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Thursday, 25 September 2008
Page: 5634


Senator CONROY (Minister for Broadband, Communications and the Digital Economy) (12:33 PM) —I would like to thank all senators who have taken part in the debate on the Excise Tariff Amendment (Condensate) Bill 2008 and the Excise Legislation Amendment (Condensate) Bill 2008. The bills amend the Excise Tariff Act 1921 and related legislation to apply the crude oil excise regime to condensate produced in the North West Shelf project area and onshore Australia. Condensate is a light crude oil extracted from natural gas. The measure has the effect of removing the current exemption of condensate from the crude oil excise regime and applies to condensates produced after midnight Canberra time on 13 May 2008. This measure allows the Australian community to share more fairly in the benefits from allowing the extraction of non-renewable energy resources located in the North West Shelf project area and onshore.

The exemption of condensate from the crude oil excise was introduced in 1977 to encourage the development of petroleum resources located in the North West Shelf project. Since the commencement of the North West Shelf project, stakeholders in this project have benefited very substantially from the exemption of condensate from crude oil excise. Treasury estimated this tax concession was worth almost $2.7 billion from 2001-02 to 2010-11, even before the price of crude oil rose significantly. As the development of petroleum fields in these regions are now reaching maturity, together with high world prices for non-renewable energy resources, there is no longer a need to retain this generous concession. Since 2001, the North West Shelf project has also benefited from a reduction in the rate of excise applying to crude oil. The concession exempting condensate from the crude oil excise should not remain at a time when the financial integrity of the budget needs to be maintained and at a time of high commodity prices. This measure generates a substantial annual revenue stream to the budget, estimated at $2.5 billion over the period to 2011-12. It makes a significant contribution to the government’s commitment to fiscal discipline.

I now turn to some of the key issues that have been raised in relation to this bill. One of the issues that have been raised is the impact of the measure on gas prices in Western Australia. This measure removes the tax exemption from condensate. It is not a tax on gas and will not put up gas prices. Residential and small business gas consumers in WA account for less than one per cent of Woodside’s revenue. It is not clear on what basis claims are being made to suggest that this group will bear the effects of the excise exemption removal. And to put it beyond doubt there are consumer safeguards that would prevent the costs being passed on to these consumers. In WA a cap on gas prices applies to residential and small business customers. The cap is indexed to the CPI annually. Any increase beyond that is through a review of the WA Office of Energy with the WA energy minister being the final decision maker. So we all know what will happen.


Senator Johnston —We all know his decision—he will jack it up.


Senator CONROY —Well, then, so be it. If you think that that is an appropriate response, so be it. It will hang around his neck. With the change in government I do not think the opposition would seriously suggest that they would stand by and watch their Liberal state colleagues put up gas prices. But they are not just standing by; they are barracking for it. Listen to them. The CEO of the North West Shelf Venture told the Senate: ‘Our current domestic contracts are in place and will be honoured—and that is for many, many years; they are long-term contracts.’ That is directly from the CEO. On 20 August the former Leader of the Opposition himself said: ‘I’m advised that, in part, it’s not likely to have any impact on domestic gas prices.’ Perhaps Senator Johnston gave him that advice.

In case anyone is starry-eyed about these companies, back in 2001 there was a tax cut worth $460 million that was not passed on as lower gas prices to consumers. How did that work? How did they actually manage to get a $460 million tax cut and consumers not see a cent of it? Where did it go, Senator Johnston? Where did it go? Taxing condensate will also have no impact on the price of petrol in Australia. The price of petrol for Australian consumers is determined by the international benchmark prices for crude oil and petrol.

Increasing sovereign risk has also been raised as an issue. The removal of an exemption that the government considers is no longer necessary is unlikely to have a direct impact on sovereign risk. This is because new projects in offshore areas outside the North West Shelf project area would automatically be subject to the petroleum resource rent tax regime, not the excise regime for condensate.

Some minor government amendments are required to ensure that the measure operates from the announcement date of 13 May 2008. The government will move these during the committee stage. Amendments to the Excise Legislation Amendment (Condensate) Bill 2008 will ensure that a price can be declared for condensate produced in the period following announcement of the measure and prior to the legislation receiving royal assent. Minor amendments to the Excise Act 1901 and the Petroleum Excise (Prices) Act 1987 will extend interim arrangements in the bills to ensure that condensate may be produced and entered for home consumption lawfully prior to the bills receiving royal assent.

To sum up: I would like to point out that the arguments of those opposite are hollow and fallacious. They are not backed by the facts. Removing this crude oil excise exemption from oil condensate, which provides a windfall gain to the companies involved, will not increase gas prices. Back in 2001 there was, as I have mentioned, a crude oil excise cut that was not passed on as lower prices to consumers. I love it! We will take the market going up; and we will take the market going down! The opposition cannot have it both ways, and that is what they seek to do today. They want to have it both ways.

The government believes it is fair enough to have incentives to get major resource projects up and running but once they are up and running the Australian people must get fair value from them. I again thank those who have participated. I commend the bills to the Senate. There were a number of points raised by speakers opposite. Senator Johnston raised the matter of Western Australian residents bearing the brunt of the measure. Let me make it clear again: the excise will reduce the profits of the companies involved in the North West Shelf Venture. The WA government will receive payments to offset offshore petroleum royalty payments, which will be lower as a result of this measure.

Senator Eggleston raised the concern that the measure has broken an agreement with the venture partners. There was never any agreement. The parliament ultimately passes tax laws which impact on all companies. Senator Cormann raised the point that the measures should have been considered as part of the Henry review. The Australian community deserves its fair share from natural assets. The Henry review will be examining ways in which the tax system can continue to provide incentives for new gas projects. Senator Cormann also said that the measures are unfair because no other projects pay excise on condensate. Other projects are subject to petroleum resource rent tax. This applies to oil, gas, condensate and LPG. It is applied at 40 per cent of profits once all costs of production have been deducted. The crude oil excise arrangements do not extend to gas.

I am conscious of the time and the need to move to a vote before 12.45 p.m. I indicate the government’s support for Senator Xenophon’s proposal to refer the joint marketing arrangements on the North West Shelf project and their impact on competition in the upstream gas market and on prices paid by consumers to a committee. Again, I thank all senators for their contributions.

Question put:

That the amendment (Senator Xenophon’s) be agreed to.