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Department of Resources, Energy and Tourism

CHAIR —I welcome Mr Clarke and officers of the department. Would you like to make an opening statement?

Mr Clarke —No, thank you.

Senator EGGLESTON —By the provisions of the Henry review, one of the groups that are affected by the resource rent tax are the small prospectors and miners in Western Australia who belong to the Association of Mining and Exploration Companies. They have been pushing for a long time for a Canadian-style flowthrough share scheme. What has been offered is a rebate on the cost of exploration. Why is that better as a policy than the Canadian flowthrough shares model?

Mr Clarke —You are correct about the position that that sector has advocated. It is not our position to make a comparative assessment. The government has announced its policy intent to address issues in that sector through the resource exploration rebate. That is the government’s decision.

Senator EGGLESTON —So you cannot, for example, compare and contrast what would have been the benefits and effects of a flowthrough share scheme versus the rebate?

Mr Clarke —I do not believe that is our function in this context.

Senator EGGLESTON —I might ask you some other questions then. Firstly, what advice on or input to the design of the resource rental tax was provided by your department?

Mr Clarke —During the period of the Henry tax review itself, which was mostly calendar 2009, the department had regular contact with the secretariat and we made a submission to the Henry tax review. Do I take it that your question though is about after the review and the actual RSPT?

Senator EGGLESTON —Yes. What advice on the design of the tax did your department provide to the government after the Henry review?

Mr Clarke —From 29 March this year, three officers of the department were seconded to Treasury to work with Treasury on the response to the Henry review, which included the RSPT. The advice of those officers was provided through Treasury channels and hence I am not privy to it.

Senator EGGLESTON —Was the department formally requested by Treasury to provide advice or comments for inclusion in the cabinet submission that proposed the introduction of the RSPT?

Mr Clarke —Our contribution to the final policy development was through the three officers that were seconded to Treasury. That was the way in which the department was engaged and our advice was provided.

Senator EGGLESTON —That is interesting. When was the department officially briefed on the government’s decision to introduce an RSPT?

Mr Clarke —I need to divide your question into two parts. The first is the engagement of the three officers of the department working inside Treasury, which we have covered. In terms of the final policy decision, department officers, including me, were fully briefed on that on 1 May.

Senator EGGLESTON —That was the day before the government’s announcement.

Mr Clarke —Correct.

Senator EGGLESTON —Not a lot of time, but there we are. The RSPT applies to existing projects apart from those currently covered by the petroleum resources rental tax. Would you accept the argument that this means in effect that the RSPT is retrospective?

Mr Clarke —It is not this department’s function to provide a commentary on the implementation of that tax measure. That is a question you would need to direct to Treasury.

Senator EGGLESTON —We might well do so. Has the department provided advice to your minister and/or the government on the adverse impacts of a retrospective tax on investor perception of how new investment in Australia would stand up—in other words, how it affects sovereign risk?

Senator CAMERON —This is not a retrospective tax.

Senator Carr —You have made an assumption there. I do not recall an officer saying that that was a view which was accepted.

Senator EGGLESTON —He did not really answer.

Senator Carr —You cannot therefore go on and try and verbal officers.

Senator EGGLESTON —I just made a comment—

Senator Carr —A political comment—

Senator EGGLESTON —which seemed to fit the situation.

—which had no bearing whatsoever on the facts.

Senator EGGLESTON —It is an assessment.

CHAIR —Having made the comment, we will go back to questioning. Senator Eggleston, do you have further questions?

Senator EGGLESTON —I do have further questions. I would like to come back to the issue of sovereign risk. Does the department feel that this tax will have an impact on Australia’s sovereign risk? I went to a breakfast last Tuesday week in Perth held by the Australia Indonesia Business Council, where a person spoke about the mining industry in Indonesia. He said that, following the introduction of this tax proposal, the view in Jakarta was that Indonesia now had a lower sovereign risk for mining investment than Australia. Would you like to comment on the issue of sovereign risk?

Mr Clarke —No, I would not. We are as conscious of the commentary around this measure as you are. We are reading the same reports and talking to the same people, but it is not this department’s function to provide an assessment of the merits or otherwise of that measure. That is a question you would need to direct to Treasury.

Senator EGGLESTON —We have to consider the impacts on the economy and on investment in the resource sector. Would you like to comment on what information your department may have obtained about how this proposal may impact on future investment in the resources sector?

Mr Clarke —We are seeing the views of industry through two channels. One is the public channel, the media and the sorts of meetings and so on that you refer to. The other is that this department has an officer participating in the room during the consultation process that is being run through Treasury on the RSPT. So we are hearing the views of industry, we are forming our own views and we are advising our minister. I cannot say more than that at this stage.

Senator EGGLESTON —Very well. My information is, though, that it certainly seems to be having a negative impact on investment and proposed investment in the mining industry, and one would think that would be a matter of concern to you. The research report prepared by KPMG Econtech for Treasury on the tax package announced on 2 May states:

… the RSPT is being phased in over time as a way of cushioning the impact of its introduction on existing projects.

The phased approach stops short of fully avoiding a sovereign risk event. This would require full grandfathering of existing projects so that they would continue to be taxed under existing arrangements and be fully quarantined from RSPT. However, full grandfathering would mean lower government revenue in the short term because of the wait involved before new projects reach the stage where a RSPT generates substantial revenue …

That is on page 15 of the report. Do you agree with KPMG Econtech’s conclusion that, firstly, failure to fully grandfather existing projects and thus bring existing projects under the RSPT represents a sovereign risk event and, secondly, this decision by the government was taken for revenue maximisation purposes?

Mr Clarke —You are asking me to pass an opinion on government policy or a commentary on government policy. That is not the department’s function.

Senator EGGLESTON —I would have thought they were fairly objective matters.

Senator Carr —No, they are not. They are political comments. You are asking the officer for an opinion. You know that is against the standing orders.

Senator EGGLESTON —It is not at all, really, beyond what is done in estimates. But if you are instructing the official not to answer then I accept that, of course.

Senator Carr —I do not have to instruct. The officer has made it perfectly clear what his position is.

Senator EGGLESTON —We are giving him the opportunity.

Senator Carr —He had the opportunity and he said that he does not want to give an opinion, and he is not required to give an opinion.

Senator EGGLESTON —That is disappointing, because he is in a position to assess these things and have a broad perspective about them. Can you explain to the committee why projects currently covered by the petroleum resource rent tax were grandfathered and therefore not covered by the resource rent tax even though the head of Treasury, Dr Henry, has described the RSPT tax as ‘world’s best practice in charging for the exploitation of non-renewable natural resources’? That was in an address on 18 May to Australian business economists.

Mr Clarke —Taxation policy and taxation measures are administered by the Treasury. Clearly this department, as you acknowledge, has a great interest in the way in which they work out. I simply cannot—it is not our function to—provide a critique of taxation policy or a comparison of different taxation options.

Senator EGGLESTON —Can you advise the committee when this decision to grandfather projects currently covered by the PRRT regime was taken?

Mr Clarke —No, we are not aware of the processes for that decision making that were inside Treasury.

Senator EGGLESTON —Can you explain to the committee why the long-term bond rate was chosen as the allowance rate or uplift factor for the resource rental tax?

Mr Clarke —No, that is a question you would need to direct to Treasury.

Senator EGGLESTON —Thank you.

Senator LUDLAM —I wonder whether we are able to bring officers to the table who can tell us about radioactive waste management.

Mr Clarke —Certainly.

Senator LUDLAM —Last time we were here I think  you were right on the verge of announcing the policy which subsequently happen. Since then we have seen the introduction of legislation. It has been through a fairly quick committee process. Can you provide us with an update of where the policy for a national radioactive waste dump stands with your department at the moment? Can you update us on your activities?

Mr Davoren —I think we are now at the stage where the government is considering its response to the Senate committee report. That response hopefully will be made in the next sittings of the Senate.

Senator LUDLAM —But that is what the minister is up to. What are you and your department up to as far as this project is concerned?

Mr Davoren —We are advising the minister on the response, so we are up to that as well. We have undertaken some consultation with traditional owners at Muckaty Station. As you are aware, at the time some traditional owners came down for the Senate hearings in March. A group was taken to Lucas Heights, where they were shown the waste at ANSTO. They were also briefed on radioactive waste management issues. On 21 May officers of the department attended a meeting at Renner Springs with all of the traditional owner clans at Muckaty Station.

Senator LUDLAM —Did you attend that meeting?

Mr Davoren —Yes, I did.

Senator LUDLAM —Who else from DRET was in attendance?

Mr Davoren —Another officer from my section.

Senator LUDLAM —So you and one other officer. Was there anyone else from the Commonwealth—from ANSTO, ARPANSA or anybody like that?

Mr Davoren —No. There were officers of the NLC.

Senator LUDLAM —The NLC and two of you. Thank you. Were you invited to attend that meeting or did you turn up of your own volition?

Mr Davoren —I certainly would not turn up uninvited. I attended at the invitation of the chair of the Muckaty Land Trust.

Senator LUDLAM —That was Ms Amy Lauder at the time?

Mr Davoren —That is right.

Senator LUDLAM —Thank you. I presume you presented an update on the process of building the waste dump.

Mr Davoren —Yes. It was simply on process; there were no substantive discussions.

Senator LUDLAM —I understand the Muckaty Aboriginal Corporation are the ones who hosted the meeting. They are not a signatory to the site nomination deed—that obviously lies elsewhere—so why did you think that it was important or appropriate to attend this meeting in particular?

Mr Davoren —It was important because we had not been out there for over 2½ years. I think a question that would have occurred to some of the traditional owners is what was going on with this process and where the process currently was at. I think we were able to explain that.

Senator LUDLAM —Okay. There are approximately 70 members of the Muckaty Aboriginal Corporation. They are not elected representatives of the TOs of the land trust, who number in excess of 400-odd people. You would be aware of that.

Mr Davoren —I think questions of Aboriginal governance are questions you should direct to the NLC.

Senator LUDLAM —I am assessing your state of awareness of the group that you are addressing and what their status is. I presume you are aware of that.

Mr Davoren —I was aware that there were representatives of all of the estate clans there. My purpose there was to brief them on the process of establishing a facility.

Senator LUDLAM —Did you undertake any field trips or visits to sites while you were up there?

Mr Davoren —No.

Senator LUDLAM —You did not visit the site of the proposed wast dump?

Mr Davoren —No, we did not.

Senator LUDLAM —Or any other sites?

Mr Davoren —We did not visit any other sites.

Senator LUDLAM —Did you have any meetings with NLC staff outside attending that AGM?

Mr Davoren —No, there were no meetings.

Senator LUDLAM —Can you give us a bit of an idea of any outcomes of the meeting? Did you brief and leave or did you get a sense of the mood of the meeting—how your message was received?

Mr Davoren —They were interested to see me there and they were interested to know what the current status of this activity was, and I was able to brief them on those issues. They asked me some questions that had been raised concerning radioactive waste safety issues. I spoke to the meeting on some of those points as they were raised. I went to particular pains to advise the meeting that any activities under there are under the oversight of independent regulators and explained their role.

