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Christmas Island Phosphate Industry - Commission of Inquiry - Report (Mr Justice McGregor), 15 February 1980


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The Parliament o f the Commonwealth of Australia

CHRISTM AS ISLA ND

Report o f the Commission o f Inquiry into the viability o f the Christmas Island Phosphate Industry

February 1980

Presented by Command 21 February 1980 Ordered to be printed 6 March 1980

Parliamentary Paper N o. 36/1980

-

Commission of Inquiry into the viability of the Christmas Island Phosphate Industry

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Report

ERRATUM ADVICE

COMMISSION OF INQUIRY

INTO THE VIABILITY OF THE

CHRISTMAS ISLAND

PHOSPHATE INDUSTRY

REPORT

The final paragraph of page 18 of the Report should be amended by deleting the first four lines and inserting the following:

The Australian Commissioner on the BPC/CIPC was asked on the first day of the hearing whether he saw the BPC as having a continuing function in the event that operations on Christmas Island were terminated. He replied:

Commission of Inquiry

into the v iability of the

Christmas Island

Phosphate Industry

Report

February 1980

Australian Government Publishing Service

Canberra 1980

© Commonwealth of Australia 1980

ISBN 0 642 04803 7

Printed by C.J. Thompson, Commonwealth Government Printer, Canberra

MIS»'

COMMISSION OF INQUIRY

[NTO THE VIABILITY OF THE CHRISTMAS ISLAND PHOSPHATE INDUSTRY

15 February 1980

Your Excellency,

I have the honour to present to you

my Report under the terms of Letters Patent

signed by you on 20 December 1979.

Yours sincerely,

/U- ^

(W. W. SWEETLAND)

Commissioner

His Excellency Sir Zelman Cowen, A.K., G.C.M.G., K.St.J., Q.C., Governor-General of Australia, Government House, CANBERRA A.C.T. 2600

REPORT OF COMMISSION OF INQUIRY

INTO THE VIABILITY OF THE CHRISTMAS

ISLAND PHOSPHATE INDUSTRY

CONTENTS

PAGE

SUMMARY AND RECOMMENDATIONS 1

PART I

INTRODUCTION 11

THE ASSESSMENT OF ECONOMIC VIABILITY 16

(i) Economic Considerations 16

(ii) Institutional and Legislative Factors 18

DOUBTS ABOUT ECONOMIC VIABILITY 22

NEW ZEALAND'S INTERESTS AND ACTIONS 29

PART II

MINING OPERATIONS ON CHRISTMAS ISLAND 35

DEMAND FOR CHRISTMAS ISLAND ROCK 37

(i) Australian Demand 37

(ii) New Zealand Demand 42

(iii) Overall Perspective 42

PRODUCTION COSTS ON CHRISTMAS ISLAND 43

(i) Recent Changes in F.o.b. Costs 43

(ii) The Longer View 46

(iii) Other Considerations 49

v

PAGE

SHIPPING COSTS 52

(i) Analysis of Freight and Other Charges 52

(ii) Movements in World Freight Rates 53

(iii) Australian Manned Vessels 53

(iv) Probable Future Freight Charges 55

(v) Implications for Pricing Policy 57

PHOSPHATE ROCK PRICES 58

(i) World Market 58

(ii) Future Prices 60

(iii) CIPC Pricing Policy 64

IMPACT OF MOVEMENTS IN CHRISTMAS ISLAND LANDED 66 PRICES ON USERS AND CONSUMERS

PART III

WAGES AND RELATED PAYMENTS 69

MANNING LEVELS AND MANPOWER POLICIES 73

(i) Manning Levels 73

(ii) Manpower Development 75

(iii) Recruitment 76

INDUSTRIAL RELATIONS 78

RESEARCH AND DEVELOPMENT 81

MARKETING 83

vi

PAGE

GOVERNMENT ADMINISTRATION 86

(i) Administrative Arrangements 86

(ii) Administration Costs 88

IMMIGRATION AND CITIZENSHIP MATTERS 90

PART IV

CONSERVATION ISSUES 95

APPENDICES

(i) ORGANISATIONS AND INDIVIDUALS WHO MADE 99 SUBMISSIONS

(ii) PUBLIC EXHIBITS 100

(iii) CONFIDENTIAL EXHIBITS 104

(iv) ORGANISATIONS REPRESENTED AT PUBLIC 105 HEARINGS

(v) WITNESSES WHO GAVE EVIDENCE AT PUBLIC 106

HEARINGS

(vi) ACCESS TO SOURCE MATERIAL 108

(vii) ACKNOWLEDGEMENTS 109

(viii) STAFF OF COMMISSION OF INQUIRY 111

(ix) ABBREVIATIONS 112

vii

SUMMARY AND RECOMMENDATIONS

Summary

The Commission of Inquiry has concluded that, subject to

the qualifications noted in this report, the Christmas Island

phosphate industry is, and can continue to be, economically

viable. The Commission has reached that conclusion on the

basis of calculations that assume the payment to Island

workers of the Australian Federal minimum wage.

The Christmas Island phosphate industry has for many years

enjoyed two main advantages that made it an attractive source

of phosphate rock for Australia and New Zealand. One was the

high quality of the deposit. The other was the low cost of

extraction. These advantages have been eroded. The grade of rock has declined slightly, and extraction costs have risen.

Extraction costs remained low for many years because workers

on the Island recruited from Malaysia and Singapore were paid

very low wages. A separate and better system of wages and

benefits has applied to Australians of European descent living

and working on the Island. The Island's workers will no

longer tolerate the continuation of discriminatory and

inequitable treatment on what is an Australian territory.

The remaining phosphate reserves on Christmas Island

are a known national resource of proven quality. There

is an established and secure market for the product.

Demand can be expected to be sustained, provided the price

remains competitive, until the reserves of A grade rock are

exhausted. At current production levels, that will take

about eight years. There is no advantage, that the Commission

1

of Inquiry could identify, in planning for a shorter life span.

The industry's infrastructure is sound, and the Island has a

skilled and experienced workforce. These factors to a large

extent offset the problems of working a deposit which, on today's capital costs, might never be developed.

The Commission of Inquiry made detailed and extensive

studies of actual and projected production costs, shipping

freight rates and the prices of rock from alternative sources.

The prices of phosphate rock mined and shipped from deposits

in Florida, USA, are generally regarded as providing an inter­

national benchmark. These studies show that on a number of

alternative price and cost scenarios, Christmas Island rock can be expected to retain its competitive edge. The possible

range of c.i.f. prices assessed by Commission staff for

February 1980 is as follows:

* Comparable grades for Australian and New Zealand fertiliser industry.

The advantage enjoyed by Christmas Island rock will not

remain constant. Volatile freight rates have the potential

to reduce it considerably, but the Commission has made the

assessment that in the near future, the advantage is unlikely to be lost.

To put the issue of economic viability beyond doubt, there are a number of measures that can, and in the Commission's view should, be taken. The recommendations contained in this

report all have the objective of establishing an industrial climate and maintaining a mining infrastructure which can

continue to land phosphate rock in Australia and New Zealand at the lowest practicable cost.

68% BPL Florida rock *72% BPL Florida rock

*77% BPL Christmas Island

$A69 - $A71/tonne $A74 - $A76/tonne

rock $A54 - $A64/tonne

2

Without the con- Superphosphate prices will increase, tribution of phosphate rock that Christmas Island has the

capacity to make, they would almost certainly increase more

rapidly.

There are a number of problems. The institutional frame­

work within which Christmas Island operates is out-moded, dis­

credited, and in many ways repugnant. Many of the Island's

problems can be traced to this fact. The British Phosphate

Commissioners (BPC) is an organisation which has not adapted

quickly enough or willingly enough to the passing of the

colonial era. Its shareholders, the governments of Britain,

New. Zealand and Australia have not required it to adapt to these

changes. Responsibility ultimately rests with those govern­

ments and their servants. The structure of the Government

Administration on the Island, and much of the law that is in

force, is more appropriate to a colonial possession than it is

to a remote multi-racial mining community on Australian

territory.

Difficulties have also arisen in the parallel partnership

between Australia and New Zealand, the Christmas Island

Phosphate Commission (CIPC). There is a sufficient identity of

interest between the two countries for those problems to be

overcome, but they need to be resolved quickly. Both countries

would lose by the collapse of the partnership. There is some doubt that the Australian Constitution would permit the

Australian Government to carry on alone the production and

distribution of phosphate rock within Australia.

When a report of this kind is written in one week

inconsistencies of style and nomenclature are bound to occur.

One in particular should be noted. When the text of the report

refers to "the BPC" in the future tense - "the BPC will"

or "should" - it is referring to that organisation which will,

the Commission of Inquiry hopes, succeed the BPC.

3

Recommendations

1. Christmas Island phosphate mining operations should be

continued with the objective of extracting at minimum

cost all mineable reserves of A grade material together

with the maximum volume of B grade material that the

Wash-Screen Plant will treat. Sufficient mineable

reserves are available to ensure a life of eight years

from the present time at the current rate of production.

It is axiomatic that this operation be conducted in an

environment of comparative wage justice.

2. The annual shipping target should be 1.4 million tonnes

of rock to the specification required by Australian and New Zealand manufacturers, and 150,000 tonnes of bagged

dust, or of rock to be crushed for bagged dust production, in Malaysia.

3. The Australian Government should seek from the New Zealand

Government an indication of New Zealand's willingness to

continue to participate as a full partner in the Christmas Island operation.

4. In consultation with the New Zealand Government, the

Christmas Island Phosphate Commission (CIPC) should be

reconstituted with a Board of five Commissioners. Two

Commissioners with mining industry background should be

appointed by the Australian and New Zealand Governments.

Two should be nominated by the Australian and New Zealand

fertiliser industry and the fifth should be nominated by

the Australian Council of Trade Unions (ACTU).

5. The Australian Government should seek the agreement of

the governments of the United Kingdom and New Zealand to terminate the appointment of the BPC as managing agents for the Christmas Island Phosphate Commission.

4

6. The reconstituted Christmas Island Phosphate Commission

should create two divisions - Mining, and Distribution

and Marketing - with a General Manager in charge of each

division reporting directly to the Board. The General

Manager Mining should be located on Christmas Island with

a minimum staff based in Melbourne, to attend to

corporate, purchasing and technical matters. The General

Manager Distribution and Marketing should be based in

Melbourne, and this division should take over from the

BPC those functions for which the CIPC has responsibility

as principal under the Christmas Island Agreements No. 87,

1949, and No. 69, 1958; the Agreement between the CIPC

and the BPC in relation to the Purchase and Distribution

of Phosphate 1968; and the Phosphate Supply Agreement

between the BPC, as managing agent for the CIPC, and the

fertiliser manufacturers in Australia.

7. Full consideration should be given by the Commission

(CIPC) to proposals for the expenditure of capital on

projects directed towards cost reductions, particularly

those involving labour savings.

8. Christmas Island f.o.b. prices should include a provision

for contribution to reserves during periods when world

phosphate prices are high, which could be drawn upon when

Christmas Island costs are greater than prices of

phosphate rock from alternative sources.

9. The CIPC Distribution and Marketing Division should

actively pursue markets in South East Asia for by-products

of the A grade rock, and the B and C grade rock which

have been developed from research projects. The

possibility of calcining C grade rock at a location in

Malaysia should be thoroughly investigated, possibly in

conjunction with ICI Malaysia and Chemical Company of

Malaysia (CCM) .

5

10. Shipping operations should be planned, if possible,

with the objective of minimising the "ballast running"

of vessels in the trade, and minimising the programming

of vessels to load during the heavy weather seasons.

11. (a) The manning of the Island operation should be

reviewed as soon as possible. The review should be

undertaken in consultation with the unions and it should,

if necessary, be done with the assistance of experienced

management consultants. Its objective should be to

maximise efficiency of production.

(b) The CIPC should select from among the Island

workforce employees those who are most likely to benefit

from professional training. It should provide that

training with a view to filling senior supervisory

positions from among members of the Malay and Chinese

communities on the Island, and remove any further

discrimination between their remunerations and benefits

and those of staff of European descent.

(c) Unless the circumstances or requirements are

exceptional, the following order of preference should

apply in further recruitment to the Island's labour force:

(i) former Island workers and their children now resident on the mainland;

(ii) other Australian citizens;

(iii) citizens of Malaysia

12. (a) A capital provision should be made to upgrade

domestic accommodation in the older sections of the

settlement, both for single men and families.

6

(b) As the labour force is reduced and single

accommodation becomes surplus to requirements, these

units should be modified and made available for married

couples.

13. The Christmas Island Industrial Relations Ordinance

should be repealed as soon as possible, and the full

provisions of the Conciliation and Arbitration Act

extended to cover Christmas Island.

14. (a) Residents of Christmas Island should qualify for

citizenship in exactly the same manner as foreign

nationals who take up permanent residence on the

Australian mainland. The provisions of the Citizenship

Act 1948 as amended should be extended by ordinance to

include Christmas Island. The citizenship provisions

of the Christmas Island Act 1958-1973 should be repealed.

(b) The Migration Act should be extended by ordinance

to include Christmas Island so that further movements

of people to the Island from foreign countries can be

regulated in the same manner as occurs on the mainland.

(c) Island residents who would not yet have qualified

for Australian citizenship under the provisions of the

Citizenship Act as extended to Christmas Island, and

whose positions become redundant as a consequence of any

restructuring of the phosphate mining operation, should

be accepted as eligible for permanent residence on the

mainland, subject to health and character checks.

15. (a) The cost of maintaining the Island Administration

should be met by the Australian Government.

7

(b) The objective of the Island Administration should

be redefined to ensure the earliest possible removal of

the administrative anomalies that distinguish Christmas

Island from the Australian mainland. Christmas Island's

social and political institutions should become

progressively closer in form to those that characterise

isolated mining communities on the mainland, and

progressively less like those of a colonial possession.

To this end, Article 8(1) of the Christmas Island

Act 1958-1973 should be amended to provide that

Commonwealth Acts shall include Christmas Island in their

coverage unless specific provision to the contrary is

made. At present, no Commonwealth Act applies on

Christmas Island unless appropriate provision is

specifically made. Evidence was given by representatives

of the Department of Home Affairs that in the extension

to Christmas Island of existing legislation a large

backlog of drafting has arisen. Steps should be taken to eliminate this.

(c) The Advisory Council should be set up as quickly as

possible, and the Administrator should invite it to

sound community opinion and advise him on what form of

political and community representation consistent with

those that exist on the mainland would best accord with

the wishes of the Island's inhabitants. Parliamentary

representation should be included among the possibilities to be considered.

(d) As soon as an acceptable form of political

representation has been established, the office of Administrator should be abolished and responsibility for liaison with the Department of Home Affairs should be

assumed by a "Department of Home Affairs Liaison Officer".

The residence of the Administrator should be made

available to residents of the Island for a purpose of their choosing.

8

(e) Early consideration should be given to the appointment

of a small number of Justices of the Peace with limited

judicial f u n c t i o n , or alternatively to the appointment

of one or two Special Magistrates with limited judicial

f u n ction, from the different ethnic communities on the

Island.

16. The newly constituted CIPC should expand its program of

reafforestation on the Island, making greater use of

back-filling in mined areas. Bird populations should be

monitored as accurately as possible so that any signs of

significant decline can be detected and appropriate

action taken.

9

PART I

INTRODUCTION

The terms of reference of the Commission of Inquiry were

as follows:

"To inquire into the economic viability of the mining and marketing of Christmas Island phosphate rock having regard to present and prospective demand for Christmas Island phosphate rock and to

give particular attention to the following matters:

(a) mining life and output options for Christmas Island;

(b) present and prospective landed costs of Christmas Island phosphate rock and phosphate rock from competing sources;

(c) the implications for the landed costs of Christmas Island phosphate rock of the present wage levels for regionally engaged workers on Christmas Island

and particular wage levels for such workers up to and including parity with the Australian minimum Federal wage, together with associated industrial

relations factors; and

(d) the implications for phosphatic fertiliser manufacturers and consumers of such fertiliser of changes in the relative landed costs of phosphate rock

from Christmas Island and from competing sources.

The inquiry will take into account the operations on Christmas Island and in Australia of the Christmas Island Phosphate Commission and the British Phosphate Commissioners but only in so far as the latter are managing agents for the Christmas Island Phosphate

Commission.

The inquiry shall not extend to a report on particular levels of wages that should be paid to workers on Christmas Island."

11

The Letters Patent signed by the Governor-General on 20 December 1979 required that the report be presented by

15 February 1980.

The Commission of Inquiry began work on 2 January 1980.

On Tuesday, 8 January, the Commissioner, accompanied by the Secretary to the Commission of Inquiry, and the Commissioner's

Private Secretary, travelled to Singapore. In Singapore discussions were held with officers of Boustead Shipping

Agencies, which has in the past recruited workers for employment on Christmas Island, and supplied the Island with

some of its stores and provisions. On 10 January a visit was

made to Kuala Lumpur for discussions with the Managing Director

of the Chemical Company of Malaysia (CCM). CCM is a subsidiary

of ICI Malaysia. The two companies now provide the only

significant market outside Australia and New Zealand for

phosphate rock from Christmas Island.

On 11 January the Commission of Inquiry travelled from

Singapore to Christmas Island and began a round of inspections

and discussions that lasted until its departure from the

Island five days later. Before leaving, the Commission had inspected almost every aspect of the mining operation, visited

the living quarters of the married and single ethnic Malay and Chinese workers, met and had talks with union representatives

and members, accepted the hospitality of the Administrator and

the BPC, inspected the Island Hospital, Police Station and

Administration offices, and visited shops, restaurants and recreation facilities. The Commission was received very

cordially, and met with the fullest co-operation from all parties.

