Tag Archives: Australia

How the free market failed Australia and priced them out of their own gas supply

While Asia is enjoying low prices for Australian gas, back home things are getting worse. (Origin Energy)

Ian Verrender | Business Editor | ABC News

Fashion has a habit of turning full circle.

Remember that old shirt, the super tight one with the stretchy material and weird collar that you found at the bottom of the wardrobe? What on Earth possessed you to buy it, you wonder. What were you thinking?

For anyone who lived through the ’70s, the memories of those fashion crimes often come back to haunt us.

It was also an era when free market ideology began to assert itself in public policy. And with good reason.

Government-run businesses were inefficient, bloated and bureaucratic. Letting them loose would free up scarce public funds, competition would lower prices and scarce resources would be allocated with the greatest efficiency.

When Margaret Thatcher came to power in the UK in the 1980s, she unleashed a wave of privatisations that transformed the economy and contributed to decades of economic growth.

It didn’t take long for the fad to gain ground here. Government-owned businesses from airlines to banks and insurance companies were jettisoned.

Even vital infrastructure like roads, telecommunications and power generators were flogged to the highest bidder with little thought about the long-term consequences.

But have we gone too far? Free market theory, while it’s terrific in theory, has some almighty shortcomings and, as we now are discovering, may not be the economic cure-all we once imagined.

Suddenly, the winds have shifted. Business leaders talk in hushed tones, openly uttering a phrase once considered unmentionable: market failure.

In the past few days, there has even been a call for part nationalisation of our energy industry from a free market wheeler dealer. More on that later.

A fortnight ago, competition chief Rod Sims let fly with his annual swipe at the fee-gouging taking place at our airports.

Airlines and the travelling public were forking out an extra and largely unnecessary $1.6 billion in fees.

What’s going on with gas?

The problems arise when the business being sold is a monopoly, when the buyer, having paid an exorbitant price, is given carte blanche to extract its tonne of flesh. The benefits flow from the community to private interests, often offshore.

Generally, we’re talking about utilities — things like power companies, for instance. And then there is gas.

For years, electricity and gas operated independently. But the two have become intertwined as the shift towards a cleaner environment and lower emissions has thrust gas firmly into the box seat as the transition fuel to generate electricity.

We’ve suddenly discovered, however, we don’t have enough. It’s no exaggeration to describe the power situation now facing eastern Australia on both fronts as a catastrophe. And here’s why.

Within the next four years, Australia will overtake Qatar as the world’s biggest supplier of gas. We are sitting on vast gas reserves. In fact, we’re swimming in the stuff.

And yet, we face critical shortages at home which could starve manufacturers of fuel, see power outages across the eastern states and force energy prices through the roof while any profits that are made will be shipped offshore.

This is a public policy fail of epic proportions.

And it’s worth getting a handle on how it all came about and the shenanigans employed by the gas majors that have deliberately created this crisis and the supposed shortage which is a total con.

How could this happen?

First, however, consider this: the gas we are exporting does not belong to the energy giants. It belongs to us.

Companies like Woodside, Origin and Santos and their foreign partners merely have bought the right to exploit those gas reserves, which was supposed to lead to massive benefits for ordinary Australians.

Here’s the scorecard so far. Having spent close to $250 billion building new export facilities, no-one seemed to think that flooding the globe with extra energy would see global prices drop.

They have. Gas prices into Asia, where we export, have now dropped below what it costs to extract, process and ship the stuff. In fact, the east coast suppliers so far have written off around $6 billion on their new plants.

It gets worse. Extracting the gas from coal seams in Queensland was a little more problematic than originally thought. Then farmers, incensed at the activity taking place on rich agricultural land, began shutting the gates.

That meant the companies couldn’t get enough to satisfy the huge supply contracts they’d written in Japan, South Korea and China. So they plundered the supplies, much of it from Bass Strait, that once powered the domestic market. That’s why we have an artificial shortage.

