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Tuesday, 12 November 1985
Page: 2017

Senator GARETH EVANS —(Victoria-Minister for Resources and Energy) (10.08)-in reply-I thank honourable senators for their contributions to the debate on the Petroleum (Submerged Lands) (Cash Bidding) Amendment Bill 1985 (No. 2). We had a long and comprehensive debate on this subject in March and May. I made a substantial reply to the debate on 15 May and I do not believe, as a result, that there is any necessity to repeat more than a handful of the relevant points in reply here tonight. At the outset I say in answer to the recurring theme that this particular proposal, if enacted, will reduce off-shore petroleum exploration in Australia that I do readily acknowledge the need to maintain a very robust off-shore exploration program because of the depletion situation we will undoubtedly, as a nation, be confronting over the next few years as Bass Strait resources run down.

We do have a significant potential liquid fuel shortage which synfuel programs of the kind Senator Sanders referred to in his contribution may or may not sufficiently pick up. I make the point that if I believed personally that the enactment of this legislation would in any way undermine the off-shore exploration program this country needs I would not support, promote or put forward this legislation. The situation is, however, that cash bidding is to be applicable only for what we have described as highly competitive acreage situations, highly prospective areas, where there is a real and undoubted commercial interest in exploitation and where there is a high level of commercial competition. We cannot see that there will be any less interest in exploration of those prospective areas as a result of the particular means of acreage allocation here proposed. Indeed, if Senator Sanders accurately records, as I am sure he did, the conversation he had with the Australian Petroleum Exploration Association representatives today, that point was very graphically made in the particular exchange to which Senator Sanders adverted.

Even if one does accept, as I do not, the finite bucket theory of exploration budgets, that is to say, that there is only a certain number of dollars available for exploration and that it is a closed system with money neither coming in nor out, even if one accepted for the sake of argument that characterisation, the implementation of cash bidding would, at the worst, mean that there was some reallocation of exploration priorities away from the less exciting prospects, the less immediately prospective areas, to the more prospective areas. That is the worst that could happen with a stretching out over time of the exploration program that might otherwise have been contemplated with a lower priority being given to the less prospective areas. That is the worst that could happen. I think it can be readily seen, from thinking of it in those terms, that whatever one does in this respect it will not be harmful to Australia's long term needs.

The whole argument about there being a limited bucket of money available is not one that is accepted by the Government, for reasons that I have spelt out often enough before and I do not think I need to do so again. There is a high level of external interest, particlarly in a cash bidding means of allocation, more so than with the work program bidding; as I can readily attest from my own conversations with international oil companies, a number of which have not been hitherto operating in Australian waters. It is the case that commercially attractive prospects will always attract investment. The proposal that we are promoting here tonight recognises that reality. We readily acknowledge that the amount of money that is in fact bid up-front in this respect will be a matter for the commercial judgment of the companies involved, making their own decisions based on their assessment as to the costs and the risks involved in the particular exploration program; that is to say, the chances of that expenditure producing a return. It is an option system but one in which a reserve price will not be set, as I said in my second reading speech. The Government will simply have to cop whatever the particular market throws up in that respect.

As to the argument that this proposed system for competitive acreages is not necessary, that the existing work program bidding system is working perfectly satisfactorily, let me simply say this: The work program system, for all of Senator Sir John Carrick's defence of it, has not worked completely satisfactorily in the past. It has worked in a number of areas without difficulty but when acreage has been the subject of intense competition all sorts of difficulties have been experienced in making the initial allocation decision and making that decision stick. In the second reading speech, and in previous contributions to public debate, I have indicated a number of areas in the Bass Strait where that has been so. The greatest difficulty with the system is that it locks one into an unavoidable dilemma. On the one hand one has uneconomic expenditure being forced upon the holder of the work bidding licences or, on the other hand, one runs the risk, if one allows flexibility and does not require uneconomic expenditure, of undermining the integrity and credibility of the bids. One encourages blue sky bids at the outset and one does not have the fine tuning mechanism for initial allocation that one wants in these areas.

Many points could be made about the success or otherwise of work program bidding as it has applied in the past. A lot has been made of alleged exploration figures in previous years. I simply note, in response in particular to Senator Sir John Carrick's assertion about a dramatic decline in off-shore exploration drilling during the Whitlam years followed by a resurgence of enthusiasm by off-shore operators once the tories came back to power, that the figures are as follows: In 1973, 36 off-shore wells were drilled by comparison with 39 in 1972. In 1974 there were 31-the same order of magnitude but a decline, I acknowledge-dropping down to 18 in 1975. I acknowledge that that certainly was a decline. Where lay the revolution with the return to government of the Liberals? In 1976 three wells were drilled off-shore. In 1977 but 13 wells were drilled out of a total of 21 in the country as a whole.

Senator Sir John Carrick —Keep going-up to 230.

