It’s my last day in Canberra after more than a decade. Gulp. My last Inside Out in Canberra is about a Canberra silence. Is it in the national interest for a foreign company to take over Woodside, our premier natural gas company? The Western Australian government has urged Treasurer Peter Costello to reject the bid in the national interest. National interest is not defined – instead a secretive body within Treasury, The Foreign Investment Review Board, makes a secret recommendation to Costello.
On January 18, the Australian Financial Review led the paper with the news that a decision had been postponed for ninety days, taking it past the WA election date. The stories on the issue have been largely confined to the business section of newspapers. Are we too immature to debate this one? Are we too scared to?
It’s a hard one, isn’t it? We don’t want to become a branch office of multinationals, like New Zealand has, but we don’t want to upset the markets by blocking a takeover. Woodside won’t publicly argue the national interest point because its job is to maximise shareholder value. And there’s a much bigger question hidden away in all this. We get all excited about maintaining competition in the domestic market, but there is no mechanism to maintain competition in the global market. What is to stop two global companies eventually dominating the world energy industry when the world is one big market? And now that global companies are bigger and more powerful than most nation states, will they come to rule the world according to their narrow brief of maximising short term shareholder value regardless of the consequences for national economies, in particular ours?
What gets me is that there is a conspiracy of silence surrounding the Shell takeover bid, based partly on the fear that One Nation could get a huge head of steam if Costello gives Shell the tick. Costello has said only that “the bid will be approved if it’s in the national interest, and if it’s not it won’t be”. Shadow treasurer Simon Crean will say only that “the Treasurer needs to very carefully weigh up Australia’s national interest”.
Yet concerns about cut-price takeovers of our major companies, due partly to our low dollar, are whispered privately at the highest levels of corporate Australia. The Chairman of the National Australia Bank – which is pursuing as global growth strategy – went public at NAB’s annual general meeting on December 14.
“It is important that Australia have a number of major companies in our key industries of competitive international scale, capability and reach, if we are to retain adequate control over our domestic economy,” he said. “These issues are fundamental to Australia’s future. I don’t believe anyone wants this country to become a branch office. Retaining our brightest people, creating real employment opportunities for our children, our influence in the region and the world and access to and choice of goods and services are all impacted by these issues.”
Woodside is world class. Should we keep it Australian and let it grow into a global company?
David Cox is the Labor member for Kingston, in South Australia. He’s worked for two State mining and energy ministers, Labor Treasurer, Ralph Willis and Labor finance minister Peter Walsh. He did his honours thesis on mining policy. On Tuesday he tried to get some public debate going in a speech to Parliament. It went unnoticed. Cox told me his speech “was the most considered I’ve ever made in Parliament”. Last night I had a farewell drink with my favourite politician, WA Liberal backbencher, Judi Moylan and mentioned the Cox speech. She read it and decided she’d say something too, before she gets briefings from Woodside and Shell next week. So here is David Cox’s speech, and Judi Moylan’s piece.
DAVID COX, Adjournment debate, Tuesday 10.29pm.
Royal Dutch Shell’s bid for Woodside – the operator of Australia’s largest resource project – is in a league above other foreign investment applications and is a test of whether Australia has an effective foreign investment policy based on a national interest test.
It is very infrequent that a major foreign investment proposal carries with it adverse economic implications that are particular to it being foreign owned. Is it in Australia’s interest to entrust the development of the North West Shelf to the national oil company of another country? This world-scale project produced exports $3.6 billion in 1999, generating government revenue excise, royalties and company tax of $1.6 billion. It accounts for 1.1 per cent of Australia’s GDP and directly and indirectly employs 80,000 people. The development of the fourth LNG train – including a second trunkline and offshore facilities – will have a capital cost of $3 billion and will employ 2,000 people during development.
