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Thursday, 25 September 2008
Page: 5613

Senator MARK BISHOP (11:23 AM) —I rise in support of the Excise Tariff Amendment (Condensate) Bill 2008. The intention of the bill, as we all know, is to remove the exemption on the production of condensate from the crude oil excise.

Senator Cormann —That is a disgrace! Aren’t you from Western Australia? You should have learned on 6 September.

Senator MARK BISHOP —Listen and you will learn, Senator Cormann. You will get some sense from a Western Australian senator, not the nonsense you lot have been talking about.

The ACTING DEPUTY PRESIDENT (Senator Humphries)—Order! The senator should be heard in silence.

Senator MARK BISHOP —Thank you, Mr Acting Deputy President, for that help. The intention of the bill, as I say, is to remove the exemption on the production of condensate from the crude oil excise, and the amendments will apply the crude oil excise regime to condensate produced at the North West Shelf gas project. Condensate, as we know, is a light crude oil extracted from natural gas. It is mainly used in the production of petrol and, as we are all aware, the price of petrol has gone through the roof in recent times and seems likely to stay high.

In 1977 condensate was made exempt from the crude oil excise. It was exempted, as was said earlier, to facilitate sunrise industry investment in the North West Shelf gas project and the Cooper Basin. At the time of the concession, the then Treasurer deliberately said, ‘This will assist the marketing of LPG and condensate from fields already discovered but not yet developed in the North West Shelf.’ Since that time the concession has been of great benefit and enormous help to the North West Shelf venture partners.

During recent Senate committee hearings the Australian Petroleum Production and Exploration Association were quick to point out that condensate ‘actually aids the economics of gas’ and, further:

… very few gas projects have proceeded without associated condensate production.

However, there is not one scintilla of evidence that the concession was to apply indefinitely—and, as many speakers have already said, neither should it apply until the end of time. Today the North West Shelf project is huge. It accounts for 48 per cent of Australia’s petroleum production and 54 per cent of our natural gas production. It results in sales of approximately $11 billion. Over the last five years, with the increase in world prices, the excise exemption has been worth almost $1.5 billion—a $1.5 billion windfall for the six multinational companies involved in the joint venture. Just for the record, who are these companies? They are BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, Japan Australia LNG Pty Ltd, Shell Development (Australia) Pty Ltd, BHP Petroleum (North West Shelf) Pty Ltd and Woodside Energy, who operate the project.

Much has been made of the possible impact of the condensate tax. I would like to look briefly at the long-term profitability of companies involved in the extraction of non-renewable resources such as oil and gas. BP Developments is part of the BP Australia group, which had a net profit after tax of $1 billion in 2006 and, in 2007, a net profit of $1.4 billion, representing a 40 per cent increase over the previous financial year. Chevron Australia is part of the Chevron Corporation. It had a net income in 2006 of $17 billion and its net income rose by nine per cent in 2007 to $18.6 billion. Chevron also experienced an 18 per cent increase in its share price over the last financial year.

Japan Australia LNG is a subsidiary of the Mitsubishi Corporation. Mitsubishi has not performed as well as the others, who concentrate almost exclusively on oil and gas production. That corporation, in its annual report, showed a drop in sales revenue of eight per cent in 2007 and a three per cent drop in gross profit. Consumer items such as cars clearly are not as profitable these days as other items that might be produced.

Shell Development (Australia) Pty Ltd is, of course, part of the Royal Dutch Shell group, and net income for the group rose 21 per cent from $26 billion in 2006 to $31 billion in 2007. The Royal Dutch share price has also risen over the last 12 months somewhat significantly. Woodside described 2006 as a record year. Their net profit after tax increased 29 per cent to $1.4 billion and revenue was up 39 per cent to $3.8 billion. In 2007 profits were of a similar margin. In addition, the share price for Woodside has increased 47 per cent in the last 12 months. BHP Petroleum, as a subsidiary of BHP Billiton, experienced a 25 per cent increase in its share price over the same period and was a significantly disproportionate contributor to earnings within the BHP Billiton group.

What is the net of that? Share prices of companies involved in the oil and gas extractive industries in the last two, three and four years have done extraordinarily well in what has been a somewhat depressed market price environment. In that context, both executives and management have been rewarded most handsomely. Resource companies are doing well in Australia and will continue to do well under this government. However, the point needs to be emphasised once again: these companies extract Australia’s non-renewable energy resources for profit, profit that is distributed to shareholders all around the world, and it is clear that the North West Shelf gas project is a mature and highly profitable investment. The project, by any stretch of the imagination, is no longer reliant on investment incentives for its ongoing success. It should be noted that the imposition of an excise on condensate will result in a reduction of royalties. Royalties are paid by these companies to the Western Australian government. That is because the excise payments are a deductible expense for calculating the offshore petroleum royalty. It should also be noted that the first 3.1 million barrels will incur no excise at all.

