Political minefield

THE LATEST IN A SERIES OF INTERVIEWS WITH OUR NATION’S LEADERS IN THE LEAD UP TO THE FEDERAL ELECTION.

The future of the resources sector will be a key issue at the upcoming federal election. In the lead up to the polls, AMR spoke to current Federal Mines Minister Gary Gray as well as the man who wants his job, Shadow Mines Minister Ian McFarlane, about the big issues facing Australia’s mining and resources sector now and in the years to come.

According to Gary Gray, Minister for Resources and Energy.

Question 1. A recent international report by Grant Thornton claims Australia’s junior mining companies could be on the brink of extinction unless the Federal Government changes tack. The report claims increased regulation has driven project approval times from months to years and that the impost of new taxes has hit junior miners hard. What will the Government do to help junior miners remain viable?

In 2011-12, mineral exploration expenditure in Australian actually increased to $3,953 million, a 34 per cent increase on 2010-11.

It’s also worth bearing in mind that iron ore exports in 2001 were around 157 million tonnes and increased to 488 million tonnes in 2012. They are forecast to reach 538 million tonnes in 2013.

Petroleum exploration decreased by 3.6 per cent to $3,197 million in 2011-12, from $3,315 million in 2010-11. However, petroleum exploration expenditure has strengthened in the first six months of 2012-13, with a 48.6 per cent increase on spending compared to the first six months of 2011-12. This growth has been driven by increasing demand in Asia for Liquefied Natural Gas (LNG). Although expenditure has been increasing, Australia’s share of exploration expenditure has fallen from 13 per cent in 2011 to 12 per cent in 2012. This compares with the highs of the 1990s, when Australia’s share of global exploration expenditure reached 20 per cent. To some degree this change reflects an increasingly competitive global environment. But Australian industry and Government will continue to work smarter to identify future mineral fields for development.

The Grant Thornton ‘International Mining Report 2013’ is based on a survey conducted with 389 mining executives in Australia, Canada, South Africa and the United Kingdom in late 2012/early 2013. The survey was heavily focused on small operators.

A small majority (58 per cent) of Australian respondents rated increased government involvement and/or regulation as a constraint on growth. Despite these concerns the survey found that 46 per cent of overall respondents expected to increase exploration expenditure in the next 12 months, and only 12 per cent expected to decrease exploration expenditure over the same period.

I note that the report states that ‘increased regulation has driven project approval times from months to years’, but does not attribute this statement to a source or provide further data. The Government is aware of the problems that additional regulation can cause for the mining sector and always seeks to minimise this. However, this must be balanced against legitimate community concerns about environmental and health and safety issues. In the long run appropriate regulation is beneficial to mining as it broadens community support for both existing and new developments.

In order to better understand some of the issues affecting the exploration sector in September 2012 the Australian Government requested the Productivity Commission (PC) to undertake a 12-month inquiry into the non-financial barriers to mineral and energy resource exploration. The Inquiry will assess duplication across state, territory and Commonwealth regulation, costs associated with government processes and broader economic costs.

The PC has invited submissions on an Issues Paper released in December 2012, and is expected to publish its Draft Report for comment later this month (May 2013). Public hearings will be held in July 2013, before a Final Report is delivered to the Australian Government in September 2013. I would encourage the industry to make their views known to the inquiry if they have not already done so.

Question 2. The same report recommends that the Government consider increasing incentives to encourage exploration. Mining industry leaders are worried that a prolonged period of reduced exploration could set back future discoveries significantly, thereby impacting investment, employment and the viability of the industry. Will the Government increase support of exploration? How will they do this?

In recognition of some of the challenges facing the exploration sector in Australia, The Standing Council on Energy and Resources (SCER) Exploration and Investment Geoscience Working Group (EIGWG) has developed and is now implementing a National Mineral Exploration Strategy and Mineral Exploration Investment Attraction Plan. SCER consists of Commonwealth State and Territory Energy and Resources Ministers, and the support of this group demonstrates the broad based recognition of the importance of exploration.