Where is the precedent for a country allowing strategic control of the development of its resources to be subordinated to the other commercial interests of a foreign company? Shell has a substantial stake in similar projects in Malaysia, Brunei and Oman, and a new one in Russia Sakhalin Island, north of Japan that, are competitors with Australia for its Asia-Pacific liquid natural gas market. These countries will not hesitate to intervene to protect their own national interests at the expense of Australia. To maintain shareholder value, Shell must apply high hurdle rates of return across the company when considering new investments.
Among world-scale LNG projects, the North West Shelf is probably one of the higher cost operations. If Shell controls alternative resources and has any reluctance to develop the North West Shelf, then we can assume that it will be much less enthusiastic about committing capital to Australian exploration than would an independent Woodside.
Australia’s level of self-sufficiency in the production of petroleum is declining, so any reduction in exploration effort over our most prospective acreage is going to impact heavily on the balance of trade in a few years. Shell may argue that taking over Woodside would only give it a 33.4 per cent share of the North West Shelf and other participants could still outvote it on questions of investment.
However, the position of operator it would acquire would put Shell in the drivers seat controlling the process with double its current weight in negotiations.
The primary responsibility of the directors of Woodside is to advise the shareholders if the price on offer represents full value or better for the asset; it is not to determine the national interest. They could seek a white knight Australian or a foreigner who does not have the conflicting interests that Shell has and who is prepared to give the shareholders full value.
At the end of the day, the Foreign Investment Review Board is there to advise the government of the day. It does not determine the national interest. Under the Foreign Acquisitions and Takeovers Act, it is the Treasurer who ultimately has the responsibility for determining the national interest.
In the case of this application, the national interest is that exploration and development of the North West Shelf not be impeded by the conflicting interests of Shell. The Treasurer must first consider whether the non-Shell joint venture partners have both the information base and the influence over joint venture processes to ensure the optimum development of the resource when that is at the expense of Shell’s other interests.
Recent newspaper reports indicate that at least one of the non-Shell joint venture partners has serious concerns that they would not have that control if Shell were the operator. If the Treasurer cannot satisfy himself and publicly demonstrate that this national interest test is met by the current application, he can consider whether there are enforceable conditions that he could impose that would protect the national interest.
If the Treasurer is unable to develop an effective set of conditions that are acceptable to Shell, or if the company is unable or unwilling to amend its application to satisfy the national interest test, then it should withdraw its application to avoid rejection.
If the Treasurer fails to ensure that the development of the North West Shelf cannot be impeded by Shell, he must admit that Australia no longer has foreign investment controls based on an effective national interest test.
LET’S KEEP WOODSIDE FOR AUSTRALIA
By Judi Moylan
As a Western Australian, I have watched Woodside grow from a blue-sky concept to become a major generator of income for Australia. Revenue generated by this giant, homegrown, resource company accounts for 1.1% of Australia’s GDP and employs around 80,000 people either directly or indirectly.
Woodside has been an undeniable success. The company generates an average of $3.6 billion per year in export revenue. It contributes $1.6 billion to Australia by way of taxes and other government charges.
I have been a frequent visitor to China over the last two years. This has made me acutely aware that Woodside has the potential to grow these revenues if it can enter the China market. On many occasions I have spoken to Chinese officials about the importance of this contract to Australia and our fine record of successfully delivering gas to Japan. Woodside has a real chance of becoming a major global competitor for the supply of gas.
Is a Dutch company trying to buy a significant Australian competitor to access the Asian market and in particular the Chinese market?
Since its inception the Australian people have made a significant financial investment in the development of the biggest resource project in Australia.
Over 20 years ago, the Western Australian Government underwrote the sale of gas in the biggest take or pay contract at that time, investing $7 billion in taxpayer money in the North West Shelf Venture. The Federal Government has provided excise relief.
This is a case where Australia has taken a blue-sky concept and seen it through to produce outstanding results for the company, the shareholders, the economy and the Australian people. This is a good example of Australia investing in research and development and being richly rewarded for the risk and the long-term commitment.
In Woodside we have a case study of what Prime Minister John Howard’s recent innovation statement is trying to encourage.
So should we fight tooth and nail to keep this major project in Australian ownership or should we cede control to a foreign company?