Senator LUDLAM —Do you mean ARPANSA?

Mr Davoren —ARPANSA and the Environment portfolio.

Senator LUDLAM —Are you able to table a copy of your notes or your presentation?

Mr Davoren —No, I did not have any notes.

Senator LUDLAM —It was purely off the top of your head?

Mr Davoren —That is right.

Senator LUDLAM —Did representatives of the NLC make a presentation or speak at that meeting?

Mr Davoren —There were other Muckaty trust issues that they spoke about.

Senator LUDLAM —Unrelated to—

Mr Davoren —Yes, other business; in fact that was the main business of the meeting. It was their annual general meeting.

Senator LUDLAM —So the NLC did not address the issue of the radioactive waste dump?

Mr Davoren —They did in general terms.

Senator LUDLAM —But it was not the thrust of their presentation?

Mr Davoren —They introduced me, but I think that was the extent of their activity.

Senator LUDLAM —Did you hear opposition to the dump expressed by traditional owners attending the AGM?

Mr Davoren —There was opposition expressed by one traditional owner.

Senator LUDLAM —By one?

Mr Davoren —Yes.

Senator LUDLAM —Could you tell us how many people were in attendance, roughly?

Mr Davoren —I think there would have been at least 40 people there.

Senator LUDLAM —One person spoke up and said that they opposed the project?

Mr Davoren —That is right.

Senator LUDLAM —Your take away message was that the vast majority of TOs are in support?

Mr Davoren —No, I would not have made a judgment either way. Just because Aborigines remain quiet on something, you cannot interpret that as assent.

Senator LUDLAM —Okay. That is quite perceptive. One person did speak up. You would be aware that a new board was elected at that meeting, as it was their AGM?

Mr Davoren —Yes, I am.

Senator LUDLAM —Do you have a view as to whether the majority are in support or opposed to the radioactive waste dump?

Mr Davoren —I could not form a view on that.

Senator LUDLAM —That is interesting. I would like to move on to a couple of other issues relating to the waste dump. At the last estimates we were talking about employment, I think, and you indicated that there might be the necessity to host or accommodate a squad of counterterrorism police on the site.

Mr Davoren —I did not say that.

Senator LUDLAM —Do you want to go back over what you said?

Mr Davoren —I said that there may be a need, depending on decisions by regulators, to have people there who are trained at the level of counterterrorism first response.

Senator LUDLAM —Sorry, I thought that was what I just said.

Mr Davoren —No, you did not. I heard your questioning of ANSTO yesterday and you did not say that at all. You asked them whether there was a counterterrorism unit at ANSTO and they said that there was not. Had you asked them whether there were people trained at the level of counterterrorism first response, they would have said that there are.

Senator LUDLAM —Okay, thank you. That is an important distinction. At the time, you were not able to tell us whether that was going to be necessary, which I found extremely surprising

Mr Davoren —It is not surprising because, to reach that conclusion, you need to undertake a threat assessment, which takes into account the design of the facility and the material that will be there, and it is a lengthy process that you would not initiate unless you had actually selected a site.

Senator LUDLAM —I do not understand how the nature of the material that is going to be there and the design of the site are going to make any difference. You know what material you are hosting there.

Mr Davoren —It is an iterative process. You assess the threat and you design the building to address that threat. At this stage, we only have preliminary designs for the facility, which I pointed out to you at our last meeting, in the Parsons Brinckerhoff report. That threat assessment and that whole regulatory assessment would be part of the next phase of the project.

Senator LUDLAM —So it actually depends on the design of the building, because you know what kind of material is coming back.

Mr Davoren —We do not quite know the material that is coming back. You have alluded to the fact that the precise nature of the material coming back from the United Kingdom is yet to be finalised.

Senator LUDLAM —When did I allude to that?

Mr Davoren —You alluded to that when you mentioned the consideration of that material by the Scottish parliament.

Senator LUDLAM —Okay. There has been discussion in the press, although I do not think anything properly on the public record, about a legal challenge. Have you or the department taken legal advice about the strength of the case to host the site at Muckaty?

Mr Davoren —As we understand it, the legal challenge would be against the NLC’s nomination, so really it is a matter for them to look at that.

Senator LUDLAM —So that is not something that you have taken legal advice on in the department?

Mr Davoren —No, not at all.

Senator LUDLAM —Where to from here? Are you just awaiting the outcome of the legislative process in here?

Mr Davoren —Yes.

Senator LUDLAM —Do you have any further consultations or anything along those lines planned?

Mr Davoren —Not at this stage.

Senator LUDLAM —But what about in due course? What is your work program? Assuming the legislation passes in, I guess, the June sitting, what is your work program from there?

Mr Davoren —I think we would have to go out and have substantive consultations with the communities. I think that when the Northern Land Council presented evidence to the legislative inquiry Mr Kim Hill said that they were interested in discussing the arrangement that had been negotiated under the previous government, so I imagine that we would have substantive negotiations with the Northern Land Council.

Senator LUDLAM —I know there are a lot of other questions to be asked, so I might leave it there. Thanks for your time.

Senator BUSHBY —In answer to Senator Eggleston’s questions, you indicated that you were not privy to the consultation that was going on between your three officers and Treasury. Is it the fact that they were basically sent off to the Treasury consultation and did not report back to you?

Mr Clarke —That is correct. In administrative terms, we regarded it as a secondment. One of the officers did request briefing and information from this department to assist him in his role inside Treasury, but it was a secondment. They were reporting into the Treasury structure, not into the RET structure.

Senator BUSHBY —So, other than to the extent of their own personal knowledge or of that particular request for further information, the department was not able to have any input into that? It was really only what was in the heads of those three officials? There was no reporting back to you; there was no bouncing it around, using the vast resources of your department and the expertise that exists within it, as to what impact that may have on the minerals industry?

Mr Clarke —The officers had access to all of the information and resources from within this department to assist them in their task working in Treasury, and they exercised that access, but I repeat that they were not working to this department; they were seconded to Treasury during that period.

Senator BUSHBY —But there were only three of them. How many people work in your department in the minerals area?

Mr Clarke —About 30 in the onshore minerals area.

Senator BUSHBY —And these three were all from that area?

Mr Clarke —Two were. The other was my predecessor, the former secretary of the department.

Senator BUSHBY —So two out of those 30 were assisting Treasury and were seconded to them, working to Treasury rather than to your department?

Mr Clarke —Correct.

Senator BUSHBY —And the other 28, with the expertise that they collectively have, were not privy—nor were you as secretary—to the discussions or the development of the RSPT that was going on within Treasury?

Mr Clarke —Our role was to respond to requests for information from our three seconded officers.

Senator BUSHBY —So you provided information, which is probably factual and existing, rather than having the opportunity to analyse or assess proposals and to put that expertise back into the process?

Mr Clarke —Correct. That analytical advisory function was executed by the three seconded officers.

Senator BUSHBY —So you were in no position whatsoever to provide any detailed assessment of the impact of the RSPT prior to 1 May?

Mr Clarke —Correct.

Senator BUSHBY —Has the department undertaken any analysis of the impact of the RSPT on domestic energy prices?

Mr Clarke —Yes, we have considered that matter.

Senator BUSHBY —Did you find that it would have any impact?

Mr Clarke —I will bring another officer to the table to respond.

Mr Morling —As was stated by Treasury last week, the RSPT is a tax on super profits only. As such, it should not affect the prices at which gas and coal are sold into the domestic market, including for energy use. If those prices are not affected then you would not expect any impact on electricity prices. Our preliminary work on that issue is consistent with that position.

Senator BUSHBY —Preliminary work, you say.

Mr Morling —Yes.

Senator BUSHBY —Is that based on any assumptions? What assumptions have you built into your preliminary work as part of your—

Mr Morling —This is very much preliminary work, working with assumptions around the existing state royalties regimes, which are effectively replaced by the RSPT.

Senator BUSHBY —For the purposes of your assessment have you included assumptions that anything in particular will remain as it is?

Mr Morling —Do you have anything particular in mind?

Senator BUSHBY —No, I just want to know what you have locked in. When Treasury do their modelling they always lock in a few things as fixed, some of which are probably unrealistic.

Mr Morling —You have described it as modelling. Within the department I know—

Senator BUSHBY —I did not use the word ‘modelling’ when I asked you that question; I deliberately said ‘assessment’. Nonetheless, I am interested in knowing whether, in doing your assessment, you assumed that anything has remained unchanged for the purposes of looking at holding some factors as fixed so that you can test what happens with the variables?

Mr Morling —We have simply taken the position that we do not see an impact on those prices of gas and coal in the market and therefore we do not see an impact on electricity prices.

Senator BUSHBY —You would be aware that, in the Australian, dated 6 May, 2010, the managing director of Origin Energy, Grant King, stated:

The proposed RSPT will place additional upward pressure on coal and gas prices, increasing energy costs further …

Are you aware of his statement?

Mr Morling —We are aware of those reports and some others.

Senator BUSHBY —Have you analysed it all?

Mr Morling —We do not know how Mr King and others have come to those conclusions.

Senator BUSHBY —In respect of Mr King and others, have you actually approached them to find out? Surely, if they are of that opinion it would be of value to the department to know why they are thinking that so that you can analyse that or at least explain to them the reasons why you do not think they are right?

Mr Morling —We have done our own analysis. As I said, it is still preliminary at this stage. That is the conclusion we have reached.

Senator BUSHBY —Would you be looking to discuss with energy producers their concerns in that respect?

Mr Morling —We have reasonably regular contact, not necessarily at Mr King’s level, but we certainly have contact with the associations and we are aware of their views.

Senator BUSHBY —Surely, if you are doing an assessment of the impact of RSPT on energy prices it would be incumbent upon you as a department to actually go out and discuss it with those people who sell the energy?

Mr Morling —As I said, we have done some preliminary assessment. We are still working through the process of looking at this but our preliminary view is as I have stated.

Senator BUSHBY —Presumably, if you do go out and discuss it with those people in the industry who are making these claims and they make good points to you then they will be given due weight and you will take them into account in your final assessment?

Mr Morling —We will certainly look at those.

Senator CAMERON —I have a question on that point.

CHAIR —We are fairly tight on time. Perhaps we will let Senator Bushby continue and I will put you on the list.

Senator BUSHBY —According to the assumptions underpinning the government’s modelling—that is, a specific assumption, not a finding; it is one of those things I was talking about before that they hold fixed—the imposition of a 40 per cent RSPT will have no impact on investment in the minerals sector. That is an assumption rather than a finding. In fact, under this assumption an RSPT set at an even higher rate than 40 per cent, say, 60 per cent, 75 per cent or even 90 per cent, would have no impact on future industry investment, given that they have assumed that the 40 per cent tax will have no impact. Does the department support the proposition that an RSPT at 40 per cent or 75 per cent or even 90 per cent will have no impact on investment in the sector?

Mr Clarke —I have read Treasury’s testimony on that matter from last week and I have nothing further to add to Dr Henry’s remarks. It would again take me into a position of commenting on another department’s policy responsibility.

