Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

Thank you for coming into the House to listen to my speech on the Foreign Acquisitions and Takeovers Amendment Bill 2009, Mr Speaker, and thank you to the vast number of Labor members who have come in to listen to my address. The good news for the government is that the coalition supports this bill. The bill explicitly requires foreign investors to notify the government where there is a possibility that the type of acquisition or investment arrangement being used will deliver influence or control over an Australian company, either currently or at some time in the future.

Damian Hale (Solomon, Australian Labor Party) Share this | Link to this | Hansard source

Mr Hale interjecting

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

And I wish the member for Solomon to listen carefully to this because financial arrangements and company structures have become increasingly complex in recent years, a bit like caucus, and this bill goes on to address those new developments by expanding the definition of ‘foreign control or influence’. The bill updates the Foreign Acquisitions and Takeovers Act 1975, which provides the basis for the Treasurer to examine proposed foreign investments in Australian businesses and assets to ensure they are not contrary to the national interest. The bill will incorporate a wider range of financing structures that may deliver effective control or influence of Australian companies to foreign interests. There are no changes to the national interest test or to the monitoring threshold for consideration by the government. The bill in fact strengthens those safeguards. It does not alter the role of government to finally determine the national interest or a foreign investment proposal.

The Foreign Investment Review Board is a non-statutory body that was established by the Fraser Liberal government in 1976 to advise the Treasurer on the government’s foreign investment policy and its administration. Its role is to examine proposed investments and make considered recommendations to the Treasurer. The FIRB plays a critical role in the foreign investment process because it ensures that foreign investment decisions are thoroughly examined. This is demonstrated—I am slightly put off, Mr Speaker, by what I am seeing happen with your chair.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

I apologise to the member for North Sydney.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

It is something about the Labor Party, isn’t it!

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

You are doing a good job.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

Thank you, Mr Speaker. This is demonstrated by the fact that, between 1999 and 2008, an average of 76.4 per cent of foreign investment proposals were changed to meet certain conditions in order to be approved. The most recent figures show that the FIRB approved 7,841 proposals in 2007-08, which was a 27 per cent increase on the previous year. Those approvals involved proposed investment of over $191 billion, a 23 per cent increase on the previous year. The mining sector led the charge, with $64.3 billion worth of projects approved in 2007-08, followed by $45.5 billion for real estate, $35.7 billion for services and $31.3 billion for manufacturing. The United States is the leading foreign investor in Australia—and was in 2007-08, with $49.5 billion worth of proposals approved. That is 26 per cent of the total amount in that year, which is a very important point. The United Kingdom, Germany, Singapore and Switzerland were also regarded as major investors in the 2007-08 year. There has been a steady increase in the value of foreign investment over the past decade. There were nearly 45,000 proposals for foreign investment in Australia worth $1 trillion between 1999 and 2007, so this illustrates the magnitude and significance of foreign investment in this country.

As I said earlier, this bill contains no changes to the national interest test, and this is very important. As a matter of interest, in fact there is no specific definition of ‘the national interest’ in the act or in this bill. The government determines what is:

‘contrary to the national interest’ by having regard to the widely held community concerns of Australians.

In practice, this usually refers to existing government policy and legislation, national security interest or economic development. For example, the Treasurer refused to approve the China Minmetals Corporation non-ferrous metals takeover of OZ Minerals in April until it removed the Prominent Hill mine from the deal. Prominent Hill is a prohibited area for the purposes of the ‘testing of war materials’ and contains places classified under the Aboriginal Heritage Act. It is located within the Woomera Prohibited Area, and the Treasurer said it would not be approved, on national security grounds. The coalition strongly believes foreign investment is overall in Australia’s national interest. We believe that foreign investment has a positive impact on Australia and always has. We support foreign investment but we are always mindful that there must be full and open transparency when it comes to foreign investment.

One recent example of this was the amendment to the Guarantee of State And Territory Borrowing Appropriation Bill 2009 which I moved successfully on 18 June. The amendment recognised that government debt is a massive looming issue for this nation under the Labor Party. More than 65 per cent of government borrowings are in fact coming from overseas. So not only do we have a government that is engaging in the biggest borrowing program in modern Australian history but 65 per cent of the money they are borrowing is coming from overseas. The amendment that I moved to the act ensures that the government publishes the registered beneficial owners of Australian government bonds. Australians have a right to know who is lending us all this money. Ultimately, just as anyone who has a mortgage needs to know who they owe the money to, because inevitably the bank has some influence over the way we go about our daily lives, so too should Australians know who they owe money to. The government at first completely resisted this transparency. You did not have to worry about that under the coalition because we were not borrowing money on that scale. In fact, we left the Australian government with no net debt, so we did not have to worry who we borrowed money from, because we did not owe anything. We had more money than they were lending to us. But, hang on—along comes Labor and borrows record levels of money. And of course we want to know who is lending us that money.

It is widely recognised that the biggest investor in the world at the moment is the Chinese government. Therefore, if the Chinese government invests in Australia the Australian people should know. As this act illustrates, if you have large-scale investment by a private sector organisation or a foreign government and they are buying into equities, real estate or Australian assets, the Australian people should know, and the Australian people should know who is lending us the money. It is quite an interesting challenge for the nation to have a massive investor going forward. As I pointed out, companies and individuals from the United States were the largest foreign investors in Australia in 2007-08. That may have shifted somewhat in the last 12 months; we will wait and see. But we want to know that there is a transparent process for identifying if someone is investing in equities or in real estate, and that is addressed under this act. Then the question is: who is investing in Australian government debt? That is addressed by the amendment that I moved to the Guarantee of State And Territory Borrowing Appropriation Bill 2009. I might add that that bill passed and was proclaimed earlier this year.

So far we have seen no registry, so I am putting the government and the authorities on notice that they now have a legal obligation to publish the full registry of those people who are lending the Australian government so much money. I want them to deliver on that registry and if they do not then they will be in breach of the law that they helped to pass. This is a significant challenge for the nation, and just as we need to know if individuals or corporations are investing so too we need to know whether it is a foreign government that is investing.

In order to protect our national interest, this bill broadens four key definitions in the act: substantial interest, aggregate substantial interest, voting power and potential voting power. ‘Substantial interest’ is currently defined as 15 per cent or more of the voting power or of the issued shares. This bill changes this definition to holding at least 15 per cent or one or more of voting power, potential voting power, issued shares or rights to issued shares. The current meaning of ‘aggregate substantial interest’ is 40 per cent or more of the voting power or the issued shares. This bill extends it in a similar vein to two or more persons taken together holding at least 40 per cent of the voting power, potential voting power, issued shares or rights to issued shares. ‘Voting power’ is currently defined as the maximum number of votes that can be cast at a general meeting. It has been clarified to explicitly include potential voting power. ‘Potential voting power’ refers to the number of votes that could be cast if it is assumed that a future right is exercised. Currently there is compulsory notification for proposals involving the acquisition of ‘substantial shareholding’. This bill will replace the word ‘shareholding’ with the word ‘interest’.