Woodside has enormous growth potential in its own right and it is not just Woodside shareholders that have a stake in that potential. The Australian taxpayers and in particular Western Australians have made a major long-term investment in the company.
Australia has precious few companies anywhere near the magnitude of Woodside, with the capacity to become major global competitors.
Some have argued that if Shell is not successful it will deter other foreign investment in Australia. This is drawing a long bow. The hard, cold facts are that if foreign companies can see the benefits of investing in Australia they will not be deterred by the failure of one transaction.
The business media and other commentators are debating whether the possible takeover bid by Shell for Woodside is in the national interest.
Maybe it is time to seriously engage the Australian people in a debate about just what the national interest is. Personally I cannot see that losing control over one of Australia’s premium resource performers is in the national interest.
I am a passionate Western Australian and equally passionate about the survival of Western Australian companies. Anyone who has made the long trek from the East to the West coast of Australia, knows that many companies have had to work excessively hard to overcome the isolation that comes from not being in the golden triangle of Sydney, Melbourne and Canberra.
Shell is obviously desperate to win Woodside. How desperate are we to keep it? If we are not, why not?
TIM DUNLOP of Canberra abhors the appearance of anonymous contributors in Inside Out, writing about marginal seats they live in. He writes: “A quick note to say that I think the practice of people writing under false names on your website is appalling. From what I’ve read, they say nothing that is particularly ‘radical’ or anything that would threaten their jobs and yet they feel the need to hide behind a phoney identity. It sucks, and I don’t think you should encourage it. It shows contempt for your readers. And surely such sanctioned dishonesty is not good for journalism in general. Cheers.”
Would appreciate your thoughts.
If you’re in the private or the public sector, it’s not really done to pen political pieces. It’s part of the censorship which inflicts most of us. Journalists are supposedly immune, but even we are controlled by the news space available, the editor’s interest in stories, and, of course, the dominant economic and social fads, let alone the imperatives not to offend the proprietor.
I know anonymity is not ideal, but the contributors to Inside Out are invariably tuned in and interesting and in the case of reporting on marginal seats, they actually live in the seats they’re talking about. As the idea develops, I’ll work out some guidelines.
GREG WEILO is annoyed with my take on the reasons for Labor’s win in the 1998 State election (Webdiary, Monday February 5).
“You wrote: “Back in 1998, One Nation won five seats from the Nationals and six seats from Labor, but Labor snuck into government with the support of independents after it snatched five Brisbane seats from the Liberals, partly because many Liberal voters were furious that the Coalition and the Libs had given their preferences to One Nation.”
“I am amazed that you can continue to print this nonsense. Isn’t it equally valid to say that One Nation “snatched six seats from Labor, partly because many Labor voters were furious that Labor had not given its preferences to One Nation”?
How will your theory fit in the forthcoming Qld election, where the Liberals have not preferenced One Nation, but some Nationals have? Are you prepared to say in advance what your new spin will be? Just what will you say if the Liberal vote remains low, but the National retain or increase their number of seats? In fact is there any scenario that, if it occurred, would convince you of the error of your current theory?
MARGO: Everyone’s got their theories about One Nation and preferences, now I’ve got yours. One Nation voters hate all major parties. If Hanson sticks with her pronouncement to put all sitting members in Queensland last, except where she’s done deals with the Nationals, anything could happen. My guess is that Liberals will lose ground in some Brisbane seats because Liberal voters will fear an unstable Coalition government relying on far-right independents to govern. The National MPs who’ve defied Rob Borbidge and preference swapped with One Nation have obviously done so because they fear the consequences if they don’t. Borbidge’s public opposition to such preference deals will, I think, deliver more votes to One Nation, and I think One Nation or an MP who used to belong to One Nation will win one seat, maybe more. Beattie’s tactic of urging no preferences, just voting 1 for Labor under the optional preferential system takes the One Nation heat off Labor. I wrote weeks ago that Beattie will win the Queensland election.
From next week, I’ll write Canberra Inside Out from Sydney, while returning to Canberra once a month.