 “The Government has no intention to review the MRRT in the foreseeable future.” GARY GRAY.

The National Mineral Exploration Strategy’s objective is to improve Australia’s discovery rate; make Australia competitive in attracting mineral exploration investment; and ensure the longevity of Australia’s minerals industry and the country’s continuing prosperity by addressing Australia’s covered greenfields exploration challenge.

A key focus of the strategy is to improve the availability of government-funded pre-competitive geoscience data. As noted in the Grant Thornton Report, the availability of reliable data is an important factor in investor confidence, as it minimises the risk of investment. Extensive pre-competitive geoscience programs exist or are being developed across Australia.

The Australian Government, through Geoscience Australia (GA), is developing a programme focussed on greenfields and undercover exploration. The programme will work closely with the State and Northern Territory geological surveys and the Deep Exploration Technologies Cooperative Research Centre (DETCRC) to characterise and drill prospective, under-explored regions.

Question 3. The Australian Coal Seam Gas industry has been significantly affected by the Federal Government’s strengthening of environmental regulations, resulting in some projects being put on hold indefinitely. Critics say the distribution of responsibilities between State and Federal causes duplication and inefficiencies. What plans does the Government have in place to untangle the green tape?

A number of coal seam gas projects have been placed on hold in New South Wales, not because of uncertainty between State and Federal responsibilities but because of uncertainty of State legislation and regulation.

This is not to underplay the level and intensity of concern within some communities and from some farmers on the potential for CSG developments or large coal mining projects to have a significant impact on water resources or other environmental impacts.

The Government has acted on this concern and is introducing amendments to the Environment Protection and Biodiversity Conservation Act (the EPBC Act) to ensure that CSG activities and large coal mining projects are fully assessed by the Commonwealth for their potential impact on water resources.

The proposed changes to the EPBC Act provides certainty to both industry and communities that impacts on water will be fully assessed and importantly that any risks can be minimised, managed and mitigated. Unless projects have a real buy-in and acceptance from local communities, there is a risk that community protest and pressure will force projects out of some areas which I think we have seen in New South Wales.

The intent of the trigger is not to delay project approvals or tie projects in further ‘green tape’. Most of these projects are already required to be referred to the Independent Expert Scientific Committee (IESC) as agreed with states and territories under the National Partnership on CSG and Large Coal Mining Developments. The changes to the EPBC Act just ensure that this will happen in the fully transparent manner which communities demand.

In addition to this work, the Australian Government is collaborating with state and territory governments through the Standing Council on Energy and Resources (SCER) to ensure that CSG activities are undertaken in a responsible and sustainable manner.

SCER has the opportunity to agree to a national approach to a Harmonised Regulatory Framework for CSG. The Framework puts in place guidance for states and territories – who are the day-to-day regulators of the industry, for developing leading practice regulation of the industry particularly around the protection of the environment, water resources, workers and communities.

The Framework recognises that these issues must be addressed by regulators through regulatory leading practice to ensure well integrity, the use of fraccing and minimal and safe use of chemicals. Industry and communities are vital partners in this process.

Question 4. Tony Windsor’s report into FIFO practices in the mining industry makes a number of key recommendations to Government including an overhaul of the Fringe Benefits Tax to make the FIFO employment model less financially attractive for mining companies. What is the Government’s response to this recommendation?

The House Standing Committee on Regional Australia has undertaken an inquiry into “the use of ‘fly-in, fly-out’ and ‘drive-in, drive-out’ (DIDO) workforce practices in Regional Australia”.

The report of the inquiry was tabled on 13 February 2013. The Australian Government is considering the findings and recommendations of this inquiry and will respond in due course. It would be premature to discuss the nature of a possible Government response before the response is tabled in parliament.

