Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Western and Northern Australia) Share this | Hansard source

I rise to speak in favour of the Foreign Acquisitions and Takeovers Amendment Bill 2009 and, in so doing, I commend the speakers to date in this debate. The member for Pearce quite properly references the significant issues around the takeover proposal from the Shell oil company of Woodside in 2001. I should declare my personal interest in that matter, having been at the time and for a subsequent six-year period an employee of Woodside. On many occasions I appeared at the offices of the Foreign Investment Review Board to represent the interests of that company in the area of creating understanding and seeking approval for investments in Australia’s oil and gas sector.

It is also important to note in the presentation of the member of Pearce references to the national interest. It was extremely important during 2001 to bear in mind that we were coming off the back of the Asian financial crisis and that there was an aggressive bid by one of the world’s largest oil companies, Shell, for one of the real growth assets of the Australian economy in this sector, Woodside, and to bear in mind the clear threats that were made by a range of corporate leaders—not just Australian but internationally recognised corporate leaders—that if the then Australian government did not acquiesce to the demands of an international company, then there would be dire consequences for the Australian economy. The dollar would crash, they said; investors would be disinclined to come to Australia, they said; they also said that to do anything other than wave through that application would have been grossly irresponsible of the then government.

I am pleased to say that the then government, led by Prime Minister Howard, and the decision made by the then Treasurer Peter Costello to give an Australian company a chance was insightful—not saying we do not like foreign investment but saying that, given the nature of the investment, given the area of business in which the investment was being made and given the possible future for the LNG industry at that time, the transaction was not appropriate. I personally believe that at any other time, should that transaction have been considered by an Australian government of either persuasion, different parameters would have played in the minds of the Treasurer and the Prime Minister of the day. The national interest is something which we have to accept from time to time. We need to change, alter, amend and create an understanding that is completely appropriate to our economic circumstances.

At the time, in 2001, it seemed to me that not only was our national interest preserved by preventing the takeover of that company but, moreover, it was also preserved by saying to large international companies and company directors—and Leigh Clifford’s name comes to mind here—‘No, we as the Australian economy will not be bullied by international investors. We are participants in the process of investment and we are thoughtful stewards of our economy and thoughtful managers of our future.’ That being the case, an appropriate decision was made that I do not believe would reflect on any future attempt by Shell to invest in Woodside or anyone else to invest in any other company. They are all decisions taken at the time and on their merits and do not reflect in any way on the participants in the decision. Royal Dutch Shell is an outstanding company. Its managers and its personnel are outstanding people. At the time a decision was made because at the time the Australian government’s view was, I think quite properly, that that was in the interests of the Australian nation and our future.

The Foreign Acquisitions and Takeovers Amendment Bill 2009 clarifies the operation of the Foreign Acquisitions and Takeovers Act to ensure that the government has the capacity to examine all substantial investment proposals that could potentially raise national interest concerns. Australian governments of all persuasions have always welcomed and encouraged foreign direct investment due to the benefits that it provides to the Australian economy. From time to time politicians in this place do seek the low road. From time to time Senator Barnaby Joyce does seek to vilify foreign investment on the basis of political advantage rather than with calm, clear analytical skills that one would presume would better characterise a Senate leader.

Foreign direct investment creates jobs for Australians. Foreign direct investment encourages Australian innovation and skills development. Foreign direct investment introduces new and innovative technologies. Foreign direct investment promotes competition amongst Australia’s industries—in agriculture, mining, services, banking, property, retail and the media. Foreign direct investment has helped build our nation and the competitiveness of our economy, and it will surely continue to do this into the future.

In the Senate Economics References Committee recent inquiry into foreign investment by state owned entities, Professor Peter Drysdale of the ANU and Professor Christopher Findlay of Adelaide university noted Australia’s efficient mining sector—probably the most efficient in the world, they said. They said:

This is importantly due to its openness to foreign investor competition and participation, because that brings with it, and fosters, the technology, management know-how and market links that are essential ingredients in the development of a world class, internationally competitive industry.

