have those legal proceedings reached?

Dr Paterson : We are indeed in the courts. I believe my most recent briefing, which was earlier this week, is that Cyclopet has amended its statements of claim, and we have now been given an opportunity to update our response.

Senator BUSHBY: So it is still at fairly early stages at this point.

Dr Paterson : I do not know about the details of how this might play out. We feel that it is important that we pay careful attention to this court hearing while at the same time continuing to reject any suggestion that we have in any way breached competitive neutrality or acted in an unfair manner in the marketplace.

Senator BUSHBY: I have a couple of quick questions on the molybdenum manufacturing plant. On 19 September the minister announced a $168 million investment. The statement goes on to reference 250 jobs and a $1 billion return to Australia. If those figures are correct it sounds like a fantastic initiative. Are those 250 jobs mostly related to the construction or are they ongoing?

Dr Paterson : We were very proud on 19 September to hear the announcement by Senator Evans in the Senate of the nuclear medicine project, which is a global-scale project for Australia. The announcement was made at the same time to the IAEA, the International Atomic Energy Agency, in Vienna, and that co-announcement shows the global importance and the local importance of the announcement that has been made. Molybdenum 99 is the basis of a diagnostic which is used to diagnose heart disease, cancer and other conditions. One of the great challenges we face globally is that over the next few years the ageing research reactors, which provide about 70 per cent of global supply, will be closing down as they reach their end of life. This has led to the potential for a supply crisis facing this most-used procedure, which has about 45 million applications a year globally. This is a very, very big impact on global health care. With the termination of the life of these reactors, there would be an inability to confidently and predictably supply mo-99 into the global market. It was in this context that we have been working for a number of years, first of all to assure local supply but more importantly to use the much younger OPAL research reactor as the platform to produce these nuclear medicines.

The key issue is the patient outcomes but there is another crucial issue here for Australia. That is, we are the only reactor in the world that uses low enriched uranium fuel and low enriched uranium targets on a regular basis to produce these nuclear medicines.

Senator BUSHBY: I understand that usually it is a fission reaction that—

Dr Paterson : So it is crucial to non-proliferation objectives. In fact, the DG of the International Atomic Energy Agency, who we were very proud to receive in Australia—he visited ANSTO a couple of weeks ago—made the point very clearly to us that Australia's credibility and standing in the global non-proliferation community has gone up very substantially because we will be able to apply this technique, which many people were sceptical about, to the global supply of nuclear medicines.

Senator BUSHBY: It sounds like a great initiative and all those points you have made are very good. As far as its benefits for Australia directly are concerned, do we have the specific benefit of 250 jobs ongoing?

Dr Paterson : Correct. I was coming to the jobs. There will be 250 jobs during the construction phase, 150 of which are dedicated to the construction and 100 will be ongoing jobs. Importantly, in the same announcement the senator indicated that this is not just a nuclear medicine investment by Australia but, at the same time, we will be building the first commercial scale Synroc facility to treat the liquid wastes that come out of nuclear medicine production. This is a great step forward for a technology that has been championed in Australia for over 25 years. We have demonstrated in the engineering work that has been done that this application of Synroc has the best economics and we are very excited that the liquid wastes, both the legacy wastes which come from the history of production of nuclear medicine and the forward-looking wastes—

Senator BUSHBY: I have been to your facility and this Synroc is the waste that you end up with. It is just like—

Dr Paterson : It is in a ceramic form.

Senator BUSHBY: a rock. It is solid.

Dr Paterson : That is right. Basically, at the moment, technologically, there are two choices. Choice No. 1 is to take the liquid waste and put it into a cement form—it is called cementation. If we took the 2,000 litres of current legacy wastes and put it into cement it would expand the volume to 50,000 litres. That is a big expansion of volume and, as you all know senators, the cost of maintaining that waste over its life cycle is related to the volume.

Senator BUSHBY: It is more than 3,000 years with some aspects of this.

Dr Paterson : Absolutely. What does Synroc do with this? It takes that 2,000 litres and reduces it to 500 litres, so in other words the Synroc option produces a volume of waste that is one per cent of the current best option for the treatment of these wastes. Again, this is based on Australian innovation and it is a wonderful opportunity to demonstrate to the world our commitment to really dealing with waste in the most practical, sustainable and effective way.

Senator BUSHBY: Synroc was developed some time ago but it has not really had great commercial use because, as I understand it, it is possibly more expensive than existing methods of dealing with that. Has the business plan that has been developed for this new proposal taken into account the cost of Synroc as a way of dealing with that, particularly given that it does have a very long-term storage requirement?