But wait, there’s more. No-one ever considered that once we were plugged into the global market, we’d be paying global prices. Around the time all these new gas plants were developed, prices in Asia were up to $25 a gigajoule. Back then, we were paying between $2 and $4.

Prepare now to be outraged. Global prices have more than halved to $10 and under. Domestic prices, meanwhile, have soared, to well above $10 because of the domestic shortage.

By putting the domestic market under pressure, they deliberately pushed local prices higher.

The upshot is that we now are paying more than Japanese manufacturers for our own gas. In fact, power company AGL is actively considering buying Australian gas in Japan and shipping it back home. And why not? It’s cheaper there.

That means energy-rich Australia is subsidising Asian manufacturers while penalising our own, a situation likely to force many to the wall.

Just to rub salt into the wound, the ramp-up in exports has not delivered the resources rent tax bonanza once promised by US giant Chevron. In fact, thanks to a shifty cash shuffle, ExxonMobil, Chevron and Shell until two years ago were booking around $3 billion a year in profit, tax free.

That’s seen our Petroleum Resources Rent Tax proceeds, which in the past delivered around $2 billion a year, plummet. In fact, by the time we overtake Qatar for global gas domination, it’s anticipated our resources tax will collect just $800 million.

Qatar, on the other hand, is expected to receive $26.6 billion in royalties that same year for roughly the same volume of exports.

So what’s being done about it?

Treasurer Scott Morrison last year declared he would urgently look into the matter. He’s called a review to get to the bottom of why soaring exports have coincided with a halving in the resources rent tax collections.

The review panel could do worse than read a report sent out last week by global investment bank Credit Suisse.

Hardly a bastion of left-wing ideologues, the report — entitled The Wolf Who Cried Boy — raises the prospect of Australia establishing a national oil company as one possible solution to the concocted crisis. And it goes straight for the jugular.

“If the gas producers and sellers are the wolves, they themselves are seemingly calling foul just as the danger is truly upon us,” it begins.

“We wonder whether a national oil company, a la Kumul Petroleum in PNG, could work? Instead of the petroleum resources rent tax on future projects, could we see state participation instead?”

Could we indeed? There undoubtedly will be howls of protest from the business lobby and their associated hangers-on. But consider this. Is this not the ultimate form of capitalism?

We are the landlords. The energy companies are tenants. If we had a controlling stake in the business, it would be much easier to ensure the kind of chicanery that has taken place in the past few years was never repeated. There would never be shortages.

And just perhaps, we’d end up with a dividend cheque, maybe even along the same lines as Qatar’s.

Just a thought.

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Frieda river mining companies involved in internal war

The Chinese are fighting to get three Highlands Pacific directors off the PanAust board

The Chinese are fighting to get three Highlands Pacific directors, including Chairman Ken MacDonald off the PanAust board

Australian mining company Highlands Pacific is involved in a war with Chinese state-owned Guangdong Rising Assets Management (GRAM), over the future of the Frieda River mine. Highlands Pacific owns 20% of the proposed Frieda River mine through the joint venture company, PanAust. The Chinese own 80%.

Highlands Pacific has accused the Chinese of failing to complete the Frieda River mine feasibility study to the required standard. GRAM has responded by trying to throw three Highlands Pacific executives off the PanAust board… none of which bodes well for the future of the mine or the people of the Sepik…

HPL members asked to resign

Post Courier | February 17, 2017

REQUESTS by PanAust to Highlands Pacific Limited(HPL) for the resignation of three of its board directors have not gone down well. PanAust made the demand, in a notice it issued to HPL also seeking a special meeting be convened. PanAust, is a subsidiary of Chinese state-owned-enterprise, Guangdong Rising Assets Management Co Ltd (GRAM). PanAust holds 13.9 percent of HPL, and is a joint venture partner in the proposed Frieda River project.