As I said earlier, financial arrangements and company structures have become increasingly complex. People have sought to use more exotic mechanisms to try and avoid proper and full disclosure of not only their equitable interests in the company but also their voting interests and influence in the company. There are numerous examples. One example this bill will cover is debt-for-equity swaps. When a company needs to restructure its finances it can issue a debt-for-equity swap and debt is exchanged for a designated amount of stock. In effect, an investor buys the debt in return for a certain number of shares or capital in the company. Another example is derivative instruments. An option on a share would give an investor the right, but not the obligation, to purchase a share at some point in the future for a specified price. If that future potential share purchase were large enough to represent a substantial interest then it would need to be reported under the requirements of this bill.

At the moment, the act does not properly cover these kinds of investments. That is why the coalition is supporting this bill. The bill broadens the definition of what has to be reported to the government and incorporates, as outlined earlier, potential control. The investor in a debt-for-equity swap could potentially gain a controlling share in the company if it later swaps the debt for equity.

This bill clarifies Australia’s foreign investment regulations. It will apply retrospectively from 12 February 2009. A transitional period will apply from 12 February 2009 to the date of royal assent to ensure that foreign investors are not adversely affected by the start date. During the transitional period, there will be no criminal penalties, and retrospective criminal prosecution is expressly excluded. The transitional arrangements provide that foreign investors will have 30 days to notify the Treasurer if an investment is covered by this bill.

Foreign investment, of course, is vital to Australia’s future growth and prosperity because it creates jobs and promotes healthy competition in our industries. This bill supports investment in this country while safeguarding our national interest. For the benefit of the people in the gallery, I would say that this is another example where the opposition and the government work together to deliver a bill in the national interest. Quite obviously, this is not going to make television news tonight. I find that hard to believe, Mr Speaker, notwithstanding your presence in the chamber—but this happens on numerous occasions and I am sorry that Australians are not aware of it. We can come to an agreement on something that is in the national interest. We often do. It is just not reported, and so often the coverage is restricted to a slightly frayed temper during question time or the humorous quip from the Speaker. On that note, I commend the bill to the House and reaffirm the commitment of the coalition to support this legislation.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

Mr Speaker, it is good to see you very comfortably there in your chair, given the earlier activities! Australia needs legislation to improve the integrity of its foreign investment screening regime. The Foreign Acquisitions and Takeovers Amendment Bill 2009, which I am speaking in support of today, 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.

The government welcomes and encourages foreign direct investment because of the benefits that it provides to the Australian economy. Foreign investment creates new job opportunities for Australians, encourages innovation and skill development, introduces new technologies and promotes competition amongst our industries. Foreign investment has helped build the competitiveness of our economy and will continue to do so in the future.

The Foreign Acquisitions and Takeovers Act 1975 seeks to get the balance right between encouraging investment into Australia and ensuring that the government can review significant foreign investment proposals and intervene where these could undermine the national interest. The act provides the basis for the Treasurer to examine proposed foreign investments in Australian businesses and assets to ensure that they are not contrary to the national interest. The act requires foreign investors to notify the Treasurer of their transactions in certain circumstances and provides the Treasurer with the power to block or place certain conditions upon those proposals determined to be contrary to the national interest.

The notion of ‘control’ is a fundamental component of the act. Overall, the current provisions of the act that deal with control have worked well. But the use of innovative and increasingly complex financing arrangements has been a growing feature of investment activity over recent years. These arrangements have highlighted some shortcomings with the act where ownership and control events may potentially arise, either now or in the future, in a variety of new ways other than through traditional shares or voting power.

To preserve the original policy intent of the act, on 12 February 2009 the Treasurer announced that the government would amend the act to ‘clarify the operation of the foreign investment screening regime’ to ‘ensure that it applies equally to all foreign investments irrespective of the way they are structured’. The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company, either now or in the future.

The bill clarifies the operation of the act by explicitly requiring foreign investors to notify the Treasurer where there is a possibility that the type of investment arrangement being used will deliver influence or control over an Australian company valued above the relevant monetary threshold. This will be achieved by 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 by clarifying the section of the act dealing with interests in shares.

The bill will also clarify where the act deals with interests in shares. The act currently 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 the fulfilment of a condition or not.

These amendments are not the result of any one investment proposal. They ensure that the foreign investment framework keeps pace with the changing nature of foreign investment proposals and with trends that were evident some time before this government was elected. The amendments in this bill apply from 12 February 2009—the date that the Treasurer announced the changes—to provide certainty around the act’s application.

Let us clarify what these retrospective amendments mean. 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. During this period, there will be no criminal penalties for noncompliance. Upon commencement, foreign investors will have 30 days to notify the Treasurer if, during the transitional period, they entered into a transaction of the type covered by these amendments and have not already provided notification to the Treasurer. The transitional provisions will ensure that no foreign investors are adversely affected by the start date of these amendments. It is not expected that there will be many investors in this situation. The Foreign Investment Review Board has noted that the proposed amendments were broadly anticipated by investors, many of whom voluntarily notified the board of their investments.

Nothing in the transitional provisions would reduce the government’s ability to block or place conditions on proposals which are determined to be contrary to the national interest. The act focuses on situations where a foreign investor has obtained substantial influence or control. Overall, the current provisions in the act that deal with control have worked well, and its approach remains sound. However, since the act was drafted in the 1970s more complex investment instruments have evolved. The use of innovation financing arrangements have been a growing feature of investment activity over recent years. These arrangements have highlighted that ownership interests and control can be held in a variety of forms other than through traditional shares and voting power. While these types of investment arrangements have a solid commercial basis, they have raised questions about the act’s full application. It was for this reason that the government announced earlier this year that we would amend the act to safeguard its policy intention. We consider that these changes improve the integrity of the act and capture arrangements that may be deliberately structured to avoid foreign investment screening.

These changes are consistent with Australia’s international obligations under our free trade agreements. The bill does not change the robust national interest framework that underpins our foreign investment policy or the screening examination arrangements of the Foreign Investment Review Board. These procedures are well established and familiar to foreign investors. The examination procedures and the decision to block or impose conditions on foreign investment proposals will continue to be based on whether the investment has altered or will alter the control of an Australian business or corporation and whether the investment is contrary to the national interest.

The government is confident that this bill strengthens and modernises Australia’s foreign investment framework. As we build stronger foundations for Australian prosperity beyond the global recession, we are committed to a regulatory regime that gets the balance right: protecting the national interest while ensuring that Australia is a more competitive destination for foreign investment. The fact that the Australian economy has performed much better than the economies of the rest of the world during the global recession will help make this country an attractive market for investment, especially when the economy fully recovers. But, while we have fared better than most, we should not forget that there are now 670,000 Australians out of work, and we expect further rises in unemployment ahead. Cancelling fiscal stimulus in one hit rather than continuing with our gradual and careful phasing down would cost thousands more jobs, ruin many more small businesses and risk sending the economy backwards before the recovery in private activity has taken hold.

The recent Westpac-Melbourne Institute survey of consumer sentiment found that consumer confidence fell by 2.5 per cent in November after five consecutive months of improvement. It is important to keep in mind that consumer confidence is still 44.3 per cent higher than it was in October 2008, prior to the announcement of the first fiscal stimulus package. That compares with a mere 3.9 per cent increase in consumer confidence for the OECD as a whole over the same period. But confidence is a fragile thing, and we need to be careful and make sure that the stimulus package is properly seen through. We also saw the results of the NAB monthly business survey for October. Business confidence continued its upward climb, consolidating the gains we saw in recent surveys. However, the most striking finding of the October survey, as pointed to by NAB Chief Economist, Alan Oster, was ‘the sharp acceleration in actual business outcomes.’