On 16 January the Commission travelled to Perth. The following day it made inspections of the Kwinana and Bunbury

plants of CSBP-Farmers, Western Australia's only and Australia's largest single manufacturer of superphosphate and compound

fertilisers. Discussions took place with the Managing Director

and senior staff of the company. The visit provided an

12

appropriate perspective on the size of the fertiliser industry, the importance of superphosphate for agricultural production, and

the place of Christmas Island phosphate rock in the manufacture

of superphosphate. It also enabled the Commission to appreciate

more precisely the nature and scope of the adaptations to the

plant and equipment of Australian fertiliser manufacturers that

would be made necessary by the substitution of rock from other sources for that which Christmas Island now supplies. The

Commission was told of CSBP-Farmers' trial runs with rock from

the Duchess deposit in Northern Queensland. The Commissioner

and his party returned to Melbourne on 18 January.

When the deadline of 21 January for the receipt of written

submissions expired one had been received. A list of those

organisations and persons who ultimately made written submissions is appended to this report.

Public hearings began in Melbourne on Tuesday, 28 January,

and concluded on Thursday, 7 February. During the hearings

fourteen organisations were represented and a total of twenty-

nine witnesses gave evidence. Organisations represented and

individuals who gave evidence are also listed in the appendices.

In addition to the public hearings a total of about three hours

was spent in two confidential sessions with the BPC/CIPC

Australian Commissioner, the CIPC Australian-New Zealand Joint

Commissioner, and senior BPC staff.

A substantial amount of information was sought from

Government departments and instrumentalities. Reports were

commissioned from the London-based British Sulphur Corporation,

a recognised international authority on the world fertiliser

trade, and the International Phosphate Industry Association

which is located in Paris. The Commission of Inquiry

retained the services of Coopers and Lybrand, a respected and

internationally based firm of chartered accountants, to assist

13

in the investigation of CIPC and BPC financial matters relating

to Christmas Island. The Commission's choice was dictated by

that firm's familiarity with operations on Christmas Island as well as with the mainland structure and operations of the

CIPC/BPC.

The Commission of Inquiry sought to engage the interest

and co-operation of the New Zealand Government, with results

that are described later in this report. The Commission had

the good fortune to be able to meet and talk to on Friday,

1 February, in Melbourne, the General Manager of the New Zealand Farmers Fertilisers Ltd, the parent company of New

Zealand's largest fertiliser manufacturing group, and the

General Manager of New Zealand's Dominion Fertiliser Co. Ltd.

Without the benefit of that meeting, it would have been difficult to make any assessment of the interests of New

Zealand fertiliser manufacturers. For reasons that will

become clearer in later sections of this report, the Commission

reached the view that New Zealand holds one of the keys to Christmas Island's continued economic viability.

The structure of this report is as follows:

Part I describes the problems of assessing economic viability

that arise in the particular case of Christmas Island. It

reviews the circumstances in which the Island's viability has been called in question, and seeks to reach an understanding

of the position of Australia's partner in the CIPC, New Zealand.

Part II evaluates all the factors that in the view of the

Commission of Inquiry are relevant to an assessment of the economic viability of the Christmas Island phosphate industry,

including world prices, demand, shipping freight rates and

production costs. These elements are brought together and a judgement is made.

14

Part III takes as its premise the conclusion reached in Part II,

that the Christmas Island phosphate industry is and can remain

viable, and examines under various headings the steps that can

and should be taken to put the issue beyond doubt. It reviews

areas where cost reductions must be sought, and areas which may

have the potential to increase revenue.

Part IV discusses briefly the conservation questions that

were raised.

15

THE ASSESSMENT OF ECONOMIC VIABILITY

(i) Economic Considerations

The concept of economic viability in the field of

commerce is normally taken to imply that the business as a

whole will produce or will not produce a profit, or an

acceptable return on capital invested, after total costs have

been deducted from total revenue. Determining whether an

enterprise will be economically viable or unviable, it might

be considered, normally involves a combination of relatively

simple accounting procedures and some shrewd guesses about

what the future might hold.

In the case of Christmas Island, the task is less

straightforward. Christmas Island resources are owned by the

CIPC but the CIPC does not operate the deposit. The Christmas

Island Act obliges the CIPC to retain the BPC as managing

agents. The costs of the CIPC are the costs that are incurred by the BPC on its behalf. The BPC has other roles which

include distribution of phosphate rock from other sources, sulphur distribution and stevedoring activities. The BPC

central office costs have therefore to be apportioned between the Christmas Island operations and the BPC's other activities.

To the outsider, the assessment of probable future costs begins at this point to become problematic. In addition there is

uncertainty about the contribution that will in future be made to costs by wage rises, redundancy provisions, workers'

compensation, the cost of the Island's administration and the

costs of resettlement of the Island's workforce as their

employment is terminated. "Labour", to put it bluntly, is no

longer content to be regarded as "cheap".

Shipping costs vary unevenly from one rock source to

another and can move quite markedly from time to time.

Comparisons are also complicated by the fact that Christmas

16

Island rock must be shipped in Australian manned vessels, the

relative cost of which varies from shipments made in foreign

manned vessels.

On the revenue side, the assessment of price advantages

is complicated by the different characteristics of phosphate

rock from different sources. Contaminants such as silica,

iron and alumina oxides, chlorine, fluorine and calcium

carbonate vary considerably in the extent of their presence in

phosphate rock from the major world deposits of Florida USA,

Morocco, Jordan, Senegal, Togo, Tunisia, Israel, Algeria and

Nauru, not to mention the Duchess deposit in Northern Queensland.

Christmas Island rock of 77% BPL (Bone Phosphate of Lime) is

considered by both Australian and New Zealand users to be

roughly equivalent to 72% BPL rock from Florida.

By its charter, the CIPC is bound to ensure that, so far

as is practicable, phosphate obtained from Christmas Island

shall be disposed of in Australia and New Zealand ... "in

such a manner as to give the lowest possible average c.i.f.

cost for phosphate supplied to Australia and New Zealand"

(Article 5 (a) Christmas Island Agreement Act 1958). This

provision has been interpreted in the past to mean that

Christmas Island rock should not follow upward movements in

world prices, so that the CIPC has accumulated no financial

reserves which would serve to cushion it against the effect

of downwards movements in world prices.

In 1973-74, Christmas Island rock was priced at

approximately 1/3 of the going price for Florida rock.

Without the legislative constraint the CIPC would have been

free to reap some benefit from this situation. It would

then have been able to draw on or borrow against these

reserves in leaner times.

17

It is clear, then, that even in the realm of accounting

procedure, the assessment of economic viability is not simple.

In the case of Christmas Island, there are additional

complications outside the realm of accounting procedure.

(ii) Institutional and Legislative Factors

The Island is an Australian territory, but its resources

are jointly owned by Australia and New Zealand. The managing

agents, BPC, do not appear to have a "legal personality"

known to Australian law. The extent to which the Australian

Commissioner is amenable to Australian law is uncertain. The

British and New Zealand Commissioners are, of course, in no

way amenable to Australian law. What this means is that any

attempt to assess what effect changes in the institutional

or legislative structure of the operation would have on

economic viability is complicated by uncertainty about how

easily such changes could actually be made.

It is not proposed to dwell at length in this report on the legislative constraints under which the mining and

distribution of phosphate is carried out. That is, this

report will not undertake a detailed examination of those enactments, their origins or their deficiencies. The time

available does not permit it, and to do so would take this

report too far from the central issue of economic viability.

There are, however, some observations which ought to be made.

The General Manager of the BPC was asked on the first day

of the hearing whether he saw the BPC as having a continuing function in the event that operations on Christmas Island were terminated. He replied:

"No... I would have some doubt as to any continuing function even for the CIPC, but certainly there was a proposal, less than two years old now, for the disbandment of both the BPC and the CIPC. Following

18

that proposal, the Australian Government proposed to its New Zealand colleague that the agreement, or the annexe to the agreement should be amended so that it would not be mandatory on the CIPC to employ the BPC as

its managing agent.

Now, if that had been acceded to, the BPC could have been wound up forthwith. It would have created a problem, I suppose, in the allocation of responsibility for the superannuation fund because the employees on Christmas

Island are of course employees of the BPC. Therefore, the superannuation fund has to be maintained at a proper level, which we believe it is.

But there is, after the elimination of Banaba, no continuing responsibility for the BPC. And quite certainly if the Christmas Island operation were to wind up or if the New Zealanders were to get out of it,

leading to the wind up, that is the end of CIPC. So both of them are finite. We believe the BPC perhaps more finite, although there was no agreement at that time to wind either of them up. Basically, the reason for that,

as I understand it, was that those in authority felt that the costs of the CIPC were getting so high that the manufacturers who were complaining about them might be prepared to say, 'Forget about it; we do not want any more Christmas Island material.1 Hence, the idea was

to look at the question whether Christmas Island remained viable or whether it ought to be wound up.

Now, this came out much more forcibly in the agreed memorandum in which both governments agreed for the first time - and I might recall that under the original agreement there was provision for twelve months notice

of winding up; there is no longer twelve months notice of winding up - both governments agreed that immediately Christmas Island becomes uneconomic, there will be no subsidy and it will be wound up. There is a lot of politics in all of this."

This evidence suggests, and the Commission is aware from

other sources, that considerable thought has been given, on

both sides of the Tasman, to the legislative and institutional

disabilities under which the operation is conducted. It is

regrettable that so little has resulted from the consideration

that has been given to the need for institutional reform.

It is an absurdity, in the Commission's view and in the

view of some of the parties appearing before the Inquiry, that

19

neither the BPC nor the CIPC appeared before the Inquiry as

corporate entities. Nor, by virtue of the multilateral

character of their organisation, could either body be constrained

to appear. The Australian Commissioner and the Joint

Australian/New Zealand Commissioner each spoke on his own behalf,

not on behalf of the BPC or the CIPC. It appears that a

legislative and institutional structure has been created which

not only bears little relationship to direct market forces,

but is specifically excluded from direct Australian Government control. On the one hand, Australia has accepted Christmas

Island as a territory and taken upon itself the ordinary obligations of government. On the other hand, it has

specifically divested itself of the power to control or direct

the only industry and commerce arising from that territory.

In his evidence, the Australian Commissioner on the BPC/CIPC stated that:

"the National Farmers Federation described the BPC as 1 an anachronistic vestige of the colonial age'. This is true in relation to the charter under which it operates, albeit an efficient mining and supply function which had given an assured phosphate supply to Australia and New Zealand vital to their rural

industries, and that supply has been maintained through sixty years of operation without interruption, and I think that that is a pretty good record."

In his concluding submission Mr. Timbs said:

"The BPC is, let us face it, a dirty word in most circles today, and it is a dirty word because governments have failed to live up to their responsibilities to modernise its charters."

The alternative arrangement that Mr. Timbs invited the

Commission of Inquiry to consider was outlined by him in the following manner:

20

"Sir, I submit to you that a whole new agreement conceived in accordance with present circumstances should be negotiated or achieved, and that the CIPC in its present form should be wound up as soon as possible because it just cannot operate in accordance with the way

it is expected to operate in Australia or New Zealand today. I submit that the mining operation on the island should be conducted by the Australian Government or by

private enterprise, although I personally - and I am sure my colleague would agree with me - would have very grave doubts as to the viability of a new operation in the

present circumstances.

New Zealand should be given, and I am sure would take, the option to purchase half of the production on the island at world parity prices and any shortfall could

perhaps be met by buyers from overseas, although in our experience, apart from the dust that goes to South East Asia, this would be a very, very unlikely prospect.

Parity prices would be aligned to world rates, adjusted for grade. There may be some constitutional issues involved if the Australian Government were to conduct the operation unilaterally, but they are not insurmontable, and they certainly do not negative the proposal which

I have outlined."

The Joint Australian/New Zealand Commissioner on the CIPC

endorsed the views expressed by his colleague. The Commission

of Inquiry believes they are shared by the senior staff of the

BPC. The Commission's own investigations and deliberations

had already led it to similar conclusions about the need for

institutional reform.

The Commission of Inquiry does not know why past efforts

at reform have not been carried to a successful conclusion.

It is possible that doubts about how long the Christmas Island

operation would continue resulted in a postponement of decision

and action. If so, it would now appear that reform should

proceed as quickly as possible. Throughout the Inquiry there

were indications that the BPC is held in discredit, and that

it stands in need of reorganisation to meet the requirements

of changing circumstances. The morale of its officers, and

their relations with their workforce and their customers would

almost certainly be improved by the issue of a fresh mandate

and clearer lines of responsibility and control.

21

DOUBTS ABOUT ECONOMIC VIABILITY

On 6 June 1978 the Acting Prime Minister, Mr Anthony,

was asked a Question without Notice in the House of

Representatives concerning financial assistance to BH South,

and future supplies of phosphate. He replied as follows:

"In answering previous questions on this matter, some from the honourable member for Kennedy, I have emphasised the importance of Australia having regular and secure supplies of

phosphate rock at reasonable prices. The announcement that Queensland Phosphate Ltd would close down was a matter of concern for the Government. This is a rather complex issue because we have depended entirely for our supplies on Nauru and other island suppliers which, of course, are not infinite supplies. These matters need to be looked at seriously. There is the problem of whether manufacturers are able to cope with the type of rock that comes from the Duchess deposit. As a result of these various problems, in conjunction with the Minister for Industry and Commerce and the Minister for Administrative Services, who looks after the Christmas Island Phosphate Commission, I called a meeting of the various groups - the fertiliser manufacturers, Christmas Island Phosphate Commission and Queensland Phosphate Limited. This was a very

frank and free discussion but the important thing that came out of it was revised estimates brought forward by the Christmas Island Phosphate Commission. They showed that the supply/demand situation was better than had been anticipated even some months

ago. There have been some changes in the Nauruan situation and the Commission also believes that by mixing the A and B grade phosphate from Christmas Island it has sufficient supplies for possibly another 10 years.

The upshot of all these discussions was that if the manufacturers of superphosphate were to take the Duchess rock they could only progressively take it in small amounts in the initial years, and this would not be of sufficient volume to help Duchess with its problem. As it all turned out I do not

think there is anything more the Government can do in relation to the decision of Queensland Phosphate Ltd to close the mine, unfortunate as that is,

22

because the circumstances are such that the Australian manufacturers are not able to take that sort of rock at this point of time and there does not seem to be any serious problem as to the

supply situation for the next 10 years."

During the public hearings of this Inquiry, Mr Timbs

made the following statement in relation to this matter:

"... the BPC was alleged to have indicated that there were eight or nine years1 mining life in. the island. That is not so. In a conference convened by Mr Anthony and attended by representatives of the manufacturers, Broken Hill South, not the National Farmers' Federation,

and representatives of the BPC, the General Manager of the BPC indicated that there would be about nine to ten years' reserves on the island if mined at a rate of 1.2 to 1.4 million tonnes

a year. They were the 79 BPL material and some of the contaminated 77% BPL, but he did never, at any stage, give any assurance that mining of that material would or even could go

on for a period of nine years or more.

Such an assurance would be quite impossible because it would depend on a number of factors including, of course, the cost of production and the ability of the commission to sell the material.

He quoted the reserves that were on the island that were able to be mined if those reserves could be sold, but certainly gave no such assurance ..."

Notwithstanding this statement, it seems to have been

the case that in most quarters, including among senior BPC

management, expectations until June 1979 as to the probable

life of the Christmas Island operation were premised on

the calculation that the known recoverable reserves of

A grade rock would take about eight years to exhaust at a yearly production level of 1.4 million tonnes.

On or around 14 June 1979, the CIPC Commissioners

(Mr Timbs, Mr Bremner and Mr Marston) decided at a meeting

in Melbourne that it was unlikely that the operation could

remain viable for more than four years.

23

CIPC Board Minute No. 1400 records the decision as

follows:

"Commissioners reviewed the Christmas Island phosphate operation and, having regard to all known factors, considered it unlikely that the operation could remain viable for more than

four years and deemed it prudent to base forward planning on terminating the operation not later than 30th June 1983.

Subject to the agreement of partner Governments the Board decided that in respect of Christmas Island:-(1) Planning be to terminate the phosphate

operation as at 30th June 1983.

(2) Future capital expenditure be written off in the year in which incurred.

(3) Movable plant purchases be written off over a two year period.

(4) Those fixed assets at present scheduled to be written off by 30th June 1985 be instead written off by 30th June 1983.

For planning purposes the General Manager was asked to prepare a report showing the implications of (1) to (4) above."

In a memorandum to partner governments dated 14 June 1979,

the CIPC and BPC outlined their recommendation and added that:

"It is not the intention of the Commissioners to propose any change in the institutional structure and relationship between the CIPC and the BPC during the period remaining between now and the termination of the Christmas Island mining operation.

Partner governments may need to consider, in due course, the structure of an organisation to deal with procurement of fertiliser raw materials and distribution in Australia and New Zealand."

The memorandum concluded by seeking the concurrence of partner governments in the proposal.

Staff of the BPC were notified one month later.

24

The Notice to Staff read, in part, as follows:

"The Board of Commissioners at meetings early in June reached the conclusion that in all probability the maximum viable life of the Christmas Island deposits was about four years even though this would not completely exhaust the total reserves of high grade phosphate.