The appointees PanAust is seeking to remove are Highlands Pacific’s Ken MacDonald (chairman), Ron Douglas (director), Mike Carroll and Dan Wood (independent director) and they be replaced with three nominees from GRAM. However, HPL on Tuesday had urged its shareholders, no action, stating it to be the strong view of the company that the replacement of four of the existing five non-executive board members with the PanAust nominees would not be in the interests of the other shareholders, who number over 7,500.

HPL said the PanAust proposal effectively would amount to a takeover of HPL without offering to acquire any shares, let alone with an appropriate premium.

“It is clear that a PanAust-dominated board would be at risk of operating in the interests of GRAM, rather than in the interests of all of our shareholders,” Mr MacDonald said.

“It is important for shareholders to be aware that HPL is currently in dispute with PanAust regarding the funding and methods of progressing the Frieda River project.

“HPL remains of the view that the PanAust approach to the project is suboptimal, and we have been urging it to adopt a different course of development that would generate better returns and reduced risks for our 7,500 shareholders.

“It also is our view that PanAust has failed to complete the Frieda River feasibility study to the standard required under the joint venture agreement,” Mr MacDonald said.

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St Barbara and PNG Industry News airbrush history

St Barbara may be repaying its debts to the bank, but what about its debts to the people of the Solomon Islands, who have been abandoned by St Barbara and left with an environmental disaster on their doorstep – a decision condemned as ‘immoral’ by the Solomon Islands Environment Ministry – Australian real estate investor circles Solomons ‘disaster’ gold mine

St Barbara repays last of debt

Simberi Gold Mine

Simberi Gold Mine

DIVIDENDS and acquisitions are well and truly likely for St Barbara after the gold miner repaid the last of its $US20 million debt.

PNG Industry News | 15 February 2017

The company will repurchase the final $20 million in aggregate principal of its US senior secured notes next months at a 3.3% premium to par value.

The repurchase will reduce future interest expense by around $A2.4 million per annum.

The repurchase, to amount to $US21 million, will be repaid from cash reserves.

St Barbara, which operates the Simberi gold mine in Papua New Guinea’s New Ireland Province, expects cash after the repurchase to be around $A70 million.

In the past 18 months, St Barbara has repaid $436 million in debt and will have only equipment leases of less than $1 million outstanding after the final note repurchase.

St Barbara managing director and CEO Bob Vassie said the repayment of the debt would inform the board’s consideration of future dividends in conjunction with growth options.

The company plans to internally fund the $85-95 million Gwalia extension project.

“We can afford our future at Gwalia,” Vassie told the Sydney Mining Club earlier this month.

While he described Gwalia as the “gift that goes on giving”, he noted that the company was very reliant on the Leonora operation.

Vassie said the company was keen to add another 250,000 ounce per annum, long-life mine, and would now be able to take advantage of value-accretive opportunities as they arose.

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PNG Power Limited adamant that No Power Purchase Agreement was signed with coal miner, Mayur Resources

png-power-limited

“PPL is approaching the proposal with caution amidst environmental concerns because such an agreement for coal-fired power stations would put Papua New Guinea in violation of international agreements including the Kyoto Protocol and the recent Paris COP 21 Agreement”.

EMTV News | 24 November 2016

PNG Power Ltd has confirmed that it has not signed any Power Purchase Agreement with Mayur Resources to build coal-fired power plants in Lae, Morobe Province.

The state enterprise added that it had only received an unsolicited proposal from the Australian company to build a coal-fired power plant.

PPL Chief Executive Officer, Chris Bais said that The National Newspaper had misreported on Wednesday November 23 that a Power Purchase Agreement had been signed between PPL and Mayur.

“The proposal is currently under an assessment stage as our technical teams need to ascertain its technical and financial viability. It has not gone to power purchase agreement discussion stage yet.

“PPL is approaching the proposal with caution amidst environmental concerns because such an agreement for coal-fired power stations would put Papua New Guinea in violation of international agreements including the Kyoto Protocol and the recent Paris COP 21 Agreement”.

