E & OE
SUBJECTS: Final investment decision on Gladstone LNG project, impact of QLD floods on resources sector, mining tax, labour and skills pressures.
FERGUSON: Let’s get underway. Firstly, thanks for your attendance. Obviously I desire to make a few comments on Santos today. In normal circumstances it would be better that I not attend to these issues given the challenges confronting Australia and especially Queensland, but I think you appreciate once a major investment decision is made by a company they are required to meet ASX obligations.
The Santos decision is very important. It represents a further major investment in Australia to the tune of $16 billion. It effectively means in two and a half months $31 billion in new money has been committed by coal seam methane producers to the east coast of Australia.
This effectively represents a new industry for Australia: LNG opportunities out of coal seam methane. Two major investments of which the Santos investment of $16 billion today is very significant.
We are talking about 5,000 jobs during the period of construction, 1,000 long term jobs and if all goes well 1,500 jobs on the ground between now and mid-year.
From Australia’s point of view it is very significant because it further positions us as a reliable supplier of energy products. We are already the major exporter of coal, second or third major exporter of uranium and now potentially the second major exporter of LNG from the west coast, Northern Territory and east coast of Australia by about 2015-16.
It is also a significant investment because it brings major investment partners from Malaysia - PETRONAS, Korea – KOGAS and interestingly France in the form of Total. France in many ways, from a Total perspective, is now coming back into Australia having been here some decades ago. They are not only involved in this investment they are also a major player in the Inpex potential investment in the Northern Territory.
I simply say that this is a huge win for Australia. It is also a significant statement, I suppose, following the turmoil of last year with respect to changes in potential tax regimes, that Australia is open for business. Just in the LNG sector alone we’ve had over $30 billion in two and a half months, and in terms of my own calculations about $50 billion from new investments from about the middle of last year, be it in LNG iron ore, coal or a variety of other commodities.
Our objective now is to continue to work closely with the QLD Government to get Queensland through the current challenges with respect to the floods and the impact on local communities and the broader economy. And in doing so, to also work with companies, such as Santos, having secured these investments to make sure we do everything possible to build the projects on time and ahead of budget.
Gladstone is also now locked in as a major industrial centre of Australia. We’ve got LNG - a new industry - we’ve historically had coal, alumina, cement. It’s also going to put huge pressure on the community from a skills point of view and labour supply point of view.
QUESTION: Minister, do you have any information whether the flooding will affect transporting services and goods into this project or any sort of impediments that might be in the long term?
FERGUSON: Obviously at the moment and in the immediate period ahead of us, be it Santos, British Gas or for example the coal producers who actually export their coal out of Gladstone, we do have infrastructure difficulties. But in due course, as the floods start to move back, we’ll be able to make the full assessment of the impact on the road and rail corridors and then they will be attended to through cooperation between the Queensland and Australian Governments, and I might say, the private sector.
QUESTION: Minister, could you just clarify for those of us who are a bit hazy on these things what tax arrangements this project will come under?
FERGUSON: They will come under the PRRT, because it was industry itself who actually supported extending onshore, historically the PRRT system which operated offshore that created an even playing field. There is also a state based system of royalties in place in terms of the LNG sector in Queensland, that was, I suppose from a point of precedence, settled in late April last year.
QUESTION: And you mentioned that this showed Australia was back to business for investment terms, how damaging was the toing and froing last year on the issue of mining taxes?
FERGUSON: Interestingly I have just sorted out my files going back to May of last year. It’s fascinating actually going through all that material because I thought I should put it together for historical purposes. Putting aside the public rhetoric there was still plenty of discussion going on, including with companies such as Santos and BG, about facilitating their investment opportunities and getting on with the job.
Everyone knew there was going to be a settlement. There was a lot of argy bargy, but it was about reaching that point of compromise, creating the certainty and getting on with life. Today’s outcome proves that, one way or another, we got through it. We’ve got a tax regime that is now largely accepted by industry, creates certainty and it continues to ensure that Australia is competitive internationally. The Santos announcement today, I suppose, sends a very important message on that front.
QUESTION: Minister Ferguson where does it go from here? What are the next steps in the tax process, getting that through?
FERGUSON: Well obviously I presented the report to the Treasurer just before Christmas. He will consider it. It will then be discussed by Government. We will release an exposure draft of the legislation, which I suppose will kick in a further round of public consultation. Perhaps more importantly in the lead up to the public release of that exposure draft, Treasury will further consult with tax experts and industry with respect to potential draft legislation. And clearly I would think it is the Treasurer’s primary responsibility, but we would hope to have the final draft of that legislation before the parliament in the second half of this year.
QUESTION: Are you any closer to resolving the issue of whether future increases in state royalties will be credited?