In reaching their decision Commissioners took into account all relevant factors, bearing in mind particularly that considerable capital investment would still be required in the next

few years if production were to continue for the full eight or nine year period previously envisaged."

It is interesting to note that only in the staff circular

is reference made to the problems posed by the need for

capital investment. It is also interesting that, according

to ClPC Board Minute No. 1400, some of the critical questions

concerning the feasibility of closing down operations by

mid-1983 were put to study only after the decision to do so

had been taken, and the concurrence of partner governments

had been sought.

The Inquiry spent some time in an attempt to reach an

understanding of these events. It seemed to this Commission

that without knowing how the Commissioners arrived at their

pessimistic assessment of viability it would have a poor understanding at best of how much confidence it could afford

to place in its own. Counsel Assisting questioned

Commissioners and senior staff at some length.

The best reconstruction the Commission of Inquiry has

been able to make, in the light of the answers given, is

that although Commissioners did not have in front of them

at those meetings in June 1979 any papers prepared by staff specifically addressing the possibility of a four year

mining plan or the consequences of its adoption, they did

have regard to increasing costs, growing industrial unrest,

25

movements in the prices of rock from alternative sources,

movements in shipping freight rates, and the difficulties the

Commissioners had encountered in reaching agreement on

capital investment.

The Inquiry was unable to determine how these various

factors had been weighted in the minds of the Commissioners.

Pages 84-92 of the transcript reveal that questions on the

matter were answered with some reluctance. This reluctance

seemed to stem in part from a sense of duty, on the part of

those involved in the decision or affected by it, to protect

the position and interests of the New Zealand Government.

The Commission of Inquiry does not want to pronounce on the wisdom of the Board's decision. It is quite possible

that, in their position, at that time, this Commission of Inquiry would have reached very similar conclusions about

the proper course of action to follow. There are, however,

some matters of personal preference that ought to be made

clear, so that the recommendations of this report can be assessed at their proper worth. During my career with BHP

I was involved with engineering, shipping and mining operations. Over the years I formed the very firm view

that any mineral deposit the company owned or worked should

be properly husbanded, so that it served the company, as well as the country, for as long as possible. In my years

with BHP there were deposits of iron ore, coal and other

minerals that were successfully worked for some years after serious proposals to close them down were first mooted.

This is not uncommon in the mining industry. Whilst there

is no doubt that Australia is well endowed with phosphate,

the Christmas Island deposit is still producing rock that is third after Nauru and Senegal in its grade and quality.

I think it is fair to say that I have not at any stage hidden

from the parties to this Inquiry my lack of receptivity to the idea of abandoning or writing-off a national resource except in the direst circumstances.

26

Perhaps as a consequence of this predisposition, I was struck by the references that were frequently made in the

informal discussions I have had since commencing this task to the notion of a "death wish" having enthralled the BPC.

The expression is colloquial, and I would expect BPC

Commissioners and staff to dismiss it as ridiculous, but

similar suggestions were made on a more serious plane.

The Managing Director of Australian Fertilizers Ltd,

Mr Satchwell, gave evidence that was very helpful to the

Inquiry. Mr Satchwell stated that his company regarded

Christmas Island rock as a valuable resource. He added:

"Given a firm resolve to succeed, then with sensible industrial relations, good planning, a sensible cost reduction program and improved productivity in the main operations,

this operation can remain economically viable until the reserves of A-grade rock have all been fully recovered."

Mr Satchwell reviewed briefly the exhibits tabled a day

or so earlier which dealt with the subject of a four-year

mine life and the related provisions spelt out in CIPC Board

Minute No. 1400. Mr Satchwell made a number of suggestions

concerning cost savings and revenue increases that the BPC

might seek to achieve. He concluded his submission in this manner:

"Having said that, the thing that exercises our thinking is, as I said at the end of that submission, if you keep thinking of premature death of any enterprise you might induce the demise, and the vicious circle has to be broken

somehow. The CIPC has made a decision to recoup capital expenditure in one year and charge that to costs. They are saying that wage rates are going up, but all the costs are being loaded.

There is no hope of a viable operation if you say 'we are going out of business in three years time therefore if we spend any capital we are

going to recover it from revenue within twelve months, not over three years'. We are pretty concerned that unless there is a change in thinking, and people are prepared to say 'well,

come hell or high water we will make sure we get all that rock off the island', and then sit

27

down with the parties concerned and indicate what the problems are. The unions must be interested in maintaining employment on the island and I think when you look at provision for termination costs,

increased depreciation, recouping capital expenditure in a short time, and so on, it is just killing the economics of the thing before you start."

The Commission of Inquiry has formed the impression that for the senior staff of the BPC, on the mainland and on

Christmas Island, the decision of June 1979 was a bolt from

the blue. Everybody, it seems, was aware that the problems

were growing, but no one had any inkling of the solution that was to be proposed.

In the fertiliser industry, confusion became worse

confounded when rumour began to circulate towards the end of

the year that Christmas Island's life expectancy might be

no more than two years, or possibly even fifteen months.

28

NEW ZEALAND'S INTERESTS AND ACTIONS

The Commission of Inquiry was aware from the outset that

New Zealand, Australia's partner in the CIPC, would have

preferred that there be no Inquiry. Formally, no objection was

raised, and New Zealand stated only that it could not indicate

formal support for the Inquiry.

An informal approach was made to the New Zealand High

Commission on 8 January, with a view to enlisting the co­

operation of the New Zealand Government. On 21 January the

Commission of Inquiry was advised, once again informally, that

the New Zealand Government would be prepared to make a

submission, and that this submission might be presented by an

officer of the High Commission.

The Commission of Inquiry enlisted the aid of the Foreign

Affairs Department and the Australian High Commission in

Wellington in placing before the New Zealand Government its

view of the problems that had been created for it by the approach New Zealand had taken. In part, the problem related

to the difficulty of tabling as public exhibits certain

BPC/CIPC documents without tendering an affront to a foreign

government which was joint owner of them. In part, the problem

related to the Inquiry's inability to gain a proper understanding of the New Zealand Government's wishes and

intentions other than on the basis of information supplied

by that Government.

On 8 February, the final day of the Inquiry's public

hearings, a telex message was received which contained the text

of a brief submission made jointly by the New Zealand

Treasury, Ministry of Agriculture and Fisheries, and the

Ministry of Foreign Affairs. The text was as follows:

29

"As has already been indicated to the Australian authorities, the decision to establish the Commission of Inquiry is viewed by New Zealand as a decision for and by the Australian Government. Its eventual findings cannot be regarded as necessarily binding on the decision of the New Zealand Government.

Under the Christmas Island Agreement 1958, the Christmas Island deposits are jointly owned by Australia and New Zealand. The concern of both countries is to supply phosphate to each country at a landed cost which is no

higher than that at which phosphate could be obtained from alternative sources in equivalent quantities. Given the importance of this commodity in its economy, New Zealand attaches prime importance to the economics of its phosphate supply arrangements. New Zealand views with concern the increasing cost of operations on Christmas Island. New Zealand also recognises the need

to contain costs and to maintain an output of 1.4 million tonnes per annum if the landed cost is to remain competitive with those of other sources.

Attention is drawn to the agreed understanding between the New Zealand Minister of Agriculture (Hon. D. MacIntyre) and the Australian Ministers for Administrative Services (Hon. John McLeay) and for Home Affairs (Hon.

R.I. Ellicott, Q.C.) arrived at in Sydney on 2 and 3 August 1979. This stated inter alia: 'It is agreed as a matter of principle, that the Christmas Island Phosphate Industry has to operate on a commercial basis; that no government subsidies will be paid to the industry, and that the industry will be closed down as soon as practicable after it is no longer commercially viable'. This agreed understanding emphasises a similar understanding arrived at between the Hon. D. MacIntyre and Hon. John McLeay in December 1978 concerning the commercial basis to the Christmas Island phosphate operations.

Negotiations are continuing between the New Zealand and Australian governments as to the future of Christmas Island phosphates and to phosphate supply generally."

The Inquiry is not aware of any negotiations at present

in train between the Australian and New Zealand governments.

The Agreed Understanding between the two governments was tabled

as an exhibit during the public hearings. Other provisions

in it relate to the BPC's negotiations with the Union of

Christmas Island Workers (UCIW), and resettlement of the Christmas Island workforce in the event of closure.

30

In the absence of any opportunity to discuss Christmas

Island's problems with the New Zealand CIPC/BPC Commissioner

or any other representative of the New Zealand Government,

and having available only the evidence presented during the

public hearings, the Commission of Inquiry can draw only the

most tentative conclusions about New Zealand's role in the

CIPC/BPC. The nature of these tentative conclusions was

conveyed to the New Zealand Government, as mentioned above,

via Australian diplomatic channels.

The Commission of Inquiry has been given to understand

that in mid-1977 New Zealand decided to increase its take of

Christmas Island output in order to supply about fifty per

cent of its total requirement^ because a price advantage had

accrued to Christmas Island rock which made it more attractive.

In Australia, this required manufacturers to adjust their

blending ratios with rock from other sources. It also had

the incidental effect of making it likely that if New Zealand

were to fully relinquish its entitlement at some future time,

Australian manufacturers would be unable to absorb all the

additional tonnage that would become available, and the mining

output would have to be reduced to an uneconomic level.

In mid-1978, it appears, New Zealand placed a veto on

any further capital investment except that required to maintain

existing plant and equipment. It is possible that this embargo, which continues to the present, has had the effect of

bringing the island operations closer to the point of economic

unviability. It could have this effect by obliging the

entire operation to be conducted in an atmosphere of financial

uncertainty, and by preventing those changes in production

methods that would enable savings to be made in the

increasingly heavy labour cost component of total costs.

31

An example can be given. The granulation of A-grade

dust, which at the moment is bagged and shipped in an operation

that is highly labour intensive, would enable it to be handled

as a bulk cargo along with the phosphate rock. BPC studies

have shown that labour savings would be significant, and that

capital costs would be recovered within three years of

completion of the project.

The closure of the operations on Christmas Island is not

the only option available to New Zealand. The Inquiry is

aware that closure is not the only option that the New Zealand

Commissioner and his government have had under consideration.

Withdrawal from the Christmas Island Agreement is another

option that has at some stages in the recent past appeared

to be New Zealand's preferred, or even its intended course.

It is not inevitable that New Zealand's withdrawal would mean

the end of mining operations on the Island, particularly in

the event that New Zealand continued to receive shipments of

rock. The remarks of the Australian Commissioner, quoted in

the previous section, bear on this possibility.

The Commission of Inquiry was fortunate in being able to

meet and hold brief discussions with two representatives of

New Zealand's fertiliser manufacturing industry. In the view

of New Zealand manufacturers, it appears, operations should

continue for as long as phosphate of an acceptable grade can

be economically mined. Christmas Island rock represents a higher percentage of the total blend used by New Zealand

manufacturers than it does for their Australian counterparts.

It appeared from those discussions that while New Zealand

manufacturers are not entirely satisfied with the costs

arising from the shipping pool, it is not a major grievance.

The point was also made that the sudden cessation of Christmas

Island supplies, by creating an additional world demand for 1.4 million tonnes of phosphate, could not fail to have an

impact on world phosphate prices, and probably also on

32

freight rates. On the basis of those discussions, it seemed

reasonable to conclude that the interests of New Zealand's

manufacturers do not differ significantly from those of

Australian manufacturers.

New Zealand's trade and foreign exchange problems have

increased in recent years. It is understandable that New

Zealand should look with an acutely critical eye at all

foreign exchange outgoings such as those that might be

required by a continuing program of capital investment on

Christmas Island. The Commission believes that the seriousness

of New Zealand's concerns, as expressed in the telex message

quoted above, should not be underestimated.

As well, the Commission recognises the importance to

Australia of maintaining close and co-operative relations with New Zealand. The partnership, though it has not been

without its vicissitudes, is central to the structure of

Australia's foreign relations.

It is apparent that problems have arisen in the partnership

involving Christmas Island. The Commission has no desire to

make those problems worse. It is possible that New Zealand's

problems are not correctly understood by the Commission and

that the foregoing does not fairly reflect the approach that

New Zealand has taken. If so, it would be the Commission's

hope that sufficient account will be taken of the reasons for its errors to ensure that the conclusions of the report do not

introduce a further irritant into dealings between the two

governments on this matter.

The record of Australia-New Zealand co-operation in the

production and distribution of phosphate has been, until recent

times, very good. If that co-operation can be restored and

continued, so much the better.

33

PART II

MINING OPERATIONS ON CHRISTMAS ISLAND

During the Commission's visit to Christmas Island,

extending over four full days, all production areas were

inspected whilst in operation with the exception of the

tipping of loaded rail trucks, and the calcination plant,

which had been closed.

The plant throughout appeared to be generally well

engineered and maintained to meet operating requirements

having regard to the geological structure of the deposit, the

location of the various phosphate rock reserves and the topo­

graphical features of the Island between the mining areas and

the ship loading plant.

Modifications to existing plant have been made to improve

the efficiency of operations, and further proposals have been

considered. Mobile equipment has been replaced or augmented

by units of greater capacity and improved design. Mobile

equipment of alternative design has been obtained for the

purpose of evaluating new mining methods which might result in

cost reductions.

The Commission heard criticism by members of the UCIW

of recently installed equipment at No. 4 rail loading station.

Explanations were given by engineering staff that the problems

encountered were attributable to the interval between design

and installation. The Commission was told that difficulties

also arose from new mining methods recently introduced which were not developed until after No. 4 rail loading station was

designed. The nature of the mined material had changed

significantly from that for which the equipment was designed.

35

The Commission also heard criticism from members of the

Christmas Island Professional and Salaried Officers Association

(CIPSOA) of the delay between the submission of projects for

approval and the authorisation of such proposals. The

suggestion was made that non-productive proposals, such as

the bulk petrol unloading and storage project in the ship

loading area, were given approval before labour-saving

production projects, such as the installation of plant for

the granulation of phosphate dust. The New Zealand

Government's ban on capital expenditure for production

projects may be the explanation for what might appear to be

an inversion of normal priorities.

In general, the Island's phosphate industry appears to

be based on an infrastructure that is sound, and smooth

running. The Commission saw no evidence of excessive down

time in any area. Equally importantly, the interest shown by the production and engineering staff, and the diligence

shown by different sections of the workforce on the Island,

were reassuring evidence that these sections of the BPC

organisation have a responsible attitude towards preserving the viability of the mining operation.

36

DEMAND FOR CHRISTMAS ISLAND PHOSPHATE ROCK

(i) Australian Demand

Australian demand for phosphate rock stems from the

widespread nutrient deficiencies of Australian soils. The

most common fertiliser used is single superphosphate which, in

addition to its phosphorous content, supplies the sulphur in

which many Australian soils are also deficient. Detailed

information on the factors affecting demand for phosphatic

fertilisers can be found in recent reports of the Industries

Assistance Commission and the Bureau of Agricultural Economics.

The Commission received submissions from all Australian

fertiliser manufacturers. Australia's consumption of phos­

phate rock was about 2.27 million tonnes in 1978-79, of which

659,000 tonnes were supplied from Christmas Island. While

total Australian demand for phosphate rock has increased,

Australia's usage of Christmas Island rock has declined by

25 per cent since 1976-77. The proportion of Christmas

Island phosphate rock to total phosphate rock usage declined

from 44 per cent in 1976-77 to just under 30 per cent in

1978-79. The main reason for the decline in both the

absolute and relative amount of Christmas Island rock used

was the wish of New Zealand, effective from 1 July 1977, to

increase its take of Christmas Island rock to a level

approximately equal to 50 per cent of its total requirements.

1 Assistance for the Consumption of Phosphatic Fertilizers Industries Assistance Commission, Australian Government Publishing Service, Canberra, 30 October 1976 Phosphatic Fertilisers, Submission to the Industries

Assistance Commission Inquiry, Industry Economics Monograph No. 15, Bureau of Agricultural Economics, Australian Government Publishing Service, Canberra 1976

37

The BPC expects total Australian consumption of phosphate

rock to rise to around 3.23 million tonnes by 1989-90 at a

growth rate of over three per cent per annum. If the actual amount of Christmas Island rock supplied to Australia remains

constant at around 700,000 tonnes per annum then its proportion

will decrease to 23 per cent by 1987-88 by when it is estimated

that, on current production levels, deposits of A grade rock will be exhausted.

Table 1 sets out BPC estimates of future Australian

demand for phosphate rock for the period 1979-80 to 1989-90.

TABLE 1. BPC ESTIMATES OF FUTURE AUSTRALIAN DEMAND FOR PHOSPHATE ROCK ('000 TONNES)

Christmas Island

S o u r

Nauru

c e

Other Total

1979-80 750 1350a 200 2300

1980-81 700 1140 560 2400

1981-82 700 1150 700 2550

1982-83 700 1150 770 2620

1983-84 700 1150 850 2700

1984-85 700 1150 940 2790

1985-86 700 1150 1020 2870

1986-87 700 1150 1110 2960

1987-88 700 1150 1190 3040

1988-89 Nilb 1150 1990 3140

1989-90 Nilb 1150 2080 3230

a Includes 130,000 tonnes from Banaba b Assumes no use is made of Christmas Island B and C grade deposits

38

The table shows that there will be a growing reliance on

non-island sources. Australian fertiliser manufacturers are,

to varying extents, locked into the utilisation of Christmas

Island phosphate rock for periods ranging up to three years.