Senator BUSHBY —What I am interested in, though, is your expertise in the mining sector and your knowledge of the mining industry in particular. Treasury has a broad remit, which is whole of government, and you have a requirement to look at the matters that impact on the mining industry. I could ask you to go through your charter and what the aims of your department are. But I am quite sure it is to promote growth and a healthy mining sector and that would include that. In doing so you would be required to look at factors that are likely to impede or impact on that. I am just asking you, quite apart from the government’s decision to put in the RSPT, what impact would a tax of this sort at 40 per cent, 75 per cent, 90 per cent, or even 99 per cent, have on investment?

Mr Clarke —In the current climate there is no hypothetical question on that nature. I am afraid your question, again, is asking me to comment on a policy position and on evidence given by another department, which is their responsibility. I am unwilling to do so.

Senator CAMERON —The mining council told him he has got to ask, so I suppose he has got to ask.

Senator BUSHBY —With respect, I can understand why you do not want to comment on what another department would say, but you are here before us today because you have expertise in the mining industry and the way that works—that is your department’s responsibility. I am asking about matters that would impact on that. I have asked many departments questions. I have asked this department questions before about what impact changes or certain things would have and you have had no hesitation in answering them. In this particular case, which does actually relate in a way to a decision that the government has made, you are refusing to do it even though I am asking about impact, not about the policy.

CHAIR —Senator Bushby, Senator Cameron has a point of order.

Senator CAMERON —Chair, not only is Senator Bushby asking the witness for an opinion, he is asking the witness for an opinion on a hypothetical—a hypothetical so stupid in its reference to 90 per cent tax rates. It is a hypothetical and he should not pursue it.

CHAIR —What I object to in the line of questioning is the suggestion that the official refused to answer the question. In fact, as he pointed out quite correctly, he was being asked to give an opinion. It was not a refusal. Continue, Senator Bushby.

Senator BUSHBY —Okay, I will move on. Impact on prices: is the imposition of the RSPT likely to have any impact on the prices received by Australian exports on global markets?

Mr Clarke —Again, Senator, I note Dr Henry’s evidence on that question last week and I have nothing to add to it.

Senator BUSHBY —Do you agree with the Prime Minister that Australia’s tax regime can have a direct impact on global investment decisions and, in particular, on Australia’s ability to attract investments from international business.

Senator Carr —You are asking for an opinion, once again. You cannot ask the officers to comment on government policy. If you want to ask political questions, fire away, and you will get as good as we receive. Keep to the factual stuff.

Senator CAMERON —And Mitch will be disappointed.

Senator BUSHBY —Will a $12 billion increase in the tax burden on Australia’s resources sector have an impact on the ability of the Australian resources sector to attract investment?

Mr Clarke —I am sorry, I find these questions take me into an area that it is not my prerogative to respond to or, indeed, that I have an obligation to respond to. I think these are questions that should be directed to Treasury and it is their judgment as to whether they want to participate in that debate.

Senator BUSHBY —Similar questions will be directed to Treasury. Are you aware of the document Minerals and Petroleum Exploration and Development in Australia: a guide for investors?

Ms Constable —Yes, I am aware of that particular publication.

Senator BUSHBY —Who published it?

Ms Constable —That is this department’s publication.

Senator BUSHBY —That document is aimed at foreign investors—is that correct?

Ms Constable —It is, certainly.

Senator BUSHBY —Does it note that Australia has competitive taxation and royalty payments?

Ms Constable —That is correct.

Senator BUSHBY —Why would you note that in that document?

Ms Constable —That is a publication that we put forward on a regular basis. There are a whole range of areas that Australia looks at in investment. A competitive taxation regime is something that every country in the world has as part of their investment regime.

Senator BUSHBY —Why would you note that Australia has a competitive taxation and royalty payment scheme in such a document? Why would you include that in there? What is the benefit of noting that?

Ms Constable —It is one of the areas that are important for investment around the world.

Senator BUSHBY —So it is important to investment.

Ms Constable —As a whole range of areas are important to investment.

Senator BUSHBY —That is part of the suite of factors that they would look at when making investment decisions.

Ms Constable —That is correct.

Senator BUSHBY —A competitive taxation and royalty payment scheme is a factor that potential investors would look at when making investment decisions.

Ms Constable —Along with many other factors.

Senator BUSHBY —Along with many other factors, but that is one of them.

Ms Constable —That is one of them.

Senator BUSHBY —Would imposing an RSPT at 40 per cent make Australia more competitive taxation—

Senator Carr —And the removal of royalties, effectively, Senator, would be a factor in all of those considerations; not to mention the reduction in corporate tax and the benefits to superannuation. There will be many factors that relate to the overall decisions.

Senator BUSHBY —But it comes at a net benefit to the government of $9 billion and, clearly, the net taxation benefit is in favour of the government.

Senator Carr —The general business environment would also be a factor. You cannot ask the officers to comment at large about—

Senator BUSHBY —I was not. I was asking them about a publication that the department put out and the reasons why they actually had the words in it.

Senator Carr —Sure, and I am happy to assist you in any way I can to explain what a terrific idea this is—

Senator BUSHBY —I am very happy that you are assisting by interrupting just at the point where it is beginning to get interesting. I would like to ask—and I take the minister’s point—if a new taxation regime were implemented which provided a net benefit to the government of an additional $9 billion through the mining sector, taking into account all the reductions as well as the new taxes, would that be likely to add to Australia’s competitive taxation royalty payment system or to detract as part of an investment issue?

Mr Clarke —The question of the impact of the RSPT on investment in the mineral sector was canvassed extensively by this committee last week with Dr Henry, and he gave quite a long response to that, which is in the record. We have got nothing to add to his reply.

Senator BUSHBY —Okay, but I think we have made the point anyway or, certainly, Ms Constable has acknowledged, that competitive taxation royalty payments are a factor as part of the suite of factors that an investor would look at when investing in Australia. I do not think that we need you to answer as to whether that actually makes it less competitive or more.

Senator Carr —So why did you behave in that way, if you already had the—

Senator BUSHBY —Because we have the department here and it is the department’s responsibility to actually answer factual questions and, quite clearly, whether it will make it less or more competitive is a factual question.

Senator Carr —The answers they have given have been factual—

Senator BUSHBY —No, they—

Senator Carr —The officers have answered you in very factual—

Senator BUSHBY —They indicated that they were unable to answer that question, despite it being a very easy and straightforward question to answer.

Senator PRATT —He is out of order!

Senator BUSHBY —You are not the Chair. If the Chair calls me out of order I may well listen to her, but I am not going to take instructions from you. Does the department actually analyse or monitor relative tax rates affecting the resources sector to be able to support claims that you made in publication?

Ms Constable —No, we do not have a role in taxation in the department—

Senator BUSHBY —But if you are going to put out a publication which says that Australia has competitive taxation and royalty payments, then you would need to have information to base that statement upon.

Ms Constable —We take our advice from the Department of the Treasury in relation to taxation matters.

Senator BUSHBY —So if the Treasury tells you that Australia is competitive then you take that as read and you put that in your publication?

Ms Constable —That is correct.

Senator BUSHBY —Are you aware of the effect on the valuation of mining assets in Ottawa, Canada, when in 2006 that state changed its tax laws in a way that, amongst other things, hiked rates on many resource companies to 31.5 per cent from a base of zero? It starts next year.

Ms Constable —This is a question for the Treasury portfolio; that question is more appropriately aimed at them.

Senator BUSHBY —So you do not monitor how the mining sector in other countries is going, and what impacts on that and affects its competitiveness against the Australian mining sector?

Ms Constable —We monitor other countries’ competitiveness and look at a number of publications, including those of the Fraser Institute. It surveys mining countries around the world on a regular basis. However, we do not specifically look at taxation; that is a matter for the Treasury portfolio.

Senator BUSHBY —So the fact that the valuation of affected mining companies in Ottawa plummeted by 35 per cent in the two days following the announcement of that tax is not something that you would look at?

Ms Constable —We monitor a whole range of areas. We certainly look at all of the factors that are affecting countries’ investment competitiveness around the world, but not specifically on taxation matters. If we have questions on taxation then we take our advice from the Treasury portfolio.

Senator BUSHBY —To what extent is private sector investment in the resource sector in Australia dependent upon an expectation of a return on capital invested?

Senator Carr —Dear, dear! Will you get to something serious? Don’t be so silly—

Senator BUSHBY —I would have thought that when you were looking at investing many millions of dollars in projects—

Senator Carr —This is a super profits tax. You know what it is; you know how it involves a range of measures. But don’t ask infantile questions like that!

Senator CAMERON —He has to do what Richard tells him!

Senator BUSHBY —I can assure you that these are written by me.

CHAIR —I do object, Minister, to some of the more inflammatory descriptions in that response.

Senator Carr —They were infantile.

Senator BUSHBY —On this question I said: to what extent is private sector investment in the resource sector in Australia dependent upon an expectation of a return on capital investment? I think it is a fairly basic question. It does not have any politics in it.

Mr Clarke —I am at a loss to know how I can answer that. ‘To what extent’—it is a qualitative judgment. Investors make their decisions on a range of factors. No doubt return on investment is one of them.

Senator BUSHBY —Thank you. That answers my question. That is what I needed to hear. In most cases, with the private sector, would a return on investment be the primary reason for investment?

Mr Clarke —Again with this, I am not willing to put myself in the shoes of investors in the resources sector and tell you how they think. I do not believe I am in a position to do that.

Senator BUSHBY —You say you are not in a position. Your interaction with mining companies has never led you to be able to draw the conclusion that that is what they are trying to achieve?

Mr Clarke —Companies talk to us all the time. They talk to us about the range of issues that they take into account and their range of views on policies of Commonwealth and state governments and of competing countries. We are across all of that, but you are asking me to quantify that in some way, which I do not believe we can.

Senator BUSHBY —What are the other reasons why a private sector investor might choose to invest substantial funds in developing new or purchasing existing projects in the Australian resource sector?

Mr Clarke —The quality of the resources would be a good place, and the ability to export them.

Senator BUSHBY —Sorry—what was that?

Mr Clarke —The quality of the resources themselves and the markets within our region, the expertise of the labour force, and the ability to get the product to the market.

Senator BUSHBY —What about security of supply. Is that another reason, possibly?

Mr Clarke —Certainly.

Senator BUSHBY —So the desirability of ensuring security of supply of resources could be a primary motivational factor in the development of new or even the purchase of existing projects?

Mr Clarke —Senator, to make sure I understand your question, it is from the perspective of a foreign investor in the Australian resources sector?

Senator BUSHBY —I was not actually confining it to that, but I imagine that most investors that have that reason probably are foreign investors.

Mr Clarke —Yes. I expect that is one of the factors that some foreign investors take into account in investing in the Australian resources sector.

Senator BUSHBY —If the valuation of mining assets were to fall from a given point, whether due to projections of lower returns as a result of the proposed RSPT or otherwise, would this make it more or less likely that a purchaser looking to secure supply of the resource would find those mining assets an attractive purchase?

Mr Clarke —Senator, again you are asking me to express an opinion regarding the views of investors in Australian resources in a particular scenario. I have already said that I am sure that—as Ms Constable has said—competitiveness of the taxation regime is one of many factors taken into account by investors. Return on investment, as we have discussed, is certainly one of them, but I am unable to give you a commentary on the balance of those factors by any particular investor in any particular resource.

