Tax hike ‘a con­fi­dence-killer’

The Australian - - FRONT PAGE - JAMIE WALKER SARAH ELKS

The fa­ther of Queens­land’s $80 bil­lion liq­ue­fied nat­u­ral gas in­dus­try has warned that busi­ness and in­vest­ment con­fi­dence could be de­stroyed by the state gov­ern­ment’s deeply con­tested roy­alty hike killing “the goose that laid the golden egg”.

Coal-seam gas pioneer Richard Cot­tee spoke out as in­dus­try body the Aus­tralian Petroleum Pro­duc­tion and Ex­plo­ration As­so­ci­a­tion said a sec­ond wave of gas projects in Queens­land to boost do­mes­tic sup­ply would be jeop­ar­dised.

State Trea­surer and Deputy Premier Jackie Trad had wrongly in­sisted the tax in­crease would hit only the ex­port sec­tor, forc­ing her of­fice to cor­rect the record last night.

Mr Cot­tee said the planned in­crease in the roy­alty rate from 10 per cent to 12.5 per cent an­nounced by Ms Trad in Tues­day’s bud­get, with no con­sul­ta­tion with the in­dus­try, would shat­ter con­fi­dence in al­ready “skit­tish” cap­i­tal mar­kets and stran­gle the de­vel­op­ment of new gas­fields.

“If you lose the con­fi­dence of the in­dus­try to ex­plore, you ac­tu­ally do kill the goose that laid the golden egg,” he told The Aus­tralian. “I just think the an­nounce­ment was mist­imed. At least, it should not have been sur­pris­ing.”

The state bud­get pa­pers pre­dict that “sub­stan­tial new gas sup­ply” will come on­line in two years, ex­pand­ing an in­dus­try cen­tred on three vast CSG liq­ue­fac­tion plants at Cur­tis Is­land, off Glad­stone, 550km north of Bris­bane. The roy­alty in­crease would boost the La­bor gov­ern­ment’s take by $476 mil­lion over the for­ward es­ti­mates to nearly $2.5bn, APPEA said.

But the as­so­ci­a­tion’s chief ex­ec­u­tive, An­drew McConville, cau­tioned that in most cases cap­i­tal fund­ing for projects with a 2020-21 hori­zon had not yet been com­mit­ted. “Cap­i­tal is scarce and will flow to the high­est value use,” he said. “This an­nounce­ment

changes the com­mer­cial set­ting for in­vest­ing in Queens­land.”

Mr Cot­tee, who headed the start-up Queens­land Gas Com­pany that was folded into one of the Cur­tis Is­land joint ven­tures now run by en­ergy gi­ant Shell, said mora­to­ri­ums on on­shore gas ex­plo­ration in Vic­to­ria and NSW had squeezed sup­ply so badly that pro­duc­ers could not meet do­mes­tic de­mand while ser­vic­ing ex­port con­tracts.

Aus­tralian Com­pe­ti­tion & Con­sumer Com­mis­sion chair­man Rod Sims de­tailed re­cently how the gas short­age had pushed do­mes­tic whole­sale prices up two or three times the his­tor­i­cal av­er­age, putting trade-ex­posed man­u­fac­tur­ers un­der pres­sure to stay in­ter­na­tion­ally com­pet­i­tive.

Point­ing to his work with State Gas, a new com­pany look­ing to de­velop a nat­u­ral gas project near re­mote Rolle­ston, 700km north­west of Bris­bane, for the do­mes­tic mar­ket, Mr Cot­tee said Ms Trad was risk­ing Queens­land’s rep­u­ta­tion as the “honourable ex­cep­tion” to the east-coast gas pro­duc­tion freeze.

“I am very pas­sion­ate about find­ing a way to in­crease gas sup­ply into the do­mes­tic mar­ket,” he said. “Gov­ern­ments need to recog­nise that only 20 per cent of nat­u­ral gas is used for elec­tric­ity gen­er­a­tion … more than 50 per cent is used by in­dus­try, which can’t re­place it, and that’s one mil­lion jobs in Aus­tralia.

“Some­how we have got to make sure that the cap­i­tal mar­kets, whether it’s the stock ex­change or whether it’s a for­eign in­vestor, have con­fi­dence.

“But the cap­i­tal mar­kets re­main very, very skit­tish, es­pe­cially for the higher-risk end of the mar­ket. I just think this de­ci­sion by the Queens­land gov­ern­ment is go­ing to ex­ac­er­bate that skit­tish­ness and there­fore be counter-pro­duc­tive.”

De­fend­ing the roy­alty move af­ter warn­ings from for­mer La­bor fed­eral re­sources min­is­ter Martin Ferguson, now a board ad­viser to APPEA, that it would raise sov­er­eign risk con­cern, Ms Trad said yes­ter­day it was time the LNG in­dus­try paid a “bit more back”.

“Be­cause of our fa­cil­i­ta­tion of this in­dus­try, it is now one of our ma­jor ex­porters,” she said. “We ex­port (gas) at dou­ble the value of ther­mal coal and it is grow­ing at an ac­cel­er­at­ing rate, 40 per cent growth in the last year …

“There has been a 10 per cent roy­alty rate on the gas sec­tor for the past years. It was a com­pet­i­tive roy­alty rate be­cause it was a new fledg­ling in­dus­try. Now it is very much es­tab­lished, it is … grow­ing at a rapid rate. And now is the time for it to pay a bit more back to the peo­ple of Queens­land.”

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