It’s the timing of the Olympic Dam expansion that is being reviewed and, despite what the opposition may say, the carbon tax and mining tax are not decisive.EVEN taking into account the fact Canberra’s spin cycle is in overdrive ahead of the July 1 start of Labor’s carbon tax, Tony Abbott and Christopher Pyne have been a bit hyperbolic this week.
During a whistle-stop tour of South Australia, Abbott said BHP Billiton’s $30 billion Olympic dam expansion project was ”hanging in the balance”. Axing Labor’s carbon tax and mining tax and reining in ”union militancy” were three major incentives that a Coalition government would deliver, he said, adding that in the meantime the Labor government should guarantee that its mining tax won’t be extended to gold, copper and uranium.
Pyne said BHP was reconsidering the timing of the Olympic Dam expansion because of heightened political risk, adding: ”I directly blame the Gillard government for that.”
The truth is more complex, as usual. It’s the timing of the Olympic Dam expansion that is being reviewed, and the carbon tax and mining tax are not decisive.
BHP chief executive Marius Kloppers, the group’s chairman, Jac Nasser, Rio Tinto chief executive Tom Albanese and Glencore chief executive Ivan Glasenberg have all warned recently that Australia is becoming a more expensive place to invest in, and a more regulation-heavy one.
But as BHP reacts to softer commodity markets by re-sequencing its lengthy line-up of potential resources developments, Australia’s carbon tax and mining tax are not front of mind: hardly surprising really, given that Kloppers is a supporter of carbon pricing and helped negotiate a watered-down mining tax after Julia Gillard pushed Kevin Rudd aside in June 2010.
Kloppers said in September 2010 that BHP accepted that climate change was a reality and added that, because the multilateral push for a carbon pricing regime had been derailed, Australia would be best served by going alone, and going early.
The BHP view at that time was that carbon pricing was inevitable, but that it needed to be simple, transparent and predictable, revenue neutral and broadly based, but also designed to protect trade-exposed industries.
He has subsequently criticised the structure of the Australian carbon-pricing regime, saying for example that the imposition of a carbon tax on the coal industry makes it more costly, and therefore less attractive as an investment destination than it was compared with coal-producing countries, including Indonesia, that have not yet introduced carbon pricing.
Nasser has called for a slower introduction of carbon pricing here and he has also said he thinks Labor’s Fair Work Act should be redrawn to reduce ”disproportionate union influence”.
And yes, getting the go-ahead for a mine development in this country is a regulatory marathon. It took more than five years to negotiate it in Olympic Dam’s case and more than 8300 people, 38 government departments and service providers, 55 non-government organisations and 60 industry groups had a role in the development of the project’s environmental impact statement.
We can do better than that.
It’s worth noting that BHP’s consistent message has been that it understands that careful and open planning and consultation is needed to build a lasting consensus around a development of the size of Olympic Dam, the world’s biggest uranium deposit and fourth-largest copper deposit.
BHP has also not stepped back its overall support for carbon pricing. In fact, it’s been loading a price for carbon into its investment decisions for years. The structure of the tax here is not its ideal, but BHP believes it can live with it.
The key forces behind BHP’s rethink about major expansions, including Olympic Dam, are commodity demand and commodity prices.
Both have softened as the northern hemisphere sovereign debt crisis and the economic slowdown it has induced depresses China’s growth, and as the hangover from last year’s over-zealous attack on inflation in China endures.
The price of copper, Olympic Dam’s main product, leapt by 257 per cent between December 2008 and mid-February last year for example, but has since slid by 27 per cent.
Kloppers and Nasser have been pretty clear on this, with Nasser flatly answering ”no” to a question in mid-May about whether BHP was going to stick to a previously announced five-year $US80 billion capital expenditure budget, and Kloppers stating that iron ore demand will grow strongly but less rapidly in the next decade than it has in the past 10 years. He also predicted that after 2025 it will move into a ”protracted period of low to negative growth”.
BHP has 22 major project developments and expansions under way, and they will soak up the group’s spending power in the 2012 and 2013 financial years. Thereafter, BHP would have ”flexibility” on project sequencing, Kloppers said last month, and it will be running the slide rule over new prospects very carefully.
The sums on projects here, including Olympic Dam, will include the cost of the mining tax and the carbon tax, and BHP will also be comparing labour productivity.
Commodity prices are the big variable, however – if they stay off the boil, projects like Olympic Dam will proceed more slowly regardless of what party is in power in Canberra.
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