Senator EGGLESTON —Can I just ask a few questions about royalties?

Senator BUSHBY —Yes, okay.

CHAIR —Senator Eggleston, we have quite a few other senators waiting.

Senator EGGLESTON —Since royalties were mentioned a couple of minutes ago, I will ask this. Royalties on production are, of course, a state tax, if you like and Western Australia proposes to increase its mineral royalties. The Premier has announced that. But I gather that in this proposal there is a cap on the level of royalty which will be rebatable. At what point will that cap be applied in effect? What will be the capping date or point for state royalties for rebates under this scheme?

Ms Constable —Not all royalties fall into that category. These are questions that really should be forwarded to the Treasury portfolio. Any matter relating to tax should be put forward to that portfolio.

Senator EGGLESTON —I see. I thought you were going to be of assistance there.

Mr Clarke —To clarify the first part of Ms Constable’s answer, while the bulk of royalties are production based it is not uniform. Some jurisdictions do apply different models to their royalty regimes.

Senator EGGLESTON —I thought one of the features of this proposal new tax is that the mining companies will be rebated the cost of state royalties by the Commonwealth. I would have thought there would have to be a point in time when that royalty is capped; otherwise the states could simply increase the royalties to the equivalent of the tax.

Mr Clarke —Your question is correct in the sense that there must be a point at which that Commonwealth rebate is applied but you would need to refer the details around that to Treasury. I was simply clarifying the point that not all royalties are production based.

Senator MILNE —I would like to ask some questions about a range of grant programs, starting with the geothermal development program. In December last year there were awards granted in a grant round of $7 million. Some companies were ruled out, even though they got high support in a whole range of areas, on the basis of financial capacity: they were not able to meet the financial capacity rules. However, it now transpires six months later that several of the grant applications that were granted have not been able to meet the financial capacity rules.

My concern here is fairness. Can you tell me how many applicants who were granted awards in December have not met the financial capacity rules? Is it intended that they be given an extension of time? If so, how is that fair to those who applied in the first place and were ruled out on that ground? And how are you going to now reopen the process so that all of those original applicants can apply in the same set of circumstances? It is a question of fairness.

Mr Clarke —The framing of your question is exactly right and the broad scenario that you have described is correct. I will ask my officers to give you the number you requested and then we will go to the process.

Ms Clough —The draft funding deeds have recently been issued to those successful applicants that were announced under the Geothermal Drilling Program on 13 December 2009 and a few weeks ago some draft funding agreements were issued to those successful applicants. From that point in time those applicants will have six months to provide the necessary assurances that appropriate funding can be raised for the projects to go ahead.

Senator MILNE —How is that fair? You have just released those financial deeds almost six months later, by which time they were meant to have demonstrated their financial capacity. Effectively, those who got the grants will have 12 months to demonstrate their financial capacity and the people who were ruled out in December have not got the same chance. How is that fair?

Mr Clarke —The primary question of equity in the administration of the program, which I think is at the heart of your question, goes back to the judgments that were made on the merits on the applications at the time that the program closed. Those decisions as to which companies would have the best prospects at that time were based on the financial criteria—that of course was not the only criterion; it took in all the rest, technical and management, as given. The judgment was made about the companies that had the best prospect of success at that time. From that point forward, we have to give those companies the opportunity to deliver according to the government’s offer. Should they not be able to deliver that, the minister will need to make a decision as to whether or not he will agree to an extension. Our experience in other programs suggests that that is quite a plausible scenario that requests for extension will be given. They will need to be considered on the merits. The scenario that you describe where there were companies that were not offered a grant in that round that are now saying, and we have received those representations, ‘We’re ready; we would like an offer,’ we are very conscious of, and that will need to be taken into consideration should we reach a circumstance where any of the current applicants are unable to meet their financial obligations.

Senator MILNE —I do not accept that because at the time they had to demonstrate within six months of getting the grant that they could show financial capacity. Six months is now up. How many of those have been able to demonstrate it? I know you are saying you have just offered them financial deeds et cetera, but how many people got the grants and how many of those who got the grants six months later can demonstrate financial capacity?

Ms Clough —The companies that have been offered have recently received funding deeds will have six months from that issuance of the draft funding deed to demonstrate to us that they can meet their financial obligations. When the announcement was made on 13 December 2009 regarding the successful applications under the program, there was no issuance of a draft funding deed. So companies were not able to provide any financial documentation because there was no draft deed that had been issued to them to frame what their response might be. Now that we have issued draft funding deeds, they have the ability the capacity to go to the market and look for the appropriate financial support.

Senator MILNE —I accept all that, but that is not the point. At the time they were asked to apply for the grants, they were told they had to show within six months they had the financial capacity. Other people were knocked back because they could not show it because they were honest about their financial capacity and indicated that they needed the grant to be able to go to the market and show leverage and so on. What you are saying now is that companies can second-guess the government, expect a six-month delay—and six months has turned into 12 months—and they can anticipate they will not be asked to prove financial capacity until 12 months. I think this is discriminatory and unfair. Minister, I would like you to comment on this and indicate what you are going to do about those companies that were knocked back in the first round. Other people are going to be given an extension now, effectively, of six months and those people are not going to be given the same extension. What are you going to do about it?

Ms Clough —Can I make a comment?

Senator MILNE —Minister, I asked you.

Senator Carr —From what I have heard of what you have said, the department is seeking to answer your questions. I am not certain that the administrative appeals mechanism that exists—

Mr Slobodian —Hopefully, maybe I can clarify things. I am the program manager for the GDP. Firstly, the program guidelines stipulate that recipients have six months from the date of the formal offer of funding to prove financial closure on the project. So, essentially, that commences when the draft deeds are issued to them, and that did not occur until 18 May. From now on, we have six months, until the middle of November, for them to actually prove up their financial viability. That is not to say that none of these projects are able to do that. There is no indication at this point in time that none of the projects will be able to satisfy the requirements. The period of six months is up until November. They can prove that from now.

Senator MILNE —I know all that. That is not my point.

Mr Slobodian —The issue is that the decision by the geothermal energy committee to provide those grants was based on a whole range of factors, including financial health of the company, management expertise, expertise in geothermal drilling, technical aspects of the projects and location of the projects. All those factors were also part of the consideration process. The financial viability of companies is only one small aspect, and for us to go back at this point in time would be inappropriate for a number of reasons. Firstly, it would be contrary to the program guidelines and, secondly, we would have to reopen the whole debate on these projects right from scratch.

Mr Clarke —I understand that that is not the point you are going to. The answer that Mr Slobodian has given is the proper administrative answer. I must protest at the suggestion that the companies that succeeded were dishonest, in that there is no evidence before us that information was put to the government in that grants program that was of a dishonest—which implies fraudulent—nature. I think it is very unfair on the seven companies that were successful in the process.

Senator MILNE —I take your point; I do not infer that.

Mr Clarke —I accept that the companies that were not successful in those rounds and that still have high-quality projects are very legitimate stakeholders in the administrative process that we are now going through. They are keeping in touch with us and we are keeping in touch with them. We are following the program guidelines to the letter. There is nothing else we can do at this stage.

Senator MILNE —I still put it to you, Minister, that I would like you to review this, because I consider some of those companies were ruled out. The company in particular I am talking about is KUTh Energy. In this case it sought a meeting with the government to ask why it did not get the grant. It was highly regarded in all categories except the financial capability one, so it is not as if it failed other criteria. Therefore I think there is an issue of procedural fairness and I want it looked at, please, not just for the company but also for all the others who were ruled out on this particular ground if they had covered all the others adequately.

Senator Carr —I will respond to your question in a minute, but the secretary would like to address part of your question.

Mr Clarke —Since you have named the company, I can confirm that I have met several times with senior management of that company. I am very aware of their circumstances and their representations on the matter. We are dealing with it within the administrative guidelines of the program as best we can.

Senator MILNE —I did mention the company, although it is irrelevant really which company it is. It is a point of procedural fairness. What I think you have now done is to give a very clear indication to everyone who applies for a government grant that there is likely to be a lag of six months after they get the grant before the deeds are sent out to them and therefore they are likely to have 12 months and not six to prove up things. That is actually going to clog up the grants system.

Mr Clarke —I cannot leave that observation without a response, because that is not the intent of the evidence that we have given today. The six-month delay in the issuing of the deeds was not a function of the ability of these companies to raise money. I do not want to leave on the record a suggestion that there is a six-month lag and that that is an automatic feature of these sorts of programs. That is not the intent.

Senator MILNE —It is not a criticism of the company. It is a criticism of the department. Why did it take six months from the granting of the grant to the issuing of the deeds when you had to demonstrate within six months you had financial capability?

Mr Clarke —I am happy to respond to that if that is the question.

Senator MILNE —That is the question. It is the department I am talking about here. Why did it take you six months to issue these deeds?

Mr Clarke —I will respond to that, but, as you have already been advised, the legal characteristic of the six months to demonstrate the matching funding commenced from the formal offer. Now we can go to why the formal offer was delayed. There were two primary reasons that contributed to the delay. They were around risk management in geothermal programs and around community consultation requirements. The department judged that it was necessary to strengthen our offers in both the risk management obligations on the proponents and their community consultation obligations. We consulted with the industry association and with the companies on those matters and developed additional clauses to include addressing those matters. That is the reason for the delay. It will not be a feature of future grants in this area as we have now done that work.

Senator MILNE —I put it to you: shouldn’t you have done that before you issued the grant?

Mr Clarke —You can indeed put that to us. Self-evidently, we realised that we needed to do it. We judged that it was better to do it before issuing the grants than after the event.

Senator MILNE —I think Senator Bushby has a question on this.

Senator BUSHBY —Yes. Thank you, Senator Milne, for raising it. I was going to raise it as well. I agree with Senator Milne that there does seem to be a lack of equity in the process. I just wanted to ask this specific question: were any of the unsuccessful applicants actually unsuccessful specifically because they failed to meet the requirement that they would be able to demonstrate within a period of six months of being offered funding that they could fund the costs of the project?

Mr Clarke —I will ask my officers to respond to your question, but can I clarify the exact nature of the requirement.

Senator BUSHBY —That is actually from the eligibility criteria.

Mr Clarke —Yes. I just wish to confirm our understanding of what that means in practice. As is common in these sort of grants programs, the ability of the applicants to raise capital to execute the program is conditional on having the offer from the Commonwealth. During the competitive assessment process, the department, the expert committees and our financial advisers have the very difficult task of making judgments about the ability of a firm to do something in the future in the event they receive an offer from the Commonwealth. That is not scientific. That is not something you can be robust about. You look at all the factors and you make a judgment. The test is then whether or not they do it in the period. As to whether any of the companies missed out, it is a funds limited program and so anyone that got in meant that another would have been knocked out. As to whether that was a determining single criterion, I will ask my officers to respond.

Ms Clough —I do not really want to go into the specifics of each unsuccessful application.

Senator BUSHBY —No, I do not need to know that. I want to know whether anybody met all the criteria but was unsuccessful solely because of that reason.

