23/01/2013 - 06:00

Business costs cutting competitive edge

23/01/2013 - 06:00

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WESTERN Australia has long been seen as a safe, sustainable and secure supply hub for a range of commodities and processing facilities.

As the peak industry body for the Western Australian resources sector, the Chamber of Minerals and Energy recognises there are many challenges in maintaining these conditions for decades to come.

Recently, one particular challenge has risen in prominence - the cost of doing business in WA.

CME has undertaken research into the respective drivers of these increases and their impact on the historically strong competitiveness of existing resources operations.

Given volatile market dynamics, capital and labour productivity have become a focus of maintaining the competitiveness of resources projects. The graph on this page shows that multifactor productivity (measure of both labour and capital inputs) in the mining and energy sector has fallen by an average annual rate of 5 per cent since 2001. Over the same period, multifactor productivity across all sectors has remained relatively stable.

When combined with decreasing ore grades and new minerals and energy rich regions emerging around the world, the level of competition in the global resources sector is increasing for WA, in both the attraction of investment capital and the capture and maintenance of market share.

Our research uncovered the main reasons for cost increases during production and development, including:

•    reduction in grades of ore in major commodities leading to costly extraction through aspects such as increasing impurities and increasing waste to ore strip ratios;

•    greater distances to infrastructure;

•    higher imposed costs such as taxes, royalties and regulatory costs;

•    labour shortages and constraints;

•    higher gas, diesel, transport, logistics and materials costs;

•    delays and failures associated with long,
complex approvals processes and costs of environmental compliance; and

•    complexity in the above processes leading to additional costs in specific expertise, business systems, labour, processes etc. While some of these reasons are difficult to address, others can be overcome with leadership, political will and a collaborative approach to problem solving. An obvious example is the duplication in environmental approvals as required in the Commonwealth’s Environmental Protection and Biodiversity Conservation Act (EPBC Act).

The original intent of the EPBC Act was to provide a framework for a more effective national environmental management system, which ensured resources are focused on delivering strategic environmental outcomes at all levels of government, while ensuring efficient and timely assessment for proponents.

Instead the Act has created costly and timeconsuming assessments by unnecessarily duplicating Commonwealth and state envi-ronmental assessment for projects - a waste of scarce government and company resources.

There was enthusiasm when, in April last year, the Council of Australian Governments reiterated its commitment to reducing duplication and double handling of environmental assessments and approvals. With the federal government withdrawing from its earlier agreement with the states in December last year, an opportunity for positive change was lost.

There is an opportunity for industry and governments to partner in again making Australia one of the most competitive nations in the international marketplace. In contemporary industry policy, there is no longer a place for ‘siloed’ thinking; if it involves a change to the way something is done, there is likely to be a cost.

Putting in place measures to improve productivity and maximising the impact of every dollar spent would surely be an improvement on our current anti-competitive direction.

With a state election on March 9, CME is urging all parties and candidates involved to focus on policy that can ease the cost pressures faced by industry. Sensible policy initiatives in this area will return a tremendous dividend to the people of WA through ongoing economic growth and employment opportunities.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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