Dr Paterson : It has indeed. In fact, it was crucial from my perspective and the perspective of my board, and in discussion with our colleagues in government, that we were able to demonstrate the utility of the chemistry, which is crucial to lock up that nuclear waste so that it cannot be extracted or constitute a risk to the public, and at the same time we believed it was essential to demonstrate that the economics was sound. I have a visual illustration, if I may. This is the number of trucks that would transport our nuclear waste if it was in cement. It is a significant number of trucks, 150.

Senator BUSHBY: I would ask you to table that, if you can, because Hansard will struggle.

Dr Paterson : We will table that. In order to save paper, the three trucks you see on the back are what we would use with the synroc. I think that—

CHAIR: So the point is that there is a huge reduction in the number of trucks.

Dr Paterson : Yes, absolutely. It is a key point well made, Senator.

Senator Chris Evans: But Dr Paterson was concerned that senators would not understand that, so he reduced it to a very small visual aid. I will not say he used that on the minister!

CHAIR: Thank you, Senator Bushby. That was a fascinating discussion, but others have indicated they want to go into other areas.

Senator URQUHART: Dr Paterson, I want to continue on the mo-99. You talked about 250 jobs and 100 being ongoing, but can you outline what the return to Australia is in terms of investment?

Dr Paterson : That is an important point to make. Firstly, because we will be manufacturing in Australia and shipping to other countries, we will have foreign exchange flows from the sale of the mo-99 coming into Australia. Our estimate is that, over the first 10 years of the operation of this plant, the total revenue flows will be $1 billion. This is very significant in nuclear medicine terms. Interestingly, from the point of view of the patient, it represents only one per cent of the Medicare rebate in the United States. So, even though it is a large amount of money in terms of the revenue flows, it is still the most cost-effective and the lowest dose to patients of any diagnostic that is used in nuclear medicine. It remains the gold standard, if I could use that term, for nuclear medicine globally, and that is why 85 per cent of the patient diagnoses utilise technetium-99m, which comes from the mo-99.

We do not see that changing anytime soon. In fact, there is an ongoing growth in the market. Many emerging economies are taking up greater use of nuclear medicine in the treatment of cancer and heart disease in their communities. It is certainly our hope that, as much as we work with developed economies, we will be able to also work very effectively in developing countries to mitigate the risk of cancers and heart disease. This is a wonderful opportunity, both for Australia to secure the future supply for our community and for New Zealand but also to influence health outcomes in the global setting. So, as important as the revenue returns are, the global health outcomes, I think, will be appreciated by many of our partners globally.

Senator URQUHART: How many Australians will benefit from the facility?

Dr Paterson : We currently generate every week about 10,000 doses that are delivered to 225 hospitals and clinics across Australia. That is used diagnostically in these hospitals. We do not get final detail, but just the estimate that we work with is that about 550,000 Australians will receive the benefit of those doses every year. Another way to look at it is: how will this help me in my lifetime? We believe that one in two Australians will benefit from an mo-99 technetium-99m diagnostic scan in their lifetime. So it affects us very deeply.

Senator URQUHART: Would you outline why it is important to secure Australia's supply.

Dr Paterson : In the context of these ageing research reactors and the fact that they are going to be turned off over the next number of years, there is great uncertainty in the nuclear medicine community globally as to where that supply will come from. We are members of the High Level Group on the Security of Supply of Medical Radioisotopes, which meets twice a year in Paris. The whole function of that group, which includes all of the countries that are involved in production and supply, is to see if we can find a predictable pathway forward that meets both the patient outcomes and the nonproliferation objectives, because these two go hand in hand. So from that point of view having a relatively young world-class research reactor that has the ability to irradiate these low enriched uranium targets and produce in an effective way in Australia is providing great certainty to a number of countries.

Twenty minutes after Senator Evans had made his announcement I was in a meeting with senior colleagues from United States at the International Atomic Energy Agency. It would be difficult to transmit to this committee their sense of excitement at this announcement. They believe that this is critical, that the non-proliferation objectives and the nuclear medicine outcomes are of global significance. This was confirmed by DG Amano when he visited Australia two weeks ago. I think it is really important that we do this in a very targeted, focused way, that we are extremely careful in how we complete the engineering and how we do the work. We need to make sure that we work closely with regulators and the local community, stakeholders in the Lucas Heights environment, but we have had very positive feedback. The local community excitement at this announcement and their positive response has been something that has encouraged us as well.

Senator URQUHART: Will there be any other benefits such as licensing from this new technology?