Australia, therefore, has a long record, and a strong policy regime, characterised by openness towards foreign investment in its resource industries …

The Acquisitions and Takeovers Act 1975 set the framework for foreign investment in Australia. It was at the time an act required because of community interest and concern about the rapidly escalating levels of investment in the Australian economy by the growing Japanese economy—growing and seeking to identify resource partnerships and seeking to grow its resource stocks in the areas of iron ore, bauxite, oil and gas, and coal. In a crude way the act sought to get the balance right between encouraging investment while ensuring that our national interest was protected.

Currently the act requires foreign investors to notify the government of their transactions in certain circumstances. Unfortunately, in the main, interaction with the Foreign Investment Review Board seems to be the province of lawyers and lobbyists. It does not appear to be principally the province of companies entering to talk their own book. Of course, what we often see in public commentary around the Foreign Investment Review Board are comments by lawyers and lobbyists seeking, in my view, to encourage their own business growth rather than to smooth the way, to create insight and to ensure that serious business propositions get serious consideration, serious elevation through the system, to ensure timely decision making. In short, frequently commercial opportunists clog the system.

The FIRB act empowers the Treasurer to place conditions upon or block those proposals that could be contrary to the national interest. Under the Rudd government there have been two rejections, both on national security grounds: Minmetals’s bid for OZ Minerals and a joint venture between Wuhan Iron and Steel and Western Plains Resources. Both were rejected because they would have involved activities within the Woomera prohibited area. Minmetals, insightfully, gained approval on the condition that they left out the Prominent Hill copper and gold mine from their proposal.

The act focuses on situations where a foreign investor obtains substantial influence or control. The current provisions in the act that deal with control have worked well. However, since the act was passed in the 1970s the nature of investments has grown increasingly complex. The use of occasionally opaque or ‘innovative’ financing arrangements has been a concern. Such innovative vehicles have highlighted that ownership interest and control can be held in a variety of forms other than through traditional shares and voting power. While these types of investment arrangements may have a solid commercial basis, they have raised questions around the act’s full application. To safeguard the act’s policy intention, the government announced that it would seek to amend the act.

This amendment bill clarifies that under the act foreign investors must notify the government where the investment arrangement could deliver influence or control over an Australian company valued above the relevant monetary threshold. Importantly, the act will apply equally to all investments, irrespective of how they are structured. The amendments make specific provision for transactions involving instruments that eventually convert into shares. This will be achieved by first expanding the definition of ‘voting power’ so that it covers the number of votes that could be cast if it is assumed that a future right is exercised, and second by clarifying where the act deals with interests in shares. Currently the act provides that a person is deemed to hold an interest in a share if they have a right to acquire a share or to have a share transferred to them. The bill clarifies that a right can include a right under an instrument, agreement or arrangement, whether the right is exercisable presently or in the future and whether on fulfilment of a condition or not.

The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company. The amendments in this bill apply from 12 February 2009, the date that Treasurer Swan announced the changes, and provide certainty around the act’s application. To ensure that investors are not unfairly affected by the retrospective start date, the bill includes transitional provisions that apply in relation to business proposals and transactions that occurred between 12 February and the date of royal assent. These changes improve the integrity of the act and capture arrangements that may be deliberately structured to avoid foreign investment screening.

The bill will strengthen the work of the Foreign Investment Review Board. Who are the Foreign Investment Review Board? They are people of substantial standing as Canberra policymakers and as Australian citizens. Mr John Phillips AO was appointed chairman of the board in 1997 and reappointed for a further five years in April 2007. He has extensive high-level experience in the public, finance and business sectors. Ms Lynn Wood has been a board member since April 1995 and was reappointed on 3 April 2005 for a further five years. These are substantial people with a deep background in Foreign Investment Review Board matters. Chris Miles was appointed to the board in June 1999 and reappointed for a further five years in 2004. Executive Officer Patrick Colmer made a visit to the Pilbara just a few weeks ago. He actually went out to look at iron ore mines and engaged with operators, workers and the government of Western Australia to better understand the operations of our substantial iron ore and oil and gas assets in the north of Western Australia.