Mr Bais goes on to say that PPL is conscious of the fact that there are agreements in place with regards to renewable energy and carbon emissions which the PNG Government is party to.

“We are also discussing with relevant government stakeholders about this matter and will make a decision going forward,” assured Bais.

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St Barbara retains PNG assets, forms exploration JV with Newcrest

simberi

Simberi island

Esmarie Swanepoel | Mining Weekly | 14 November 2016

Gold miner St Barbara Gold has decided to retain its Simberi operations, in Papua New Guinea, following a strategic review.

The company in February this year launched the review to evaluate “various options” for the assets, including continued ownership, exploration and development, possible joint ventures and divestment of some or all of its assets in the country.

St Barbara said on Monday that while a number of potential buyers had expressed interest in the Papua New Guinea assets, their level of interest did not meet the company’s assessment of the value of the assets.

Instead, the company has inked an option and farm-in agreement with gold miner Newcrest’s Papua New Guinea exploration arm, for copper/gold porphyry exploration on the tenements on nearby Tatau and Big Tabar Island, subject to the completion of conditions precedent.

The agreement gives Newcrest the option to earn a 75% joint venture interest on tenement holdings, and will require Newcrest to pay an initial $3-million in exploration fees over a two-year option period, conducting 4 000 m of diamond drilling.

The company can then earn a majority share in the projectareas by spending a further $25-million in exploration and drilling 32 000 m of diamond drilling, over two stages ranging up to six years.

Under the agreement, St Barbara will manage the explorationduring the initial earn-in period, and will retain the right over all oxide and sulphide material which is, or has the potential to be mill feed for existing oxide or the contemplated sulphide plant at Simberi.

In addition, St Barbara will spend between A$6-million and A$7-million in 2017 on its own exploration across the Tabar Island group, including Simberi.

MD and CEO Bob Vassie told shareholders on Monday that the strategic review had been rigorous, and that the company had tested each strategic option for the future of the Papua New Guinea assets.

“What we own in the Papua New Guinea would be difficult to replace in the current market. St Barbara’s diligent work over the last few years has successfully turned around the Simberi operation, which is now consistently generating good cash flows.

“The prospectivity of the region, and the potential for exploration discovery on the Tabar Island group is demonstrated by the significant option and farm-in agreements with Newcrest.”

Vassie said that the gold miner’s focus was on continuing exploration work to extend the oxide mine life at Simberi, improve the sulphide opportunity, maximise the value from exploration interest, and work with Newcrest to achieve success from the joint exploration

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Renewables better alternative than coal for PNG

coal

Dateline Pacific | Radio New Zealand | 14 November 2016

A group campaigning against investment in coal in Papua New Guinea says renewable energy sources are a better alternative.

There are signs of a move towards coal-powered energy in PNG with the Mineral Resources department this year directing ten million kina towards exploring the sector.

However, plans for a coal-fired power plant in Lae are yet to meet approval from the Morobe provincial administration or PNG Power.

Chris Lahberger from the Nogat Coal PNG group talked to Johnny Blades about his group’s concerns.

CHRIS LAHBERGER: Firstly, there’s the issue of climate change where the new just keeps getting worse, and Papua New Guinea itself has some of the first refugees in the world from climate change with the Carteret Islanders in Bougainville having to be relocated. So there’s that and also the prospect of building a coal-fired power plant right in downtown Lae. The Lae wharf area is literally seven hundred metres from the Lae CBD. This doesn’t happen anywhere else in the world where you build a coal (plant) right in the middle of an urban area. So we think there’s definitely some health issues there. We’ve seen some good support from the people at the PNG Cancer Foundation. They acknowledge there’s a big risk there if they built coal powered fumes in the middle of Lae.

JOHNNY BLADES: There’s a company or two who have got quite significant interests in looking into this in the Papua basin, in the Gulf and elsewhere right?