The International Monetary Fund released the report Recent Global Developments and Prospects last week to APEC finance ministers, ahead of the APEC leaders’ meeting that weekend. The IMF made it clear that the global recovery is not yet self-sustaining and is still dependent on policy support. The report says:

The overarching risk is that the recovery stalls. This could occur because of a premature exit from accommodative monetary and fiscal policies—especially if the policy-induced recovery so far is mistaken for the beginning of a sustained and autonomous recovery in private demand.

For these reasons the IMF again cautioned against the premature withdrawal of fiscal stimulus, stating that ‘policy support needs to be sustained until recovery is firmly established.’ Healthy foreign investment needs a strong economy, and this government has taken the decisive measures to help weather the unprecedented storms of the global recession. Again, we are confident we are getting the balance right: protecting the national interest while ensuring that Australia is a more competitive destination for foreign investment.

I will sum up by looking at where we are with this bill and what the amendments actually mean for the foreign investment regime. These amendments simply modernise the act to preserve its original policy intent with respect to new investment instruments. They should not be viewed as the result of any single foreign investment proposal but as addressing new trends in investments that have been growing in recent years.

The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company, either now or in the future. They require foreign investors to notify FIRB where there is a possibility that the type of investment arrangement being used will deliver influence or control over an Australian company valued above the relevant monetary threshold. This will be achieved by 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 by clarifying the section of the act dealing with interests in shares. The act currently provides that a person is deemed to hold an interest in a share if they have a right to acquire a share or have a share transferred to them. This bill clarifies this provision so that it is clear that the rights include a right under an instrument, agreement or arrangement, whether that right is exercisable presently or in the future and whether it is exercisable on the fulfilment of a condition or not.

The bill will not change FIRB’s screening and examination procedures. The examination procedures and the decision to block or impose conditions on foreign investment proposals will continue to be based on whether an investment has the potential to control an Australian business or corporation and whether the investment is contrary to the national interest. Through the bill the government will maintain the right balance between encouraging investment in Australia and ensuring that the government can intervene when necessary to protect the national interest. These changes strengthen the operation of the act by ensuring that it keeps pace with new types of investment instruments.

Generally, Australia welcomes and encourages direct foreign investment because of the benefits it provides to the Australian economy. International capital opens new investment opportunities and helps to develop Australian industries. Foreign investment brings new job opportunities for Australians, new innovation and skills development, new technologies and promotion of competition amongst our industries. It is estimated that foreign investment supports around one in every four Australian workers in the mining industry. On 4 August the Treasurer announced reforms to the screening regime to reduce some of the compliance costs faced by foreign investors and to ensure that Australia remains a competitive and attractive destination for foreign capital. Specifically, the screening threshold for private foreign investment will be increased from $100 million to $219 million and indexed annually. New businesses in Australia valued above $10 million will no longer need to notify the Foreign Investment Review Board.

The government has not rejected a single new business proposal for the past decade or more. New business proposals are subject to a range of other regulatory requirements. These amendments, combined with the 4 August announcement, better target the national interest test towards cases that could raise national interest impacts. This is part of the overall regulatory reform that the Rudd government has been engaged in since coming to office almost two years ago. It is an important piece of legislation. It is legislation that, thankfully, is supported by the opposition and it is legislation that this parliament should support. I commend the bill to the House.

Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

I am pleased to have an opportunity to contribute to the debate on the Foreign Acquisitions and Takeovers Amendment Bill 2009 today. There is little doubt as to the importance of foreign investment to Australia. It brings new jobs, innovation and competition, all improving Australian industries. While we need to make a continued effort to encourage investment in Australia, we also need to be aware that sometimes a foreign investment may actually come at a significant cost to the overall Australian economy and that it might not always be in the national interest to allow such an investment to go ahead. One of the cases that I was most closely involved with was the proposed takeover of Woodside by Shell. My colleague who is at the table, the member for Brand, was also at that time closely involved in that matter. There is no doubt that it was not in Australia’s best interests for that transaction to proceed. It certainly would have meant the loss of billions of dollars worth of investment in Australia, in Western Australia in particular. There would have been little benefit to the nation from that particular proposal proceeding.

In 1976 the Foreign Investment Review Board, a non-statutory body, was established. That occurred so that the Treasurer might be advised on the government’s foreign investment policy and its administration. Since that time the Foreign Investment Review Board has played a critical role in the foreign investment process because it ensures that foreign investment decisions are thoroughly examined and that they proceed on the basis that they are in the national interest. I think the reason for this is pretty clear, because the level of foreign investment has been exceedingly high in recent times. We see that from 1999 to 2008 an average of 76.4 per cent of proposals were changed to meet certain conditions and that over the period from 1999 to 2007 there were 45,000 proposals valued at $1 trillion. It is a very substantial amount of investment, and there can be ramifications if it is not closely scrutinised. So we are very pleased that the Foreign Investment Review Board has been doing its job under the act, and these proposed amendments should give greater clarity to its carrying out of that work. As I said, a number of proposals had been received. I think that the 7,841 proposals received in the year 2007-08 represented a 27 per cent increase, so I do not think we are going to see a slowing down of interest in investing in Australia anytime soon. That particularly applies to the mining sector.

One of the interesting arguments that was run during the Shell-Woodside debate was that if the government, and indeed the Foreign Investment Review Board, did not approve that deal we would see a flood of capital away from this country as people would not want to invest. I never believed that was a sound argument at all. I think that the investor is looking for a safe haven, for stability and for good projects, and that this country can offer that, so I never believed that, on the basis of one project being knocked back by the Foreign Investment Review Board, we would see foreign investment fleeing this nation. I think that the decision was made on the best possible grounds and that it was an important decision. In the legislation before us there are no changes to the national interest test, so that will remain, or indeed to the monetary threshold for consideration by government. But this bill certainly seeks to strengthen the current safeguards and, hopefully, it gives the Foreign Investment Review Board greater guidance in terms of what can and cannot be done.

The balancing act between the benefits and the costs to our economy has been at the centre of the foreign investment review policy for the 35 years that it has been in operation. With the introduction of the Foreign Acquisitions and Takeovers Act 1975, certain transactions must be reported and the Foreign Investment Review Board must advise the Treasurer whether to approve an investment. Clearly, there have been significant changes to the mode of foreign investment since 1975, and it is important that the legislation is updated to reflect these changes. There was an article in the Australian Financial Review written by Jo Clarke which was quite illuminating to read. In that article there was this quote from a lawyer who had apparently had quite a bit to do with foreign investment:

“This is likely to lead to more creative financing structures to get around FIRB, particularly now that FIRB has introduced further delays and complicated the approvals process,” …

Well hopefully, through the passage of this legislation, we might be able to avoid some of the worst abuses of creative schemes designed to get around the proper processes that foreign investment should rightly have to adhere to when making investment in this country. As I said, we understand that it is a balancing act between benefits and costs to our economy, but that should not deter us from making sure that there is a robust process for approval.