Ms Clough —The meeting of criteria is a graduated process. A company might score relatively high marks on one criterion and lower marks on another one. It is not a binary assessment. It is not fail or pass. There were varying scales across all of the companies that applied. They might have featured strongly on the criterion of, say, technical innovation and they might have featured lower down the scale on the criterion about the capacity to raise finances to fund the project.

Senator BUSHBY —I understand that.

Ms Clough —So, overall, they would get a rating that was—

Senator BUSHBY —And on the basis of the rating some missed out and some did not.

Ms Clough —That is correct. So it is difficult to say—

Senator CAMERON —Sorry, I missed what area you are from within the department, Mr Morling.

Mr Morling —I am in the Energy and Environment Division.

Senator CAMERON —Are you a trained economist?

Mr Morling —I studied economics, but that was a long time ago.

Senator CAMERON —Going back to the questions that Senator Bushby put in relation to the effects of a super profits tax, when you were studying economics did you learn the same lesson that Dr Ken Henry learned at high school—that super profits should not affect prices?

Mr Morling —All I can say is that I have nothing to add to what Dr Henry said the other day.

Senator CAMERON —Do you agree with what Dr Henry said?

Mr Morling —Yes, I do.

Senator CAMERON —Dr Henry also went on to say—and I am not sure whether you should answer this question or Mr Clarke should—that in the wake of the global financial crisis the mining industry had shed 15 per cent of jobs. Is that a correct statement?

Mr Clarke —Dr Henry provided that evidence last week, yes.

Senator CAMERON —Do you agree with that?

Mr Clarke —I believe it to be a matter of record.

Senator CAMERON —Can I also take you to Budget Paper No. 1 and statement 4, which goes to mineral resources. I assume you have made yourself aware of that statement. On page 4-3 it says:

Australia stands to benefit from continuing strong global demand for its abundant mineral resources.

Do you agree with that statement?

Mr Clarke —Yes, Senator.

Senator CAMERON —Do you also agree with this statement on 4-24? It says:

Exploration incentives, as influenced by company income tax arrangements, will also be improved through a new Resource Exploration Rebate.

Mr Clarke —Yes.

Senator CAMERON —And that the rebate ‘will provide significant cash flow benefits to small, pre-profit exploration companies’?

Mr Clarke —Yes. That is the policy that one of your colleagues raised earlier as the alternative to the flow-through share scheme.

Senator CAMERON —The budget paper goes on to say:

Currently, these smaller companies face a competitive disadvantage because they have little taxable income against which to deduct their exploration expenditure.

Is that a statement of fact?

Mr Clarke —Yes. We believe it to be a matter of fact.

Senator CAMERON —Also the budget paper goes on to say:

Notwithstanding the greater expected net revenues, Australia will remain an attractive place for mining projects, given the economically efficient design of the RSPT, the exploration rebate, Australia’s stock of mineral resources and Australia’s stable business environment for long-term investment.

Is that a correct statement?

Mr Clarke —That is the Treasury analysis on the back of the RSPT announcement, and we believe that to be the appropriate forecast, yes.

Senator CAMERON —Thanks.

CHAIR —Senator Boswell.

Senator HEFFERNAN —Does that includes the anticipation of lime and phosphate?

CHAIR —Senator Heffernan, I have given the call to your colleague.

Senator HEFFERNAN —That is all right; Bozzie won’t mind.

Senator CAMERON —You are not going to stand over Bozzie again, are you?

Senator HEFFERNAN —Just one question.

Senator BOSWELL —Okay then.

Senator HEFFERNAN —So did it include—

CHAIR —Senator Heffernan!

Senator HEFFERNAN —Bozzie has given me permission. Did it include—

CHAIR —Senator Heffernan, I am sorry—

Senator HEFFERNAN —Too hard a question, is it?

CHAIR —Senator Milne has questions.

Senator MILNE —I want to ask about the Low Emissions Technology Demonstration Fund. In Senate estimates in December last year, the department provided information on the allocation of funding under this fund. Could you please update me on the allocation of those funds. Have any additional funds been allocated, and do you expect any additional funds to be allocated? What is the time line et cetera?

Mr Stone —As indicated at past Senate estimates, there are five projects being funded under the Low Emissions Technology Demonstration Fund. Do you want me to identify the projects?

Senator MILNE —No, I want you to update me on the allocation of those funds since December.

Mr Stone —There has been no expenditure since December.

Senator MILNE —No expenditure since December?

Mr Stone —No.

Senator MILNE —Do you expect any additional funds to be allocated?

Mr Clarke —Senator, can I clarify, just to make sure that we give an accurate response. Funds have been allocated in the sense of decisions announced and funds marked against them—

Senator MILNE —If I can just get—

Mr Clarke —Do you mean actually sending the cash or do you mean allocation?

Senator MILNE —What I am trying to get at is: have any of the Low Emissions Technology Demonstration Fund funds been reallocated to other departmental programs—

Mr Clarke —No.

Senator MILNE —and, if so, which ones? I want to know how much of the total fund had been allocated in December last year—not necessarily spent but allocated—and how much was left in the fund after those funds had been allocated. If you have not allocated any of that money between the total amount of the fund and what was allocated, I want to know when that is going to be allocated. If it is not, has the money been reallocated to another program and, if so, which one?

Mr Stone —The money has not been reallocated to another program.

Senator MILNE —So how much is left?

Mr Stone —There was $75 million granted to the Solar Systems project, which has had no expenditure to date; $50 million has been allocated to the International Power project at Hazelwood, and $3 million has been spent to date; $100 million was allocated to the HRL project, with no expenditure to date; $60 million to Chevron for the Gorgon project, with no expenditure to date; and the final project is the CS Energy project, the Callide Oxyfuel Project, where I believe $20.8 million has been spent to date out of a $50 million grant.

Senator MILNE —What has been allocated? What is that total? Not what has been spent to date; what has been allocated?

Mr Stone —$335 million.

Senator MILNE —And what was the total of the Low Emissions Technology Demonstration Fund?

Mr Stone —It was originally $500 million.

Senator MILNE —So, if we only have $335 million allocated and the remainder has not been reallocated to another department, what is the time line for the allocation of the additional funding between $335 million and $500 million?

Mr Stone —Ninety million dollars were returned to the Treasury for unallocated funds. For one project, the Fairview project, of $75 million, the offer was withdrawn in July 2008.

Senator MILNE —Which one was that?

Mr Stone —It was a $75 million grant to Fairview Power to construct a 100 megawatt power station. That offer was withdrawn on 2 July 2008 and those funds were returned to Treasury.

Senator MILNE —So actually money has been reallocated to other departments, namely to Treasury—given back and not spent.

Mr Stone —You asked about since December. There has not been any reallocation since December.

Ms Rose —Just to confirm: it is not actually returned to Treasury; it is returned to consolidated revenue.

Senator MILNE —Not to be spent by Treasury. I understand that—sorry.

Mr Clarke —There have been those two decisions, the $90 million and the $75 million for Fairview, pre-dating December. We understood your question to be, ‘What has changed since December?’ and the answer is, ‘Nothing.’

Senator MILNE —Okay. So basically that is it for the Low Emissions Technology Demonstration Fund. It is fully allocated, given that the money has been returned or withdrawn.

Mr Clarke —That is correct.

Mr Stone —Correct.

Senator MILNE —The renewable energy demonstration fund established in late 2007 as a $435 million competitive grants program—can you advise me how that money has been allocated to date?

Mr Morling —I will start and other officers may join in. Of the $435 million, $135 million was allocated to the Solar Flagships program. Of the remaining $300 million, I think an amount of around $235 million was actually awarded in grants to renewable energy demonstration programs and an additional $92 million was also awarded to two solar projects.

Senator MILNE —Doesn’t that add up to more than the total amount of grant funding?

Ms Clough —Can I just clarify: did you ask about the Renewable Energy Demonstration Program?

Senator MILNE —I did.

Ms Clough —The Renewable Energy Demonstration Program, following the 2009 budget, was allocated $300 million. On 6 November 2009, the minister announced four successful projects under the Renewable Energy Demonstration Program totalling $235 million, with the unallocated funds to be moved to ACRE, the Australian Centre for Renewable Energy, for the purposes of ACRE. On 11 May 2010, the minister announced the two successful applicants’ solar projects with a total of $92 million drawn from ACRE funds. So there was $65 million unspent and to be managed by ACRE, and two demonstration projects in the solar technology field were announced on 11 May.

Senator MILNE —Have any contracts been signed with all of the companies allocated the renewable energy demonstration fund funding in the November funding announcement? Do we have the contracts signed?

Ms Clough —We have one contract signed. That is the project on King Island, an integrated renewable energy project. We are finalising contract negotiations on the three other Renewable Energy Demonstration Program projects: two geothermal projects and a wave demonstration project. We are finalising our draft funding deeds for the solar projects. Those are the ones that were announced on 11 May, so we have not yet issued those to the successful applicants; we are finalising our draft funding agreements. So in total, of the six demonstration projects, one contract has been signed.

Senator MILNE —Only one contract has been signed out of that number?

Ms Clough —The contract negotiations with the other three non-solar Renewable Energy Demonstration Program projects are close to finalisation. We have been negotiating those over the past few months. Again, similar to the situation that we have had with the geothermal drilling program, we were very keen to include more rigorous clauses on risk management and community consultation. So that has been part of the negotiations over the last few months.

Senator MILNE —Why didn’t you do that before you allocated the grants?

Ms Clough —Before they were announced on 6 November?

Senator MILNE —Yes.

Ms Clough —It is something that we decided would be appropriate. This calendar year we came to the conclusion that it would be appropriate to have stronger clauses on risk management and that community consultation really needed to be enhanced through our contracts. So we have decided that it would be appropriate to include those mechanisms in our funding agreements.

Senator MILNE —When you announce or provide a grant, does the manager of that department or does the minister sign anything in relation to that grant saying that it has been granted?

Ms Clough —It depends on the program.

Senator MILNE —Let us try the geothermal one and the Low Emissions Technology Demonstration Fund or the renewable energy demonstration fund. When the grants are announced, is there anything signed by the minister saying, ‘You’ve got the grant?

Mr Clarke —Can I respond on the general point of process which you are going to. In these programs, the program design makes clear that the minister is the final decision maker and the minister takes advice from whatever committee or panel is put in place and from the department. So the literal answer to your question is that the minister receives advice on the recommendations of the grants and signs that brief if it agrees with the recommendations. From that point forward, the administration process reverts to the department.

Senator MILNE —I understand that. It is just that under the Commonwealth financial regulations, as I understand it, a minister must be satisfied that there is an effective and efficient use of public funds when they sign any successful grant nomination or whatever, after taking reasonable assessment et cetera. My concern here is that ministers are being advised to go ahead with grants and then, after the event, you are going back, doing the consultation, doing the more rigorous financial assessment of deeds et cetera. So how can the minister be sure, at the time they sign off for these grants to go ahead, that what they are entering into is an efficient and effective use of public money?

