Julie Owens (Parramatta, Australian Labor Party, Shadow Parliamentary Secretary for Small Business) Share this | Hansard source

I am delighted to rise to speak on the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Amendment Bill 2013 and the sister bill, the Offshore Petroleum and Green Hills Gas Storage Amendment (Cash Bidding) Bill 2013.

I am delighted for two reasons: firstly, it really is an example of what is very good regulation. While we quite often hear the current government—now and while in opposition—decrying regulation generally, you do find quite often very good examples of regulating, in this case by the use of a market based mechanism to achieve not just good economic outcomes for the industry itself but good outcomes for the Australian community in terms of safety and a return on the assets that it owns.

We should be reminded from past years how dangerous offshore exploration and drilling can be. We have seen two workplace deaths on offshore drills, we have seen a number of explosions and we have seen some unexplained release of hydrocarbons. We should always be aware that whatever regulatory regime we introduce in our offshore assets that safety of workers is one of the principal objectives, as also is safety of the environment. Our offshore assets are valuable for a range of reasons. They are incredibly valuable because of their pristine nature—'invaluable' perhaps one should say because of their pristine nature and the work they do in keeping our environment stable and in keeping us in good health. They are an extraordinary asset that we should be protecting for our children. But it is also because of this amazing wealth in hydrocarbon that sits below the ocean floor; these hydrocarbons belong to all the generations from now on and we must ensure that we get a return from them that we can share with future generations.

We are one of the world leaders in this field. We are incredibly good at finding and extracting hydrocarbons from below the ocean floor. We have been doing it for a while and we are renowned around the world for our safety record. But we can always do it better. The addition of this market based mechanism ensures the three things that we need to ensure—that human health and safety comes first, that the environment is protected in the way that we need to do for future generations and that we provide certainty and a return both to the businesses that engage in exploration and extraction of hydrocarbons and also to the generations to come.

It is a very interesting approach that is being taken here. It was first put forward and announced in November 2012 by the former Labor government when a decision was made to apply a cash-bidding mechanism to allocate titles for select blocks as released in the 2014 Offshore Petroleum Exploration Acreage Release. This model applies to the allocation of petroleum exploration permits for mature areas. They are areas that are known to contain petroleum accumulations and it is intended to prevent overexploration where none or little may be required. So this relates to areas where we already know that there are deposits or where it is strongly believed that there are ones.

It is a market based model and it imposes a competitive bidding system. But because of the issues of safety for its workers, the environment and the return to the Australian community, price is not the only indication. We all know of bidding processes where decisions are made once the bids have been put and they require judgements on expertise and on readiness as well as on price. They are incredibly complex and are not as transparent as one would want for the industry or for the community.

In this process the two issues of the qualifications to actually undertake the exploration and the drilling and the bid itself are separated into two processes. There is a prequalification assessment of potential bidders that takes place prior to the submission of the cash bids to ensure that those that are bidding are actually eligible. This involves an assessment of the technical and financial capacity of an applicant to undertake the exploration work offshore commensurate with being the holder of an exploration permit over the blocks that are being released for cash bidding. As a consequence of this, the companies placing the bids can be confident that those bids will be assessed on price and price alone and those assessing the bids can be confident that they are looking at price alone once the bids are placed. That is because in preassessment the judgements on whether a company is capable, eligible, has the appropriate record, has the appropriate expertise and has the appropriate financial assets to sustain their efforts in future years are all done prior to the submitting of the cash bid. So that part of the process takes care of a lot of the issues which have to be taken into consideration concerning the ability of a company to deliver safety for its workers and the ability of a company to be able to manage its exploration and drilling in a way that protects the incredibly valuable environment for future generations. That then means that when the bid is submitted the thing that matters at that point is the return for Australians and future generations. It is purely a matter of price at that point. So it is a very interesting application of a market based approach that manages to ensure firstly that the companies are able to deliver the things that the community needs them to deliver and, secondly, then considers price alone and the return to the Australian community on the assets which they own.

There are a number of other nice little bits in this bill as well and I do congratulate the minister and the government of the day, as back in 2012 there was extensive consultation on this process. In fact they brought in auctioneering experts and consulted widely. There was a very comprehensive process which led to the development of this rather clever approach.

There are two other elements that protect Australian owners of the assets and the companies themselves. Firstly, there is a reserve price, which is very important. The reserve price is set by the joint authority for each of the areas being released, so that ensures that the government cannot and does not sell the permits for less than a desirable price or below their public value. And the reserve price will be determined in advance of inviting applications and will be disclosed or undisclosed depending on the circumstances.

The reserve price will be set to ensure that if, at a point in the history of commodity prices, there is a slump in prices—and we know that prices for oil and gas and everything else we pull out of the ground go up and down—and the bids that are put in are less than the reserve price, those assets will remain in Australian hands until the prices are better. When you are dealing with assets that belong to this and future generations you never have to take a price that is less than desirable, because the assets stay in the ground until the price is right. In the growing market for hydrocarbons in our region it is hard to imagine that the value of our hydrocarbon reserves would decrease over the long term; one can only imagine them increasing if we wait for the right price.

The second interesting addition to the bill is the limiting of the discretion to refuse an offer of a permit. Again, once a company has passed its eligibility process and submitted a bid, to ensure that the highest bidder is incentivised to accept the offer of permit, a 10 per cent deposit will be forfeited if they do not accept it. This discourages frivolous or ambit-claim bids and ensures that bids are serious. If you are the highest bidder and you refuse an offer of permit, you forfeit 10 per cent of the cash price of your bid. That is quite an onerous burden for a company making a bid that they do not intend to follow through on.

The other bill that we are talking about today, the Offshore Petroleum and Greenhouse Gas Storage (Regulatory Levies) Amendment Bill, is also an interesting one. It is the less complex of the two bills but it is an interesting one. It essentially requires companies engaging in the bidding process to pay a levy, which allows the National Offshore Petroleum Titles Administrator to recover costs for its annual titles administration activity. If we had actually managed to pass this bill—at the time it was a more controversial bill—I am sure that the then opposition, the current government, would have called it a tax. They do not seem to like the word 'levy' when we use it but love it when they do.

This is a case of very reasonable cost recovery. The companies are making profits from the use of our assets, but they require this kind of regulatory regime in order to protect the community now and into the future from damage to its environmental assets. This ensures that our community now and into the future receives the financial benefit from the assets that it owns beneath our ocean shores and that these incredibly dangerous workplaces are managed in a way that keeps workers safe—they can go to work and come home again, as I put it, with all their bits intact. It is absolutely appropriate that the companies—a relatively small number of companies—that are engaged in this activity pay the cost of the regulatory regime. That is the second bill.

This is a very good pair of bills that takes a very practical, market based approach to ensuring that our very valuable offshore hydrocarbon assets are exploited in a way which is safe for workers, which ensures the best environmental outcomes that we can achieve, and ensures the best possible returns to Australians in this generation and the next. I commend the bills to the House.

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