Sovereign risk inflicted on a major resources project by a weak government with the encouragement of trade unions. It’s a familiar story, right? At least if you believe the national dailies and their commentators who stand ever ready to push the business line about what a high-cost, low-productivity, anti-investment economy Labor left. Thank goodness there’s a Liberal government that has opened Australia up for business.
Except, it’s not Labor, it’s the Western Australian Liberal government.
In a remarkable statement to The Australian’s Andrew Burrell, WA Premier Colin Barnett threatened to prevent Woodside from marketing gas from its Browse joint venture if it proceeds with developing Browse with floating liquefied natural gas technology.
If you haven’t followed the story, this is the latest instalment of the immensely controversial James Price Point development, which split the Broome community and local indigenous groups until, in a big win for opponents of the development, Woodside announced it was switching to a floating LNG development rather than onshore processing operation for Browse.
The decision was bitterly opposed by the Barnett government, which earlier this year was continuing to purchase land in the area in the hope of forcing Woodside back onshore, and the Australian Manufacturing Workers Union, which attacked the floating development as bad for local jobs.
Now Barnett is using the threat of refusing to amend leases to try to force Woodside back onshore. Without the amendments, which the Labor government had agreed to for Commonwealth leases involved in the project, Woodside will struggle to sell gas from the project, Barnett argues.
Talk about sovereign risk — a Liberal government is threatening the entire Browse project unless it complies with its demands. But strangely, the usual bleaters about “sovereign risk” haven’t emerged to damn Barnett — and certainly not Prime Minister Tony Abbott, who famously told foreign investors they were better off investing in countries like Zambia rather than investing in the Australian resources sector because of the mining tax. Still, if you cry wolf often enough, of course, eventually no one pays attention when the real thing comes along.
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Browse is a big test for investment policy for the Abbott government because of Woodside’s partners, which include Japan’s MIMI (a joint venture between two of the most powerful companies in Japan, Mitsubishi and Mitsui) and PetroChina, which is controlled by the Chinese government. Barnett obviously has forgotten that.
If you believe the Abbott government and its shills in the media, the Rudd-Gillard governments closed Australia to business. And yet the Australian Bureau of Statistics data on private investment show that around $434 billion was invested in Australia by local and international business from 2010 to 2013, the biggest investment binge in our history. If you go back to when the Rudd government took power, the amount is closer to $600 billion, with much of that investment in LNG. As a research paper explained in the latest Reserve Bank Bulletin:
“Given the highly capital-intensive and long-term nature of resource projects, the local investment climate is an important consideration for global resources companies when they make investment decisions. To measure this, the Fraser Institute surveys executives from mineral and petroleum companies on a range of factors influencing investment decisions, including political stability, the cost of compliance, the tax burden, the quality of infrastructure and the availability of skilled labour.
“According to these surveys, Australia, Canada and 80 Chile have relatively low barriers to investment, underpinning the resources investment booms that have taken place in those economies over the past decade.”
The Fraser Institute is a Canadian right-wing think tank much beloved of local resources types.
So all those issues important to a project’s success are present in Australia, but don’t tell the whingers in business, the Abbott government, its media mates or commercially driven economists and analysts in the financial sector.
Another big threat to the offshore oil and gas industry, according to the resources sector lobby group Australian Mines and Metals Association, is “excessive wages”. In August AMMA released a commissioned report on the impact of wages growth on the offshore oil and gas marine support sector (quick — have a guess who did the report — the answer’s here). The report purports to show that wages in the sector have increased far more rapidly than wages elsewhere in the economy. Indeed they have, as a result of resources companies collectively engaging in a hiring frenzy for skilled workers; presumably AMMA believes workers in the sector should have ignored better wages offered by other companies anxious to attract wages.
Yesterday the Maritime Union of Australia fired back with its commissioned report from BIS Shrapnel, which shredded the Deloitte Access report by pointing out a number of errors, omissions and methodological flaws, concluding that some wages in the sector had lagged broader indices rather than outstripped them, and that a third, independent report had identified wages as 1% of the opportunities for cost improvements in Australian LNG projects, while management processes provided far greater opportunities to reduce the cost of products as landed in their destinations.
None of the reports, of course, address what happens if a government engages in a vast dummy spit and tries to sabotage the entire project.