These periods are required to enable the installation of new

equipment and the modification of existing plant, in order that

phosphate rock from other sources can be used. The major

problems in the use of phosphate rock from alternative sources, as identified by the fertiliser manufacturers, were hardness

due to silica content, and high fluorine emission. Both

these characteristics give rise to higher production costs.

Fertiliser manufacturers estimate that a minimum of

$13.6 million will need to be spent on capital equipment to

accommodate phosphate rock from Florida and other sources.

It is evident that in the longer term, unless it is economic

to utilise Christmas Island B and C grade deposits, Australia

will be reliant predominantly on non-island phosphate rock

sources.

The Commission gave some consideration to the way in

which Christmas Island would be affected if New Zealand

left the CIPC. Australian fertiliser manufacturers said

that if demand from New Zealand fertiliser manufacturers

were to fall substantially, much of the shortfall could be

absorbed within Australia. In the following table

the estimates of local fertiliser manufacturers of their

consumption of Christmas Island phosphate rock for the

four year period 1980-81 to 1983-84, should current supply

conditions prevail, have been aggregated; the maximum

usage they could reasonably hope to attain by increasing

the proportion of Christmas Island phosphate rock used

within their operations is shown as "maximum demand";

these estimates, while differing in absolute terms,

illustrate a similar trend to those supplied by the BPC,

contained in Table 1. Important assumptions relating

to these estimates include the continued availability of

39

phosphate rock from Nauru and the continued price competi­ tiveness of Christmas Island rock. In a "worst case" situation,

Australian manufacturers, the table suggests, could account for

about 82 per cent of Christmas Island output of 1.4 million tonnes.

TABLE 2 . FUTURE AUSTRALIAN DEMAND FOR PHOSPHATE ROCK ('000 TONNES)

19 79-80a 1980-81 1981-82 1982-83 1983-84

Christmas Island

- Current pro­ portion 736 730 746 750 757

- Maximum demand 736 1150 1171 1178 1189

Total demand for rock 2440 2630 2721 2789 2871

a It is assumed that proportions would not change significantly for the remainder of the current financial year

Source: Submissions from Australian fertiliser manufacturers.

Australian fertiliser manufacturers said that there are

definite limits to the amount of Christmas Island rock they can use in their blending process due to the high levels of

impurities, particularly iron and aluminium oxides (R2 0 3).

The extent of any increase in their consumption would depend on technical constraints and the availability of complementary

(blendable) supplies to meet part of the increased demand.

If part of the increased demand was met by Nauruan supplies

then this would certainly raise the ceiling imposed by

technical constraints on the consumption of Christmas Island rock by Australian manufacturers. On this matter the

Commission concluded that while a good deal of the slack

that would be created by the loss of the New Zealand market could be taken up locally, the viability of the operation

40

Offered the choice between a four year supply of 79% BPL

rock and an eight year supply of 77% BPL rock, all Australian manufacturers expressed a preference for a longer supply of the

lower grade rock. Some manufacturers pointed out that further

attention should be given by the BPC to the quality control

problems associated with the production of 77% BPL rock. The

Commission of Inquiry attached considerable importance to this

indication of consumer preference.

The Commission gave some consideration to the likely

effect on demand for Christmas Island rock if the Superphosphate

Bounty were to be discontinued in 1982.

The Superphosphate Bounty of $12 per tonne currently

represents about 17 per cent of the bulk gross price (price

to farmer plus bounty) for single superphosphate fertiliser.

Witnesses at the public hearings differed in their views about

the likely effect on demand of the non-renewal of the bounty.

The National Farmers' Federation (NFF) and other witnesses

considered that it was generally agreed that the price

elasticity of demand for superphosphate is fairly low (i.e.

consumption does not respond markedly to changes in

superphosphate prices) but that income elasticity of demand

is much higher (i.e. consumption is limited when income levels

are depressed). If this is the case, future demand for

phosphatic fertilisers, and hence demand for Christmas Island

phosphate rock, might not be greatly affected by the termination

of the Superphosphate Bounty after 1982. Further, in the

period until the expiration of the current Superphosphate

Bounty the limited effect the bounty will have on demand (given

current buoyant farm incomes) will diminish as the ad valorem

equivalent of the bounty decreases in line with increases in

the bulk gross price of fertiliser (the bounty being a specific

rate). The Commission has no recommendation it wishes to make

on this matter.

at reduced levels of output was much less certain.

41

(ii) New Zealand Demand

Total New Zealand consumption of phosphate rock was about

1.18 million tonnes in 1978-79 of which about 528,000 tonnes were

supplied from Christmas Island. The BPC expects New Zealand

consumption of rock phosphate to rise to 1.84 million tonnes in

1989-90. This would represent a growth rate of over four per cent per annum. If it is assumed that New Zealand continues to

take its full entitlement of Christmas Island phosphate rock,

its proportion of Christmas Island phosphate rock to total

phosphate rock will fall from around 45 per cent to 40 per cent

by 1987-88. As mentioned earlier, representatives of New

Zealand manufacturers have indicated that, subject to the price

of Christmas Island rock remaining competitive, they would wish

the mining operation to continue until reserves of an acceptable

grade are exhausted. It appears that 77% BPL rock is

acceptable to New Zealand manufacturers, but that the grade

control problem is more critical than it is to their Australian

counterparts.

(iii) Overall Perspective

Given the most recently posted world prices for rock

from alternative sources, there would appear to be a guaranteed market for Christmas Island phosphate rock in both

Australia and New Zealand for at least the next three to four

years. Estimates indicate that Australian and New Zealand demand for phosphate rock is expected to increase during the

current decade. Australian manufacturers have unanimously

stated that, subject to the price competitiveness of

Christmas Island phosphate rock, they would wish to continue sourcing a substantial proportion of their phosphate rock

from Christmas Island. The Commission considers it unlikely that, subject to prices remaining competitive, New Zealand

will wish to relinquish its access to or purchases of Christmas Island phosphate rock. On the other hand, should

a substantial downturn in New Zealand demand occur in the

near future, it is evident that Australian manufacturers

could absorb a large part of this shortfall.

42

PRODUCTION COSTS ON CHRISTMAS ISLAND

(i) Recent changes in F.o.b. Costs

To establish an f.o.b. cost for its A and AL grade rock,

the CIPC deducts all by-product income from total Island

operating costs. The total cost less by-product income and

other cost recoveries is the amount to be recouped from the

sale of its main product, that is, the A and AL grade

phosphate rock.

During 1978-79 the financial records of the CIPC show

an average f.o.b.cost per tonne of $21.03. Table 3 below

provides a breakdown of costs both in total and on a per

tonne basis.

TABLE 3. F.O.B. COSTS 1978-79

Total Costs $'000

Costs per tonne $

%

f.o.b. total

Supervision 1,973 1.61 7.6

Labour 8,080 6.60 31.4

Material & supplies 10,083 8.24 39.2

Depreciation 6,591 5.38 25.6

General expenses 2,514 2.05 9.8

Government administration 1,772 1.45 6.9

BPC mainland administration 1,570 1.28 6.1

Termination costs 667 0.55 2.6

Less:

Sundry credits 908

By-product revenue 4,245

Change in stock level and

33,250 27.16 129.2

valuation 2,352 (7,505) 6.13 (29.2)

Output sold 1.224m tonnes 25,745 21.03 100.0

Source: CIPC Annual Accounts all labour costs ; 1978-79 modified to identify

43

Since the period when these costs were established,

regionally engaged workers have been awarded a $30 per week wage

increase effective from 1 July 1979. In addition, substantial

cost increases have occurred, particularly in fuel oil, gas oil

and other supplies. These and other cost increases resulted in a rise in the f.o.b. cost of A and AL grade phosphate rock.

An estimate of the costs at their new level, taking into

consideration the $30 per week wage increase, is shown in

Table 4 below.

TABLE 4. F.O.B. COSTS AS AT 1 JULY 1979 COST LEVELS

Total Costs $ ' 000

Costs per tonne $

%

f.o.b. total

Supervision 2,380 1.70 5.8

Labour 13,507 9.65 32.9

Material & supplies 12,642 9.03 30.8

Depreciation 7,060 5.04 17.2

General expenses 3,986 2.85 9.7

Government administration 2,530 1.81 6.2

BPC mainland administration 1,784 1.27 4.3

Termination costs 5,053 3.61 12.3

48,942 34.96 119.2

Less:

Sundry credits 1,839

By-product revenue 6,069 (7,908) 5.65 (19.2)

Output assumed 1.4m tonnes 41,034 29.31 100.0

Source: Coopers & Lybrand "Report on the landed costs of 'A' grade phosphate rock from Christmas Island" dated October 1979, Appendix A.

44

This later cost information indicates an f.o.b. cost of

$29.31 per tonne compared to $21.03 per tonne, the average for

the previous financial year. A broad analysis of the major

factors contributing to the $8.28 increase per tonne suggests

$3 per tonne is due to the higher wage rates, and a further $3

is attributable to a contingency allowance for costs likely to

be incurred in terminating Island operations. These latter

costs include allowances for reafforestation, personnel re­

location and redundancy payments. The remaining $2.28

represents the estimated effect of inflation on all other

costs for materials, oil supplies and services.

In addition to these cost increases, a further wage

increase was pending at the time of writing this report.

This wage increase would bring the minimum wage rate for

regionally engaged workers into line with the minimum Federal

wage of $129.50 per week, for all grade A workers on the

Island. This would represent a $36 wage increase for the lowest paid workers, a proportionally lower increase to other

workers up to the staff class 5 level, and a flat $15 per

week to all staff above class 5 level.

Applying these wage scales to the 1487 employees of

Christmas Island, the average weekly basic wage, excluding

shift allowances and overtime, would be about $137.46.

This can be contrasted with the $104.46 estimated average weekly basic wage on the Island (including $10 wage allowance)

at 1 October 1979 and the average weekly basic wage (including

wage allowance) just prior to 30 June 1979, of $70.00.

When the effect of awarding parity is expressed in cost

per tonne, it is estimated to add a further $4-$5 depending

upon what assumptions are made in respect of manning levels,

overtime levels, output, future wage indexation, mine life and the type of redundancy scheme agreed upon. This amount,

when added to the f.o.b. cost of $29.31 per tonne indicated

above, suggests that at January 1980 the f.o.b. cost would

be around $33-$34.

45

The Commission has added a further $1 per tonne to this

f.o.b. cost to take account of inflationary cost movements,

particularly in regard to oil, occurring since 1 July 1979.

Therefore, the f.o.b. cost of mining either 77% or 79% BPL

phosphate rock as at January 1980 would be around $34-$35 per

tonne. In the section of this report dealing with Phosphate

Rock Prices, Tables 9 and 10 show that these costs compare most

favourably with Florida rock even before freight and related

charges are added. However, economic viability is not established at one point in time. The remainder of this

chapter discusses the longer view and the effects particular

decisions or cost movements will have on the long run viability

of the Christmas Island operations.

(ii) The Longer View

It is necessary to consider costs, revenues and cash

flows over a longer period so as to form a view as to the

economic viability of Christmas Island operations as an on­

going business activity.

Various mining plans and cost projections have been made

available to the Commission by the BPC on a confidential basis.

However, it is possible to indicate their broad parameters as

in Table 5 below:

TABLE 5. MINE LIFE ALTERNATIVES

Mine Life (from July 1979) Years

Phosphate Grade BPL

Total Output

million tonnes

Relative Average Costs 8 yr = 100

2.6 79 3.9 97

4.0 79 5.6 95

6.0 79/77 8.4 102

8.0 77 11.2 100

Source: Compiled from confidential evidence

46

From this data, it is apparent that there is relatively

little difference in the average f.o.b. costs per tonne between

the various mining options. It follows that if the market

conditions allow a competitive price to be obtained, it would

be in the national interest to choose the mining plan which

most fully utilises existing phosphate reserves. Clearly

this is the 8 year proposal. The preferability of the 8 year plan is conditional upon:

(a) The achievement of cost efficiencies by the

management, in co-operation with the unions, as

foreshadowed in the various costings of the

mining options;

(b) the attainment of planned production levels and

the continuation of consumer demand for

Christmas Island product over the mine life;

(c) the ability of the market to absorb further

increases in the price of phosphate rock.

Each of these matters calls for some further comment.

(a) Cost efficiencies:

It is incumbent upon the BPC management to continuously

seek means of reducing the f.o.b. costs of phosphate rock

by the investigation and adoption of improved methods.

It is understood that in the costing of all the various

mining options referred to in Table 5 above, the BPC management has incorporated cost reductions stemming from

proposals to improve efficiency. In all instances, these

proposals envisage reductions in the total Island workforce,

commencing in the first half of 1980. It is important to the viability of the Island's operations that these

impending productivity measures be proceeded with, in co­

operation with the unions. These productivity programs

are premised on the assumption that there will be no further capital expenditure, a situation which arises out of

considerations already discussed. This capital expenditure

47

policy should be reviewed in the light of a projected 8 year

mining life and the proposed level of wages and other conditions

that are likely to apply to the Christmas Island employees.

There are already a number of detailed capital expenditure

proposals relating to the granulation of dust, the installation

of television monitoring equipment, and relocation of power

station facilities. These should, in the Commission's view, be

reassessed to incorporate the latest available information on

costs and benefits so that a decision can be made as to their desirability.

(b) Attainment of production levels:

To ensure that f.o.b. costs per tonne are at their

lowest possible level, it is essential that production reaches 1.4 million tonnes per annum. A shortfall in production in

a situation where the majority of Island operating costs are of a fixed nature, would have a dramatic effect in increasing f.o.b. costs, as well as possibly leading to additional

shipping costs per tonne and revenue forgone. It follows

that the attainment of the planned production levels is

essential to viability and the competitive pricing of Christmas Island rock.

This is a matter for co-operation between management and unions, and serious consideration should be given by both

parties to the likely consequences of failure to sustain

output.

(c) Capacity to absorb further price increases:

In assessing the economic viability of the Christmas

Island phosphate operations, the cost projections need to

include an allowance for future cost inflation. This has been done for the confidential cost data provided to the Commission of Inquiry, at the rate of 8% per annum for all

costs other than fuel oil which has had a rate of 10%

48

applied to it. The consequence of this is to project f.o.b.

costs rising from a level of $34-$35 per tonne at January 1980

to a much larger figure by the expiration of mine operations, offset to some extent by the productivity programs referred

to earlier. If world prices follow similar inflationary

paths then that would enhance the long run viability of the

Christmas Island operation. This is dealt with in more

detail in the pricing chapter below.

(iii) Other Considerations

(a) UCIW log of claims:

One of the exhibits presented to the Commission of Inquiry

was the current log of claims made by the UCIW. The cost

effect of these claims has not been incorporated into the

confidential cost projections provided to the Commission.

However, from a perusal of the various claims it would appear,

prima facie, that there could be a substantial increase in

f.o.b. costs per tonne if all these claims were to be granted. In the time available to this Inquiry it has not been feasible

to assess the full financial consequences which may flow from

this log of claims and others which may be made at a future

date in respect of housing and other working conditions.

Therefore, this Commission is of the view that the BPC

management and union must negotiate the settlement of such

claims in the context of maintaining a viable operation over

at least an 8 year mine life.

(b) Redundancy scheme:

The estimated costs of a redundancy scheme have been

incorporated into the cost projections contained in this section. Further comment on these costs is contained in a

later section of this report.

(c) CIPC cash resources; It is apparent from confidential projections made

available to the Commission that an immediate winding up

49

of the Island's operations would, assuming a redundancy scheme

was in place, result in cash deficits, after taking into

consideration the realisation of assets, other than phosphate stocks held in Australia and New Zealand. Because it is

considered that the mining operation should be a viable ongoing

activity over an 8 year life, provided the conditions relating

to output, pricing and productivity are met, sufficient cash flow should be generated to meet all liabilities of the

Commission at the end of this period.

The major reserves of the CIPC are its stocks of phosphate

held in Australia and New Zealand. These are currently valued

in the financial records at $34 million. If the CIPC were

to reduce the levels of stocks and consequently release the

cash for reinvestment, the interest earned on these funds could be used to reduce f.o.b. costs.

Although the running down of reserves immediately would

have serious implications for the achievement of planned

production levels, increasing consumption of phosphate should

permit manufacturers to source their additional requirements from the stockpiles located at their plants. The present policy of keeping up to six months supply or more in stocks

seems unnecessarily excessive. The cost of maintaining

these stocks is initially borne by the CIPC, and represents

revenue forgone.

(d) BPC management charges:

The BPC act as managing agents on a cost recovery basis.

A commission calculated on the quantity of Christmas Island

phosphate rock handled was at one time charged by the BPC.

At the request of the CIPC the British Commissioner of the

BPC agreed to its removal as a cost reduction measure with effect from 1 July 1978.

50

The costs incurred by the BPC are scrutinised by the

Commissioners in their dual roles as BPC and CIPC Commission­

ers. The Inquiry was advised that charges have on occasion

been disputed. Apportionment of BPC charges to its various

activities has altered since the closing down of the Banaba

operation, with the activities of phosphate management, the

Christmas Island managing agency and ship management bearing

a disproportionate share. These are now the major functions

of the BPC. In money terms the 1979-80 budget allows for an

increase of 21 per cent in the Christmas Island managing

agency charges over the cost for 1978-79. This increase is

greater than the rate of inflation by some $180,000. It

would appear that the staff reductions which might have been

expected to result from the closing of the Banaba operation

have not yet been made. In the time available to this Inquiry

it has not been possible to determine whether the management

agency charge of $1.57 million in 1978-79 and $1.9 million

budgeted for 1979-80 can be justified. These charges appear

high for an operation the size of Christmas Island and suggest

that the whole establishment of the BPC should be reviewed in

the light of its shrinking role since the Nauru and Banaba

operations have been phased out of its responsibilities.