FERGUSON: Obviously, those matters will be attended to in due course by Government but the report of December on behalf of the consultation panel clearly indicated, in our opinion, these matters need to be resolved by discussion between the State, Territory and Commonwealth Governments, but also there is a very strong message from industry embodied in that report that they will no longer accept willy nilly increases in state royalties.
QUESTION: Do you want that issue to be dealt with at COAG in February?
FERGUSON: I think that is a decision for the Treasurer and the Prime Minister to think about. My job was to work with people like Don Argus to assess what needed to be done from an implementation point of view and to present a practical, pragmatic report to Government as to where they can go on that front. It’s now for the Prime Minister and the Treasurer to assess how they handle these matters.
QUESTION: Minister, just on the jobs front here you’ve talked about 1,500 jobs being created here in the first half of this year. There are also going to be a lot of workers required for the post-reconstruction of Queensland, the Premier there has talked about it being a post-war reconstruction. Where are all these people going to come from to fill all these jobs?
FERGUSON: Well they are issues that the Government is going to have to consider once we actually attend to the immediate challenges on the flood front. How we as a Government, and in partnership with the Queensland Government, I suppose, attend to the immediate reconstruction priorities whilst also ensuring that we maintain an investment stream that will create the opportunities over time to again secure the future economic opportunities that exist in Queensland. And they are going to be matters that will have to be discussed in detail at a government level once we get through the immediate challenges of the flood plains.
QUESTION: Will it also be a challenge finding people to work on this project?
FERGUSON: We have a challenge at the moment in terms of potential shortages of labour in Australia and I suppose potential impacts on wages. We are aware of those matters and I suppose the difficulties of Queensland at the moment only add to those challenges.
QUESTION: Just on the port up in Gladstone, I think I saw some figures today saying that it was 90 per cent of what it would normally do is not happening at the moment so you have any update on how long it will take for that port to recover and all the associated infrastructure such as rail, mines etc?
FERGUSON: Look, obviously there has been a major disruption to coal production at the moment. I intend making a bit of an assessment next week as to potential infrastructure requirements, if we can actually make those assessments, in association with the coal companies and QR. But we can only make those full assessments after the waters start to disappear. You actually have to get on the ground and have a hard look at the infrastructure and then you’ve got to determine the priorities. But it’s not just about the infrastructure. It will also be a huge job actually pumping out the mines in terms of water. But in past times, and there have been far lesser floods, we’ve been able to recover fairly quickly.
As I’ve said previously in terms of potential export earnings obviously the amount that we are going to export in the foreseeable future could be potentially reduced significantly but there is also, I suppose, there’s an unders and overs game with respect to the impact on the spot price.
QUESTION: How long do you think this, the flooding will [inaudible]?
FERGUSON: It’s too early to make that assessment and I must say that is not our priority at the moment. Our priority at the moment is to attend to the immediate challenges, for example in places such as Toowoomba and Brisbane, to look after ordinary people, because they’re the ones suffering. We’ll attend to the broader economic challenges when our circumstances permit.
QUESTION: Minister, have you got advice from your Department on how much it would potentially cost economically?
FERGUSON: It’s too hard to make that assessment. In due course, both the Commonwealth and Queensland treasuries will appropriately make those assessments from a budget point of view.
But I remind you that there are a range of factors, it’s just not about potential disruptions to export opportunities at the moment, there is already a significant impact on spot prices, which can cushion the impact of reduced capacity from an export point of view.
Clearly Treasury at a Commonwealth and a State level will make those assessments and they will make public announcements as appropriate.
QUESTION: On the issue of labour shortage that you mentioned before, and you know that the current circumstances of Queensland will make that even more challenging, would you be arguing for more skilled migrants intakes or perhaps temporary workers coming in from overseas?
FERGUSON: I actually think we have got a pretty good migration program at the moment in the way in which is focussed on skilled labour requirements. I think it is about immediately using the available opportunities that exist, for example 457 sponsorships, the absolute focus on the skills shortages and the ongoing attention given by the Department of Migration to those issues.
I’m not proposing, and no one is proposing at the moment a huge increase in migration to actually work out how we attend to the immediate challenge on reconstruction and projects such as Santos’ investment. They are issues that Government considers from time to time.
QUESTION: How worried are you about a wages explosion with the huge demand for tradespeople in Western Australia, now more demand?
FERGUSON: Look the outcomes speak for themselves. There are some fairly significant increases in wages in the resources sector at the moment and I must say from a Tourism perspective as the Minister for Tourism it is creating difficulties in some sections of my industry, especially in places such as Western Australia because it is very difficult for the tourism sector to actually compete on the wages front with the type of wages being paid in the resources and energy sectors in place such as Western Australia.
This is not new. I first saw it as a Minister in 2007 and 2008 before the Global Financial Crisis hit.
Thanks very much for your attendance.