David Johnston (WA, Liberal Party, Shadow Minister for Resources and Energy) Share this | Link to this | Hansard source

I move:

That the Senate take note of the answer given by the Minister for Innovation, Industry, Science and Research (Senator Carr) to a question without notice asked by Senator Cash today relating to the proposed condensate tax and the North West Shelf project.

There are very, very few business operations in this country that could deal with and survive a $2.5 billion tax take over four years without notice. In fact, you could probably count them on one hand. This government has perpetrated the most direct picking of the pockets of Western Australians in Federation history. This company, Woodside, on the North West Shelf, and its joint venture partners have absolutely no alternative but to pass on this $2.5 billion slug. The only recipients of its domestic gas supplies are the people—including the mums and dads, and the pensioners—of Western Australia. They will be paying for this slug from Canberra. There is absolutely no doubt.

Can I say that, since the Varanus Island crisis, whereby the gas supplies to Perth were seriously reduced by virtue of a fire, Woodside has had to increase its output of domestic gas into the Perth market to make up for the shortfall. There is a shortfall of gas, and Western Australia is more dependent on energy generated by gas than any other state. Accordingly, the people of Western Australia are going to have to foot the bill for this tax slug. You cannot attack the bottom line, the balance sheet, of any corporate entity’s operational project without expecting them to pass it on. The really important issue is that, in every boardroom and on the desk of every CEO of every large oil and gas developer and explorer there has been a massive shudder, because until now our great country was viewed as a reliable sovereign risk in competing with Qatar, Kazakhstan, African countries and South-East Asian countries—but no longer.

Two very important things have happened in the very short nine months that the Rudd government have had the chequebook. They have single-handedly and successfully undermined Australia’s international reputation as a safe haven for large investment projects. Where in the world would you, without notice, see a government on a budget night simply go to a project, saying, ‘We’re taking $2.5 billion out of your bottom line, and you are also going to have to deal with our emissions trading scheme and we’re not going to provide you with any comfort in terms of you being a trade affected industry.’

Liquid natural gas is the best way to immediately reduce our carbon emissions. It is the best way to reduce the carbon emissions of China, Japan, Taiwan and South Korea. And what have we done? We have done the same as we are doing to the rail industry: we are giving it no assistance in the face of this green paper. So on two fronts, to the boardrooms in the United States, Japan, Europe and China, we are saying: Australia is now very questionable as a reliable place to build oil and gas projects. We have over $100,000 billion of investment on the table for places like Gorgon and Browse, projects at the North West Shelf. Investment in this country has stalled since this government was elected.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

It’s at record levels and you know it.

David Johnston (WA, Liberal Party, Shadow Minister for Resources and Energy) Share this | Link to this | Hansard source

It has absolutely stalled. It has stalled because the boardrooms of these companies have no possibility of working out what their cashflow bottom line is, given the question mark of an emissions trading scheme and given the conduct of this government.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Rubbish. There are record investments coming into this country and you know it.

David Johnston (WA, Liberal Party, Shadow Minister for Resources and Energy) Share this | Link to this | Hansard source

This government is a group of people who just see a cash cow and reach their hand in and grab it—a most dishonest—

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Senator Mark Bishop interjecting—

David Johnston (WA, Liberal Party, Shadow Minister for Resources and Energy) Share this | Link to this | Hansard source

And a senator from Western Australia is defending them. Of course, that is the problem: there is no proper representation in this place from the government, from Western Australia. That is the issue. They have not stood up for us for one second and, accordingly, these tax-hungry Labor politicians from Canberra—(Time expired)

Trish Crossin (NT, Australian Labor Party) Share this | Link to this | Hansard source

I rise in response to the taking note motion by the opposition. I start by saying that this opposition failed when it was in government to move this country forward in terms of productivity, innovation and excellence. It never really had a grip on actually managing this country to the best of its ability. It showed that today in question time when it was not even able to get its ducks in a row and ask questions properly to us here in government. It wasted question time like it wasted its many, many years in government. Not only that, it either did not know the standing orders or refused to abide by the standing orders by seeking leave to ask a question of the chair of the economics committee. It really goes to show that the people in opposition, and rightly so, do not really have a handle on what is best for this country. I would have thought question time would be an ideal opportunity to ask questions of the minister, and if you choose to ask questions of committee chairpersons at least do the Senate the courtesy of abiding by the standing orders. We had question time wasted today, like we have had years in government wasted by the Liberal and National parties.

But we cannot have it both ways. The Liberal Party cannot have it both ways if it wants to raise this issue. Let me just put on the table some facts for people about this whole propensity that goes to the fact that Western Australian families will be paying higher gas prices, which is not right and is quite contrary to what happened some years ago. Thirty years ago, we had a few companies getting a tax exemption for condensate that is no longer needed. It delivered them windfall gains not available to anyone else. An agreement was struck 30 years ago on a tax exemption that applied then and still applies now. These are windfall gains that actually belong to the Australian people.

