STRAIGHT TALK – How Australia and Africa can learn and work together

Excerpts from a speech made by Colin Barnett, Premier of Western Australia, at the Africa Down Under conference in Perth, 28 August 2013

“Western Australia is the largest part of the Australian mining industry. Over 50% of Australian mining is in this state and about 70% of the petroleum industry, so the links with Africa tend to be very heavily concentrated in Western Australia from the Australian side. About 70% of Australian investment in the mining industries of Africa is actually sourced from Western Australia. There are 197 Western Australian companies involved in African mining. Over 880 different projects spread across 30 nations and where we are here in West Perth, a large part of the African mining industry is involved in the western part of the Perth City area.

So [there is] a lot of relationship, a lot of friendship, and I think Australian companies are trusted and respected in Africa and that’s certainly been the comment that a number of ministers have made to me today and yesterday. What I’d like to make a few comments about, if I may, is not so much the mining links but to make some comments about the policy and the governance of mining, and in doing so I speak from the perspective of what is arguably the world’s largest mining economy, in Western Australia. And can I stress that over our history, from the 1890s, we have had mistakes and failures, we’ve had scandals, we’ve had it all, but we have learnt and we are better than we were and I think there is much that can be taken from the experiences in Western Australia and applied into African nations. I don’t say that in a patronising way at all, I think we can all learn and work together.

But it seems to me that there are some principles that are important in mining, in terms of the position of a government and the position of the mining industry and maybe there’s some misunderstanding and maybe there’s more areas where a better understanding would help everyone. And if I can just run through a couple of those issues and we have them too, they’re common to us as they are to developing nations.

First is ownership. I think any country has to be absolutely clear about the ownership of its natural resources and particularly minerals. In Australia it’s pretty simple – minerals and petroleum that is onshore belongs to state governments; that which is offshore belongs to the Commonwealth Government. And even so, we still argue about that sometimes.

But the ownership is settled and the important thing, I think, is to always remind companies who owns the minerals and also to make sure that buyer countries understand who makes the minerals, who owns the minerals. And the particular point I’d make is to keep a clear distinction between the ownership of minerals and their development, in everything that is thought out.

A second aspect relates to building the industry and that starts with exploration. I know some countries here are looking almost to start a mining industry for the future. Exploration is, by its nature, high-risk, whether it be in Australia or an African state and there are difficulties of isolation, distance, topography, social issues and the like. There must be a clear, legally backed and credible system of progressing from exploration through to a mine. In this state we have a mining tenement system that has been built up over the years, which has that credibility, again sometimes [we have] disputes but very rarely now. From prospecting licences, to exploration licences, to retention licences to preserve access to the deposit, and ultimately to a mining licence. Developing and maintaining that system of accounting for mining and who has rights to what is not easy – it’s expensive, it’s complex, but it is essential and I’d urge countries to give attention to that.

For companies, security is important. Mining anywhere is a high-risk business and an expensive business; [it is] very hard to develop a low-cost mine. So companies must get the security. The title system is essential to that consistency of a well-established, well-crafted mining law. Consistency of that law from changes of government, which happen from time to time, is critical and that’s reducing sovereign risk and giving certainty. Equally, if companies find a mineral resource and want to progress it through to production, they need the security of the titles they might hold, but also need a security and a predictability of the process. The process of approving and agreeing to a mining development has to have, if not timelines, but a defined process. And again, that is not something unique to a developing nation. When the government I lead came into power in 2008 there were 19,000 mining applications in the overall approval system. We have that down to 5,000, which is maybe about normal but it takes effort to administer that, to keep it credible, to avoid disputes, to get it online, to have tracking systems online, all of that has been developed at a government level in conjunction with the growth of the industry.

Another critical issue of going into production is issues laws relating to mine safety, environmental standards and rehabilitation when the mine is finished.

Again, another complex area but again it’s something I think most in this room would agree, works well between government and the industry. I know that in many African nations, sometimes projects have been developed mainly by international business or international governments and the host nation has sat back and at the end of the day and said, we didn’t get much out of that, and some ministers have made comments to me over the last two days about projects that have not fulfilled the ambition, had not delivered revenues or prosperity or what was anticipated.