Senator GARETH EVANS —Yes, but now the figure is substantially more than that. As far as off-shore exploration is concerned, it bumped along at those very low levels all the way up, in fact, to 1981, then things started taking off in 1982, 1983 and 1984 and they have continued at those sorts of levels. We can argue until the cows come home about the implications to be derived from that. I simply make the point that the explanations obviously have much more to do with larger economic considerations than simply who was in government; otherwise one would have expected a very quick turn up, if not in 1976-perhaps there was not time for that-certainly in 1977.

I do acknowledge that work program bidding systems can be made more satisfactory than the one we have lived with for a number of years. A lot of effort has been put into trying to renegotiate with the oil industry a new work program bidding system to apply to off-shore exploration areas. At last we are very close, after months of discussion, to developing such a dry hole bidding system. The difficulty about that is that, while I believe it will work quite satisfactorily for run of the mill off-shore lease areas where there is not intense competition, it simply will not work as an effective discriminator between bidders when one is talking about highly competitive acreages. The dry hole bids, the guaranteed minimum programs that are submitted, are likely to be, for all practical purposes, more or less identical among the major players and it will become then a matter of applying a whole variety of discretionary criteria to distinguish between them.

That introduces a level, we believe, of unacceptable bureaucratic intervention, regulation, which has not worked very well in the past and will not again-intervention, regulation, which is utterly at odds with the kind of deregulatory ideology which has been so assiduously and noisily promoted by the Opposition, particularly under the leadership of Mr Howard. As I said in introducing the legislation the other day, its introduction gives Mr Howard and the Opposition, under his new leadership, a chance to show their real colours on what is unquestionably a major proposal for industry deregulation. I hope that some of those vigorous free marketeers opposite will appreciate the significance of this legislation as far as free market values are concerned. We are prepared to let the market sort out these difficult allocation decisions for us. It was fascinating to hear tonight how few of those opposite are prepared to put their money where their mouths are when it comes to free market, private enterprise, ideology.

As to the suggestion that this is and is nothing more than a revenue raising measure, I acknowledge that the measure will raise some revenue, but how much is a matter for speculation. It is a matter for the companies themselves. It is not a matter for governments to determine. The amount that is raised by this could be considerably more than the figure mentioned at the top of the range by Senator Sanders. It could also be substantially less. The Government acknowledges the uncertainty of that. As I mentioned before, it is a matter for commercial judgment as to what the balance of costs and risks is. We are prepared, on the application of good deregulatory market principles, to accept the judgment of the market in that respect in a way that the Liberals, the supposed bastions of free enterprise opposite, are simply not.

However, the measure is not and never has been primarily a revenue raising measure. Of course, it will generate revenue. The lack of that revenue is something which we will have to contemplate picking up elsewhere if this measure fails. But it is not and it never has been a primary objective. If it had been a primary objective we would have made cash bids themselves deductible against both resource rental tax and company tax in a way that they are not. By making them non-deductible it is a disincentive to maximising the amount of the dollars that are bid. We would have provided for unlimited renewal of the areas in question. We would have made no provision to discourage speculators from participating in this market in the way that we have sought to discourage speculators by setting technical and financial threshold hurdles which they will have to jump over before they can get into a bidding environment. It is not designed to make money. It is designed to produce an economically rational allocation of scarce and valuable commercial rights.

Finally, as to the support that this measure has generated elsewhere, the question of Western Australia's enthusiasm or otherwise for this measure has come in issue. I acknowledge that Senator Crichton-Browne was reading accurately from Mr Parker's Press release when Mr Parker said that the State Government still had considerable reservations about the concept of up-front payments, but that was in the context of a release the whole of which, when read together, makes it clear that the Western Australian Government is, in fact, prepared to support it, notwithstanding some initial suggestions rather vigorously put to the contrary by the Western Australian Premier.

Senator Durack —They will not have a bar of it as far as Western Australian waters are concerned.

Senator GARETH EVANS —Senator Durack has not kept up with current developments. The reality is that they do now acknowledge the economic rationality of this measure. They want to see this run as a test case, if you like, in the Ashmore and Cartier Islands area in the first two years. We are happy to accept it on that basis, as I said in my second reading speech. We will all be in a much better position to pontificate about what cash bidding is all about in a couple of years time than we are at the moment on the basis of that particular experience. I have no doubt that on the basis of that experience those opposite will acknowledge that they were wrong tonight in their blackguarding of cash bidding, in exactly the same way as I cheerfully acknowledge, in response to Senator Sir John Carrick's challenge, that we were wrong a few years ago in our opposition to import parity pricing. We can all be wrong. I would like those opposite to contemplate the truth of that nostrum and perhaps consider again the position they have taken on this in the period that lies ahead.

I conclude by saying in answer to Senator Walters, if it needs an answer, that there has been no deal in this matter, despite some Press speculation inspired in various quarters to that effect. I simply draw the attention of honourable senators to what I said in that respect at Question Time today. I would not like the record of this debate to go unremarked in that respect. There has been no deal. It is a matter of all honourable senators in this place looking at this proposal on its own merits, and that is all I am asking honourable senators to do. I commend the Bill to the Senate.

Question put:

That the Bill be now read a second time.