51

SHIPPING COSTS

(i) Analysis of Freight and Other Charges

The question of viability concerns not only the mining

operations on the Island but also the marketing and distribution

of the phosphate rock. Many witnesses, particularly the UCIW

and the fertiliser manufacturers, expressed concern at the high

proportion of shipping and handling charges in the landed

cost of the phosphate rock (around 40 per cent).

TABLE 6 - DISTRIBUTION COSTS AT 1 JULY 1979 - BY COMPONENT

Cost Item

Common Pool

To

Australia

To

New Zealand

$m $m $m

Own vessels (time charter) 14.3 10.4 3.9

Bunkers 5.2 2.1 3.1

Port charges 1.0 .5 .5

Stevedoring 3.8 2.1 1.7

All other costs 1.3 .8 .5

Termination costs . 3 .2 . 1

Total 25,. 9 16,.1 9,. 8

Cost per tonne $18., 50 $21,.47 $15,.08

Output 1.4 mt . 75 mt . 65 mt

Source: Coopers & Lybrand Op. cit

The breakdown of distribution costs as shown in Table 6

gives a broad picture of the annual charges that are incurred by each item. From these charges a per tonne costing has been

estimated on the basis of an annual output of 1.4 million

52

tonnes. In the annual accounts of the CIPC for 1978-79 a total

freight and charges bill of $19.5 million was incurred to shift

1.225 million tonnes of Christmas Island rock. This amounted

to a cost of $15.90/tonne. More recent estimates for January-

June 1980 indicate that a common pool rate of $22.51/tonne is

likely to be charged.

(ii) Movements in World Freight Rates

While the distributional costs itemised above were

incurred by the BPC using mainly its long-term bare boat

charters, the Commission was told at the public hearings that

international freight rates moved more markedly. Representa­

tives from both the BPC and Australian National Line (ANL)

indicated that international freight charges had reached a

new peak and these charges were likely to level out. They

did not rule out the possibility that freight charges could

fall again in the near future. Mr Meehan, ANL, suggested

that in the international market it was the demand for

shipping that was very difficult to predict. A shift in

demand could quite easily upset the supply/demand balance.

Considerable movement in freight rates could result.

(iii) Australian Manned Vessels

Statements were made at the public hearings about the

high cost of using Australian manned vessels, and the way in

which this negated some of the benefits of using cheap

reserves of Christmas Island phosphate rock.

A l t h o u g h the costs of Australian manned ships are

relatively fixed, the world market fluctuates con s i d e r a b l y .

For several years the daily hire rates of an Australian

vessel were nearly three times that of world tonnage.

53

Following recent rises in the freight market the differential

has narrowed, although the cost of Australian vessels is still

very substantially in excess of that of world tonnage. In

1973, the then Minister for Transport decided to discontinue

the long-standing exemption under the Navigation Act enjoyed

by the BPC. This resulted in an increase of around $6/

tonne in the landed price of rock in Australia. Because of

the pooling arrangement with New Zealand, half of this charge

is borne by the New Zealand fertiliser manufacturers. The

requirement imposed on the BPC by the Australian Government

to charter what they considered to be the expensive and

unsuitable ANL vessel "Stirling Range" in 1974 added a further

$2.75 million to the distributional costs. The use of this

vessel was discontinued in 1979 and it was reported at the

hearings that the ANL has since sold the vessel overseas.

The Commission of Inquiry does not wish to investigate the pros and cons of Australian navigation and maritime

legislation, or its effect on freight and other related charges. The Commission recognises that there may be differences (quite

substantial at times) between Australian and foreign charter rates, but given the framework that presently exists, the

Commission is of the opinion that there are measures that could be taken to improve charter arrangements that might

ultimately have a direct bearing on the landed cost of Christmas Island phosphate rock. The areas in which the

Commission suggests further investigation should be carried out are as follows:

- minimising the shipping of phosphate rock during

the unseasonable months with a view to reducing

the time spent drifting by vessels waiting to

load, which is ultimately added to the landed price. The Commission appreciates that this

period coincides with the build up to peak production by manufacturers in order to satisfy the autumn planting requirements. However, the

54

Commission believes that sufficient attention may

not have been given by manufacturers to either

increasing their dry storage areas or utilising

additional outside stocks. Alternative cargoes

would need to be found during this period for BPC

vessels on long-term charter;

- the BPC (or any other distributional body that may

be formed) should investigate fully the possibility

of obtaining outward cargoes to ports which are on

or near the Christmas Island routes. Evidence

submitted to the Inquiry suggested savings of

between $4-$7/tonne could be achieved if sailing

in ballast could be avoided;

- the BPC should explore the possibility of utilising

ANL vessels which would otherwise return in ballast

to Australian ports after delivering bulk cargoes

to various South East Asian ports.

(iv) Probable Future Freight Charges

From comments made to this Inquiry, and from other

authoritative evidence, it appears that even prediction of

daily movements in world freight charges can be highly inaccurate. To predict movements in local and overseas freight

charges over the next three to five years would be a fruitless

and very naive task. This Commission notes that world freight

rates have moved quite sharply upwards in recent months.

This has put a completely different complexion on the relative

attractiveness of rock from alternative sources. The following

table shows how various freight charges have moved in the

last six months.

55

TABLE 7 FREIGHT CHARGES ($ PER TONNE)

Common Pool Australia New Zealand

Christmas Island ^ July 1979

January 1980

18.50 22.51

21.47 25.34

15.08 19.25

Florida

July January

1979

1980

26.03 38.33 (2)

25.91

38.15

26.39

38.85(2)

Nauru

July January 1979 1980

14.94

16.78

15.53 17.20

13.19 15.59

1. 2% should be added to these charges in order to bring them up to a dry weight basis with Florida rock.

2. Staff estimates

While the proximity of particular phosphate rock

reserves to a market may accord that source a certain natural advantage over other competitors, proximity to markets is not the only consideration in establishing relative price advantage. More important is the ability of the ship operators to obtain a cargo for the return journey. In this regard Nauru rock is

well placed with respect to the Australian market. Vessels

returning from Japan can load Nauruan rock and deliver it

to an Australian port. The Florida route does not offer the

same opportunities, hence the freight charges are likely to

be higher, reflecting ballast costs. In addition they may tend to be more volatile reflecting a more seasonal nature

in the availability of tonnage. Hence future freight movements from Florida will probably fluctuate considerably.

56

The extent to which long term freight rates could be negotiated

on the basis of adequate backloading cargoes seems limited.

Very little information was available to the Commission

regarding freight rates applying to rock from sources other

than Florida. African sources would normally have a freight

advantage over Florida to West Australian ports but they could

be expected to be on a par with each other to the Eastern

ports. Jordan and Israel would enjoy a freight advantage over Florida to all Australian ports. The extent to which freight

differentials could be improved from these non-Florida

sources in the future could be influenced by other developments

in trade between these regions.

(v) Implications for Pricing Policy

The volatility of freight rates appears to indicate

that any advantage that might be obtained on a f.o.b. basis

could quite easily be reversed by movements in freight rates

from particular regions. This would suggest that economic

viability should not be assessed from one year to the next

by simply comparing landed costs. It would seem to make more

sense to assess viability over a longer period of time so

that an average landed cost basis can be established.

57

PHOSPHATE ROCK PRICES

Ultimately, Christmas Island's viability will depend on

the prices that competitors charge for their product.

The charter of the CIPC does not allow it to price its

rock competitively, in the normal commercial sense. The CIPC

is nevertheless bound to watch the international market closely because it establishes a ceiling above which the cost of Christmas Island rock must not rise.

Florida rock prices appear to be regarded as the most

appropriate benchmark by both the Australian and New Zealand fertiliser manufacturers and the BPC. There was common

agreement amongst witnesses that 72% BPL Florida rock was

comparable to 77% BPL Christmas Island rock when all factors

were taken into account. Florida rock prices seem likely to continue to be regarded as an international benchmark for the

next ten years or so. The Commission was therefore concerned

to form as well-founded a judgement as possible about what those prices would do.

Florida is responsible for over 80% of U.S. phosphate rock production and around 30% of the world total. Florida's

present rate of production is reportedly in excess of

40 million tonnes per annum, with economic reserves in excess

of 350 million tonnes and a further 4,000 million tonnes that are presently classified as sub-economic. The industry

(mining and manufacture) presently employs around 61,000

people and its output is valued at around $1,500 million p.a.

(i) World Market

For many years, phosphate rock has been in ample supply and no major problems have been encountered in

establishing additional supply. The first serious imbalance in the supply/demand relationship occurred in 1973-74, when

58

demand outstripped supply, and prices, which were about $12 to

$14/tonne (f.o.b.) increased by 400%-500%. This is evident in

Table 8 below.

TABLE 8 - LISTED PHOSPHATE ROCK PRICES 1973- 1979

U. S. A. MOROCCO

75 BPL 72 BPL 68 BPL 75 BPL 72 BPL 70 BPL

US$ Per Tonne US$ per Tonne

F.o .b. ^ Port F. a.s. Port

1973 13.00 11.30 9.70 n . a. n. a . n . a .

1974 27.00 23.60 19.00 42.00 41.00 40.00

1975 55.00 48.00 39.00 68.00 65.00 61.25

1976 47.00 43.00 33.00 48.50 46.00 43.00

1977 31.00 28.50 25.00 39.50 38.00 35.00

1978 37.00 34.00 30.00 39.50 38.00 35.00

1979 40.00 37.00 33.00 42.00 38.00 35.25

1. Excludes allowance for severance tax

Sources: British Sulphur Corporation, Phosphate Rock Export Association, Office Cherifien des Phosphates, Morocco.

The surge in world prices resulted in many previously

non-economic mines being brought into production. However,

buyer resistance associated with the high prices caused demand

to decline in late 1975 and early 1976. Many phosphate

producing countries, particularly Morocco, depend heavily for their foreign exchange earnings on their phosphate rock sales.

The loss of revenue from the drop in exports and prices caused

many exporters to offer discounts in an effort to hold or

regain markets. By 1977 demand had improved, due mainly to the

decline in prices. The fall in prices bottomed out in 1978

59

and they have risen slowly since then. Although price rises

occurred in 1978 and 1979, discounting was still very much in

evidence with up to $6 to $8 (US) per tonne being cut from

list prices. This price cutting stems basically from the

intense competition between the two major exporters, The Rock Phosphate Export Association of Florida (Phosrock) and the

Office Cherifien des Phosphates (OCP), Morocco.

(ii) Future Prices

The world phosphate rock market for 1980-1985 will

continue to be dominated by U.S. and Morocco. The U.S. has

adequate supplies of phosphate rock to meet both domestic and

international commitments for the remainder of this century.

However, exports from the U.S. will be limited for the next five years, due mainly to the limitation imposed by rail and

port facilities in Florida. (Maximum tonnage handled will be

around 15 million tonnes). Morocco will continue to be the

biggest exporter of rock and its market share is likely to

increase. Jordan, Togo, Senegal, Israel and South Africa will continue to export but are not likely to influence world prices.

The Commission of Inquiry has received the following advice from the British Sulphur Corporation, London ^ :

"Price leadership of Florida rock has been based on the large scale exploitation of the phosphate rock resources of central Florida, which the producers achieved at low cost. Now that these are nearing exhaustion, the Florida rock producers are obliged

to develop phosphate rock resources further south. . . ..... the export capability of Florida/North

Carolina mines, which during the past 15-20 years expanded faster than that of Morocco, is now slowing down whereas that of Morocco is accelerating, so that in future Morocco will account for a

1. Exhibit No. 42

60

During the past 15-20 years, Moroccan costs of phosphate rock production have been higher than those of the Florida producers. By 1985, however, U.S. production costs are expected to rise

dramatically while the Moroccan costs will show virtually no change to 1990.

For these reasons, the control of the world pricing structure of phosphate rock is expected to shift into Moroccan hands by the late 1980s. In the immediate future up to the mid-1980s export prices of Florida rock will continue to exercise price

leadership and Morocco, and indirectly other phosphate rock producers, will base their prices on those established by the Florida producers. It will be reasonable to continue using actual or

notional delivered prices of Florida phosphate rock as the yardstick for competitive price comparisons for Christmas Island phosphate."

progressively growing proportion of world exports.

Regarding the prices that may be charged for phosphate

rock in the near futu r e , the British Sulphur Corporation

advised as follows:

"Current price developments are a reflection of the slightly tighter supply/demand situation for phosphate rock, of soaring phosphate fertilizer prices and of the need for all producers, especially those in Florida, to raise prices in real terms to justify

investment in new mines due to come on-stream in the mid 1980s. Especially in Florida, the anticipated cost of phosphate rock production for the next generation of mines is substantially higher due to

the added cost of meeting environmental law requirements, of the lower grade and quality of rock in the new mining areas and of rising energy costs. F.o.b. prices of Florida rock for delivery in 1980 have risen $10-$13 (US) per tonne and Morocco,

Senegal and Togo followed with similar increases, adding freight and grade differential in markets where applicable, with total increases in the range of $15-$17.50 (US) per tonne. As usual, all the

other producers are following the lead of the two major exporters. Due to the limited availability of high grade rock, their prices have increased relatively more than lower grades, a trend which

has been in evidence for about two years."

61

The Commission of Inquiry has collected information

from a number of sources that tends to confirm these trends.

Table 9 summarises that information.

TABLE 9 - FLORIDA PHOSPHATE ROCK PRICES ($A/TONNE F.O.B.)

1979 1980

Posted Negotiated Posted Likely Prices

% BPL

68 30.90 21.20 40.14 31.00-33.00

70 32.70 - 41.95 33.00-35.00

72 34.50 25.20-26.00 44.66 36.00-38.00

75 37.20 — 48.28 40.00-42.00

Heavy discounting in 1979 led to considerable

differences between the posted prices and the negotiated prices.

From the information available to the Commission concerning

1980 prices it would appear that discounting will still be

substantial. However, the 1980 discounts will be based on considerably higher posted prices.

Beyond 1980, if the Commission of Inquiry were to use historical data and project it into the future, the conclusions

would almost certainly be wrong. However, there are a number of significant factors which will tend to ensure that prices

will continue to rise in money terms, and possibly in real

terms, especially for the higher grade reserves. In addition to the increased capital cost of developing new deposits, these factors are:

- world reserves of high grade rock (over 72% BPL)

are nearing exhaustion

62

- world marketing is now dominated by two cartels or export associations, namely Phosrock and OCP,

Morocco;

- the growing need for third world countries to

increase their agricultural production.

TABLE 10 - COMPARISON BETWEEN LANDED PRICES OF FLORIDA AND CHRISTMAS ISLAND PHOSPHATE ROCK $/TONNE (C.I.F.)

June Dec. Feb.

1979 1979 1980

$ $ $

Florida 68% BPL 39.25 43.05 69.00-71.00 m

Florida 72% BPL 42.80 46.60 74.00-76.00(1)

Christmas Island 77% BPL 43.50 49.25

CNl

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1 o o

L D

1. Based on a current peak freight charge of $38/tonne. In 1979 it was around $25/tonne.

2. This range is based on the extent to which costs can be contained or curtailed on Christmas Island and whether or not planned production levels are achieved.

Based on the information available to the Commission

of Inquiry, a comparison of the landed prices of Florida and Christmas Island rock for 1980 can be made as in Table 10 above.

A note of caution must be made when drawing any conclusions

from these comparative prices. World freight rates have

reached a new peak in February 1980, and there is every

likelihood that they will fall, perhaps dramatically, over the

next 12 to 18 months. A more cautious comparison could be

based on a freight charge of around $28/tonne. This would

give a landed price of $59-$61/tonne for 68% BPL and

$64-$66/tonne for 72% BPL Florida rock. The scope for

Christmas Island price increases may not be as large as Table 10 could be taken to suggest.

63

Price forecasts for 1981-85 by the British Sulphur

Corporation indicate a further increase in the f.o.b. price of

72% BPL Florida rock of between 50% to 64%. Their forecast

suggests that prices will stabilise for the first three years

then jump by around 30 per cent in 1984 which would reflect

the new and more expensive Florida mines coming into production.

Information from another source suggests that the price of

lower grade rock, 68% BPL, will rise by about 35 per cent

during the period 1981 to 1985.

The Commission of Inquiry considers that there is a

very strong body of evidence to suggest that Florida prices

and the prices of other major suppliers will rise substantially

in 1980, and that these prices will hold in real terms well

into the 1980s. These substantial rises will have a significant

effect on the economic viability of both the production and distribution of Christmas Island phosphate rock in the short

term. Continuing viability will very much depend on the ability of the Christmas Island prices to maintain their

present relationship to world prices over the next six to

eight years.

(iii) CIPC Pricing Policy

The CIPC's charter requires that prices for phosphate

rock should equate with costs. No surpluses or deficits

should arise. The CIPC has interpreted this provision as imposing an obligation to attain a zero balance every year.

Should circumstances arise whereby the CIPC under-estimates

costs for the forthcoming budgetary period, or if a back­

dated cost is incurred (for example, in reassessing long

service liability as a consequence of wage rates rising),

established prices in that year would be insufficient to

recoup costs. In the following year, prices may have to rise sharply to recoup the previous year's deficiency.

64

In a profit oriented, commercially based organisation,

the pricing question is different. Prices are set at or near

market levels, irrespective of costs, and the profit element

acts as a buffer for unforeseen variations in costs.