CL: Yeah that’s right. There’s really no need for PNG to invest in coal. There are huge resources for renewable energy here. We’re situated in location on the equator where we get very strong trade winds for nine, ten months of the year that would be awesome for wind power. And obviously, we’re close to the equator so there’s massive resources for solar (power); and we have very high mountains and big rivers, so we have hydro resources, some of which have already been tapped but really, we’ve only just scratched the surface of hydro. We could just about provide enough hydro to power the entire country and much of the Australian east coast seaboard as well if we had the right infrastructure in place. So if I hear we need coal for energy, I don’t think that’s right. The only real reason why you’d invest in coal right now would be to make some economic headway out of it, try to turn it into an export market and make some sales in the global coal market. But as we’ve seen on the global coal market, the price is pretty low. A lot of countries now are transitioning away from coal and they’re looking into renewables. So I can see the risk in the future that to invest in coal now you wouldn’t necessarily get the returns that you’d think you’d get.

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Fishing companies and NGOs call for moratorium on bulk sediment seabed mining in South Africa

phospahate-mining-south-africa

Kim Cloete | Mining Weekly | 13 October 2016

The Responsible Fisheries Alliance (RFA), which comprises five major fishing companies and two nongovernmental organisations, is calling for a moratorium on all new and existing prospecting and mining applications related to bulk sediment seabed mining.

This follows the release of a new report commissioned by the Centre for Environmental Rights (CER), which found that prospecting rights granted to three phosphate mining companies over the past five years are in an area that overlaps with a significant part of South Africa’s largest fisheries.

Therefore, RFA members The World Wide Fund for Nature –South Africa and BirdLife South Africa, together with Irvin & Johnson, the Oceana Group, Sea Harvest, Viking Fishing and Pioneer Fishing, have made the call to halt the mining of phosphate minerals, which are dredged from the ocean floor and used for fertiliser.

The RFA believes that, in the absence of sufficient research on the potential impacts of bulk sediment seabed mining, there is no option but a moratorium. It also highlights that a lack of information on the environmental impact of bulk seabed mineral extraction has prompted authorities to enforce moratoria on the practice in Namibia, Australia and New Zealand.

The RFA has, therefore, urged government to follow international best practice and to adopt a precautionary approach in South Africa, adding that seabed mining should not be allowed until the government has done an in-depth study and analysis of the overlap between fishery grounds and prospecting application areas. Environmental assessments also need to be undertaken.

Bulk sediment seabed mining involves dredging and removing sediment on the sea floor, which could permanently destroy marine habitats and the breeding, spawning and feeding areas of fish stocks.

Research undertaken by the University of Cape Town’s (UCT‘s) Environmental Policy Research Unit, under the aegis of the CER, has found that the prospecting areas and proposed drill sites coincide with 77% of the offshore hake trawl footprint and one of the primary fishing grounds of the small pelagic fishery.

South Africa’s fishing industry has a wholesale value of between R6-billion and R8-billion. In 2015, exports of fish products generated R5.3-billion in revenue for the country.

The commercial fishing industry creates about 27 000 direct and 100 000 indirect jobs in South Africa. In contrast, the CER says bulk marine sediment mining would create only 40 to 50 jobs per mining vessel, of which many are temporary. 

Similarly, a proposed marine phosphate mining project in Namibia – Sandpiper – which aimed to dredge 5.5-million tons of sediment a year, would have only provided about 135 permanent jobs.

While prospecting licence holders argue that there is an impending shortage of phosphate for agricultural processes, the RFA says an additional study by UCT indicates that there is no shortage in South Africa.

“There is good reason to believe that the phosphate mined [will be] a huge cost to South African oceans [and] will simply be exported for profit,” said coalition spokesperson Saul Roux.

“The health of our country, people and environment and, therefore, our economy, depends on the health of the ocean. The potential risks of bulk marine sediment mining to our marine ecosystems and renewable industries, such as fishing, are simply too great. The proposal to dredge our seabed should not be allowed to proceed unchecked,” said Roux.

The group made its call during National Marine Week, which ran from October 10 to 14. 

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