Section 18 of the Foreign Acquisitions and Takeovers Act gives the Treasurer the power to prohibit proposed acquisitions that would result in a foreign investor having a controlling interest in an Australian company where it is decided that such a transaction would be ‘contrary to the national interest’. Section 26 stipulates that the Treasurer must be notified of any agreement to acquire a substantial shareholding in an Australian company. As of 22 September 2009, a notification must be made where the target company is worth $219 million or more and the acquisition will result in the foreign entity holding a substantial interest in the company. ‘A substantial interest’ is understood to mean a holding of 15 per cent or more of the voting power or the issued shares in a corporation. This definition of substantial interest will be expanded by the bill before us today to ensure that it applies to all the different models and structures that characterise modern foreign investment. It is no longer sensible to assume that foreign investment will be structured to relate only to voting power and issued shares.

In considering whether the transaction will result in a substantial interest being held by the foreign entity, regard will now be had to not just voting power but also potential voting power and the right to an interest in the issued shares. This change will encompass the more sophisticated and complicated structures that are now common in foreign investments, ensuring that the obligation to inform the foreign investment review tribunal applies evenly to simple and more complicated transactions. Substantial investment proposals need to be fully examined for national interest concerns regardless of the way that they are structured.

Essentially, where an investor has the future right to acquire votes or shares, they are deemed to have them at the time of the transaction. This potential exists even where the right may only be exercisable on the fulfilment of a future condition. This change for potential voting power is extremely relevant where instruments such as convertible notes are used, where an investor may gain control of a corporation through means other than the present acquisition of shares or voting power, or a convertible note is a debt instrument that allows for the conversion into equity in the future. Law firm Allens Arthur Robinson has described the impact of this bill as:

… it is the grant, rather than the exercise, of the equity options inherent in convertible notes that will need to be the subject of the traditional ‘subject to FIRB approval’ clause …

So if an investor is to acquire convertible notes or other options over unissued shares, they will need to report the transaction under the Foreign Acquisitions and Takeovers Act, where the notional conversion would result in 15 per cent of the votes in the corporation being held by the foreign investor. I can only assume that where an instrument does not specify the exact amount of shares that an investor would have a future right to but, as is often the case, specifies the dollar value of the share entitlement, the calculation of whether this would amount to a substantial interest would need to be based on the value of the shares at the time of the transaction.

Given that share prices are vulnerable to fluctuation, especially when foreign investment is in the pipeline, it is entirely foreseeable that some transactions will not be reported where it may be appropriate, and vice versa. For example, if the price of shares increases dramatically between the date of the transaction and the time that the investor converts the equity into shares, then they may acquire considerably less than the significant interest and yet the transaction would still be subject to considerable delay while it is being reviewed by the Foreign Investment Review Board.

The issue of delays within the approval process has become serious since the influx of applications following the collapse of the Chinalco deal. On 16 September the Australian Financial Review noted that there is a ‘growing backlog’ causing delays to many transactions. The same article also said that the amendments proposed in this bill are:

… likely to lead to more creative financing structures to get around FIRB, particularly now that FIRB has introduced further delays—

which was the quote I read out earlier.

Foreign investment is integral to Australia’s economic growth, and the need to find the balance in the review process is more important than ever. Clearly the review process should not become so arduous and time-consuming that investors are turned away, but at the same time it does need to be thorough enough to ensure that transactions that are not in the national interest do not get approved. I think there is considerable public disquiet, particularly when it comes to iconic Australian companies and when it comes to those corporations that are involved in either our mining or our energy sector. I can understand those concerns, often expressed by electors in the electorate of Pearce, that we should ensure, in so far as possible, that we remain in control over our resources and, in particular, those resources that have security interests such as energy. I understand always the tensions that we in this place are faced with in trying to balance the national interest with continuing robust foreign investment in Australia and the jobs that can offer and the growth and development that can offer, which might otherwise not take place.

Australia does have a lot to offer foreign investors in this mutually beneficial relationship. The nature of foreign investments has changed dramatically since the introduction of our review process back in 1975 and no doubt many new structures and models will come about in the future. For now, though, it is important that all major foreign investments are reviewed, regardless of whether the investor acquires shares, voting power or some other interest or right exercisable in the future. If we get that balance right, then the Australian economy has everything to gain.

In conclusion, I listened carefully to the contribution of the member for North Sydney, the shadow minister, in this debate. I support his call for an amendment which ensures that the government publishes the registered beneficial owners of Australian government bonds. Many would say it is perhaps, after all, another way of attracting foreign investment into this country. Given the sensitivities out there within communities, I think it is just part of open and accountable governance. It is a sensible suggestion. I hope that my colleague the member for Brand might particularly want to support that suggestion, knowing of his great interest in open and accountable governance and his experiences in the attempt by the great Dutch company Shell to take over Woodside some years ago.

Currently, the Chinese government, as the member for North Sydney, the shadow minister, said, is the biggest investor in the world. If the Chinese government invests in Australia, the Australian people should know about it. Most people would be pleased to know that the biggest single foreign investor in Australia in 2007-08 was the United States, with a total investment of $49.5 billion, which is about 26 per cent of the total investment. After that, the United Kingdom, Germany, Singapore and Switzerland are also major investors. Of course, we welcome the investment of our near neighbours, the Chinese government and the people of China. They are clearly playing an important part in the development of some of our resources and will continue to do so in the future.

In the interests of, as I said, openness and accountability in government and the fact that the Australian government is raising a substantial amount of money through government bonds it would be appropriate for the Australian community to be kept appraised of those transactions, just as they want to be kept appraised of the transactions which are of interest to the Foreign Investment Review Board. In essence, I am very pleased to be able to support this legislation. If it means greater clarity and streamlining of the foreign investment process, then it has to be said that it will add immeasurably to the legislation that we have passed in this House in the past.

Gary Gray (Brand, Australian Labor Party, Parliamentary Secretary for Western and Northern Australia) Share this | Link to 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.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I also rise to speak on the Foreign Acquisitions and Takeovers Amendment Bill 2009. From my travels through my electorate, knocking on doors and meeting people, I suspect there is no greater industry in Western Australia than the commodities sector, from which people gain and benefit so much in our state. The downstream benefits are substantial. Yes, it is true that not everyone is involved in the commodity sector but the influence is substantial and, particularly in the new suburbs of Cowan, the number of people who remain in fly-in fly-out positions is substantial.

As the parliamentary secretary just said, there is no doubt about the importance of foreign investment for our state of Western Australia. But there always remain some concerns, and I will deal with some of those concerns in my contribution today. What I would like to begin with is that I do not consider Australia to be the lucky country—I think Australia is a country that has always worked hard to achieve success. We have done well because Australian businesses and Australian people on the whole have been committed to that success and have not been afraid to work very hard, commit a lot of their time and effort, and their sweat—and tears, occasionally—to that success.

I mentioned fly-in fly-out positions before, and there are a number of families that are affected by the fly-in fly-out situation. It is financially of benefit, though socially more challenging, but in any case those are the appropriate decisions that individual families have made, and, of course, we wish them all the best. What I would also say is that the success of this country has been achieved through collective and personal means. So it is not just that there are businesses that have been successful; individuals have been successful. We realise that there is nothing wrong with hard work to achieve greater benefit; we should certainly encourage that. If people want to work hard and achieve that benefit, that is good.