Mr Clarke —Senator, I do not agree with your characterisation of the status of the advice that the department and the relevant expert groups provide to the minister at that key decision point, which is immediately prior to the announcement, and then all of the other processes follow. The advice that is given to the minister at that point relates to the assessment of the applications against the criteria. There is always subsequent negotiation that occurs after that announcement point. They dynamics of that inevitably change. We require applicants during the assessment process to make statements about their willingness to accept our model terms and conditions, so we keep as much of that inside the competitive process as we can. But inevitably—and in my experience in nearly all grants of a substantive size such as these—there are specific details that can only be addressed once you are into actual contract negotiation. Most import of those, as we discussed in relation to geothermal drilling, are the other players that bring equity or debt into the project who are by definition not at the table at the original decision point.

CHAIR —Thank you, Mr Clarke. Sorry, Senator Milne; we will have to move on.

Senator EGGLESTON —I would like to ask a question about aggregates, sand, rocks et cetera. What effect do you expect through the departmental research that the RSPT will have on aggregates and the mining of them?

Ms Constable —The department did not take any research related to low-value minerals with regard to the RSPT.

Senator EGGLESTON —As I understand it, the secretary of Treasury recommended that aggregates be excluded from the RSPT, but in fact they have been included. I just wondered what consultation your department had had with the aggregate sector during the design and process of the RSPT?

Ms Constable —I think we have answered that question. The RSPT lies with the Treasury department and any consultation that occurred, occurred with that department. We did not have consultation with the aggregate sector in relation to the RSPT.

Mr Clarke —Senator, to refer back to our previous discussion on this—that this department’s perspective on those matters would have been provided through the three officers that we seconded to Treasury during the design stage of the RSPT.

Senator EGGLESTON —So you would not know anything about any modelling that was conducted or what assumptions were made in relation to the sector.

Mr Clarke —No. That is a question you would need to direct to Treasury.

Senator EGGLESTON —Do you have any views on flow-on and downstream effects that might occur as a result of higher costs now being faced by quarries?

Mr Clarke —I am not in a position to go into that sort of impact analysis at this stage. Again, you would need to refer those questions to the Treasury portfolio.

Senator EGGLESTON —Since we have got two minutes or something before half past, the department covers the offshore regulation authority, doesn’t it?

Mr Clarke —Correct, and indeed they are scheduled later in this hearing.

Senator EGGLESTON —NOPSA, yes.

Mr Clarke —Correct.

Senator EGGLESTON —I was going to ask you general questions about the rationale for the proposed changes, given that the existing joint arrangements with places like Western Australia seem to have worked very well.

Mr Hartwell —There are ongoing processes looking at the regulatory regime. As you would be aware there has been a petroleum regulation review by the Productivity Commission. We have an ongoing inquiry into the incident at Montara, and there are also other reports that have come forward. The objective of the minister and of course of us working with the minister is to ensure that out of these processes that we do come to an end point that we have a world-class regulatory system and essentially that the people operating are competent and professional. We do expect that over the coming year or so there will be a number of actions taken in that area.

Senator EGGLESTON —Montara relates more to a safety issue, I would have thought, rather than to regulation of the offshore oil and gas industry.

Mr Hartwell —There are safety aspects related to Montara, but there are also a number of other issues related to it in the context of the way the operators conducted themselves—there is a whole process. It would be inappropriate for me to comment at this point. We expect the commissioner to report around 18 June; responses will based on that report.

CHAIR —Thank you.

Proceedings suspended from 10.30 am to 10.45 am

CHAIR —We will make a start again with the Department of Resources, Energy and Tourism. Senator Bushby has the call.

Senator BUSHBY —Just before the break Senator Eggleston was asking some questions about aggregates. In response to a question about expectations of aggregates Ms Constable said that no research had been conducted in respect of RSPT for low-value minerals.

Mr Clarke —None by this department.

Senator BUSHBY —Given that you qualified that in respect of low-value minerals, was any research done in respect of the RSPT either before 1 May or since in respect of high-value minerals?

Ms Constable —We monitor investment, our minerals industries and all the gas industries very closely. There are a whole range of issues born out of the regime that the Department of the Treasury is looking at. Our department will be looking at the impacts on investment in the longer term. We cannot speculate what that may mean on low-value or high-value minerals, but we will continue to monitor investment and the impacts in the longer term.

Senator BUSHBY —You obviously cannot say at this point what the outcome of that is but you have started work on assessing what impact the RSPT, along with all other factors that vary from time to time, may have on investment in mineral resources in the longer term?

Ms Constable —We monitor that in the longer term. We take advice from Treasury, we look at ABARE forecasts and we do our own analysis in the department.

Senator BUSHBY —Have you started that process in terms of monitoring—

Ms Constable —We have started that process.

Senator BUSHBY —Obviously, there is a lot of volatility in share prices of mining companies and a lot of other things that are going on around that. Some companies, purportedly, have indicated that they are putting on hold some developments and things like that. Whether that is as a result of the RSPT I guess is the sort of thing you will be looking at at this point and currently assessing?

Ms Constable —We monitor that as par for the course of our responsibility in the department.

Senator BUSHBY —In response to a lot of my questions earlier and to some questions from Senator Eggleston you indicated that Treasury had already spoken last week and we had two hours for the first part of the macro issues last week. You said you have nothing to add. In response to some of the questions from Senator Cameron you also indicated that you agree with some of those things. Do you agree with all of the—

Senator CAMERON —All of them.

Senator BUSHBY —All the ones you asked. Do you endorse the position of Treasury in respect of RSPT as put forward last Thursday?

Mr Clarke —I read Dr Henry’s testimony very closely and I was perfectly comfortable with it as a clear, rational explanation of the current policy position. I have nothing to add to it. Equally, in respect of Senator Cameron’s questions about the budget statement, it was a clear, defensible explanation of the current status of the economy and forecasts in the sector and I have nothing to add to that.

Senator BUSHBY —So you endorse all those comments?

Mr Clarke —Yes.

Senator BUSHBY —Fine. I asked a question earlier—actually I was going to direct this to the minister, but he is not here—about a comment the Prime Minister made. I wanted the minister to answer it given the department was unable to. I will hold off on that one just for a second. Before the break and we moved on to other senators I was also asking some questions about the reasons why people—foreign companies, in particular—would invest in Australia. Could a lower valuation that is brought about by policy change, not necessarily this one but any policy change, present as an opportunity to a purchaser looking to guarantee supply? In asking that question, I note that in Canada falling valuations as a result of a policy decision led to complaints by mining executives that they would become sitting ducks for foreign acquisitions, and Chinese companies subsequently invested more than Can$5 billion in the mining sector in that country. Would a lower valuation present as an opportunity for a foreign company looking to guarantee supply?

Mr Clarke —I have a few observations. It is, again, a matter of record that development of the Australian resources sector is very much a function of foreign investment. That is a fact. On what drives a foreign investor to make a particular decision in a particular resource in a particular jurisdiction, I do not think we can add anything more to our previous evidence that we see a variety of factors in play. We are unable to make an observation about the balance in any particular circumstance.

Senator BUSHBY —Does the department interact with foreign companies that are considering investing in the Australian resources sector?

Mr Clarke —First of all, we have a lot of contact with the resources sector by definition. That obviously includes many international companies. We also have a formal advisory role in regard to the foreign investment review board.

Senator BUSHBY —As we discussed earlier, your publication, Minerals and petroleum exploration and development guide for investors, is targeted at foreign investment. You do go out there seeking to attract foreign investment in the mining sector. That is a part of your job.

Mr Clarke —Certainly. Right now officers of this department and Geoscience Australia are overseas, for example, with regard to recent petroleum exploration leases and re-leases.

Senator BUSHBY —When you were interacting with those companies, particularly in recent times, did you have any feedback from them about the RSPT?

Mr Clarke —As I said in answer to an earlier question, we are hearing everything that you are hearing through the media and through direct company interactions and we also have the benefit of being inside the room during the formal Treasury led consultation processes. The opinions of the industry are on the record and well canvassed. We are hearing them also.

Senator BUSHBY —You are hearing them in that context as part of the process that you go through to attract foreign investment. You mentioned that you have officers overseas currently. Is that feedback that they are receiving as they are talking to potential investors at the moment?

Mr Clarke —Their trip started yesterday, so I cannot give you any feedback on that at this stage.

Senator BUSHBY —Apart from the department’s interaction with potential investors, to what extent are Chinese steel and mining companies investigating investment opportunities in Australia at the moment? Is there a high degree of activity?

Ms Constable —There is some activity by Chinese companies wishing to invest in Australia across a broad range of mineral areas.

Senator BUSHBY —Has that level of activity changed at all in recent months?

Ms Constable —Not to my knowledge, no.

Senator BUSHBY —Coming back to the RSPT in particular, can you explain to the committee how the 40 per cent loss guarantee provision of the RSPT will change the manner in which banks and other financial institutions will structure lending arrangements for resource projects?

Mr Clarke —No. That is a question you should direct to the Treasury portfolio.

Senator BUSHBY —In your role, when you interact with potential investors and mining companies, both foreign and domestic, do you gain any understanding or does the department have any expertise in the financing of mining investments?

Mr Clarke —I would not characterise the department as having expertise in the financing of—

Senator BUSHBY —But how about in understanding how the financing drives the ability of investors to actually invest in the mining sector?

Mr Clarke —We talk to all of the participants in the industry on all sorts of issues all of the time, so, yes, we are aware, conscious, of those perspectives.

Senator BUSHBY —As part of that level of awareness, are you aware of what factors financiers, when looking to finance mining interests, consider as part of the process they go through of making their determination whether to finance or not?

Mr Clarke —Again, we have canvassed this earlier. At the end of the day it is a return on investment. There are multiple factors that go into making those judgments.

Senator BUSHBY —Are you aware of the sorts of issues that the bank looks at though in terms of whether to make a decision to finance a particular entity into a mining project?

Mr Clarke —We talk to all participants in the sector, so yes.

Senator BUSHBY —What sorts of factors would a bank look at that might be different to what the project or the company that was running the project might be looking at?

Ms Constable —There are a whole range of factors that are looked at by a financial institution—that is, the project itself, the value of the resource, the debt-equity ratio of the entity and the risk profile of the particular project. There are a range of factors that any financial institution will look at before they make a decision.

Senator BUSHBY —So there are a range of factors. Would the potential return be one of those factors?

Ms Constable —Yes, that is correct.

Senator BUSHBY —Are you aware whether Treasury tested with financial institutions before 2 May its proposition as to the claimed impact of the 40 per cent loss guarantee provision of the RSPT on the approach banks and other financial institutions will take when structuring lending arrangements for resource projects?

Mr Clarke —We cannot respond to questions regarding what happened in other departments where what they were doing was within their portfolio responsibility. You would need to direct that question to Treasury.

Senator BUSHBY —Are the three people who were seconded to Treasury back with you now?

Mr Clarke —No. One has since left the department and the other two are still there.

Ms Constable —The other two remain in the secretariat.

Senator BUSHBY —While they are there, you are not able to get a report from them as to the RSPT or to interact with them in any way that can assist you to assess what impact the RSPT might have in the longer term?