Dr Paterson : Yes. I think that what we have found is that as we have become more accessible to the global community people have approached us both with respect to our own nuclear medicine capabilities but also much more recently with the announcement of the synroc plant. People are looking to license this technology and potentially build plants in their own countries. As I indicated earlier, the excellent volume reduction and the very robust chemistry of the synroc solution is attractive to a number of countries. A number of countries have historically looked at using cementation to store their waste but with this massive volume reduction that is really interesting. Beyond the nuclear medicine community there has historically been a community of people in nuclear waste management who have wanted to see the construction of a synroc plant because it is a very simple fact that those who build plants capture the imagination of the people who need the solutions. I think it is greatly to the credit of the government that at this time when we are expanding nuclear medicine capability at the same time we will build our first commercial plant for synroc. It may well become a benchmark for intractable nuclear wastes around the world that we all are concerned about and is able to lock them up in a way that reduces proliferation risks, risks to people and so on because it is much better lower volume sustainable solution.

Senator URQUHART: In terms of volume, the diagram that you held up with the page full of trucks versus the three trucks, where do those trucks go to? Where do they go to now and where will the three go to?

Dr Paterson : Oversummarising, those trucks in a sense are going nowhere. But these three will go to the national waste repository and store. We were very pleased by the development of the legislation that envisages that. Basically this is 10 years, so the idea that this is really complex transportation I think we need to start to address people's concerns about that properly. Over 10 years those three trucks would represent the waste shipments to the national waste repository and store. So this should not be thought of like a landfill for domestic waste. It is not large numbers of trucks going all over the place, it is a very small number over quite a long period in a very structured and predictable way.

Senator URQUHART: I am not very good on maths but I am not sure that I understand the logic of all those trucks not going anywhere and now you have got three that are going somewhere and you are actually reducing.

Dr Paterson : These would have been filled with cement but synroc has replaced that, so it is great.

Senator LUDLAM: The reactor has only been up for a couple of years, so I am not certain why ANSTO is asking for another investment of $168 million in 2012. What is that actually for and why is it necessary so soon after the new reactor and the molycline has been stood up?

Dr Paterson : Firstly, just to clarify, the investments we are making is into core technologies. One is a production of mo-99 from irradiated target plates. There will be a small incremental investment in the process flows from the reactor, but that is not really where the bulk of this funding is going. The facility that we built when we initially established the capability to produce mo-99 using the alkaline process was always envisaged to be an interim step. It was retrofitted into an older facility and it allowed us to implement a technology that had been developed by our colleagues in Argentina. Therefore, the investment that we made in that initial facility was always expected to be replaced with an upgraded capability that would expand our capacity to supply both Australia and, indeed, the global community. When I joined ANSTO that project was called Mega-Moly. It was already on the books and had been discussed for a number of years by the board. At the time, as was alluded to in an early question that we were asked, there was a good deal of discussion about when we should make the follow-on investments. The follow-on investments, which were always envisaged, fit very, very well now with the timing of the shutdown of the Canadian research reactor. The Canadian government has announced over the last 12 to 15 months on a number of occasions that in October 2016, their supply, which is currently 40 per cent the global supply of this critical isotope, will be terminating. So we have really designed, in consultation with government over a very significant period, our project to be able to enter the market ahead of that step change in the availability of the isotope—.

Senator LUDLAM: Sorry Dr Paterson, we are a bit short of time. I will try to keep the questions short.

Senator Chris Evans: Can I just say quickly that cabinet made the decision on this investment based on a very strong business case and was supported by the central financial agencies on the basis that we think a very strong business case for the plant exists.

Senator LUDLAM: Was a cost-benefit analysis done?

Dr Paterson : The business case was independently reviewed by KPMG and they did a top-down and a bottom-up review. They consulted international experts in the field and the economics of this investment is absolutely sustainable in a fully market-oriented fashion.

Senator LUDLAM: But a formal cost-benefit analysis was not done?

Dr Paterson : The cost-benefit analysis was but one element of that.

Senator LUDLAM: Are the business plan and peer review both public documents?

Dr Paterson : Typically one would not provide such a detailed business plan as a public document because there are commercial implications.

Senator LUDLAM: So none of it can be put into the public domain?

Dr Paterson : I think that the high level capacity of the plant is certainly something that we have been able to talk about.

Senator Chris Evans: Perhaps the best response to that, Senator, is that we will take it on notice and see what can be provided to the committee without that going against that commercial-in-confidence.

Senator LUDLAM: That is useful. I want to come to the KPMG assessment of the ARPANSA report into the yttrium incident that effectively vindicates what one of your whistleblowers, Mr David Reid, has been saying all along. Dr Paterson, are you aware of the KPMG report that I am referring to?