I will say however, that the report does have a strong focus on the need for improved information on FIFO practices and their effects. I strongly support any process that is focused on obtaining the facts of a matter, rather than one that is driven by anecdotal claims.

Question 5. What is your answer to the soaring cost of housing in Australian mining communities?

There is no simple answer to the housing affordability in any part of Australia, as this issue applies to all regional centres and not just mining communities. And it is important to remember the role of both industry and the private housing market in responding to changes in demand for housing, including housing demand in mining communities.

Government responsibility for housing issues is shared across all levels of government. Local governments control land release, and state governments often have more direct involvement in housing markets and housing strategies within their jurisdiction. The Australian Government Department of Families, Housing, Community Services and Indigenous Affairs delivers a range of programs relating to housing (refer http://www.fahcsia.gov.au/our-responsibilities/housing-support/programs-services).

In relation to mining communities, the Australian Government is implementing recommendation 7.1 of the National Resources Sector Workforce Strategy (NRSWS) in partnership with state and territory governments, industry and other stakeholders.

“Recommendation 7.1 Housing shortages in regions affected by resources operations and feeder cities”.

The Australian Government has been working with the states and territories to examine supply constraints in the housing market under the COAG Housing Supply and Affordability Reform (HSAR) agenda. Additionally, the Australian, state and territory governments have implemented a number of programs and strategies that help to address housing issues.

Question 6. In terms of industrial relations, one of the biggest changes made by the Labor Government in recent times has been the introduction of the Temporary Work (Skilled) (Subclass 457) Visa – primarily in response to the skills’ shortages in the resources sector. This has made the Australian mining workforce very nervous. What is the Government doing to address the skills’ shortages using a local workforce?

I chaired the National Resources Sector Employment Taskforce (NRSET) which provided its report, Resourcing the Future in July 2010. The National Resources Sector Workforce Strategy (NRSWS), announced in March 2011, accepted all 31 recommendations of the NRSET report.

The NRSWS provides a comprehensive strategy to further build the skills of Australia’s workforce and support the growth of skilled labour supply, with 31 actions in seven key areas:

1. Workforce planning and information sharing
2. Training more trades professionals
3. Training more graduates
4. Immigration initiatives
5. Workforce participation
6. Linking education and industry
7. Affordable housing and infrastructure.

The Australian Government is implementing the NRSWS in partnership with state and territory governments, industry, unions and training providers. Twenty-seven of the 31 NRSET recommendations have been ‘actioned’ (i.e. completed or have become part of normal business processes) and the remaining four recommendations are expected to be actioned during 2013.

The 457 Visa program is an important element of Australia’s skills management approach as it allows employers to meet short-term skill needs while not replacing local employment and training strategies. Subclass 457 sponsors must train Australians and attest to employing local (Australian) labour and/or non-discriminatory employment practices.

Sponsors are also required to employ 457 visa holders in accordance with Australian work standards and pay them a market salary rate to ensure that overseas workers do not become a cheap labour alternative to Australian workers.

Question 7. The Opposition claims the Minerals Resource Rent Tax is not generating revenue and that it is, in fact, a burden on treasury. Will you be reviewing the tax in the foreseeable future?

Minerals Resource Rent Tax (MRRT) revenue depends on a range of elements, such as production volumes, capital deductions, commodity prices and the exchange rate.

Net receipts from the MRRT are now expected to be $0.2 billion in 2012-13, $0.7 billion in 2013-14, $1.0 billion in 2014-15, $1.4 billion in 2015-16 and $2.2 billion in 2016-17.

The 2013-14 Budget identifies this as a significant write-down when compared to the Government’s 2012-13 Mid-Year Economic and Fiscal Outlook. However, MRRT receipts are expected to grow year on year over the forward estimates. This growth will be supported by strong increases in production volumes as the investment phase of the mining boom transitions towards a record expansion in resources production and exports.

The Government has no intention to review the MRRT in the foreseeable future.