The one thing that none of us can do is give away a mineral or hydrocarbon for no price. We should never, ever do that. That has happened in our respective histories but it should never, ever happen. And to the mining industry that might be thinking aghast, it is in your interest, it is in your long-term interest that the host nation derives a fair return for the minerals and petroleum resources owned by that nation. And there is confusion around that issue and there is confusion in Australia around that issue and I’d simply make this little dichotomy: you must always sell the mineral. Sometimes when you collect a royalty, as the State Government does here, and we collect $4.2 billion a year, so it’s not bad, when you collect a royalty, the industry will often describe that as a tax. It is not a tax. It is the price you pay to acquire a publically owned, government-owned natural resource.

And I would urge all of you, I know there is an attraction to profit-based taxes and the like, economic theory is full of that, but I’m an economist, but I urge you to be cautious. Make sure that your pricing regime has a royalty and it should be a royalty that picks up not only the volume of the material but the price.

So, no good having $10 per tonne, it’s got to be an ad valorem royalty that picks up production and picks up the benefit of a rising price. That is the system we have in Western Australia and it does work well and it guarantees that not a grain of mineral or a molecule of hydrocarbon goes out without the company or the ultimate customer paying for it. Profits taxes… big intellectual debate about that in Australia, and I understand and there is a logic to it. But you’ve got to be absolutely sure that you’ve got a really tight taxation system and for a developing nation you may not have yet a sophisticated and tight taxation shift system.

It may be possible to shift profits around from locations and if a company makes no profit or even makes a loss, why should it get its minerals for free? It should pay for that as it pays for everything else.

So if you go down the path of profits taxation, I would suggest that is something that comes after the basic royalty, however that’s structured, is paid. And look, even in Australia in the last couple of years we had the introduction of a profits-based mineral resource rent tax. It was meant to raise two to three billion dollars a year. It raised less than $200 million. So, even in a first world, top 20 nation like Australia, the profits tax did not work, for a whole range of reasons.

So, have one by all means, but don’t have it to the exclusion of a royalty system.

In other cases there might be big projects, projects over $1 billion and that seems pretty typical these days. Often they may need more than simply the mining law. They might need special legislation, not only for the mining but for building the port, the railway, relating to local social and cultural conditions, employment of people and the like. In this state we have 70 separate acts of Parliament that are project-specific and they are projects like BHP and Rio’s mining in the Pilbara, Woodside’s North-West Shelf project and the like, and 80% of mineral and petroleum production in this state actually comes under these special legislations. Sometimes, no matter how good your mining law might be, it won’t cover all the issues that’s attached to the mega, very large projects.

And there are other issues, but I guess in conclusion what I’d like to say is that I am immensely proud as a Premier of the Western Australian mining industry.

I’m proud of the companies, many of them represented and participating in this conference. There are companies of global scale, but there’s also many mid-size and emerging companies in mining and in all the range of mining services, whether it’s seismic work, exploration, computing, software, whatever it will be, and all those companies play their roles. As a Western Australian Government, it has been put to me over the years by many people in the mining industry that Africa could be a threat to us. Africa has such large mineral reserves and Africa could grow up and develop those and that would reduce our market share.

I, and I think probably many people at this conference, don’t agree with that. The development of the African mining industry is not a threat to Australia and is not a threat to Western Australia and, indeed, the fact that many Western Australian companies are involved in projects in Africa shows that we benefit by the growth of your mining industry.

As a Premier… I make the offer that the Western Australian Government is prepared to send some of our most experienced and best officials in mining to go to your country, discuss some of the issues I’ve talked about, to give you advice and to give you an account of our experience as a mature, highly developed mining economy, should you wish to use that; and we do it for self-interest, because we want Australian business to be part of your development, but we also want to see Africa and its 54 nations and particularly the ones represented here today, to develop, to be able to improve the living conditions of their people, and to develop, like us, a mining industry that can be a bedrock and of great substance and growth for your economies.

So, this is a great conference. I thank you again all for coming. I wish you success in developing your mining industry and I assure you the Western Australian Government and the Western Australian mining industry, and indeed Australia as a whole, supports what you do and we quite genuinely offer our assistance without any qualifications or anything in return, we just want to see you prosper because as you grow and prosper, we will also benefit.” 

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