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Thursday, 25 September 2008
Page: 5622

Senator PRATT (11:56 AM) —The incorporated speech read as follows—

I rise to speak on behalf of the Excise Legislation Amendment (Condensate) Bill and the Excise Tariff Amendment (Condensate) Bill.

The proposed amendments will apply the Crude Oil Excise regime to condensate in the North West Shelf.

This regime is the same regime that already applies to petroleum fields discovered after the 18th of September 1975.

The imposition of Crude Oil Excise will not increase petrol or gas prices because those prices are set by international energy prices.

This measure increases the return to the Australian community for allowing private interests to extract non-renewable energy resources.

The current arrangements give a huge gift to North West Shelf companies.

These companies have profited well from the mining boom and this community-funded free kick is no longer appropriate.

The joint venture has enjoyed great benefits from this exemption, not only because condensate production from the North West Shelf area has risen but also because condensate is a premium product and its price has usually been more than bench mark crude oil prices, which have themselves increased rapidly in our region.

In the June half of this year alone, Woodside handed down a 67 per cent lift in net profit.

The condensate tax exemption has given the North West Shelf.

Venture partners $1.5 billion over the past five years alone.

The North West Shelf project is the only gas project to have benefited from the tax exemption for condensate.

Meanwhile other condensate production current and proposed projects are subject to the tax.

Given that the exemption was given originally to get the North West Shelf Project up and running 24 years ago, it can no longer be justified.

The project is now highly profitable and no longer reliant on investment incentives such as the exemption that this bill will remove.

It’s now time Australian tax payers in general, and Western Australian tax payers in particular, got some return on all the investment they have put in to this project in the form of this exemption and other support.

As Nigel Wilson pointed out in the Australian in May:.

   One thing the chief executive of Woodside might like to remember when he notes existing taxation arrangements have underpinned more than $25 billion in investment in the shelf, is that it was domestic taxpayers, particularly in Western Australia, who took the price, transport and market risk for the shelf’s domestic gas, which allowed the huge project to justify the capital expenditure in LNG processing in the first place.

New gas projects such as Gorgon, Browse and Sunrise are struggling to get off the ground and it is time to even up the playing field for investment in gas projects.

Tax breaks for such new LNG projects may well be justified, which is why such measures will be examined as part of the Rudd Labor Government’s overall review of the tax system, currently underway.

The measure is a very important part of Labor’s budget surplus.

It has an estimated net revenue gain of $2.5 billion over the forward estimates period, partly offset by an increase in net outlays of $69.6 million over the same period.

Labor’s budget surplus designed to help fight inflation.

It will help Australia families by putting downward pressure on interest rates and on the cost of living.

The coalition believes it can win votes by sabotaging the surplus but they are wrong.

Voters will not thank them for undermining our efforts to fight inflation, to help reduce interests rates, and to lower the cost of living.

I am pleased to say that the measure will not impact on Western Australia offshore petroleum royalty revenue.

As part of this measure, the Australian Government will provide the Western Australian Government with ongoing compensation for the loss of shared Offshore Petroleum Royalty revenue resulting from imposing the Crude Oil Excise on condensate.

This arises because Crude Oil Excise payments are a deductible expense for calculating the Offshore Petroleum Royalty. An initial payment of $80 million will be paid to the WA in 2007-08, with payment in subsequent years adjusted to equal the impact of removing the condensate exemption on royalty payments to Western Australia,.

This is estimated to cost $406.6 million over the forward estimates period.

Woodside’s threat to raise prices in response to this measure is pure political grandstanding in an effort to avoid paying its fair share.

There is no justification for transferring the tax to consumers.

Condensate is not a gas—it is like crude oil—this measure is not a tax on natural gas a Passing on the tax could constitute a breach of trades practices laws and warrant investigation by the ACCC.

The ACCC is already examining whether Woodside and its North West Shelf Gas Venture partners are in breach of trade practices law by continuing to market gas jointly rather than by competing with each other, after customers complained that the arrangement could be forcing them to pay higher prices.