It is the case that the ability of businesses in Australia to expand here is due in some way to their abilities to raise capital. However, at times, foreign acquisitions of businesses or increased shareholdings may occur, and sometimes that can be good and positive for Australia—in most cases I would think that is the case. It is also good for those who are employed here. But sometimes we are not quite sure how good or positive this can be. But I welcome this opportunity to speak on this bill.

The bill will require foreign investors to notify the government where there is considered to be a possibility that proposed investment in, or acquisition of, business enterprises will deliver influence or control over an Australian company, now or in the future. It is a complex world these days. The location from which capital originates has changed, and the way in which it can be wielded has also changed. The influence of foreign-controlled funds and businesses are worthy of our careful examination. They are, without doubt, potent economic players. But we should be clear about this: some of these organisations are backed by foreign governments, and we must at least be wary of them.

Before I speak specifically of the Chinese involvement in Australia, I would like to first speak of what is happening with Chevron Australia and the Gorgon project. About 50 kilometres south of Karratha and some 25 kilometres out to sea there is Barrow Island where Chevron has been operating for 40 years. Barrow Island will be the site of the Gorgon liquefied natural gas plant, a three-train, 15-million-tonnes-per-annum LNG plant. In subsea pipes, gas will be piped from the Jansz field, which is 140 kilometres from Barrow Island and some 1,300 metres below the surface. One hundred and eighty kilometres of mains pipelines and 180 kilometres of service pipelines will be required. The Gorgon field is some 70 kilometres from Barrow Island and 250 metres under the surface. It has been estimated that the Gorgon project will employ 3,000 personnel over at least 40 years. The partners of Chevron are ExxonMobil and Shell. It is also an interesting fact that, through the liquefaction process, the volume of the gas can be reduced by 600 per cent, thereby making it economic for storage and shipment, in this case from the 2.2 kilometre jetty that is planned.

I received word that Chevron has recently passed the $7 billion mark in the awarding of contracts for Gorgon, and I would note that strong and successful Cowan local civil engineering firm Ertech Pty Ltd in Wangara has been awarded a contract for site development and the WAPET Landing on Barrow Island. An excellent local company, Ertech are going from strength to strength and I would like to congratulate Executive Chairman Jim Giumelli and Managing Director James Giumelli for their efforts. It is appropriate to spend a little time speaking about Ertech because the head office is in Cowan, located just off Ocean Reef Road and on Motivation Drive. From a distance, it looks very much like many of the businesses in Wangara. You might think when you were driving past that it was just another one of the many small but vibrant businesses in the local area. But when I visited I found it had around 250 employees, most of whom are not on the Wangara site but located on project sites around the state.

The success of Ertech is demonstrated by the story they tell of their involvement at Port Hedland. As I understand it, in 1996 Ertech received an $80,000 contract from BHP to carry out works in the area. For two years, Ertech worked under the expanded requirements of BHP and in the end received additional works and earnings of $14 million for their efforts—a big difference from the $80,000 original contract—for the work they did over two years. Similarly, in 2004, Ertech commenced the site works contract at BHP Billiton’s Ravensthorpe site and that contract expanded to $270 million of work over the next 4½ years of the contract.

With regard to Gorgon, involved on Barrow Island since 2001, Ertech has been awarded the large job 922, which requires preparing the construction camp, the construction of 300,000 square metres of sealed roads, the setting up a desalination plant to provide water for construction and the provision of a seawater intake tower for the desalination plant. It will also undertake works, including the reticulation of water and sewerage mains, the electric mains, navigation beacons, improvement of the landing craft offloading areas, the creation of a diesel fuel storage area and also the construction of a communications tower.

Through ongoing business development and through these latest and future Gorgon opportunities I look forward to the continued expansion of Ertech. I look forward to their creating more employment for my constituents and I wish them every success in the future. I am very glad that they are in the electorate of Cowan.

Before moving on, I would just like to mention the value of natural gas for a cleaner world. The influence of production and then use of Gorgon gas, if substituted for other energy fuel sources, has the capacity to reduce global greenhouse gas emissions by about 45 million tonnes per year. As Chevron suggested, that would be equivalent to removing two-thirds of all vehicles from Australian roads. Natural gas, therefore, is the cleanest-burning fossil fuel, producing around 50 per cent of the carbon dioxide that coal produces. Clearly, as the population of the world grows and nations develop, the opportunities for economic returns for Australia grow, as does the opportunity for cleaner air, particularly in developing nations. Anyone who has been to China, India or even Thailand knows that the substitution of coal by natural gas will help reduce pollution in the air.

It would of course be wrong of me not to mention Pluto, since I have just spoken of Gorgon. The Pluto project is being undertaken by Woodside, the nation’s largest publicly listed oil and gas exploration and production company. The gas field is 185 kilometres from Karratha. Woodside has set something of a record with finding the Pluto gas field in 2005 and it is estimated that the first gas will flow around the 5½ year mark. Given it is estimated that the global demand for gas will double by 2020, the future for this $12 billion project is looking very solid. Another advantage for Woodside is that the CO2 level in the gas is very low, thereby reducing processing and removal costs.

I want to speak about some of the specifics of some of the acquisitions that have taken place in Australia in the last two years. But, before I do so, I would just like to say that there is a certain level of unease amongst my constituents who work in the commodity sector about the ability of Chinese companies to buy into mines and infrastructure in this country. Another concern of my constituents is that they know that cashed-up Chinese companies often contain sovereign funds. We know that Australian firms investing in Chinese businesses or assets do not have the same opportunity under anything like the conditions that we permit in this country. It is therefore very important that we exercise extreme care in considering foreign acquisitions.

I have just spoken about Chevron, which, of course, is a foreign company. Given that, there obviously needs to be a degree of balance with that. Everyone in my area believes that foreign investment is necessary, but behind some of the concerns that people have expressed to me are the difference in the methods and experiences that people have had in their employment and their contacts with certain companies.

It is worth noting that the figures for 2008 that I have seen certainly do not rate China right up there at all in terms of foreign direct investment. Certainly, when we look at the top end of the scale, the UK and the United States, the top two nations at around 20 per cent each, represent in excess of $50 billion. That demonstrates that the level of direct foreign investment is certainly coming from the Western world and not the Eastern world. After that comes Germany, Japan and also Hong Kong, which are putting billions of dollars into Australia.

That said, I would like to look at some of China’s involvement in Australia. I note that, on 8 May 2009, the Treasurer approved an additional shareholding for Anshan Iron and Steel, also known as Ansteel, of up to 36.28 per cent of Gindalbie Metals Ltd. At that time, Ansteel was already a 50 per cent joint venture partner with Gindalbie in the greenfields $1.8 billion Karara iron ore project in the mid-west of Western Australia. While the Treasurer placed conditions on this acquisition, including the development of infrastructure, the essential point is that the Chinese stake in the Karara project is now substantial. If you look at the figures you will see that its involvement in the project certainly appears to be in excess of 50 per cent.

Interestingly, Karara and Gindalbie are linked to the Oakajee Port and Rail Project and it is of concern, particularly to some in Western Australia, that the Chinese influence in the mid-west is too great. Some may say that Ansteel or, as it is also known, the Angang Steel Company is publicly listed; however, it is worth noting that that is supervised by the State Council of the People’s Republic of China.