Dr Paterson : I am aware of the KPMG report that you are referring to.

Senator LUDLAM: Has ANSTO reviewed that report and do you accept its findings?

Dr Paterson : ANSTO has received a redacted copy of that report. We have read that report and we note the warranties and disclaimers that have been placed on record by KPMG. The report says:

We have prepared this report for the benefit of ARPANSA only. Whilst we have consented to the distribution of this report beyond ARPANSA. it should not be regarded as suitable for use by any party other than ARPANSA. If you are in possession of this report…

And it carries on from there. It is clear that the report was intended for ARPANSA, but in the spirit of advancing nuclear safety and attention to all aspects that we could continuously improve by achieving a deeper understanding of any events that have happened, we have read the report. We have decided on the basis of that statement by KPMG that there would be no benefit in pursuing any matters in relation to the report. I think careful reading of the report suggests that, if there was any incident that morning, it was of low-radiological significance and therefore we are confident that there is nothing—

Unidentified speaker—

CHAIR: Order!

Senator LUDLAM: Dr Paterson, I will tell you what my careful reading of that report indicates. I take on-board your caveat that their disclaimer does, indeed, identify ARPANSA as the primary recipient of the report. I am glad you have at least reviewed it. The KPMG report finds that ANSTO technical and supervisory staff and the executive management covered up the fact that three staff were contaminated by the beta emitter yttrium on the relevant day and that Mr Reid witnessed an incident between two men at the contamination barrier on the day in question. He reported that one man had yttrium contamination, which is a beta radiation emitter, all down his clothes and in his mouth and that the other man's supervisor was trying to clean him up and was telling him not to report the contamination. So, has ANSTO made misleading statements about this incident, which I should also observe led to the suspension of the whistleblower in question?

Dr Paterson : Senator, you seem to have made a comment rather than a question and I am finding it difficult. There are a series of statements that you have made.

Senator LUDLAM: My question, then, is about whether or not ANSTO at any time has made misleading statements—either yourself or your staff—about this incident.

Dr Paterson : I do not believe that ANSTO has at any time made misleading statements in respect of the series of incidents that took place on that day in 2007. I do not believe that we have ever tried to suggest in any way that there were not incidents on that day. It was submitted in our normal quarterly report. This particular investigation was for the purposes of ARPANSA. I believe that the radiological significance of the purported event, if indeed it happened, was low. I think that this has been investigated 11 times.

Senator LUDLAM: Sorry, Mr Paterson, are you still contesting that these events even occurred at all? Were those your words?

Dr Paterson : We were not involved in this investigation in a way that would have allowed us to put all of the issues on the table. For example, you referred to executive management. No member of the executive was interviewed by the person who conducted this investigation. It just goes to show that this was a report that was, indeed, intended for ARPANSA. It was not intended to make any findings in relation to ANSTO, and I do not believe it has done.

Senator LUDLAM: It is your facility; it is your plant. It is a report about an accident involving your staff at your facility. I am not quite sure why we are creating this distance. It was created for the regulator because they were extremely unhappy—I will contest these contentions later on this morning with ARPANSA—with ANSTO'S response to these incidents, which did indeed occur. These are not alleged incidents. These are a matter of public record.

Dr Paterson : I believe that we have been very clear on this matter. If indeed this incident did take place—

Senator LUDLAM: So you contest the existence?

Dr Paterson : I can contest whether there was an incident of this nature at the time that has been outlined in the report. I have never had the opportunity to meet or engage with the investigator. I understood this to be an ARPANSA investigation of whether they had properly conducted themselves in analysing these events at the time. We do not believe that any purpose would be served in terms of good use of public resources to continue this matter, because there is no radiological evidence. People used to, as they do all the time now, wear film badges. People who were involved in this incident were subjected to whole-body monitoring as a result of the reported incidents on the day.

There is just no evidence in the broader evidential record, which was not considered by this investigator, to suggest that anybody was internally contaminated on that day. I know that certain people have different time lines with which they believe certain incidents happened. We just cannot find a record of that happening. At the time, the staff members who were involved did not all have the same sense and memory of what happened. It happened a long time ago. In any event, we at the time, with the other two incidents that took place on that day that we know actually happened, because we have reports about them, took the necessary action to introduce the types of controls that would be consistent with the controls that you would introduce into any facility.

CHAIR: Dr Paterson, thank you. Time has now expired for this discussion.

Proceedings suspended from 11 : 10 to 11:24