Question 8. There has been a lot of talk, most notably from big miners Andrew Forrest and Gina Rinehart, of variations of a ‘northern economic zone’, primarily to take advantage of resources located in the northern part of Australia. In the Government’s view, what are the key obstacles to making such a taxation zone work?

I am aware of calls from some public figures for the establishment of a ‘special economic zone to develop northern Australia’. Special economic zones operate in parts of China, India and other countries, and they usually use reduced taxes and other economic incentives to attract investment, stimulate economic activity and encourage population growth.

“The intent of the trigger is not to delay project approvals or tie projects in further ‘green tape’.” GARY GRAY.

The Australian Government already provides targeted taxation support for individuals living in remote and regional areas in northern Australia through the zone tax offset.

The Government’s preferred policy is to cut taxes generally, for all Australians, such as through personal income tax cuts, rather than providing further geographically-targeted tax concessions. The Government has implemented broad based tax reform and has cut taxes across the board so that all Australian taxpayers and businesses share in the benefits of a strong economy and fiscal responsibility.

Question 9. Currently there is no long term National Minerals Strategy. There are national strategies for tourism, education and health, but not resources. What are your thoughts on the merits of developing such a strategy?

The Australian Government has a well-articulated position in relation to resources industry policy. Australia’s resources sector policy is often held up in international mining forums as an example of how governments can facilitate a healthy and sustainable resources sector.

Australia’s Leading Practice Sustainable Development Program for the Mining Industry (LPSD) is a program that promotes sustainable development and industry self-regulation through proactive adoption of leading practice principles. An underpinning principle of the LPSD program is to encourage, within the mining industry, a shift in approaches and attitudes, as well as in the practices and technologies available.

The program has developed an internationally-successful series of fifteen LPSD handbooks which cover leading practice in mining management. All fifteen LPSD handbooks are available online and are available in seven languages. The handbooks have had over 100,000 downloads since the commencement of the LPSD program.

There are several reviews currently underway that are looking into aspects of government policy that are relevant to the resources sector, including:

• Productivity Commission Inquiry into Mineral and Energy Resource Exploration
• Productivity Commission Inquiry into the National Access Regime
• Productivity Commission Study of Major Project Development Assessment Processes
• Senate Legal and Constitutional Affairs Committee Inquiry into the Framework and operation of subclass 457 visas, Enterprise Migration Agreements and Regional Migration Agreements
• House Standing Committee on Regional Australia Inquiry into the use of ‘fly-in, flyout’ (FIFO) and ‘drive-in, drive-out’ (DIDO) workforce practices in Regional Australia.

In regards to the idea of a national minerals strategy I certainly recognise the need to continually look for ways to improve and refine government policy. Ideally, matters of reform and improvement are best left to the industry to resolve, with the Government concentrating on issues where it has a clear role in supporting the national interest.

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LET US KNOW AT WWW.MININGREVIEW.COM.AU, ON FACEBOOK OR DROP THE EDITOR A LINE AT MININGEDITOR@APRS.COM.AU.

According to Ian Macfarlane, Shadow Minister for Resources and Energy

Question 1. The Australian Coal Seam Gas industry has been significantly affected by the Federal Government’s strengthening of environmental regulations, resulting in some projects being put on hold indefinitely. Critics say the distribution of responsibilities between State and Federal causes duplication and inefficiencies. If brought to power in September, will the Coalition wind back or remodel this new Federal environmental assessment process?

What we’ll do in the first instance is to move to a one-stop-shop model so whether or not the Commonwealth has awarded figures or not it won’t make any difference to the process because it will involve a process that combines both the State and Federal processes. The States already have awarded figures so if there’s two figures for the one assessment it really doesn’t make any difference. As we’ve said all along, it’s duplication and an added layer that produces no result, so we’ll move to a one stop shop and so the Environment Protection and Biodiversity Conservation Act (EPBC) process will be done under a combined process.