On 23 April 2009, the Treasurer also approved the application by China Minmetals Non-Ferrous Metals Co. Ltd to acquire some mining assets of OZ Minerals Ltd. Essentially, the conditions imposed on this acquisition were to operate the acquired mines as separate businesses and with commercial objectives; to operate the mines using companies incorporated, headquartered and managed in Australia, under a predominantly Australian management team; to maintain or increase production and employment at Century, Rosebery and Golden Grove mines; to pursue growth in Century and Rosebery mines; and to reopen the Avebury mine and develop the Dugald River mine, subject to economic conditions.

The Minmetals revised proposal is for Golden Grove, Century, Rosebery, Avebury and Dugald River mining operations in Australia. These produce zinc, lead, copper and silver, which are priced with reference to the London Metal Exchange. What do we know about Minmetals? It is a state controlled corporation, engaged in both the production and the trading of minerals and metals, including copper, aluminium, tungsten, tin, lead, zinc and nickel. The list of Chinese companies or Chinese government related bodies involved in the commodity sector has been necessary to further investment and development of our commodities, but we must always be extremely vigilant. Certainly, the Chinalco acquisition, of up to 14.99 per cent of the shares of Rio Tinto’s London-listed arm, received the support of Colin Barnett, Premier of Western Australia. However, when Rio Tinto joined BHP to exclude the Chinese, that was opposed by the state Premier.

As has been stated by most Australian leaders, these decisions are best taken with the strongest consideration of the national interest to either allow or reject the foreign acquisition. It is certainly the case that there will be occasions when foreign investment is necessary to achieve the strategic objectives and to ensure the capital exists to get the job done.

In concluding, I appreciate the need for this bill. I would, however, say that we should be very careful about every increase in stockholding and control by foreign businesses, and particularly careful when sovereign funds are involved. We have seen not only the different ways various countries operate and deal with people in their direct foreign investments in this country, as I mentioned before, but also that so much of the investment that has come from the bigger investors in this country—the US, the UK, Germany and Japan—is very much from private enterprise. We should always be very careful when we have the involvement of sovereign funds, or when bodies, organisations or businesses are closely controlled or connected with governments of foreign nations; we should be very careful about looking at the detail of where they invest and how they invest. So I welcome this bill and I welcome the changes that may be required in the future, which will make sure that we are always protected and that the national interest is always protected.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I rise in support of the Foreign Acquisitions and Takeovers Amendment Bill 2009, which seeks to make changes to the Foreign Acquisitions and Takeovers Act that has been in place since 1975 as amended. It is an important act because it seeks to achieve a balance between some competing concerns. First and foremost is the need to ensure that we attract foreign direct investment into our country, and there are important reasons why that is necessary, which I will come to shortly. The act is about balancing the need for foreign direct investment with the national interest; it is about providing a basis upon which the Treasurer, working with the Foreign Investment Review Board, can determine whether or not proposals, where they may affect control over a particular business or asset, are in the national interest.

It is important to note that this particular bill seeks to close off one of those avenues that was previously left uncorrected: a potential loophole that certain individuals, businesses or corporations abroad may have been able to take advantage of with respect to particular financing arrangements, whether it be in the form of convertible notes or other instruments where ownership may not be transferred until some later point in time. In essence, the proposals contained within this amendment seek to ensure that the anticipated ultimate ownership reality that might pertain to those particular financing arrangements be taken into account up front when determining whether or not a particular proposal might trigger the interest of the Treasurer and the Foreign Investment Review Board when determining if a proposal is consistent with or potentially a threat to the national interest.

These are important amendments. They are important because they go to the integrity of the regime that we have in place and it is important to maintain the integrity of that regime because it acknowledges the importance of foreign direct investment, but it also acknowledges that there need to be limits to the extent of that investment, and those limits are to be determined by the national interest.

Foreign capital is important for our growth and for jobs in our country. I have many discussions with constituents in my community and there is often much apprehension when it comes to the issue of foreign investment. One of the things that is often not understood when it comes to the issue of foreign investment is that it is an essential requirement for our economy to continue to grow. There are some sectors in particular where we rely upon foreign investment to an even greater extent, and I will come to some of those shortly. But international capital opens up new investment opportunities and helps to develop Australian industries. Foreign direct investment brings new job opportunities for Australians, new innovation and skills development, new technologies and the promotion of competition amongst our industries.

It is important to understand the impact of foreign direct investment in Australia. Foreign investment is particularly important because we are a capital hungry nation and because we do not have the capital available here onshore to invest in those areas that require that investment and that attention. Foreign investment creates jobs and boosts our productivity. One in four jobs in the mining industry, for example, rely on foreign investment. One in eight private sector jobs in Australia are in foreign owned businesses and, as of March 2009, total foreign investment has contributed more than $1,700 billion to our national economy.

There are some misconceptions in the community as to where foreign direct investment into Australia is coming from. If we look at the figures provided by the Foreign Investment Review Board in its 2007-08 annual report, we see that, by a long distance, the biggest source country is the United States of America. US proposed inward investment of $49.5 billion represented, in that particular year, about 26 per cent of approved total investment. So a significant amount—about a quarter—of foreign capital coming into Australia is coming from the United States. The other key countries from which foreign investment is coming into Australia include the United Kingdom, Germany, Singapore and Switzerland. These countries accounted for a significant amount of foreign direct investment into Australia in 2007-08, with the UK accounting for 17 per cent, Germany, seven per cent; Singapore, six per cent; and Switzerland, five per cent.

One sector where foreign direct investment is more important than most is in the mineral resources sector. Mineral exploration and development as a sector accounts for a significant proportion of the foreign direct investment that our country attracts. If we look we can see that, in 2007-08, foreign direct investment accounted for $64.3 billion in approvals. This is important because it is driving jobs in that sector. One in four Australian workers in the mining sector is employed as a result of foreign direct investment. This is an issue that some attention has been drawn to in recent times. I saw an editorial in the Australian last week which said, ‘Australia has always needed foreign investment to develop its potential as a resources exporter, and will need much more investment in the future.’ And that is true. In fact, that editorial was making reference to a speech that had been given, I think the night before, by Marius Kloppers, the chief executive of BHP Billiton. Mr Kloppers gave a speech which I intend to quote from at some length because I think his comments are relevant and important to this discussion. He said in a speech to the Lowy Institute on Wednesday, 18 November:

Foreign direct investment, or FDI, in major national resources will always be a sensitive issue, and those sensitivities increase when investors have close connections with foreign governments. To my mind, the FDI debate in Australia often misses the critical investment issue. Capital sources to fund resource projects are limited, primarily due to a mismatch between the risk appetites of some funding sources and the inherent riskiness in the projects themselves.

The Australian banks are hesitant to take the lead on syndicating loans for very large projects because they fear that the syndication market may leave them over-exposed, a genuine concern given recent conditions. Foreign banks have shown more willingness to lend …

…            …            …

The Australian bond market (another typical source of debt funding for companies) has always been stunted, forcing many companies to issue bonds on foreign markets, at a higher cost. Existing shareholders can be a source of equity, and have been tapped extensively by many companies, from all sectors, through this downturn. While this can be effective as a tactical source of funds, it is not a long-term solution.

