06/05/2010 - 00:00

$130m scheme tightened

06/05/2010 - 00:00

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LARGE resources projects that bring capital goods into Australia instead of using local suppliers face higher costs after the federal government tightened a concessional customs duty scheme.

$130m scheme tightened

LARGE resources projects that bring capital goods into Australia instead of using local suppliers face higher costs after the federal government tightened a concessional customs duty scheme.

The government granted $131 million in customs duty concessions in 2008-09 under the Enhanced Project By-law Scheme, which is designed to assist projects that are unable to source capital equipment within Australia at a competitive price or at the necessary quality.

Innovation Minister Senator Kim Carr said the changes tightened the definition of what goods would be considered for duty free entry.

“It will be made clear that it is not possible to receive concessions for whole projects or complex plants," he said in a statement.

“The changes are part of the Rudd government's $19.1 million Australian industry participation package, giving Australian industry and workers a fairer go at winning government and private sector contracts."

However, some industry sources believe the new policy will simply lift costs for project developers and do nothing for local suppliers.

Tariff consultant Guy Illy said it would be much more difficult for projects to qualify for the customs duty exemption.

“Much of the equipment brought in duty free under the old guidelines would not qualify," he said.

Mr Illy believes project developers will be reluctant to change their procurement practices, particularly when they are building complex process plants such as for LNG and gold developments.

In particular, he said the developers would opt for international suppliers with a proven track record for complex components rather than local suppliers who lacked experience or were unable to deliver the goods in time to meet project construction timetables.

“They can't afford to risk the viability of their projects," Mr Illy said. "For vital components it won't change their procurement decisions at all but the government of course will pick up the five per cent."

He said that for less complex and price sensitive items, such as piping spools, which Australian manufacturers could supply, various free trade agreements, especially with Thailand, ensured these goods would continue to be duty free.

Senator Carr said the value of investment in projects applying for an EPBS duty concession had increased from $38 billion in 2007-08 to $42 billion and $56 billion in the past two years.

“We have consulted extensively with industry and tightened the guidelines to emphasise our focus on improving opportunity for Australian industry participation, and to clarify the scope of goods for which a duty concession can be claimed," he said.

Senator Carr said companies applying for a concession must satisfy a number of criteria, including suitable evidence of non-availability of eligible goods from Australian producers.

A spokesman for Chevron, which is managing the giant Gorgon gas project, said it was too early to define the impact of the new policy.

He said Chevron was committed to supporting local industry and expected to spend about $20 billion on Australian good and services over the next four to five years, out of a total project spend of $43 billion.

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