Question 2. Tony Windsor’s report into FIFO practices in the mining industry makes a number of key recommendations to Government including an overhaul of the Fringe Benefits Tax to make the FIFO employment model less financially attractive for mining companies. Does the Coalition support this recommendation?

We’re not looking at any changes to the taxation system in terms of personal income tax, so in terms of this specific issue, no, we’re not prepared to support that recommendation. We think that whilst it is very much preferable that these projects be manned by the people that live in the area and the region, we realise in some cases that’s not practical. In some cases people’s family are reluctant to move to remote areas and in the end the Coalition is keen to see families stay together, so if FIFO is the only option then we accept that.

Question 3. What is your answer to the soaring cost of housing in mining communities?

In the end that’s a discussion that would have to be had by the Commonwealth and Local Governments, and where applicable, State Government, but I think in a lot of cases the cost of housing is directly affected by firstly, the cost of land and often that relates more particularly to native title issues. Sometimes it’s a local government issue. Secondly, it’s the high cost of construction in some of these remote areas. So that’s all part of a process, but in terms of construction or more broadly, large construction, obviously the re-establishment of the Australian Building and Construction Commission (ABCC), will address some of these spiraling construction costs and so whilst houses don’t usually fall under that, they do suffer a knock-on effect of general construction costs so again we’d address it through that regard.

Question 4. In terms of industrial relations, one of the biggest changes made by the Labor Government in recent times has been the introduction of temporary skilled overseas visas, primarily in response to the skills shortages in the resources sector. What is the Coalition’s policy on temporary overseas visas? Will the Coalition repeal or modify the Temporary Skilled 457 visa if successful in September?

We support enterprise migration and we also support continuation of the 457 visas. Obviously there is a construction boom going on at the moment – but our assessment is that the boom is about to start to decline so we will see the requirements for 457s and EMAs (Enterprise Migration Agreement) to be lessened as we go forward, but there’s no doubt that in the end if there is a shortage of skilled labour of course we’ll address that issue through our education and training policy as well. The Liberal Party has actually done quite a lot in government towards creating apprenticeships and Brendan Nelson was very involved in that when he was Education Minister and that continued under Julie Bishop. We will address it at that end, but that of course is a four or five year process and in the meantime we accept that there will be a continuation of 457s and the enterprise migration agreement, but I think the reality of 457s though is that it is an expensive option for companies because they end up paying more for people here on 457s than they do for locally sourced staff.

I don’t think you’ll ever have a situation where you won’t be offering 457 visas, but the long term goal is to make them less required in terms of skilling-up. That skilling-up isn’t just a matter of getting people to go and do a trade. There has to be some security in being a tradesman in that field. And part of the challenge that the industry faces as this all slows down is that tradesmen are always the first people out the door unfortunately. That flows through to people being involved in the trade in the first place, so we need to make sure companies are on board with that and there’s not the sorts of levels of redundancies we’re currently seeing in the coal industry, for instance, which is probably going on 6000 people in the last twelve months.

Question 5. Tony Abbot claims his government would get the budget under control if successful at the next election. How does the Coalition plan to do this while at the same time abolishing the Mining Mineral Resources Tax as promised?

If you have a look at the Mining Mineral Resources Tax, it’s not earning any money for the coffers, and in fact if you look at the programs the government is providing that are supposedly being funded by the Mining Resource Tax, the tax is actually a burden on the treasury, not a plus, so we’ll abolish the Mining Resource Tax and the programs that go with it. The most controversial of those programs is the superannuation payments to low income people, but obviously, in terms of Mining Resources Rent Tax, the country will be better off without it, not to mention the treasury, and we’d seek to boost investment in the sector and therefore earn additional income through company tax in the traditional way.

We’ve always said that benefits that are funded from the mining tax are unsustainable and because we don’t support the mining tax, naturally we can’t provide the benefits. We will release our own policies on how to encourage increased savings for Australians across all income tax brackets in an appropriately targeted and financially sustainable way.