What we see from that speech that Mr Kloppers gave is recognition that the continued growth and development of our mineral resources sector, which is critical if we are to continue to meet demand and maintain market share in this sector internationally, and our competitiveness really does rely upon our having access to capital and that that access to capital, for the reasons that he outlines—and a number of reasons are outlined there in terms of the nature of our bond market and also the lack of risk appetite on the part of Australian banks—means that if companies seek to further exploit, explore and develop their mineral resource capabilities in this country they need to seek access to capital from offshore. In doing so, they are able to achieve greater growth and more jobs in Australia.

Of course, there is a balancing act, and that is what the Foreign Acquisitions and Takeovers Act is all about: trying to ensure that there is a balance between the need for foreign investment and what is in the national interest. This particular set of amendments seeks only to tighten up, if you like, what factors are to be taken into account when determining whether there is a threat of the sort that should be assessed as to whether or not it is a threat to the national interest.

I should make mention of the fact that, as a member of the House of Representatives Standing Committee on Economics, I have been involved in an inquiry in productivity in the Australian economy. Last Friday, we received evidence from the Australasian Institute of Mining and Metallurgy as part of that inquiry. We heard from Michael Catchpole, the CEO, and Monika Sarder, the manager, in relation to some of the issues pertaining to productivity and its measurement in respect of the resources sector. I will quote from the submission that that organisation made to the inquiry. There is a reference to the ‘challenges of increasing remoteness, depth and depleting quality of ore reserves’ and the impact that has had on the overall measurement of productivity growth within that sector. I make the point that this really does underline some of the challenges that we do face in the resources sector—that is, owing to the depth, the remoteness and the depleting quality of our resources, more and more investment needs to be undertaken in order to extract the materials that we know are in demand internationally. That is why it is important that we ensure that companies trying to exploit those resources have the capacity to do so by having access to the capital they need.

It is an important point to understand because we have all been beneficiaries of the minerals resource sector boom in this country. People employed in electorates such as Cowan—the member for Cowan has now left the chamber but spoke very passionately about the jobs in his electorate—and other parts of the country have been direct beneficiaries. In my electorate the same numbers of mining jobs are not available, but clearly overall living standards have improved and people have benefited greatly from the impact of the mining boom, whether through greater revenue collection for government, allowing it to pursue high priorities or bring forward priorities that might not otherwise have been delivered upon or, through the tax and transfer system, to deliver benefits or accommodation to taxpayers in other parts of the country.

As Australians, we all recognise the importance of our resources sector and we understand that it is an important platform for future growth in this country. That is why it is important to ensure that we do not lose market share. Many people close to the sector are making the point that as a nation we must be careful not to take for granted the investment that we are receiving from this sector. If we do that it will be at our own peril. The consequences will be, ultimately, a loss of market share, and to lose market share is to begin to give away some of the comparative advantage that we have as a nation. So it is critical that we ensure a competitive and efficient resources sector. Central to ensuring that competitiveness and efficiency is access to capital, and if that capital cannot be sourced from within our shores then as a nation our aspirations and ambitions for growth require us to seek capital elsewhere. But when we do so it is important that we do so in a way that does not compromise the national interest. That is why these amendments, which seek to strengthen the provisions of the Foreign Acquisitions and Takeovers Act, will ensure that as a nation we can continue to strike a balance between having a regime that attracts foreign direct investment and ensuring that the national interest continues to prevail. I commend the bill.

Bob Katter (Kennedy, Independent) Share this | Link to this | Hansard source

I rise to speak on the Foreign Acquisitions and Takeovers Amendment Bill 2009, which is a subject very near and dear to my own heart. I live in a little town called Cloncurry, and we would have no sealed road connecting us to the coast if it were not for Mount Isa and the giant mineral deposits that were discovered about 100 kilometres west of Cloncurry. Cloncurry probably would not have even warranted a railway line. Most certainly, in our day and age you would never in a million years have had a railway line built by the government to a place like Cloncurry. It was built at the time by what we would today call a corrupt allocation of shares and it was rebuilt with an allocation of shares to the Queensland cabinet. So it was built and then rebuilt only because large parcels of shares were given to the various ministers in the government at the time.

That mine languished for 30 years. There was no real production there in the first quarter of the century until the Americans came in. They brought three things—markets, somewhere to sell the product; technology and know-how, which, arguably, we did have in Australia at that time but were never applied to Mount Isa; and capital expenditure. Mount Isa did not have any of those three things when Julius Kruttschnitt arrived there. His technology and know-how were equal to that of BHP, but BHP were not interested in opening up a mine that far away and the Americans saw a possibility that no Australian saw. With it came huge employment for north-west Queensland. In fact I started my first job there. In those days we had an enlightened government and we paid virtually no tax. As an unskilled labourer I was on the equivalent of about $110,000 in today’s money. The miners were paid the equivalent of about $370,000 a year in today’s money. That was really a marvellous thing. Many young people were able to buy cattle stations, sugarcane farms or whatever captured their fancy. Many of them got into the tourism industry in Cairns in the early days with the money they had made working at Mount Isa for two, three or four years.

If the government had seen fit to say, ‘We are not going to allow foreign investment or foreign companies into Australia,’ then large parts of Australia and our economy would simply not exist today. Senator Joyce went to my home town of Cloncurry and gave a speech there recently. I do not criticise Senator Joyce. He is one of the really good guys, in my opinion. But Senator Joyce is a great proponent of opposing Chinese investment. The Dugald River facility, north of Cloncurry, has been there now for close to 40 years. The Dugald River copper, silver, lead and zinc deposits were found some 40 years ago. They were found to be very extensive reserves. I quote from the annual report to shareholders by Conzinc Riotinto—or Rio Tinto, as it was at that stage. It says: ‘As always, the Dugald River resource remains one of our most important resources and one of the world’s most important resources.’

I think I am the only person in this parliament that has any experience in mining. I mined my own mines. I found, developed and produced from my own little mines and I also worked as a labourer, off and on, for mining companies, so I can speak with some considerable authority in this field. No matter how many times you drill it, you never really know whether the ore is in an ore body until you start mining it, so you have to commit yourself to $100 million worth of expenditure on the basis of a dozen or two dozen drill holes.

Let me be very specific. At Century mine, which has the richest zinc deposits in world history—not the biggest but the richest in world history—they drilled the entire hill except for one section at the back where there was no mineralisation. The wet came early and they could not get the drilling rigs out, so they found no payable ore whatsoever and they had put out millions of dollars on the drilling program. But there was the little section at the back where there was no mineralisation. They said, ‘Well, we can’t get the drilling rigs out so we may as well use them instead of having them sitting there doing nothing,’ so they drilled that sector and they found the richest deposits of zinc in the world, which have been a great contributor to the economy of that area. We have got electricity into a corner of the world where we would never have got electricity, we have had upgraded roads that we would never have got upgraded and, for our first Australian population right up in the gulf country north-west sector, we have 70 jobs for people who would never have been able to get those jobs, so it has been a wonderful thing for us.