It is the view of the Commission of Inquiry that the

interpretation of the CIPC charter in respect of prices and

costs should be widened so that the CIPC can generate surpluses

in some years which could offset deficits arising in other

years, provided that over the remaining life of the mining

operations prices equate with costs.

If this practice were to be adopted, the Commission

of Inquiry would suggest that the phosphate rock f.o.b.

price 1 January 1980 be set at a figure slightly above the

indicated cost level of $34-$35/tonne.

65

IMPACT OF MOVEMENTS IN CHRISTMAS ISLAND LANDED PRICES ON USERS AND CONSUMERS

The terms of reference direct the Commission to comment

on the implications for phosphate fertiliser manufacturers and consumers of changes in the relative landed costs of

phosphate rock from Christmas Island and from competing sources.

If the Christmas Island phosphate industry were to shut down immediately fertiliser manufacturers would have to seek

additional supplies on the world market. Manufacturers

would have to accept terms and conditions set by the major

world suppliers from Florida and Morocco. Moreover, the local fertiliser industry would face serious short-term

disruption because many of the manufacturers are not yet

in a position to use phosphate rock from other sources.

This situation would have the potential to impose significant additional costs on the rural sector.

The continuation of mining on Christmas Island for

another three to four years would enable the fertiliser

manufacturers to carry out the necessary capital expenditure to modify their plants in order to take phosphate rock from any source.

The effect that relative price movements could have on manufacturers and consumers is three-fold. Firstly, if the cost of Christmas Island rock rose above the cost of its

competitors, steps would be taken by the manufacturers,

as soon as it was practically and legally possible, to

purchase rock from the cheaper sources. Secondly, if the costs of Christmas Island rock fell relative to its

competitors, manufacturers would ensure that they took their maximum allocation of Christmas Island rock, and this would

ultimately help to keep the price of fertiliser products down, thus benefiting the farmers. This is the premise

on which the CIPC was originally founded. Thirdly, if the

66

cost of Christmas Island rock continues to rise but it retains

its comparative advantage, the impact on consumers will depend

on whether phosphate rock prices move in line with the general

rate of inflation.

If Christmas Island costs rise a cut-back in demand for

phosphatic fertilisers may result, and there could be addit­

ional costs for the rural community which may or may not be

passed on to their consumers. The National Farmers Federation

argued at the public hearings that because the rural sector

was export oriented it was unable to pass on price rises

automatically. The NFF stated that cost increases frequently

had to be absorbed by the farmer. The ACTU argued at the

public hearings that farmers had the capacity to absorb price

increases, and that the increased labour costs that would

result from the payment of the Federal minimum wage on Christmas

Island represented an insignificant element in the final

spread cost of superphosphate.

The effect of a $10 per tonne increase in the price of

Christmas Island rock, and of a $10 per tonne increase in the

price of phosphate rock from all sources, can be shown as

follows:

. $10 increase for Christmas Island rock only.

Current proportion of Christmas Island rock to

total rock usage is 30 per cent.

Total cost increase per tonne of phosphate rock

for manufacturer is $3.00.

From every 1 tonne of phosphate rock 1.6 tonnes

of single superphosphate is produced. Therefore if all other costs remain unchanged, an

additional $1.88 per tonne would be added to

the cost of superphosphate.

. $10 increase for all phosphate rock.

If all other costs remain unchanged then the

additional cost per tonne of single super­

phosphate would be $6.25.

67

The net price (after bounty) of single superphosphate

as at January 1980 was approximately $59/tonne. An increase

in Christmas Island rock of around $10/tonne would cause

superphosphate prices to rise by around 3 per cent. However,

Christmas Island price rises will be accompanied by similar (or even greater) increases in the price of rock from other

sources, which could mean that superphosphate prices will rise

by about 10 per cent.

The NFF in its submission stated that research into

artificial phosphate fertiliser had begun in 1973-74, following

the sharp increases in prices around that time. The NFF said

that the use of artificial fertiliser was not a commercial

proposition for the foreseeable future.

In the view of the Commission of Inquiry, the continuation

of the Christmas Island operation appears to be the best

available way of containing increases in the price of super­ phosphate, regardless of the increases in f.o.b. prices

that were foreshadowed in an earlier section of this report.

Christmas Island has the potential to serve as a watchdog on other prices. Its closure would, on present showing,

place Australian manufacturers at a significant disadvantage in their negotiations with other suppliers.

68

PART III

WAGES AND RELATED PAYMENTS

The Commission of Inquiry has reached the conclusion that

the immediate payment of the minimum Federal weekly wage

($129.50) would be compatible with the continued economic

viability of the Christmas Island phosphate industry. On the

basis of the calculations that the Commission of Inquiry has

been able to make, it is not able to say whether, on the basis

of the world prices that prevailed at the end of 1979, the

BPC would have been able to introduce parity with the

minimum Federal wage without incurring an operating loss.

In their evidence before the Inquiry, Commissioners

stated that the BPC was "not unsympathetic" to the idea of

wage parity, provided the industry could afford to pay. Two

comments need to be made. The first is that being "not

unsympathetic" to the idea of wage parity is not the same as

being in favour of wage parity and having a plan for its

introduction, along with a rationalisation program designed

to ensure that the industry can continue to function on a

sound basis. More importantly, however, the concept of

"capacity to pay" has not been accepted by wage-fixing bodies

on the mainland as a paramount criterion in determining a

fair and reasonable wage rate for the employees of a particular

establishment or industry.

It is stated in the ACTU submission to this Inquiry that

the major reason for the Conciliation and Arbitration

Commission's rejection of the concept of capacity to pay,

either to raise wage rates or lower wage rates, has been its

concern to establish a uniformity of wage rates for comparable

skills, and to share the returns or losses, through national wage cases, on a national basis.

69

Moreover, the Arbitration Commission has not been prepared to tolerate discriminatory practices. In a 1966 decision which

brought aboriginal stockmen within the ambit of an award regulating rates of pay in the Northern Territory pastoral industry, a Full Bench comprising Kirby, C.J., Moore, J.

and Senior Commissioner Taylor, stated the following:

"The pastoralists have openly and sincerely explained their problems and future intentions. However they have not discharged the heavy burden of persuading us that we should depart from standards and principles which have been part of the Australian arbitration

system since its inception. We do not flinch from the results of the decision which we consider to be the only proper one to be made at this point in Australia's history. There must be one industrial law, similarly applied, to all Australians, aboriginal or not."

If the considerations raised by this landmark decision have in

the past deterred Australian authorities responsible for the

administration of Christmas Island from seeking the extension

to it of the Conciliation and Arbitration Act, there would appear to be no further impediment to this being done.

A sound and well-understood wage-fixing system will in future

be required. It will probably need to make some assessment

of the value of the non-wage benefits enjoyed by workers on the Island, and take into account the fact that their income is tax-free. The Commission feels bound to acknowledge

that with the attainment of wage parity the justification for the continuation of this arrangement becomes problematic.

If further and immediate pressure on wages were to develop

it would be the view of the Commission of Inquiry that normal

taxation provisions should apply to every member of the Island's workforce.

It is a matter of serious concern to the Commission of Inquiry that an expectation has grown amongst the Island's

workforce that termination payments will be made on resignation or retrenchment on the basis of the Banaba Staff Scheme - a scheme that is very generous in comparison with

termination and redundancy schemes in Australia. A survey

70

of such schemes was prepared by the ACTU and submitted by

the UCIW as Exhibit No. 23.

The conclusion of the Commission of Inquiry with regard

to viability has been arrived at in such a way as to leave the

level of such payments an open question. The UCIW considers

that certain undertakings have been given in regard to a

redundancy scheme. The BPC does not agree. Whatever the truth of the matter, it needs to be remembered that the

Banaba Staff Scheme arose out of a discriminatory wage

structure that, it is hoped, Christmas Island will no longer

have. Moreover, it was devised in an industrial environment

that bore little relationship to the industrial environment

which existed on the Australian mainland. It is under­

standable that the UCIW might be resentful of the discrimination

in favour of the European staff on Banaba practised by the

organisation that employs its members. But it ought also to

be accepted by the union that regardless of who might have been

the beneficiaries, that scheme was only supportable so long as

the majority of the Banaba workforce were excluded from it.

Had it been universally applied, its costs would have been

prohibitive. The whole burden of the UCIW's campaign on

behalf of its members has been to remove discrimination. If

the matter of redundancy payments is included, and the Commission of Inquiry believes it should be, in the range of

matters to which uniform and non-discriminatory standards

are to apply, then the Banaba Staff Scheme is not an approp­

riate model. It is not an appropriate model for either BPC

staff or regionally engaged employees.

While it could be argued that until as recently as

June 1979 it was appropriate to compensate regionally engaged

employees in some way for the low wages they had been paid,

the achievement of parity with the Federal minimum wage appears

to alter this situation.

71

The Commission recognises that this is a difficult problem, a sensible solution to which is required to ensure the ongoing

viability of the industry.

It is the view of the Commission of Inquiry that if

paternalistic labour practices and a quasi-colonial social order are to be swept away and replaced by a system of wage­

fixing and industrial regulation evolved on the mainland to

meet contemporary requirements, there ought to be no aspects of industrial regulation which are exempt from such reform.

It needs to be remembered that the mandate of the ClPC

is, and will remain, to land phosphate rock on the mainland at

the lowest practicable cost. The recommendations of the Commission of Inquiry have been premised on the necessity for

this to be done in a context of comparative wage justice.

If the matter of redundancy payments cannot be resolved by

discussion and negotiation between employer and employee,

it should be submitted to the independent scrutiny of the

body which stands at the heart of the system that the UCIW wants to see adopted - the Conciliation and Arbitration

Commission.

The Commission understands that steps are being taken to align workers compensation on the Island with arrangements

that apply in the Australian Capital Territory. The calcu­ lations of production costs included in an earlier section

of this report take account of the increased premium which will

result.

72

MANNING LEVELS AND MANPOWER POLICIES

(i) Manning Levels

There was general agreement among parties appearing

before the Commission of Inquiry that too many men are engaged

in the mining operations on Christmas Island. The BPC provided

the Commission with information showing the kinds of reductions

in manning that could and should accompany the scaling down of

operations were mining to cease after four years. The UCIW made available on a confidential basis the results of a survey

it conducted which also suggested that reductions were possible

and desirable.

The Commission saw no examples of deliberate or

avoidable over-manning on the Island during its visit. The

question of over-manning only arises because increases in the

relative cost of labour have made sub-optimal some of the engineering of the production operations. The bagging and loading

of A grade phosphate dust, for example, could afford at one time

to be labour intensive. Higher wages have changed the cost

equation that gave rise to the present methods of producing and

shipping this product.

Manning levels must be cut to the bare essentials both

in the industrial operation and the supporting infrastructure.

The increase in rates of pay, which together with the non-wage

benefits available to employees, will bring about an Australian

'wage justice1 condition on the Island, should allow the manning

scales to be overhauled with the minimum of opposition from the

UCIW members. Advantage should be taken immediately of the

indicated voluntary termination of some 180 employees,

approximately half of whom have signified their wish to return

to their home countries. The acceptance of the remainder in

Australia should be stream-lined to engender good relations

with the remaining workforce on the Island. The working of

73

regular overtime should be strictly scrutinised and stopped

unless necessary to meet production targets. Overtime must

not be regarded solely as a means for the accrual of additional income.

Reductions should be made in service areas as well.

Christmas Island retains the vestiges of a system of colonial privilege and status that has long since been swept away in

the countries that gave rise to it. Christmas Island is not a colony. It is an Australian territory whose only economic

activity is phosphate mining, the objective of which is to

supply Australia and New Zealand with phosphate at the lowest

possible cost. It follows that the wages of workers who

maintain the golf course should be charged to the club members and users, rather than the mining operation. The cleaning of

the Christmas Island Club which is said to impose an income qualification for membership, should be at the club members'

expense. Domestic servants, if they are employed at all,

should be paid by the individuals who depend upon their

services, not the mining operation. There is no conceivable requirement that the mess which caters for unmarried Australian staff of European descent should have fourteen employees as

reported. It is doubtful whether there should be any provision of separate messing facilities at all for such staff, given

that all accommodation is fully equipped and the Island is endowed with a number of small cafe/restaurants.

The Commission of Inquiry believes that, at a time

when significant but possibly temporary price advantages accrue to Christmas Island phosphate rock as a consequence of increases in world prices, the opportunity should be taken to review the operation in such a way as to achieve all possible cost

reductions.

74

The Commission of Inquiry is not in a position to make

precise recommendations as to manning levels in different parts

of the mining and processing operations. Many decisions still

need to be made by management about how the plant will operate

now that a reprieve appears to have been won, and what the

quantity and nature of its output will be. But a review should

be undertaken as soon as possible. It should be undertaken in

full consultation with the UCIW and CIPSOA and the assistance

if necessary of experienced management consultants. It should

have regard only to the criterion of industrial efficiency, and it should spare no quarter to staffing arrangements that

have in the past served to maintain special privilege, or to

indicate lines of social class.

(ii) Manpower Development

It is not to the credit of the BPC, or the governments

to whom the Commissioners report, that thirty-two years after

the mining operation was bought from the British Phosphate

Company, only four workers of Chinese or Malay origin have

attained supervisory positions in the Island workforce. Two of

the four attained that rank only within the life of the

Commission of Inquiry. It is no defence to claim that qualified

candidates were not available. If that were so, qualified

candidates should have been trained. Thirty-two years is long

enough for this to be accomplished. With the introduction of

parity wages, and having regard to the non-wage benefits

enjoyed by Island workers, it ought to be possible for members

of the Island workforce to be trained in Australia for senior

supervisory positions, with reasonable expectations that they

will return to take up those positions. If the beneficiaries

of such training schemes decide not to return to the Island,

it will need to be determined what other avenues should be

explored for ensuring advancement of this kind. The Commission

of Inquiry would expect that the time has now been reached when

75

the availability of remuneration comparable to that offered to

Australians of European descent will be a factor in encouraging

Chinese and Malay trainees to return to the Island after

completion of their training on the mainland.

(iii) Recruitment

The dual wage system that exists on the Island was not

the creation of the Australian and New Zealand G o v e r n m e n t s ,

but has been allowed by them to continue in a manner and for a

length of time that does not reflect credit on their management

of this Island community and its resources.

The contract of sale under which the British Phosphate

Company sold its mining operation to Australia and New Zealand in 1948 bound the purchasers to

"continue to employ the Company's Asiatic staff and labour at the Island on the terms for the time being

current and not w ithout good reason to discharge such staff and labour or send it away from the

Island ".

It has been represented to the Commission of Inquiry

that this provision bound the CIPC to the continuation of an

operation based on the employment of low-paid workers from

Malaysia and Singapore. The Commission of Inquiry does not

accept that the requirement not to send people away imposed

any obligation on the BPC to continue recruiting from the same

s o u r c e .

There has been no recruitment of labour from Malaysia

for about a year. With the introduction on the Island of

the Federal minimum wage on a tax-free b a s i s , it is difficult

to assess what continuing value this arrangement might have.

On the one hand, labour turnover can be expected to remain

at very low levels, so that very few new employees will be

76

needed. If very few new employees need to be recruited, it

would be consistent with the Island's present ethnic and labour

structure for those new employees to be sought from Malaysia.

On the other hand, wage parity, coupled with the other benefits

enjoyed by Island workers, may induce mainland Australians to

seek employment in the labouring and skilled trades areas.

Some evolution in this direction would probably be to the

Island's advantage. The main benefit would be to lay to rest

the ubiquitous social and ethnic discrimination that has

reserved nearly all supervisory and managerial employment to

employees of European descent, and all other employment to

workers of Malay and Chinese origins.

The submission to the Inquiry made by the Commissioner

for Community Relations, The Hon. A.J. Grassby, and the

evidence of Mr. Lim Sai Meng provided information on the kind of discrimination that has been practised, and the strength

of the resentment it has given rise to.

77

INDUSTRIAL RELATIONS

The transcript of the public hearings and the submissions

of the main parties to the Inquiry contain a considerable amount

of material bearing on the area of industrial relations. This material is essential to a proper understanding of the problems

that have arisen, and some of the solutions that the Commission of Inquiry proposes. It bears careful study, not only as a

record of events, but also for the reflection of attitudes that it contains.

It may disappoint the parties, but it should not surprise

them, that the Commission of Inquiry has no comment to make on

the allegations and counter-allegations that were made in evidence or written submissions.

There are some general observations the Commission would

like to make, however. The experience of most of the Island's

residents and BPC management of unionism, collective bargain­ ing and working under arbitral awards is of relatively short

duration. Lessons are still being learnt by both sides.

The Commission formed the impression that these lessons are perhaps being learnt faster on the Island than in the head

office. Mistakes have been made, and some of them have had painful consequences. It is not an easy task to build a

we11-organised and responsible union amongst workers who have had only limited experience of this mode of industrial

organisation, and who are also seeking the right to negotiate

on a footing of social equality with their employers.

Equally, it is not easy for an employer who has relied on a

combination of discriminatory and paternalistic labour

practices to accept and adjust to the emergence from the community of demands to be treated as equals. Union spokesmen repeatedly referred during the hearings to the social basis of what are effectively economic demands.

78

Until the formation of the union in 1975, the BPC

employed no staff to handle industrial relations problems.