Mr Clarke —While our two officers are in Treasury they are seconded, so they are reporting into the Treasury structure. They access the resources of the department, the information base and expertise in the department, in order to fulfil their roles as—

—But as we established earlier it is sort of a one-way street at this point. The information goes to Treasury from you through them, but you are not getting anything back?

Ms Constable —We do have regular discussions with the two people that are placed in the secretariat to absolutely understand what is occurring within the discussions being held on the RSPT and the consultations being held on the RSPT at the moment.

Mr Clarke —As I have already advised, we are also participating in the room during the formal consultation process. So we are, I believe, keeping ourselves well informed and expressing our views on the process. That is what we are doing.

Senator BUSHBY —So you have had an opportunity, since finding out the final form of the RSPT on 1 May, to provide the department’s input from the perspective of what you are trying to achieve as a department, which is growing the mining industry in Australia, into the RSPT consultation process?

Mr Clarke —Correct.

Senator BUSHBY —You have made representations in that regard? I am not going to ask you what they are, because I cannot.

Mr Clarke —We are actively involved in that debate.

Senator BUSHBY —Can you advise whether you are aware, on your analysis of the RSPT, and the advice that you have received through your officials and others, whether the RSPT will apply to fuels used in electricity generation, and the mining of those?

Mr Clarke —No, I am not willing to give a response to that as that is properly the domain of the department administering the tax—Treasury—but we have already had a discussion on the basis of, assuming it is, what the potential impact would be. So we are certainly closely engaged on that question as to the impact, if any, of a rent tax on electricity prices.

Senator BUSHBY —So you are engaged in that discussion. No doubt we will ask Treasury when they are before us later today or tomorrow—probably both—about the question of whether it does apply. But you currently are, on that assumption, analysing what impact it might have and discussing that with Treasury as part of the consultation process.

Mr Clarke —Yes, what impact, if any, that it might have, on the assumption that it does apply.

Senator BUSHBY —I understand that you are not conceding that there is an impact. But, if there was, then you would be discussing that with Treasury.

Mr Clarke —Correct.

Senator BUSHBY —Presumably as part of that, on those assumptions that we have acknowledged, you would also be discussing whether that would then flow through to higher electricity costs to businesses and households. Those would be the sorts of things you would look at, on that assumption.

Mr Clarke —Correct.

Senator BUSHBY —How many tonnes of LNG have been exported from Australian projects operating under the PRRT regime?

Mr Hartwell —At this stage there are no LNG exports under the PRRT regime.

Senator BUSHBY —In view of the ongoing Gulf of Mexico oil rig blow-out disaster in deep water, what comfort can you give the Australian public that projects in Australian waters are better designed and managed by their operators and better supervised by government agencies?

Mr Hartwell —Obviously we are monitoring closely what is happening in the Gulf of Mexico and, indeed, the actions that have been taken by the US government. We do not believe that the situation in Australia is directly comparable. We have regime in Australia which in some ways the United States is grappling towards. For example, Australia introduced discrete, stand-alone safety regulators, such as NOPSA in 2005—a step that the US is only now implementing, following the incident. The level of activity between the two countries is certainly very much different. For example, there are currently close to 250 rigs in the Gulf of Mexico, compared with around 17 in all Australian waters. There are some 7,000 active leases in the Gulf of Mexico, compared with around 400 exploration permits, production licences and retention leases in Australia. So we are dealing with different regimes to a great extent, certainly in size. All of that being said, we are very conscious, as I said in an earlier answer, that we need to learn from what is happening there. The Australian community would expect, from both governments and operators, that we have a first class regulatory regime and our operators are at best practice.

Senator EGGLESTON —I would like to ask you a question which follows from a comment you just made, where you said at the moment there is no resource rental tax on gas production in the North West Shelf. Are there any plans to remove the exemption of the North West Shelf from the petroleum resource rent tax?

Mr Hartwell —That is a matter that has been under consideration in the context of the RSP deliberations, and I cannot say anything more at this time.

Senator EGGLESTON —In the same vein, will the department or the minister be recommending the increase of the petroleum resource rent tax to match that of the proposed resource super profits tax?

Mr Hartwell —I am not in a position to comment on that at this point in time.

Senator EGGLESTON —But you did a moment ago say ‘at the moment’.

Mr Hartwell —Sorry?

Senator EGGLESTON —A moment ago you said words to the effect of ‘at the moment’ in response to a question from Senator Bushby, which makes me wonder whether or not there is some consideration being given to these points.

Mr Hartwell —No, I just said that issues have arisen in the context of the RSP deliberations, as you would be aware, and they are ongoing processes. That was the tenor of my reply.

Senator EGGLESTON —There is also some suggestion from BHP that the new tax on superprofits will apply to black and brown coalmines and that this will have to be passed on. That may engender higher electricity prices because of—

Senator Carr —We are constantly asked the same questions. At least listen to your colleagues.

Senator EGGLESTON —It is suggested the higher costs will have to be passed on and that will add $3 to $4 per megawatt hour to the average industrial or commercial user’s power bill, lifting Australia’s manufacturing cost base by between $800 million and $1 billion.

Senator CAMERON —More scare campaigns.

Senator EGGLESTON —That is a view held by a very important and reliable company in the Australian minerals sector.

Mr Clarke —We have already provided evidence to the effect that we do not see any reason at this stage why there should be an increase in electricity prices as a result of this tax.

Senator EGGLESTON —If it is going to add to the costs of black and brown coal production—

Senator Carr —That is not true.

Senator PRATT —It will not add to the cost.

Senator EGGLESTON —It certainly will.

Mr Clarke —We do not accept that it will add to the price of fuel for electricity generators.

Senator CAMERON —High school economics for this lot on the other side.

Senator SIEWERT —With regard to the Montara spill, a number of reviews were put in place at the time that the inquiry was set up. I wonder where they are up to. I realise they are not all your responsibility—DEEWR was doing one. I wonder where they are up to and whether your department is responsible for the overall coordination of those.

Mr Hartwell —As you correctly point out, there are a number of inquiries related to the Montara incident, the prime one being, obviously, the commission report, which I referred to earlier, which will be delivered in June.

Senator SIEWERT —Is it still planned to be 18 June?

Mr Hartwell —That is the intention at this point in time, yes. But there are other inquiries going on, in particular the National Offshore Petroleum Safety Authority has been looking at some of the safety issues around that. The department of the environment has been looking at the environmental impacts. As well the Australian Maritime Safety Authority has been looking at some of the issues that they have faced and addressed as part of Montara. I cannot answer where all of those inquiries are. They are outside our particular jurisdiction, but essentially you are quite right: there are a number of inquiries going forward.

Senator SIEWERT —I can ask NOPSA their questions shortly and I chased up the national plan with AMSA last week. Is your agency responsible for the overall coordination once those various reviews are done? I will come to the compliance regs in a minute. Are you responsible for pulling all those together and providing advice on the whole?

Mr Hartwell —In relation to the legal and regulatory issues, some of the operating procedures and some of the broader legal and regulatory requirements on offshore operators, that will certainly be the responsibility of our minister and the department. In relation to those other issues, of course NOPSA has responsibility for safety. They will be responsible for addressing any of the issues that arise from their own investigation into what happened at Montara, and likewise the other agencies involved. In terms of overall coordination, when we were responding to the Montara incident, indeed there was a coordinated response; all agencies were involved. Going forward, depending on the outcome of all those inquiries there may be some coordinated effort, but we do all have our own responsibilities in this area.

Senator SIEWERT —When your minister announced the Montara inquiry, he also announced those other reviews. Am I to understand that that is the extent of the coordination of the review process?

Mr Hartwell —He mentioned those other reviews. There are other reviews going forward in relation to some of the operational aspects of NOPSA, as well some issues arising from Veranus Island. The government has just recently put up its response to that on the departmental website. So there is a whole range of activity. Admittedly, the final objective is to make sure that our legal and regulatory regime is the best it possibly could be.

Senator SIEWERT —Are you the agency responsible—I presume you are—for the review of compliance with regulations that was going on, particularly by the NT department? I know that a submission was put in to the inquiry. Is that the extent of the review or is there more work being done by the agency? If there is, where is that up to and when will it be released?

Mr Hartwell —Following the Montara incident the NT government agreed to a voluntary peer review. That was undertaken by this department, but it also included a representative from Geoscience Australia and another designated authority, in this case Victoria. Certainly we think that going forward a number of issues will come out of that, but at the moment that is work in progress and it is with the Northern Territory at this point in time.

Senator SIEWERT —It has not been completed, you said.

Mr Hartwell —It has been sent to the Northern Territory government for their consideration prior to finalisation.

Senator SIEWERT —Is it likely to be publicly released? Who would be releasing it?

Mr Hartwell —That is a matter we will have to give consideration to with the minister.

Senator SIEWERT —Okay. In terms of the process with the review of the national response plan that AMSA is undertaking, will they be will be releasing that separately, not through your agency?

Mr Hartwell —I would expect that to be the case, but you would have to ask the question.

Senator SIEWERT —Can I quickly move on to the issue of the disposal of the West Atlas rig, which was destroyed in the fire. What is the normal process for dealing with that? What is the process that is going to be undertaken for that particular rig?

Mr Hartwell —Basically that is an ongoing process. Essentially, PTTEP are seeking the appropriate regulatory approvals to dispose of the rig, including from NOPSA as the safety authority, and that process is going forward.

Senator SIEWERT —What is the time line for that? Why is it PTTEP rather than Seadrill, because the West Atlas rig is not owned by PTTEP.

Mr Hartwell —The PTTEP had contracted Seadrill. They have taken responsibility for that and, as I said to you, it is a process going forward.

Senator SIEWERT —When will that be completed? Where is it likely to be—

Mr Hartwell —Timing is uncertain, but certainly they are trying to do that as quickly as possible, obviously.

Senator SIEWERT —Sorry, I am not trying to be provocative. Is it within the next six months? Is it within the next two months?

Mr Hartwell —I would have to take that on notice. My advice is that it would be in the next six to 12 months.

Senator SIEWERT —Can you tell me where they are applying to dispose of it?

Mr Hartwell —I cannot answer that question at this stage.

Senator SIEWERT —You cannot because you do not know or because—

Mr Hartwell —We have not been informed.

Senator SIEWERT —Who would I ask to find out that information?

Mr Hartwell —We can take that on notice and be in contact with PTTEP. They are yet to submit their final plans on that.

Senator SIEWERT —Thank you for that. Do you have an indication of when they are likely to? Is there a process that you have set out for when they have to meet that?

Mr Hartwell —Obviously we would like these issues attended to as soon as possible, but there are appropriate regulatory processes that have to be gone through, including the safety aspect, in going onto the rig, dismantling it appropriately and decommissioning it in the appropriate manner.

Senator SIEWERT —When you talk about decommissioning, I presume that involves making sure it is clean and does not have contaminants.

Mr Hartwell —Yes.

CHAIR —We have to move on now.

Senator SIEWERT —Can I have one more question?

CHAIR —One more.

Senator SIEWERT —In terms of the release of the acreage program, is there a process that is going to be put in place for reviewing that program in light of what has been going on in the Gulf of Mexico, particularly the deepwater issues?