Dugald River will be a wonderful thing for Cloncurry. But, outside the Chinese, I cannot see any other group—and I am a person who tenaciously believes, as I will go on in this speech to assert to the House, that there are decisions that a government has to take and they are not easy decisions. There are some times when I would be implacably opposed, and it is to the disgrace of the last government and, to some degree, the current government, even though they have only been there for two minutes, that they have allowed takeovers to occur. But clearly, in the case of Dugald River, you have had an ore body sitting there for 40 years and no-one has done anything about developing it. The state government had laws on the books put there by the great Ted Theodore: ‘Use it or lose it.’ You are not allowed to sit on an ore body and do nothing with it. But it is a hard decision for government to make because a company can say, quite rightly, that they are looking more closely at the ore body: ‘It’s a complicated ore body. We may not be able to process it as successfully as we would have hoped.’

Let me just give you a quick example. The Greenvale nickel mine went broke because the content of silicon had not been properly analysed. For those of you who are not familiar with silicon, after diamond it is the hardest rock known to man. When they put it into the crushers, they did not crush the nickel ore; the silicon in the nickel ore was crushing the crushers and destroying them. They found ways of overcoming this, but in the meantime the company went broke.

Vam was the third biggest mining company in Australia at the time of the metals boom in the sixties. One of their major deposits was at Gunpowder. They drilled at a particular place and intersected a characteristic ore body at a depth of, let us say, 100 feet and then, a kilometre away, they put drill holes down again and again intersected the ore at exactly the same level they had intersected it in the other place. They extrapolated then that they had an ore body stretching for a kilometre, which was quite a reasonable conclusion for them to come to based upon the evidence they had. One would say it was an absolute conclusion: they could say conclusively that they had an ore body that was a kilometre long. When they started mining—they had a bit more money—they drilled in the centre and they got no ore body at all. In Charters Towers, you can clearly see where a block has moved. You have an ore body here and an ore body there, and they were a continuous ore body at some stage, but a block in between has simply moved downwards in what we know now as the Brilliant Deeps.

Of its very nature, mining is a very, very risky business. The markets, of course, are a roller-coaster. We had a situation where the prices three years ago were double what the prices were five years ago. The metal price doubled. The metal price, you can say now, has halved, or gone down 50 per cent, but it has really gone back to what it was six or seven years ago. So you also have to ride the roller-coaster of the markets.

In the case of Dugald River, I am a very strong and enthusiastic supporter of the Chinese coming in both there and at Century—the old zinc deposits now belong to them. We have virtually run out of ore body there, but we have very extensive phosphate deposits there. For an Australian company trying to break into the world markets with that phosphate it would be very, very difficult indeed. But if you have a deal with the Indians, such as Joe Gutnick has with Legend’s phosphate in that area, then you have connected into the world’s biggest consumer group except for China. Similarly, at Century, I am very, very optimistic that what has been the richest zinc mine in the world will become one of the premier phosphate deposits in the world, but I dare say that nobody in Australia is going to develop those. We have four of the 24 world phosphate deposits in north-west Queensland. Only one was ever developed and that was the Duchess phosphate deposit, developed by Western Mining Corporation—and even that involved 20 years of painful leaning on them by the Queensland government: ‘Use it or lose it.’ I was the minister leaning upon WMC to proceed with that.

There would be no Mt Isa and no Century if, the case for foreign investment having been put, the government had then said, ‘You can’t come in.’ Foreign corporations developed these mines. Australians had 40 years in which to do it, and we never did it. These are clear-cut cases. For the coalmining industry, if the government had said, ‘No, you are a foreign corporation, you can’t come in, Mr Japan,’ then we would have had no mining industry in Australia. The man responsible for the Australian export coal industry was Sir Leslie Thiess, who at all times had the closest of close relationships with the Japanese. When he started mining, it was through a combined company with the Japanese.

We were vilified as a government at the time for allowing the Japanese—and we are going back to a period not that long after the Second World War—to get involved The people who were running Australia were men who had fought in that war. My father was in this place; he was a captain in the Army in the Second World War. My uncle fought at Milne Bay in the Second World War. These were people who had great sensitivities—and the Australian population had great sensitivities—towards the Japanese. Bjelke-Petersen showed very great strength of character in standing his ground. He was of Germanic background—Danish, technically, but of a Germanic background. He showed an awful lot of courage. Of course, the famous Jack McEwen was the person who really spearheaded the Japanese involvement.

Without the Japanese we would have had no markets for our coal. There was no-one in the world to sell it to. America was awash with coal; they did not need it. God has been good to Europe as far as coal goes. We had no technology, either, and we needed to bring the Americans in for that as well. Finally, we needed the capital, and we could not get any Australians to invest after the crash of the mining boom in the sixties. Everyone was terrified to touch mining, so these men could raise no money. These people built most of the Snowy and half of the great developments that you see as Australia today, including the giant highway from Geelong to Melbourne and the casino in Townsville. But even this Thiess family—this company—as big as they were, were run to their last cent in developing those coal resources. If they had not got the Japanese to come in on time and did not have a government that was positive towards the Japanese coming in, then it would have been a very sad day indeed for Thiess.

I will now switch to the other side of the coin. And I am criticising the last government very stridently here. I fought like a tiger and took belated action to try to stop the takeover of Mt Isa Mines by Xstrata. The government remained totally unconvinced. During that period the six great mining companies in Australia all became foreign owned. The government sat on its hands while the six great mining companies of Australia were all taken over by foreign investors. The price of metals went up by nearly 300 per cent. A town like Mt Isa was costing $2,000 million a year to run—around about that figure—and they were just breaking even. When the price went to $6,000 million, there should have been $4,000 million profit for Australians. But there was not. For those who, like me, like looking at statistics, it is very curious that Australia is making profits at long last, as a trading nation, on what we buy and sell and yet, when the current account comes in, we are in a dreadful, desperate state. And that is because we are selling the product overseas; we get the money to come in and then we just write out a cheque to the owners of the company, who live in London or Geneva or New York or somewhere like that. Those cheques would have gone to Australia. Australia was cheated out of hundreds of thousands of millions of dollars because the last government allowed those six companies to go.

In summary, these are not easy questions, and I think the government is probably setting it right here in admitting that they are not easy questions to answer. But to sit on your hands and idly say that every single foreigner who wants to come in here and buy shares can do so, because it will boost the share market price in Australia and people living in the big cities will make a big quid for themselves, is not an enlightened government position. We are moving to a slightly more enlightened position today, and we thank the government for that contribution.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Foreign Acquisitions and Takeovers Amendment Bill 2009, albeit that I have less than 60 seconds before question time. It is good to see some of the members of the opposition coming in here today. Hopefully they might be able to come in with some good news that they have reached agreement on the Carbon Pollution Reduction Scheme amendments that we have been negotiating with them in good faith, because it is so important for our nation to get on with the implementation of that legislation.

I do welcome the opportunity to speak on the Foreign Acquisitions and Takeovers Amendment Bill because this bill, too, is in Australia’s national interest. The purpose of the bill is to improve the integrity of Australia’s foreign investment screening regime by ensuring that the government has the capacity to examine all investment proposals that could potentially be against Australia’s national interest. The amendments are designed to capture foreign investments that have the potential to provide substantial influence—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! It being 2 pm, the debate is interrupted in accordance with standing order 97. The debate may be resumed at a later hour and the member for Makin will have leave to continue speaking when the debate is resumed.