Question 6. A recent international report by Grant Thornton claims Australia’s junior mining companies could be on the brink of extinction unless the federal government changes tack. The report claims increased regulation has driven project approval times from months to years and that the impost of new taxes has hit junior miners hard. What will the Coalition do to help junior miners remain viable?

We took a floated share option to the last election. We weren’t successful in that election but the policy is currently being reviewed and we’ll see whether or not we have enough money in the coffers to do that again. Secondly, or course, we’ll abolish the carbon tax and mining tax and we’ll introduce a one-stop-shop for regulation which will cut costs of that substantially. The approvals process we would hope to return to a sub two year process optimally, perhaps as little as 18 months. Bear in mind there’s an extraordinary amount of information available these days and with computers and super computers you don’t need four years to process this information. Also the one-stop-shop process will be a less adversarial process so rather than a process that starts now and goes for two years or three years or four years and the application is then submitted and the assessment authority then looks at it and says well this is missing and that’s missing and it’s not satisfactory; we see a far more proactive process.

Where there is a proactive process, not compromising the integrity of the assessor, but where the company can go and say well this is how we see this and this is how you see this, are we on the right track? Are there areas we need to emphasise more etcetera. So the process will arrive at an inpoint, which still may be a rejection but we’ll arrive at that inpoint at a faster rate and then there’ll be less tooing and froing afterwards. If you look at the Coal Seam process in Queensland, that was a three year process, with a one year addendum after the initial application was submitted. That turned into a four year, 20,000 page process. We want to avoid that.

“We’re looking at development of the Northern Australian region but that report is still to be finalised.” IAN MACFARLANE.

We want a proactive process, not a lower standard, but something that achieves the standard with a lot less bureaucracy.

Question 7. The same report recommends that the Government consider increasing incentives to encourage exploration, to ensure that the industry continues to progress. Mining industry leaders are worried that a prolonged period of reduced exploration could set back future discoveries significantly, thereby impacting investment, employment and the viability of the industry. Will the Coalition increase support of exploration? How will they do this?

We haven’t made a final decision on a floating share scheme but we did take one to the last election, and that’s to only comment I can make on that.

Question 8. There has been a lot of talk, most notably from big miners Andrew Forrest and Gina Rinehart, of variations of a ‘northern economic zone’, primarily to take advantage of resources located in the northern part of Australia. What is the Coalition’s viewpoint on this, and how and when do you see it being adopted?

We’re looking at development of the Northern Australian region but that report is still to be finalised. At this stage it’s fair to say we’re not considering an individual taxation zone or a change to the concessional taxation zone.

Question 9. Currently there is no long term National Minerals Strategy. There are national strategies for tourism, education and health, but not resources. What are your thoughts on the merits of developing such a strategy?

I think it does have merit and I think along with re-doing the Energy White Paper which I think in the end became a bit of a damp squib. It didn’t really say much and was way overdue. We’ll be revisiting the White Paper and certainly in terms of a Minerals and Resources Strategy, revisiting that area as well, (It will) cover all the areas we have already discussed. It covers issues like permitting. It covers issues like resource exploration. It covers issues about resource development costs. Having the workforce to do the job – all of those things – but we do need to encapsulate that because there’s no doubt, Australia has come to realise, (it’s been a long time coming) that the resources sector is a crucial part of our economy and we need to make sure we develop all the resources we’ve got as quickly as possible because quite frankly the world changes so quickly. LNG being a case in point. You need to be getting everything you can out of the ground as soon as possible because look at China as they develop their gas and oil shale deposits. And around the world look at Africa. The competition is quite serious so we need to do everything we can ASAP.

WHICH WAY WILL YOU BE VOTING?
LET US KNOW AT WWW.MININGREVIEW.COM.AU, ON FACEBOOK OR DROP THE EDITOR A LINE AT MININGEDITOR@APRS.COM.AU.