24/09/2008 - 22:00

Business struggles with gas fallout

24/09/2008 - 22:00


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THE gas crisis caused by a pipeline rupture at Varanus Island has left a bitter legacy for many Western Australian businesses, which have been scathing of the former state government's reaction.

Business struggles with gas fallout

THE gas crisis caused by a pipeline rupture at Varanus Island has left a bitter legacy for many Western Australian businesses, which have been scathing of the former state government's reaction.

High on the agenda of disgruntled businesses and industry groups was the secondary market - including the state's so-called Bulletin Board online market - established to allow those that had gas they could spare to sell to those who could not do without.

Some claim the state allowed a 'black market' to arise, with the normal rules of supply and demand allowed to apply, unfettered by the fact that many suppliers had enacted force majeure clauses in contracts when 30 per cent of WA's gas was shut off.

The criticism extends from the mechanics of the secondary market to accusations that prices - typically five times more than usual long-term contracts - were so high that profiteering may well have been taking place, though much of this evidence is anecdotal due to confidentiality issues and fear of speaking out.

Gas costs rose to anywhere from $15 per gigajoule to $25Gj, and even higher in some instances, compared with typical long-term contracts of about $3.50Gj and a market rate of around $8Gj just before the crisis.

The WA Chamber of Commerce and Industry found that, on average, the gas crisis has cost each affected business more than $1.1 million, although there was a large variance, with cost estimates ranging from $1,000 in smaller sized businesses, up to $50 million in large businesses.

And while the bulk of the predicted $6.7 billion in turnover losses occurred in June and July, some smaller companies remain close to closure because of the impact of the crisis.

Much of this concern is contained in 24 submissions to a Senate Economics Committee inquiry into the crisis, with submissions ranging from large industry groups to small family operations.

For instance, Maurice and Tracey Cutts of Dardanup-based M&T Cutts Haulage say they are working well below capacity and are unlikey to see work return to normal levels until next year.

The business took sensible measures in the first instance, putting its full fleet, including nine trucks, in for maintenance and sending drivers on holidays - all of which brought forward costs at a time when turnover was halved and fuel prices were high.

"We have applied to various finance companies we deal with to have our equipment loans deferred but things are still very tight," the Cutts wrote in their submission, adding that they were considering selling their family home.

The Cutts are not alone, especially in the South West of the state, which was hit particularly badly.

In its submission, the Bunbury Wellington Economic Alliance said 90 per cent of the region's gas supply was cut off, leaving businesses in the area particularly vulnerable.

The alliance criticised offers to provide gas rations for just 24 hours at a time and at 12 hours' notice, claiming this was inadequate for the big industrial and minerals processing plants in the area which could not operate for such short periods.

Gas allocation was inequitable and not transparent, the alliance said.

"The state government failed to provide leadership, instead it attempted to hand over the decision making process to a mix of industry bodies, some of which were dominated by companies linked to the oil and gas industry, and which had a likely conflict of interest to the state aim of ensuring fair and equitable distribution of gas," alliance CEO Trevor Whittington submitted to the inquiry.

"Long-term costs are likely to be reflected in the reluctance of new companies to establish in the South West of Western Australia or expand existing production until they were confident that the security of gas supply is improved."

The City of Bunbury added its voice to concerns, especially the lack of transparency or accountability from the private sector suppliers which found gas to sell.

"What is apparent is that they substantially increased the cost of what they were supplying, but whether they were price gouging or their customers were independently bidding up the price could not be identified," Bunbury mayor David Smith wrote in his submission.

The WA Food Industry Association claimed the state government had refused to take any responsibility for the incident or the subsequent impact on WA businesses.

A vocal critic of the government and the emergency gas supply mechanism was Robert Dube of big laundry player Prime.

"There was obviously gas around because the Bulletin Board, which I considered the black market, was set up and Prime was able to secure gas to supply to our customers but that came at a cost of up to five times greater than our contracted prices," Mr Dube wrote.

"Why was that not controlled and gas distributed equally?"


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