It is interesting to note the speakers list for this bill. Most speakers are either Western Australians, where these issues tend to bite more quickly, more deeply and more meaningfully, or from Northern Australia, where, again, the implications around foreign acquisitions tend to be more poignant because of their importance in driving business investment and the emotional significance of foreign investment.

When contemplating foreign investment, it is difficult to make clear lines available for general understanding purely because of how companies are owned. It is difficult to understand all marketing arrangements, simply because of how marketing arrangements are structured. Dual listed entities make life even harder. Rio Tinto is an 84 per cent foreign owned company. BHP Billiton, a $130 billion company, is about three-quarters foreign owned. The major mining companies in Australia—BHP Billiton, Rio Tinto, Anglo and Xstrata—are all majority foreign owned. In 2006 foreign direct investment in mining in Australia was over 80 per cent of new private capital expenditure. Over 80 per cent of new investment in the mining sector in Australia in 2006 came from overseas sources. Foreign capital underpins the development of Australian resources.

Australia’s experience in the 1970s and 1980s with Japan demonstrates this, with massive investments in iron ore, in liquefied natural gas, in bauxite and in thermal coal and coking coal—all investments made to serve the resource needs of the Japanese economy and, at the time, investments that raised considerable public interest and debate. That investment profile almost perfectly mirrors the Chinese investment in Australian resources today in iron ore, in LNG, in bauxite, in thermal coal and in coking coal. We should see that there is a clear link between that experience of Japan and the current experience of China. It is clear that there is a link between direct investment in our resource companies and export opportunities. And it is clear that getting the balance right on foreign investment is extremely important to maintain public confidence in our investment arrangements and also to encourage those investments to take place.

I will speak briefly about Chinese investment in particular. According to the Senate economics committee report, as at 31 December 2008 the United Kingdom, at 24.8 per cent, was the largest investor country in Australia, followed by the United States at 24.3 per cent, Japan at 5.2 per cent, Hong Kong, under various arrangements, at about three per cent and Singapore at 2.5 per cent. The People’s Republic of China came in at fifteenth on a list of investor countries at 0.5 per cent, worth around $8 billion, in December 2008. The report pointed out that even Belgium and the British Virgin Islands were bigger investors in Australia than China. There has been significant growth in Chinese investment in the Australian resource sector in recent years, but it does come off a very low base. The first large-scale Chinese investments in Australia’s resource sector go back to 1986, with the Channar iron ore mine, developed through a joint venture between Sinosteel and Hamersley Iron, now Rio Tinto, in Western Australia. That was a great development producing a wonderful relationship between Rio Tinto and its Chinese customers and investors.

Recently we have seen Ansteel invest in Gindalbie’s Karara project, Hunan Valin Iron and Steel invest in Fortescue Metals Group, Sinosteel’s purchase of the Midwest Corporation in 2008, Sichuan Hanlong Group’s investment in Moly Mines, Yanzhou Coal Mining’s $3.5 billion purchase of Felix Resources, and Baosteel’s investment in Aquila Resources. We also currently have decisions before the Foreign Investment Review Board such as China Railway Materials Commercial Corporation’s bid for the United Minerals Corporation and FerrAus.

This debate is a constant backdrop to the economic development of the Australian resources sector. It is a constant debate because it must be. As a nation we will always require foreign investment. As a nation we will always play host to investor companies, investor countries and investor nations building deep commercial and political partnerships that underpin wealth generation in Australia—that underpin communities, jobs, careers and the lives that Australians enjoy in the wonderful commercial entities that are built in partnership with foreign investors. I commend this bill the House as an insightful addition to our regulatory approach to foreign investment.

See this speech in context