After 30 years of this tax exemption, the North West Shelf project is now mature and profitable—in fact, extremely profitable—and the companies benefiting from this concession, particularly Woodside, are enjoying huge profits from rising international oil prices. It is quite evident from the questioning today from the Liberal and National parties on the other side of this chamber that they care much more about the windfalls gained from one project than about lowering inflation and about interest rate rises that affect families who are doing it tough. They choose to waste their question time asking us questions about this, which is really not an issue that needs to concern us if you have a look at the history and the facts. The windfall gain between 2001-02 and 2006-07 was around $1.4 billion and would be even higher now. So, if Woodside had paid condensate tax this year, its profit would have been not $1 billion but $950 million. That is still $340 million more than its profit at this time last year.

Let me say that this measure removes a tax exemption for condensate. It is not a tax on gas. Those opposite have been told that this measure will not put up gas prices but, of course, they will not believe or accept it and want to raise this as an issue when it is not an issue. Even the CEO of the North West Shelf Venture told the Senate that our current domestic contracts are in place and will be honoured. The contracts are all for many, many years and are long-term contracts. The Treasury told people on the public record, at the Senate Standing Committee on Economics hearing in Canberra on 11 August, that they would not expect it to have an impact. In case anyone is starry eyed about these companies, back in 2001 there was a tax cut worth $460 million that was not passed on as lower prices to consumers. You cannot have it both ways. This government believes that it is fair enough to have incentives to get major resource projects up and running, but once they are up and running the Australian people must have fair value from them, and we make no apologies for making sure that that happens. As everyone knows, there is no justification for Woodside to claim that domestic prices will increase as a result of this tax, and the ACCC, under the Trade Practices Act, has the power to investigate prices and anticompetitive conduct. (Time expired)

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

Congratulations, Mr Deputy President, on your election. Gas seems to be the theme of what we are talking about in taking note of questions today, and I would like to speak about gas issues coming from the federal government and gas issues affecting the state Labor government in Western Australia. Senator Johnston talked about the impact of the decision to impose a tax generating $2.5 billion in revenue on condensate as it affected Woodside. It is absolute nonsense for Senator Crossin—who, I see, is fleeing from the chamber—to suggest that an impost of $2.5 billion on any company could not be passed back to the consumers and customers that that company serves. It is total nonsense to think that Woodside could do anything but plan to pass on that $2.5 billion impost, which has come out of the blue in the first budget of the Rudd government.

As Senator Johnston said, this is a breach of a financial agreement. There is no doubt at all that, when the North West Shelf project was set up, the agreement was that Woodside would be exempted from condensate tax as a means of helping the project get underway. In return, I understand, the joint venture partners said that they would provide gas at cost price, or a low price, to the domestic consumers of Western Australia. The federal government appears to have broken one side of the bargain, so in view of this decision of the federal government I do not see anything wrong at all with Woodside charging increased prices for the gas that they supply to domestic customers in Western Australia.

Senator Johnston talked about the fact that there was a sovereign risk matter in this decision. Australia has always had a great reputation as a very safe place to invest and a place where government agreements would be honoured. This decision undermines that reputation, and I think the Rudd government should hang their heads in shame for having been the government which broke the reputation of Australia as being a good country for sovereign risk.

We now have a situation where, contrary to all that the ALP said about their greenhouse credentials, they are going to tax condensate, which is a relatively greenhouse-friendly energy source compared to many others. It seems to me to be a little bit inconsistent that this government should be imposing this tax on condensate.

The other matter which I want to refer to is the Varanus gas explosion in the north-west of Western Australia and the total and utter incompetence of the Carpenter government in Western Australia in dealing with this terrible event, which the Chamber of Commerce and Industry in Western Australia estimates will have cost the Western Australian economy no less than $6.7 billion when all costs are assessed and when the gas is restored. The story of the Varanus Island gas explosion is very much a story of incompetence by the Carpenter government. This incompetence covers the failure of the government to heed warnings. The Carpenter government was given warnings by the Department of Industry and Resources in Western Australia according to Elizabeth Gosch, writing in the Australian on 13 August. There were repeated ‘warnings that Apache Energy was not complying with safety standards at its Varanus Island facility’, and the Department of Industry and Resources was asked to write to the operators of that facility asking them to carry out inspections on their facility.

That was not done. The Carpenter government failed to provide an alternative supply of energy in Western Australia, even though they knew that the gas pipeline could be compromised. They were incompetent in the way they dealt with the matter and have sought to delay the report on the explosion, which was due on 27 August, until after the state election. Politics comes into this because the Carpenter government have got a lot to hide. But they will not be able to escape the consequences of this. (Time expired)

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Mr Deputy President, before making a contribution to this discussion, let me offer my best wishes to you on having been elected Deputy President of the Senate. It is no mean feat to retain the support of your party room both as President and as Deputy President, so I give my best wishes to you for the duration of your term.