It is a reasonable inference from the evidence given by the

General Manager of the BPC that mechanisms for consultation

between Island management and the workforce are not highly

developed. The dual wage system and the preferential

treatment accorded to mainland Australian employees on the

Island seem to have contributed to a lack of communication

and confidence between many supervisors and the workforce.

The Commission of Inquiry also wonders, although it

makes no other comment, whether the BPC has been wise to

rely, on occasion, on learned counsel for the handling of its

industrial relations problems. Perhaps it would be better

to seek solutions evolved closer to the work place and based

on mutual knowledge and respect rather than on superior

authority.

It is the view of the Commission that the transcript

of the arbitration hearing of June 1979 when the BPC sought

and was awarded a stand down clause reflected little credit

on any of the parties involved. In other respects, this

hearing underlined what the Commission of Inquiry has come

to regard as an important obstacle to the successful and

harmonious conduct of industrial relations on the Island;

while the application for a stand down clause made successful

appeal to arbitral precedent established on the mainland

under the Conciliation and Arbitration Act, the Industrial

Relations Ordinance in force on Christmas Island is a hybrid

statute rooted in the pre-independence governance of the

Crown Colony of Singapore.

During the public hearings, representatives of the

Department of Home Affairs were asked why the coverage of the

Conciliation and Arbitration Act had not been extended to

Christmas Island. In their replies mention was made of the

Conciliation and Arbitration Act being "cumbersome".

79

In the Commission's view, unresolved industrial disputes are a great encumbrance to sustained output. Although it is

apparently intended to amend the existing Industrial Relations

Ordinance by the insertion of an appeal provision, the

extension to Christmas Island of the provisions of the

Conciliation and Arbitration Act would have the following

advantages:

(i) it would provide the unions and the management

with access to a panel of experienced

Commissioners. There are grounds for a

belief that patient and sustained

conciliation could do much to reconcile

the differences between the unions and the management on the Island;

(ii) it would introduce appeal provisions equal

to or better than those which would be

available under an amended Industrial Relations

Ordinance;

(iii) it would render more relevant to the needs

and problems of Christmas Island the body of precedent and experience that has

accumulated on the mainland under the operation of the Conciliation and Arbitration Act, and

thereby provide a valuable point of reference to unions and management in assessing their

interests and entitlements.

80

RESEARCH AND DEVELOPMENT

The history of research into the development of additional

products from the Christmas Island phosphate resource makes

impressive reading. That all but one of the products produced

from full scale or pilot plant operations have not found a

market to support further development into commercial production

is unfortunate, and not the fault of the research and development

staff. Limited fresh water supply on the Island, and the

unpredictable cost of fuel oil has prevented further progress.

The one exception mentioned above involves the washing and

screening of B grade ore which forms part of the overburden on

A grade deposits. This is a well-designed and executed

operation. The process provided in 1978-79 some 13 per cent

wet input to the dryers, comprising material that would

otherwise be dumped as waste. Only shortage of fresh water

prevents the duplication of this operation. Mention was made

during the public hearings of the possibility of washing B grade

ore with salt water using a fresh water rinse to reduce the

chloride content. There may be scope for further research in

this area if market conditions permit.

The other processes for upgrading both B and C grade ore

involve calcination using oil for fuel.

High temperature calcination is necessary for B grade

phosphate rock to deactivate or render inert when reacted in

strong acid, the high alumina/iron oxide content which prevents

the use of this material to manufacture superphosphate in the

"as-mined" condition.

The resulting lumps could be added to the A grade rock

for shipment and the resulting fines could possibly be used as

a direct application fertiliser. This process has been pilot

plant tested on the Island but has not been proved to be

economically viable at the present time.

81

Low temperature calcination of the C grade ore,

comprising the top layer of the overbuden of A grade ore, has been successfully used in the production of Citraphos (fine)

and Calciphos (coarse). These products have been shipped in

small quantities - 18,000 tonnes in 1978-79 to markets in

New Zealand, Malaysia and Indonesia.

The high cost of fuel and the requirement to market the

fines as a bagged product may preclude the large scale

development of the calcination process on the Island. However,

the establishment of a plant either in Malaysia or Indonesia at a site where natural gas is available appears to present

a future possibility for an ongoing activity. It would open

the possibility of shipping dried C grade ore as the reserves

of A grade ore are worked out.

Preliminary discussions have been held with ICI-CCM

(Malaysia), companies which already market and process A grade

Christmas Island dust, regarding a calcination plant to be

located on the east coast of Malaysia where off-shore gas will

be produced.

The general decline in the grade of phosphate being mined around the world would appear to indicate that the utilisation

of the B and C grade reserves on Christmas Island totalling

190 million tonnes should be kept well in mind. It could have

the potential to provide ongoing employment for long term Christmas Island inhabitants who do not wish to leave the

Island when mining of the A grade ore ceases. Research

conducted by the CSIRO Division of Soils appears to open the possibility that Calciphos and Citraphos could eventually find

markets on the Australian mainland.

82

MARKETING

The Christmas Island Agreement of 1958 constrains the

CIPC not to supply phosphate rock to any countries other than

Australia, New Zealand and "Malaya" except with the unanimous

approval of the Commissioners. The Commission of Inquiry

presumes that this was given when Citraphos/Calciphos

shipments were made to Indonesia.

Evidence was given that marketing activities in South

East Asian countries have been handled by ICI in Malaysia and

Singapore, and by International Minerals and Chemicals

Corporation (IMC) in other countries.

As mentioned earlier in this Report, the Commission

visited Kuala Lumpur for talks with Directors and staff of

ICI and its subsidiary, CCM. The Commission gained the

impression that this organisation was capable of expanding the market provided raw material from Christmas Island was

available. ICI depends on Christmas Island phosphate rock

for its Malaysian market to the extent that it would like

to explore the possibility of a small operation run by a

skeleton staff to supply its requirements in the event of

Australia and New Zealand terminating their mining

operations.

The possibility of a calcining operation on the East

coast of Malaysia, mentioned in the previous section, was

raised by Dr Alan Kemble, Managing Director of ICI, Malaysia.

Reports on the activities of IMC in the other South East

Asian countries were less encouraging. Difficulties in

obtaining payment and the necessity to market through an Indonesian-owned company were given as reasons for lack of

market penetration in that country. Little seemed to be

83

known of IMG activities elsewhere in the area. The Commission

was advised that IMG was not marketing in South East Asia

fertiliser products which were in direct competition with

products available from Christmas Island. It is open to

question, however, whether the South East Asian branch of a

corporation which has extensive international fertiliser

interests is an appropriate agent to assess and develop the

market potential for new products from what could become a competing source in the course of time.

To intensify the search for alternative outlets for

Christmas Island products both in the short term and long term, the Commission believes the BPC should establish a small marketing team which should include technically trained staff

familiar with the research and development activities on the Island and in Australia and New Zealand, to fully investigate

the market potential of South East Asian countries for Christmas Island B and C grade phosphate rock.

Potential may also exist for the development of an

Australian market for products based on Christmas Island's B and C grade deposits. The submission from the CSIRO Division

of Soils points to the option of replacing much of southern

Australian's consumption of superphosphate on improved pastures with Calciphos. The possibility of partial

substitution of Calciphos for superphosphate also exists in

crop-pasture rotations. The CSIRO has advised that there

appears to be potential for the development of a phosphorous/

sulphur fertilizer which is more concentrated than superphosphate,

and which would release its nutrients over a period of 4-5

seasons, requiring less frequent application than super­ phosphate .

The market potential of new products will not be able to be assessed until a worthwhile marketing effort has been made.

The Commission has formed the impression that the BPC has not

84

accorded the area of marketing a high p r i o r i t y , perhaps because

of the constraints imposed by the Christmas Island Agreement.

These are not insu r m o u n t a b l e , and the Commission believes that

greater effort in this area is required.

85

GOVERNMENT ADMINISTRATION

(i) Administrative Arrangements

In written submissions to the Commission of Inquiry, and

also in evidence, the Australian Commissioner of the CIPC/BPC,

and representatives of the UCIW and CIPSOA were critical of

recent growth in Administration costs, and of the value of

the services provided in return for the payment of those costs.

Doubts about the value of the Administration's role were also expressed to the Commission of Inquiry by members of the

Administration.

It seems reasonable to suppose that when the Island

became an Australian territory in 1958, the office of

Administrator carried important responsibilities for co­

ordinating and carrying forward the transition from British to Australian sovereignty. The Administrator, it seems

reasonable to suppose, would have been well-placed to

identify areas where Singapore laws and ordinances were no longer appropriate and required amendment or repeal. It

would also have been his task to ensure that postal, education,

police, immigration and customs services were properly estab­ lished and well co-ordinated. In many respects, the

Administrator inherited the mantle of colonial governor.

Twenty-two years later, in 1980, much has changed.

The grafting of Australian laws and statutes into the body of law left over from colonial times has made some progress,

and the administrative services are well-established and efficiently run. Other changes have taken place as well.

Singapore and Malaysia have been independent and sovereign

states for almost two decades. The former Territory of Papua New Guinea has become the sovereign state of Papua New

Guinea and progress towards self-government has been made on Norfolk Island.

86

To many of the Islanders who came from Malaysia and

Singapore, the colonial experience of those countries is either

a fading memory or an era of which they have only second-hand

knowledge. To them, and to many BPC employees whose home was

formerly in Australia, the office of Administrator is an

anachronism. In an age when the Island schools teach a West

Australian curriculum, when transport and communications

have helped to establish a feeling of closeness to and

identity with the people and events of the Australian main­

land, the office of Administrator seems to many of the Island's

residents to contribute unnecessarily to a feeling of separate­

ness, and the appearance of subject status. Whereas it is

possible that in earlier times the Administrator served as a

counter-weight to the BPC, and provided an avenue for the

expression of grievances and applications for redress, it is

clear that the formation of the union has provided a counter­

weight that the Island's workers consider to be more potent

and more efficacious. In a situation where Island residents have no formal rights of political or social representation,

the union's activities have come to embrace a wide range of issues that would not form the daily fare of union officials,

organisers and members on the mainland. The Administrator

is not responsible to Islanders in the way that union

officials are responsible to union members.

The Administration Ordinance 1958 and the Christmas

Island Act 1958-73 make the Administrator, the Department of

Home Affairs, and the Minister for Home Affairs responsible

for "the social, political and economic advancement of the

Territory and its residents". Under these arrangements

the Islanders have no means of ensuring that these responsi­ bilities are discharged in a manner that accords with their

wishes. The arrangements are not representative in .

character, and the consequence seems to have been that many

residents have become hostile towards the Administration,

and the office of the Administrator in particular.

87

The appointment of an A d v isory Council may remedy some of

these problems although the Commission believes that it should

be regarded as a transitional step in progress towards the

fullest possible integration of the Island into the gove r n ­

mental and administrative framework that exists on the m ain­

land .

The Commission of Inquiry sees these matters as having

a direct bearing on the issue of economic viability.

The Island has no economic activity that does not depend on

phosphate mining. All its inhabitants are involved in

some way in the production and shipping of phosphate rock.

If issues relating to what might be termed "civil rights", and

community dissatisfaction with the unrepresentative nature

of Island administration have the potential to find expression

in industrial action, as they now do, then they clearly also

have the potential to affect economic viability. They are,

in effect, a proper matter for the concern of this Commission

of I n q u i r y .

(ii) Administration Costs

It would provide greater scope for the setting-up of

satisfactory arrangements for political representation

and possibly relieve some of the pressure for such

representation, if the Administration costs were to be borne

by the Australian Government instead of by the phosphate

industry. A decision to this effect would, in the view

of the Commission of Inquiry, probably create an atmosphere

in which the Island's political and social evolution can be

considered and discussed soberly and with more patient

reflection than the mixing of these issues with more narrowly

industrial matters has p e r m i t t e d .

Education is the largest single item in the Island

Administration's budget. The Commonwealth Department of

Education made a written submission to the Inquiry in

88

support of current levels of staffing and funding. The Department also suggested that there is a need to review the

arrangement whereby the whole cost of education is charged

directly to the Island phosphate industry. The Commission of

Inquiry agrees that this is an anomaly, although it understands

that on the mainland State governments have required some

mining companies to contribute to the capital cost of schools

and housing for teaching staff in mining towns. However, the

costs of maintaining the schools and providing the teaching

staff are borne by the State.

In addition to relieving the phosphate industry of the

charges that are now made for education and other administrative services, it would be consistent with recommendations arising

from other sections of this report if a thorough review of

Administration staffing levels were to be made, including in

the schools.

89

IMMIGRATION AND CITIZENSHIP MATTERS

If Christmas Islanders continue to have no effective channel

for the expression of their views on problems affecting them

other than their union, it is clear that their dissatisfaction

could find expression in industrial action. Such action would

have implications for the question of economic viability.

In his evidence to the Inquiry Mr. Cullen for the UCIW

said:

"We regret that people have to be on the island for five

years before they have established eligibility to apply to come to Australia. We think that requirement ought

to be shortened considerably. The other thing we say

about that is that even though they have been on

Australian territory for five years before they get to the mainland they then have to wait another three years

to apply to become a citizen, whereas any migrant coming

normally to Australia, after he has been here three years, can apply to be a citizen. We think that matter should

be looked at ......

The other matter relating to immigration is short term. We have acknowledged that, given a voluntary redundancy scheme, there are people who are prepared to be paid off

and many of these will w ant to come to Australia. While

the general policy is clear, the specific policy which will allow them to move to Australia within the next few

months is not c l e a r ..... "

The General Secretary of the UCIW, Mr. Bennett, stated in

evidence that in the union's view, there are no longer any

restricted term workers on Christmas Island:

"In the past our members were required to resign from their employment with BPC, return to their homeland after each three years service and remain off the Island for

a period. They could then re-apply. It was a formality

as is evidenced by letters that we submitted p r e v i o u s l y . It was a formality that they would be re-employed. It

was also submitted at that time by us that workers with

knowledge of the industry were worth more to the industry than new employees. It was a subterfuge to stop these

workers becoming entitled or being able to make a claim

for either permanent residency or citizenship and that is clearly all it was."

90

Mr. Bennett also stated that the practice of requiring

restricted term workers to leave the Island after three years

had been abandoned in 1977 or 1978. His evidence on this matter

was not disputed by the BPC or the Department of Home Affairs.

The Commission of Inquiry accepts that the requirement

to leave the Island after three years probably was a device to

foil claims to the right of permanent residence on the mainland.

According to information contained in the written

submission of the Department of Home Affairs, 1,585 of the

2,150 restricted term workers, their wives and children on the

Island as at 30 June 1979 had been there in excess of three

years.

From the investigations of the Commission, it appears that

anxiety was created among Island residents after June 1979 by

the prospect that the mining operation would cease before the

eligibility of restricted term workers for admission to the mainland had been established. At the moment, so-called

restricted term workers and their families may be granted

migrant entry to Australia under CIMETAS (Christmas Island

Migrant Entry to Australia Scheme), approved by the Government

late in 1978 when the life of mining on the Island was

expected to be ten years or more. Entry approval by the

Department of Immigration and Ethnic Affairs in each case is

subject to meeting various requirements, including a 5 year minimum service on the Island and the prior arranging by

intending migrants of employment and accommodation in mainland

Australia.

Australian citizenship has been automatically granted to

all residents born on the Island on or after 1 October 1958.

Special provisions have been made for granting Australian

citizenship to long-term residents who are not there on a

restricted term of residence basis. In the view of the

91

Commission, it would be more apposite to say that special

provisions have been made to deny citizenship to so-called

restricted term workers.

The Commission of Inquiry arrived at the view that this

discrimination was invidious and unwarranted. Christmas Island workers live on an Australian territory. They are employed in

an Australian industry which has made a substantial contribution to the wealth of the country. Their supervisors and managers

are predominantly Australian. Their children are taught an

Australian curriculum by Australian teachers. As was brought

out in evidence by the UCIW, and also in the submission of the Department of Home Affairs, Island residents have been

repeatedly invited by successive Australian governments to

look towards, in effect, an Australian future. If the device

of the restricted term contract was ever effective in

discouraging such expectations, it clearly no longer is, as its abandonment attests.

It is the view of the Commission of Inquiry that workers

on Christmas Island serve no less appropriate an apprenticeship

for the granting of citizenship than do foreign nationals who complete three years of permanent residence in Australia.

Information supplied by the Department of Immigration and Ethnic Affairs suggests that on the basis of figures for

settler arrivals from Malaysia and Singapore alone, the entire population of Christmas Island could be satisfactorily absorbed

on the mainland without difficulty if the need arose. Figures for Indo-Chinese refugee arrivals are also relevant:

Year Indo-Chinese Refugee Arrivals

1975 1095

1976

1977

1978 9508

2078

775

1979 (Jan.-Oct.) 10769

92

It is the view of the Commission that the written submission

of the Department of Immigration and Ethnic Affairs took a very

narrow view of the rights to citizenship and permanent residence

of Christmas Island workers. The Department argued, for

example, that "few Island workers have close relatives in

Australia and they are predominantly unskilled". The Commission

of Inquiry questions whether having relatives in Australia is

the only yardstick by which the extent of a prospective settler's

association or identification with Australia can be measured.

Other factors, such as Christmas Island's education system,

have already been mentioned. The Commission of Inquiry does not

accept the suggestion that the Island's workforce is

predominantly unskilled. It is at a loss to know how the

Department could arrive at this view. A substantial proportion of the Island's regionally-engaged workers are semi-skilled or

skilled. It is to the BPC's credit that its efforts in the

area of trade training on the Island have been thorough. There

are no areas of the Island's operations, from administration to plant operating, from ship-loading to laboratory analysis, that

do not depend on skilled and semi-skilled regionally-engaged

employees.