I think we should take it as read that that any company is loath to concede a tax concession, a tax rort or a tax subsidy without a fight, and that is what we have going on here now. Shareholders properly demand a return on their investment as well as a useful growth in capital price. However, the excise regime for the production of condensate will continue to remain the same as the regime applied to stabilised crude petroleum oil. Given their similarity, the interlocking relationships between the production exercises for the two and the synergies between the whole set of companies involved in the North West Shelf gas project, the two commodities should be taxed in a similar manner. That means there will be no excise on annual production of 3.1 million barrels or less; 10 per cent on annual production of 3.1 to 3.8 million barrels; 15 per cent on annual production of 3.8 to 4.4 million barrels; and 20 per cent on annual production of 4.5 to 5 million barrels.

The resources sector is clearly of immense importance to Australia’s future prosperity. Governments have a responsibility to ensure the ongoing health, sustainability and growth for the benefit of all Australians. But this government makes decisions not only to benefit ordinary Australians but also is extraordinarily mindful of the important role played by the private sector in our mutual and our joint prosperity. We do listen to industry requests for adjustments to tax arrangements. A case in point is the enormous Henry review of the tax system, which will specifically look at barriers to investment in large-scale downstream gas-processing projects, hurdles faced by remote gas developers and consideration of a future policy framework for new Sunrise extra investment in the gas sector. As you would expect, industry welcomed the inclusion of all of these issues in the Henry review after no attention and no action for the last 12 years.

There are significant challenges to developing oil and gas projects in northern and far western Australia. Many sites are remote from infrastructure and markets. The high costs of extraction also add to the capital intensive nature of these industries. But, over time, tax regimes change—and so they should change. This excise exemption is a historic anomaly and an anomaly no longer needed and it should be brought into line with the rest of the country. New gas projects, such as Gorgon and Browse Basin in my home state of Western Australia as well as Sunrise in the Northern Territory, are now in competition for investment dollars. It is time to even the playing field, and the current government has made the right decision to even the playing field. New resource ventures require large upfront capital investments in infrastructure to get off the ground. Ultimately, they bring revenue to government and benefits to all Australians. Governments of all persuasions recognise the need to assist new ventures in the early stages of development. However—and this is the key point—there is no need for long-term valuable resources to be directed to highly profitable ventures.

Much has been written about the likely impact of the excise on domestic petrol and gas prices. In fact, members opposite have sought to link the condensate tax to increases in Western Australian domestic gas prices. How silly. How illogical. How absurd. And it shows a lack of understanding by the alternative government, by the opposition, of global commodity markets. You do not know how they work. When one thinks about it, it defies logic considering that for 12 years they boasted of their mastery of the economy. Liquid petroleum gas is priced in Western Australia—as it is in the rest of Australia—by reference to a world price. As a further safeguard, natural gas supplied to householders in Western Australia is subject to the Energy Coordination Gas Tariff Regulations of the Western Australian state government—now a Liberal-National government. Just as the imposition of the crude oil excise does not increase petrol prices, the condensate tax will not increase gas prices because they are set internationally.

We were elected to implement the commitments we made last year to the Australian people on tax, on income support and child care to help those under financial pressure. This is going to be done, as we all know, principally through the budget process. The measures contained in this bill will increase the return to the Australian community for allowing private interests to extract non-renewable energy resources. The revenue raised will add to our ability to assist families and pensioners under pressure. It will assist in investment in our schools and hospitals.

It will also most critically close a tax loophole which has given an advantage to one group of private companies and their shareholders over all others. The absurdity and the illogicality of the position of the opposition is absolutely amazing. If we accepted their principal argument—that a tax concession, tax subsidy or tax reduction, once given, remains forever and for all time—there would not have been any change in this country in the last 30 years. All of the financial market change, tariff reductions and accessing of markets by new companies from overseas were commenced by the Whitlam government, continued under the Hawke and Keating governments and continued under the Howard government. What was it about? It was about incentive, it was about access and it was about change. Why did we want change for the last 40 years? To improve material living standards for ordinary Australians. That necessarily involves that some companies which received an initial start-up kick to invest billions of dollars in a worthwhile project, 30 years into the project—when they are turning 40 per cent annual growth in capital price and 40 per cent annual growth in return to shareholders—no longer need that subsidy. It is about worthwhile change to benefit all Australians.

As Senator Siewert properly said, for the last four days you have done nothing but try to wreck the budget process of the properly elected government in this country. You say two things: spend, spend, spend without merit and keep taxes that are in existence. What a load of rubbish. You cannot have it both ways. You cannot wreck the budget and deny tax revenue in the order of $1 billion or $2 billion over a four-year period in one bill and, at the same time, want to add outlays to the tune of many billions of dollars.

This bill is worthy of support. The government should be commended for bringing it in. Industry will adapt and change and all of the companies I mentioned will continue to grow. I commend the bill to the Senate.