Having opened with those pleasantries, let us now turn to Senator Johnston’s motion. I think the first question to ask is this: who are the owners of the North West Shelf project? From memory, the three principal companies that have been involved in the development and exploitation of that project for many years are Royal Dutch Shell, Chevron and Japan LPG. There are one or two other foreign companies, but they have been the mainstays of the operation for the best part of 25 years. If one looked at their balance sheets from any time in the last 20 years, you would see that each of those companies is well capitalised, is well diversified and has continuously given exceptionally high returns to shareholders over many years. Indeed, when you break it up further and go into the bowels of their annual reports, you will see that the returns from the North West Shelf project for many years have been a significant contributor to the welfare of those companies.

One only has to look at how well major companies—in the resources, infrastructure and finance sectors—in this country are doing. Over the last two or three weeks we have had annual reports from BHP Billiton, Rio, Woodside, Woolworths, CBA and ANZ, to name a few. Without exception each of those companies has been in a high investment phase, a high return phase and a high growth phase. Business is doing well in this country and will continue to do well under the Rudd Labor government. Resource companies in particular—whether they be BHP, Rio, Woodside or any of the whole range of juniors in Western Australia, Queensland, South Australia and the Northern Territory—are doing well under the regime that allows exploitation and development of natural resources. In that context it is fair to note that yesterday’s profit result from Woodside—from memory—was up by over 80 per cent on the previous year. The figure of more than $1 billion is extraordinarily welcome, and I am sure it will be very welcome to their shareholders when they pass on the dividend in the next month or so. Clearly, from those introductory remarks, Australia is a wonderful place for business to invest. It is a wonderful place to invest. It has been for many of the past years and continues to be, particularly in the resources sector in the key states of Western Australia, Queensland, South Australia and, increasingly, the Northern Territory.

Let us now turn to the issues raised by previous speakers. One must observe that the issue of condensate and of whether or not Woodside want to pay the extra figures to the government is being highlighted for one reason and one reason only—that is, up until Saturday week we are in the process of a four-yearly election campaign in Western Australia. For some unknown reason the opposition seem to be of the view that they can make some headway on this issue when they did nothing in the 10 to 12 years they were in government. Senator Johnston referred to sovereign risk. Apparently sovereign risk is attacked when a government imposes a new or a different tax regime on a particular industry or company. I happen to recall that last October and November both major parties went to the people promising fundamental change in the areas of emissions trading regimes and carbon taxes, and both major parties gave an undertaking that there would be consequent financial and structural changes introduced which would have an immediate impact on companies. (Time expired)

Chris Ellison (WA, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

I wish to take note of the answer given by Senator Carr to the very good question from Senator Cash in relation to the tax grab on the North West Shelf joint venture project. At the outset, when Senator Carr attempted to rewrite history, we should note what the CEO of Woodside said. Mr Don Voelte said in an announcement:

This is not a loophole which is being closed, or a free ride which has come to an end. This is a negotiated fiscal arrangement which formed the basis of Australia’s largest resource development ...

Over 31 years there has been a regime in place where royalties, excise and taxes have been paid quite properly. This government has without notice moved those goalposts and said to the industry, ‘You now have a $2.5 billion tax.’ One can only imagine how that affected potential investors in LNG, oil and other resource projects in Australia. There is a projected increase of 83 per cent in demand for LNG in the Pacific basin. Right in the middle of that, we are well placed to provide those resources. But we will not be able to if people think that Australia has a government that will change the goalposts. Indeed, APPEA, the Australian Petroleum Production and Exploration Association, in evidence likened that to an act more in line with those of the governments of Venezuela and Trinidad. So at the outset we sent a clear message to people: do not invest in Australia.

More important is the fact that this will be passed on to the consumer and it will increase gas prices in Western Australia. Gas, of course, is used for the generation of electricity. We will see electricity costs rising across the board and average Western Australians will be affected by this cost for essential power. We only have to think of pensioners and those who are least able to afford this increase to realise the impact that it will have on the community in Western Australia.

The question by Senator Cash related to the statement by the spokesman for the Minister for Resources and Energy, Mr Ferguson. That statement was reported today as saying that any price increase by the North West Shelf venture partners to offset the loss of the condensate subsidy could justify an ACCC action. That is an outrageous attempt to stand over a group of companies that have brought wealth and employment to this country and have given Australia the sound economic base which we enjoy today.

We have to ask: is the minister threatening an ACCC investigation if the joint venture partners pass on an increase in their costs? He is part of a government which has just imposed $2.5 billion of tax on them. Is he now saying that he will send them off to the ACCC to investigate that passing on of the cost? Mr Ferguson himself has said that the North West Shelf partners jointly market between 60 and 70 per cent of WA’s domestic gas. Presumably he is alleging that the decision to pass on the cost of the loss of the subsidy somehow amounts to a price-fixing arrangement. Is he saying that under section 45A(2) of the Trade Practices Act this is a matter which requires investigation? Similarly, is he saying that the decision to pass on the costs of the tax being imposed on industry is something else which should be investigated?

If this is not what he is suggesting, he must clarify what issues he would be asking the ACCC to investigate and he has to outline exactly to the resources industry of this country whether this government is pro development of resources for the benefit of all Australians or whether it is about imposing on the resources industry a tax which will not only be inflationary but impede further important investment in this country.

Question agreed to.