The Department of Immigration and Ethnic Affairs also

commented that:

"..... employment placement in W.A. where most would prefer to settle could present difficulty and result in large numbers becoming a charge on public funds. The Department of Social Security has advised that the cost at current rates of paying unemployment benefits

to 500 workers and 1160 dependants would be in the order of $2.2 million a year".

The Commission of Inquiry considers these remarks show no

awareness of the success that Christmas Island workers have had

in the past in finding employment on the mainland. In several

Western Australian mining communities, Christmas Island workers

are looked on as disciplined, reliable and highly competent

93

employees. The meat works at Katanning, which produces for

markets in Islamic countries, is highly dependent on former

Christmas Island workers of Malay origin.

There is little room for doubt that resentment and anxiety

over the question of entry to Australia has inflamed the

industrial relations climate on the Island. In the view of

the Commission of Inquiry this need not, and should not,

have happened.

94

PART IV

CONSERVATION ISSUES

The Commission of Inquiry received submissions from the

Australian National Parks and Wildlife Service (ANPWS), the

Australian Conservation Foundation (ACF), and the International

Council for Bird Preservation (ICBP).

ANPWS provided background information on the fauna and

flora of Christmas Island, in particular those species which are

endemic to the Island. ANPWS and ACF pointed out that there

is a strong international body of opinion in support of nature

conservation on Christmas Island. During 1978, two

international bodies, the International Council for Bird Preservation and the International Union for the Conservation

of Nature and Natural Resources adopted resolutions urging

the Australian and New Zealand Governments to institute nature

conservation programs.

It was clear from the submission that concern focuses

mainly on the threatened status of the endemic birds. Three

endemic birds - Abbott's Booby (Sula abotti), the Christmas

Island Frigatebird (Fregata andrewsi) and the Christmas Island

Hawk Owl (Ninox squamipila natalis) and two turtles (Chelonia

mydas and Eretmochelys imbricata) are included in Appendix 1

to the Convention on International Trade in Endangered Species

of Wild Fauna and Flora. As a party to this Convention,

Australia is obliged to prevent exploitation of these

endangered species through trade. A further international

commitment is the agreement between the Government of Australia

and the Government of Japan for the Protection of Migratory

Birds and Birds in Danger of Extinction and Their Environment,

95

which covers some of the Island's nesting seabirds and visiting

waders. ACF and ICBP provided a list of nine species of birds

found on Christmas Island considered to be rare or endangered

species.

Of the endemic bird species Abbott's Booby is claimed to

be the most threatened by the current phosphate mining operation.

Extensive studies carried out by Dr. J.B. Nelson of Aberdeen

University and the Conservation Officer of the BPC, Mr. D.

Powell, indicate that the main problem in preserving the

Abbott's Booby is the considerable overlap between the birds'

nesting sites and the incidence of the richest A grade

phosphate deposits. Other inherent characteristics of the

species exacerbate conservation problems. It was mentioned

in evidence, however, that there are around 2,000 nesting pairs

of the Abbott's Booby still living on the Island.

ANPWS has pressed for the declaration of a National Park

on Christmas Island. The proposed boundaries were defined

in the Commonwealth Gazette of 4 October 1979. BPC has taken

the proposed boundaries into account in the formulation of

its future mining plans. The current National Park proposal embraces only areas containing very small phosphate deposits.

A study of the nesting habits of Abbott's Booby, which is due to be completed by the end of this year, should lead to

a better appreciation of the areas it might be necessary to

retain to protect the species.

ACF supplied the Commission of Inquiry with a copy of

suggestions it has made to ANPWS recommending that the proposed

boundaries of the National Park be extended. The BPC advised

the Commission that a National Park on the boundaries proposed

by the ACF would lead to the immediate cessation of phosphate

mining operations.

96

The Commission of Inquiry recognises that the BPC has

undertaken substantial conservation work of its own volition,

and has modified its mining operations to help preserve the

number of Abbott's Booby birds. It appears that investigations

such as are now being carried out by Mr. Powell and the

Conservation Officer of the Administration will need to be

continued for some time before it is known to what extent

the mining out of the remaining reserves of A grade phosphate

rock will affect the endangered species.

97

■

APPENDIX (i)

ORGANISATIONS AND INDIVIDUALS WHO MADE SUBMISSIONS

Consolidated Fertilizers Limited

National Farmers' Federation

Australian Conservation Foundation

International Council for Bird Preservation

Australian National Parks and Wildlife Service

Department of Immigration and Ethnic Affairs

Australian Fertilizers Limited

Adelaide & Wallaroo Fertilizers Limited

Union of Christmas Island Workers

Christmas Island Professional and Salaried Officers Association

The Australian National Line

Mr M. C. Timbs - Commissioner for Australia, Christmas Island Phosphate Commission and British Phosphate Commissioners CSBP & Farmers Limited

Department of Home Affairs

Electrolytic Zinc Company of Australasia Limited Mr V. A. Cook

The Phosphate Co-operative Company of Australia Limited

Department of Administrative Services Bureau of Agricultural Economics

Australian Council of Trade Unions

Department of Education

Commissioner for Community Relations

Dr R. S. Beckwith, CSIRO Division of Soils

99

APPENDIX (ii)

PUBLIC EXHIBITS

1 Christmas Island Agreement, No. 87 of 1949

Christmas Island Agreement, No. 69 of 1958

2 Agreements between CIPC and BPC of

17 April 1953 and 23 April 1968

3 Phosphate Supply Agreement

4 The Territory of Christmas Island

Industrial Relations Ordinance 1976

5 Submission - Mr M. C. Timbs, Commissioner

for Australia

6 Agreed Understanding between the Australian and New Zealand Governments concerning the commercial viability of Christmas Island operation

7 Cost breakdown prepared by the Commission

of Christmas Island direct costs of production 8 Submission - Electrolytic Zinc Company of

Australasia Limited

9 Submission - CIPSOA

10 CIPC letter concerning its interest in

four stevedoring ventures with fertiliser manufacturers 11 CIPC Operations Budget 1979/80

12 CIPC Annual Accounts 1978/79

13 Coopers and Lybrand Report on the

landed costs of A Grade Phosphate Rock from Christmas Island

14 CIPC Reserves as at 30 June 1979

15 Comparison of Florida and Christmas

Island Phosphate Rock

16 CIPC Financial Studies Relating to Future Viability

17 Summary of discussions between Departments of Home Affairs, Administrative Services and Industrial Relations, BPC and UCIW

Exhibit N o . Content

100

18

19

20

21

22

23

24

25

26

27

28

29

30 31

32

33

34

35

Exhibit No. Content

Submission - Dr R. S. Beckwith, CSIRO Division of Soils

Submission - Department of Home Affairs, Canberra

Submission - Department of Administrative Services, Canberra

Submission - Mr V. A. Cook

Submission - ACTU

Redundancy Provisions in Federal Awards and Agreements

Letter from BPC to UCIW of 7 August 1979 concerning wage offers

Submission - National Farmers' Federation

"Conservation of Endangered Species on Christmas Island" - House of Repres­ entatives Standing Committee on Environment and Conservation, October 1974 Submission - Australian Fertilizers Limited

Telex - Consolidated Fertilizers Limited concerning replies to questions from Commission

Quarterly Time Charter Indices prepared by the United Kingdom Chamber of Shipping

Telex - ANL concerning freight rates

World Survey of Phosphate Deposits, The British Sulphur Corporation Limited, 1971

"Phosphate Rock: World Production, Trade and Resources", A.J.G. Notholt, Mineral Resources Division, Institute of Geological Sciences, London Questions submitted by BPC to ANL

ClPC Board Minute No. 1400 of June 1979 concerning proposed termination of mining operations no later than 30 June 1983

Newspaper Article, The Australian, 31 January 1980 concerning an address by N . G. Jenner, Chairman of The Australian Shipping Commission

101

36

37

38

39

40

41

42

43

44

45

46

47

48

Exhibit No Content

CIPC Reports and Accounts for 1975/76, 1976/77 and 1977/78

Submission - Department of Immigration and Ethnic Affairs, Canberra

Submission - Department of Education, Canberra

Telex concerning BPC forward demand estimates for phosphate rock for Australia and New Zealand

Article in "Industrial Minerals", January 1980 titled "Where is Florida's phosphate industry going?"

Telex from P.L. Louis, ISMA Limited, Paris, concerning world phosphate supplies

Telex from J. Lancaster, The British Sulphur Corporation Limited - Study requested by Commission of Inquiry

Newspaper article, "Australian Financial Review" 6 February 1980, "US allows phosphate sale to Soviet Union"

UCIW Log of Claims

BPC memorandum concerning Nauru Redundancy Arrangements

BPC and UCIW Branches 1 and 2 Agreement 1979, Wages Schedule

The Territory of Christmas Island Bulletin, 17 November 1976, Announcement of Christmas Island Resettlement Scheme on 17 November 1976 by the then Minister for Administrative Services, Senator Rt Hon. R.G. Withers

The Territory of Christmas Island Bulletin, 19 November 1976, concerning Applications for Resettlement

102

Exhibit No. Content

49 The Territory of Christmas Island Bulletin 4 August 1976, Press Statement by the then Minister for Administrative Services, Senator Rt Hon. R.G. Withers, concerning the commencement of a resettlement scheme

for long term Asian residents of Christmas Island

50 The Territory of Christmas Island Bulletin 22 November 1976 concerning the Christmas Island resettlement scheme

51 The Territory of Christmas Island Bulletin 9 September 1976 concerning the Second Reading Speech of the Christmas Island Agreement Bill 1976 made by the then

Minister for Administrative Services, Senator Rt Hon. R. G. Withers

52 Submission - ACF

53 House of Representatives, Question Without Notice 31 May 1978 to the then Acting Prime Minister, Rt Hon. J. D. Anthony concerning Duchess phosphate deposits 54 House of Representatives, Question Without

Notice 2 June 1978 to the then Acting Prime Minister, Rt Hon. J. D. Anthony concerning Duchess phosphate deposits

55 House of Representatives, Question Without Notice 2 June 1978 to the then Acting Prime Minister, Rt Hon. J. D. Anthony concerning Duchess phosphate deposits

56 House of Representatives, Question Without Notice 6 June 1978 to the then Acting Prime Minister, Rt Hon. J. D. Anthony concerning Duchess phosphate deposits

57 "Phosphate Raw Materials and Fertilizers: Part II - A Case History of Marginal Raw Materials", John Hoare, BPC.

103

APPENDIX (iii)

CONFIDENTIAL EXHIBITS

Exhibit No. Content

1 Submission by the Phosphate Co-operative

Company of Australia Limited

2 CIPC Estimations of Termination Costs

3 Confidential excerpts from submission by

Department of Administrative Services

4 Australian Fertilizers Limited

Reply to questions from Commission

5 Confidential excerpts from submission by

Consolidated Fertilizers Limited

6 UCIW Summary of Questionnaire on

Redundancy

104

APPENDIX (iv)

ORGANISATIONS REPRESENTED AT PUBLIC HEARINGS

Electrolytic Zinc Company of Australasia Limited

The Phosphate Co-operative Company of Australia Limited

Christmas Island Professional and Salaried Officers Association

Union of Christmas Island Workers

National Farmers' Federation

Australian Fertilizers Limited

Consolidated Fertilizers Limited

Australian Council of Trade Unions

The Australian National Line

Australian National Parks and Wildlife Service

Adelaide and Wallaroo Fertilizers Limited

Australian Conservation Foundation

International Council for Bird Preservation

Department of Home Affairs

105

APPENDIX (v)

WITNESSES WHO GAVE EVIDENCE AT PUBLIC HEARINGS

Name Position Organisation

Mr. M.C. Timbs Commissioner for Australia BPC & CIPC

Mr. W.B. Marston Commissioner jointly for Australia & New Zealand CIPC

Mr. A.E. Gaze General Manager BPC & CIPC

Mr. A.P. Kershaw Assistant General Manager Production BPC

Mr. J.E. Hoare Chief Engineer BPC

Mr. D.A. Morgan Assistant General Manager Finance BPC

Mr. M.B. Beck Fertiliser Sales Manager Electrolytic Zinc Company of A/Asia Ltd

Mr. E.G. Pullen Managing Director The Phosphate

Co-operative Company of Australia Ltd

Mr. O.J. Slattery Secretary The Phosphate

Co-operative Company of Australia Ltd

Mr. M.J. Kitney Union Delegate CIPSOA

Mr. L.J. Pole Union Delegate CIPSOA

Mr. P. Cullen Consultant UCIW

Mr. G. Bennett Secretary UCIW

Mr. Lim Sai Meng Union Official UCIW

Ms. H.A. Rolfe Professional Consultant UCIW

Mr. K.J. Edwards Mainland Representative UCIW

106

Name Position Organisation

Mr. D.B. Trebeck Deputy Director National

Farmers' Federation

Mr. K. Satchwell Managing Director Australian

Fertilizers Ltd.

Mr. J.V. Wilkins Managing Director Consolidated

Fertilizers Ltd.

Mr. W.J. Kelty Assistant Secretary ACTU

Mr. J.G. Meehan Director ANL

Mr. T. Richmond Acting Assistant Director ANPWS

Mr. N. Gare Assistant Director ANPWS

Mr. J. Foreshaw Senior Environmental Officer ANPWS

Mr. J.E. Harris Managing Director Adelaide &

Wallaroo Fertilizers Ltd.

Dr. J.G. Mosley Director ACF

Mr. R.A. Buckingham Member Chairman, Australian National Section

ACF

ICBP

Mr. T.F. Patterson First Assistant Secretary Co-ordination and Management

Department of Home Affairs

Mr. K.P. Cooper Assistant Secretary Indian Ocean Territories Branch

Department of Home Affairs

107

APPENDIX (vi)

ACCESS TO SOURCE MATERIAL

Copies of Public Submissions, Exhibits and Court Transcript, other than documents or sections thereof which have a security

classification, are available through the following offices:

Public Court

Submissions Exhibits Transcript

Commonwealth Reporting Service, Flotta Lauro Building, - - Purchase

486 Bourke Street, MELBOURNE, Vic. 3000

Tel. (03) 60 0501 ext. 288

National Library of Australia, Manuscript Section, Parkes Place, PARKES, A.C.T. 2600

Tel. (062) 62 1250

Australian Archives Office, Outer Crescent, MIDDLE BRIGHTON, Vic. 3186

Tel. (03) 92 8388

With the exception of Court Transcript, which is subject to

copyright provisions, interested persons are free to copy the above material.

Loan/ Loan/ Loan/

Perusal Perusal Perusal

Perusal Perusal Perusal

108

APPENDIX (vii)

ACKNOWLEDGEMENTS

The Commission received invaluable assistance at every

stage from the Prices Justification Tribunal. The PJT allowed

the Commission to use its telex and photocopying facilities,

its phones and even its furniture. The Commission was grate­

ful for that help.

Commissioners and senior staff of the CIPC/BPC worked

very hard to produce the information we asked for. Their

co-operation was critical to the completion of the task.

The officials and members of the UCIW were unfailingly

co-operative in their approach to the Inquiry, on the Island

and at the hearings in Melbourne. CIPSOA's contribution was very helpful.

The staff of the Departments of Administrative Services

and Home Affairs provided additional information that was

very helpful to the Inquiry.

Mr J. Tyler of BH South Ltd very generously made

available a quantity of resource material that we might not

otherwise have been able to collect in the time available.

Mr J. Hoare, Chief Engineer of the BPC, was an

invaluable guide to the mining and processing operations on the Island and gave generously of his time.

Mr H. C. Phillips, of CSBP Farmers, devoted an entire

day of his time to ensuring that we had some understanding

of manufacturing processes and problems.

109

Mr D. Lenihan, of the Department of Administrative Services, was at all times a willing helper and adviser on the practical as well as the policy problems that arose.

Staff of the Commonwealth Reporting Service gave valuable

help by producing a transcript with the least possible delay.

110

APPENDIX (viii)

STAFF OF COMMISSION OF INQUIRY

Commissioner : Mr W. W. SWEETLAND

Personal Secretary : Mrs Eileen RYAN

Secretary to Commission : Mr Warren LANG Personal Secretary : Mrs Marisa THORNE

Counsel Assisting : Mr Howard NATHAN

Instructing Solicitor : Mr Brendan HARKIN

Research Officers : Mr David CLARK

Mr Peter KEELE

Administrative Officer : Mr Robert BANKO

Clerical Support : Miss Leanne SADLER

Miss Kim KENDRICK

Consultant on Financial Matters : Mr Robert HOOD

111

APPENDIX (ix)

ABBREVIATIONS

Australian Conservation Foundation ACF

Australian Council of Trade Unions ACTU

Australian National Line ANL

Australian National Parks and Wildlife Service ANPWS

British Phosphate Commissioners BPC

Chemical Company of Malaysia CCM

Christmas Island Phosphate Commission CIPC

Christmas Island Professional and Salaried Officers Association CIPSOA

International Council for Bird Preservation ICBP International Minerals and Chemical Corporation IMC

National Farmers 1 Federation NFF

Office Cherifien des Phosphates, Morocco OCP, Morocco

Rock Phosphate Export Association of Florida Phosrock

Union of Christmas Island Workers UCIW

bone phosphate of lime BPL

cost, insurance, freight c . i . f.

free along side f . a . s .

free on board f.o.b.

million tonnes mt

112