Mr Hartwell —Obviously we would always take into account some of the issues that emerge in the Gulf of Mexico and indeed in Australia, but that is no reason to suggest that we should not continue with the acreage program. We need to ensure that we do that in an appropriate manner. The minister has expressed that publicly many times, and the department is working with the state and territory governments and the industry. There are a whole range of processes that would need to be gone through once we award some of the release of acreage to ensure that, again, we address some of the issues. We would be the first to admit—and the minister has admitted—that some issues have come forward in relation to the offshore petroleum industry over the last two years or so, but we are working very assiduously to make sure that they are addressed.

Senator PRATT —For the record, there is no evidence to suggest that the RSPT will impact in any way on energy prices in this country. Is that correct?

Mr Clarke —That is our analysis.

Senator PRATT —To turn to what is impacting on energy prices in this country, is it true t say that electricity prices currently reflect the growing cost of delivering supply reliability? What is the state of our electricity infrastructure? What are the cost pressures on consumers that are coming from the historic underinvestment?

Mr Clarke —Let me give a broad overview. I will then ask my colleague to fill in the details. It is correct that prices for electricity are rising at the moment. Electricity prices are made up of a number of components. One is generation. Behind that are capital, operating and fuel costs. We have just had a discussion about potential impact on the fuel cost. There are the transmission system, the distribution system and the retail operators themselves. Transmission and distribution are regulated entities. The impact of their costs on final prices are, therefore, a function of regulatory determinations. The generation and retail sectors are competitive. I will ask my colleagues to broadly break down the components and the drivers of price increases inside them.

Mr Morling —As a rule of thumb, wholesale energy costs are about 40 per cent of a final retail bill, network costs are about 50 per cent of a retail bill and retail operating costs and margins are around 10 per cent of a retail bill. Yes, prices have been rising and to a large degree these prices have been driven by investment in network infrastructure to meet both reliability issues and increasing demand. If you like I can give you a brief overview of recent price increases in the jurisdictions, noting that the jurisdictions have their own processes for setting these prices and these are retail capped prices. It is always up to consumers to undertake a market contract if they so wish—except in Victoria, which has deregulated prices.

Senator PRATT —I think that would be useful, but what I am interested in is how most states have had considerable increases in energy prices. I think that is widely on the record. Is the real driver behind that because the networks are regulated? Does that mean that, historically, the regulation has meant that there has been an underinvestment that now needs to be passed on to consumers?

Mr Morling —It could be that. There are a number of reasons behind setting reliability standards, and that is an issue for each jurisdiction. It also can be because of increased demand, population growth and other issues, but it is certainly true to say that network charges have basically been the driver behind the majority of price increases.

Senator PRATT —So it is a question of both demand and ageing infrastructure as key drivers on current electricity prices.

Mr Morling —Yes. It is not always ageing infrastructure. It can be, but in particular areas or regions particular jurisdictions might decide to have higher reliability standards than they had previously, and that requires an increase in network expenditure.

Senator PRATT —Thank you. If you would like to comment on recent price increases in various states, I would be pleased for you to do so, but as I understand it this is a question for the Commonwealth by virtue of trying to hold the states to account through assisting in the development of a National Energy Customer Framework. How will such a framework go about improving protections for vulnerable customers?

Mr Morling —Sure. There are a couple of concepts mixed in. Perhaps I will put some of the price increases that we are aware of on notice and turn to the vulnerable customer issue.

Senator PRATT —Thank you.

Mr Morling —I note that this has been worked up through officials. The package itself has had two major consultation sessions. It will also be the subject of discussion at the ministerial council on energy. I note that the final policy positions have not been taken. Broadly speaking, the regime that is in the current customer framework provides a number of things. It provides access to an offer of supply to all small customers. It provides an accessible framework for customers, including those wishing to connect small generators such as photovoltaic systems, to arrange new connections. It provides for mandatory minimum terms and conditions for all retail contracts, including such things as how and when a security deposit can be obtained and the maximum amount of that security deposit. It also deals with frequency and contents of bills and types of payment methods that must be available to consumers. It also provides for limitations on disconnection, including the processes to follow before a customer, including those experiencing financial hardship, can be disconnected.

The customer hardship regime requires retailers to develop a range of programs to assist those customers in financial hardship, particularly including residential customers experiencing longer term payment difficulties. All retailers must have a hardship policy and the programs underneath that, and those hardship policies must be pre-approved by the Australian Energy Regulator.

Senator PRATT —So is it envisaged that those measures will be in greater demand because of the increasing electricity prices? Does that underpin the importance of developing this framework?

Mr Morling —The framework, as I understand it, is put together on the basis of dealing with those customers. It is not making judgments about whether there will be more or less of them.

Senator LUDLAM —I understand the uranium council was a successor to the Uranium Industry Framework. Can you tell us what its budget is?

Mr Sheldrick —The framework process a number of years ago was allocated about $10 million.

Senator LUDLAM —What is it worth this year?

Mr Sheldrick —We have a program of work for the council spreading over a number of years. I will need to check the actual number for this year’s budget.

Senator LUDLAM —We are here in budget estimates. Is that not something that you have in front of you?

Mr Sheldrick —I do.

Senator LUDLAM —While you are at it, can you tell us how many public servants work full time or part time—or maybe express it as FTEs—for the council?

Ms Constable —There is no-one working directly for the council. We have a secretariat within the department which works on a whole range of uranium issues. Depending on the work of the council at any one time, it may be one person or it may be half a person. It really depends on the work at the time.

Senator LUDLAM —Is that Mark Chalmers? Is that your secretary?

Ms Constable —No, he is the chair of the council.

Senator LUDLAM —How much is he paid for his work?

Mr Sheldrick —Until recently Mark was undertaking that role without cost to us. More recently he has moved onto a small contract. I will need to take that on notice.

Senator LUDLAM —That is two budget questions you have taken on notice.

Mr Sheldrick —With respect to the earlier one on the UIF projects, the costing that I have for the period 2009-11 has a budget of about $3.1 million.

Senator LUDLAM —The council has been characterised by the uranium industry as a leading advocacy group. Can you explain to me why a group dedicated to increasing the exploitation of uranium should be funded by the Commonwealth? Why does this particular sector deserve Commonwealth support to do its advocacy for it?

Mr Sheldrick —The council is an industry led council with most of the members on it coming from industry. A lot of the work and effort that is put into the output of the uranium council is provided by the industry representatives in kind. There is Commonwealth funding, but there is also in-kind funding from the industry.

Senator LUDLAM —There are two of the largest resource companies in the world exploiting uranium in Australia, and a host of others, but the Commonwealth still thinks it is worth $3 million of taxpayers’ money to do its advocacy for it.

Ms Constable —Can I correct that?

Senator LUDLAM —Sure.

Ms Constable —You made the point that it is an advocacy group.

Senator LUDLAM —I am just repeating what the industry says.

Ms Constable —We do not fund advocacy in the Commonwealth. We fund specific projects that are undertaken and that are for the good of the industry and for the good of the Australian community.

Senator LUDLAM —Mr Chalmers is the founder of a uranium investment and services advisory firm, Uranium Associates Pty Ltd in Adelaide. Does he have a really clear conflict of interests in holding this position for the Commonwealth?

Ms Constable —There is no conflict of interests in holding this position. When Mr Chalmers was made the chair of the council, it was very clear about his interests. As with any group that is formed, where there is a conflict of interests that conflict of interests is declared at the time and then the council as a whole would seek to remove the individual from particular discussions. But the issues that are considered within this council are very broad in nature, apply to the whole industry, and every member would have an interest in what is discussed.

Senator LUDLAM —Do other commodities get their own taxpayer funded advocacy groups or is uranium a special case?

Ms Constable —I want to make it very clear that we do not consider this as an advocacy group. This is a council and there are many councils that the Commonwealth is part of and is interested in from an industry perspective. This uranium council is one of those.

Senator LUDLAM —You need to let the industry know that it is not an advocacy group, because that is how they are phrasing it.

Mr Clarke —Ms Constable did not say that the group does not undertake advocacy. What she was clarifying was that the work that the Commonwealth commissions from the group is not advocacy work. We often contract industry associations and industry groups to do project work in policy development and regulatory development for the department. That is a normal practice in how we access that sort of expertise.

Senator LUDLAM —I think that is an extraordinary blurring of the boundaries, but I know other senators have questions, so I will leave it there.

Senator BUSHBY —The Hawke-Keating government specifically acknowledged the adverse impact of the PRRT on Victorian domestic gas prices and provided substantial cash offsets as a result. If it transpires that the super profits tax results in increased electricity prices—and I know we have discussed that—would it be appropriate to do the same and provides substantial cash offsets to offset the increased cost?

Mr Clarke —First of all, your question is premised on what I would regard as a hypothetical scenario and, second, it is a matter on which, while this department would provide advice, the decision-making would be through the responsible department, Treasury.

Senator BUSHBY —Thank you. When he was in opposition, now Minister Ferguson, in respect of the PRRT threshold rate, called for a consideration of a higher rate. If he could make that statement when he was in opposition, what has changed that would make a threshold rate roughly five per cent lower than that applicable to the PRRT adequate under the RSPT just a few years later? This is probably a question for the minister.

Senator Carr —I am not aware of that statement by Minister Ferguson.

Senator BUSHBY —We will move on from there then. In a statement you might be aware of, the Prime Minister was reported in the Sydney Morning Herald on 25 July last year as saying:

As a capital importing country, we need to be mindful of the impact domestic tax laws have on global investment decisions and our ability to attract investment and international business.

Minister, do you agree with the Prime Minister that Australia’s tax regime can have a direct impact on global investment decisions and in particular on Australia’s ability to attract investment and international business?

Senator Carr —What I am aware of is Australia is a good place to do business.

Senator BUSHBY —It certainly has been.

Senator Carr —I am also aware that KPMG’s report on the overall taxation regime, which was given from my own department, put Australia in an extremely strong position.

Senator BUSHBY —Was that before the RSPT? Does it take account of it?

Senator Carr —That was a report recently given to me. I am also aware that the new initiatives that the government is pursuing in regard to the RSPT are for non-renewable resources and are provided in the context of a suite of measures. These include a resource exploration rebate, substantive investments in infrastructure and a substantial reduction in company taxes for all businesses in Australia. It also includes provisions for enhanced superannuation benefits for all Australians.

Regarding the overall impact of this proposal, the modelling suggested that economic activity will increase, that the benefits to Australia will increase and that what we are hearing is a lot of hysterical nonsense from the mouthpieces of some—

Senator BUSHBY —A lot of it is historical in the sense that it is based on a lot of facts.

Senator CARR —We have heard this before. This is not the first time. It is historical in the sense that it is not the first time we have heard these interests demand to not pay a fair share of what are the people’s resources. This is the people’s property. You are prepared to argue this case on behalf of sectional interests. We are saying that the people of this country are entitled to a fair share.

Senator BUSHBY —Chair, I think he is way off the question.

CHAIR —I think you are right to draw my attention. We are now due to move to Geoscience. I thank the resources and energy section of the department for coming in this morning.

[11.32 am]