Domgas, an alliance of Western Australian gas customers, has argued to the ACCC that the market power exercised by North West Shelf partners, which make up 70 per cent of the West Australian Market, has constrained the supply of gas and resulted in rapid rises in gas prices.

Domgas Alliance represents gas customers including Alcoa, Alinta, the Dampier-Bunbury pipeline, Fortescue Metals, Newmont and the WA State Government owned energy utilities Horizon Power and Synergy.

Woodside’s implied threats of higher prices are simply not justified and should not be used by the Coalition to justify it’s stance on this measure.

In fact, I think Woodside needs to explain it’s windfall profits in the order of 100 million as a result of the WA gas crisis.

The usual contracted price is $2-3 per gigajoule. Gas sold outside the usual contracts has been sold at ten—and then at auction $16 per gigajoule.

The Senate Economics Committee, of which I am a member found no evidence to support Woodside’s claim that it would have to raise prices.

In fact, the claim made by Mr Voelte, Woodside’s chief executive, that prices would rise, directly contradicts the evidence given to the Senate Economics Committee by North West Shelf Executive, Eve Howell, who said, and I quote:

   “What I can say is that our current domestic contracts are in place and will be honoured. We in general have no ability to pass on this additional impost.”.

Woodside’s claim is nothing more than political grandstanding in effort to avoid paying their fair share of excise—so much so that Brendan Nelson, the then leader of the Opposition took some time to swallow Woodside’s line.

On the 27W of August he told ABC radio that it beggared belief that Woodside would not pass on the tax to consumers.

Yet a week earlier, he was apparently happy to have his beliefs beggared when he said he had been advised that this bill was not likely to have an effect on prices.

So, either the former leader of the opposition is a fool by his own admission, a fool being someone who can easily be convinced of things that beggar belief, or there is evidence that contradicts Woodside’s claim that prices will rise.

The claim by the North West Shelf Venture companies that this important budget measure will undermine Australia’s sovereign risk standing is even more far fetched.

The joint venture company has complained that the Government’s decision to remove a tax exemption makes big- scale investment in Australia as risky as big-scale investment in Papua New Guinea.

But the fact is that taxation arrangements covering the North West Shelf have changed several times since the original taxation agreement covering the project was introduced.

As Nigel Wilson pointed out in the Australian in May, Woodside’s claims that it had no warning that this measure might be introduced are surprising, given that the major oil companies collectively spend seven figure sums keeping up to date with the Government’s likely approach on these issues, and given that Labor Senators such as former Resources Shadow Minister Joel Fitzgibbon have raised the issue numerous times at Estimate Committee hearings.

Shane Wright, economics editor of the Western Australian, gave a scathing response to the extraordinary claim that Australia’s sovereign risk standing would be effected by this measure on the 27th of July, which is worth quoting at some length. He said:

   “Australia remains ranked among the most secure nations in which to invest by authorities such as the OECD, while PNG remains just above Iraq and Afghanistan. Again, you have to wonder where the joint venture would rank the Rudd Government compared with Hugo Chavez and his nationalisation campaign of Venezuela’s oil, cement and steel industries. There’s been no complaint from the joint ventures for tax changes over the past 30 years that have reduced their payable tax. So, the real argument is that you can make a change to a tax arrangement, as long as they’re better off for it.”

So much for the sovereign risk argument against this measure.

However, the absurdity of the claim hasn’t stopped Coalition senator’s such as Mathias Cormann from parroting it whenever they get the chance.

As Lenore Taylor aptly put it in the Australian, way back in May when this measure was first announced, and I quote:

   “Some in the corporate world seem to be playing a very political game in trying to get rid of a decision they don’t really like.”.

It is my hope that the majority of Senator’s will take a leaf from Brendan Nelson’s book before Woodside convinced Western Australia’s Liberal Senators to convince him it was in all their interests to dance to the tune of big corporate interests.

It is the Coalition’s backflip on this issue and the antics that have resulted that beggar belief, not the merits of this bill.

I urge all Senators to put an end to this attempt to sabotage sound fiscal policy for no good purpose.

I urge them to support the measure.