12/09/2006 - 22:00

Comfort zone can quickly disappear

12/09/2006 - 22:00

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Comfort zone can quickly disappear

Competition is a wonderful thing, until you discover that you’re losing. Western Australia, in the grip of the mother-of-all economic booms, might soon make just such a discovery as it slips into the zone of false-comfort that appears whenever you think you can do no wrong.

With an economy growing at a break-neck 14 per cent, and with every Perth home owner feeling an average of 35 per cent richer thanks to soaring house prices, you might believe that now is an odd time for Briefcase to don his Captain Gloomy suit.

But, a cautious man should be looking at the tell-tales flapping in the breeze, because there are disturbing signs that we are indulging in too much of a good thing, and that competition has a habit of springing up in the oddest of places.

The first example of how the game can change in the blink of an eye came last week, a few days after our very own Captain Grumpy (also-known-as the premier, Alan Carpenter) was bathing in the limelight of being in charge of the world’s fastest growing economy – and reading the riot act to petroleum companies about “reserving” 20 per cent of the state’s gas for local consumption.

Woodside led the counter-attack on Captain Grumpy, pointing out that none of the proposed liquefied natural gas (LNG) projects in the state’s north could tolerate what is effectively an extra tax – especially at a time of soaring development costs.

Words, as they say, can never hurt you; it’s the sticks-and-stones that break your bones. And while the heat seems to have gone out of the local gas-tax debate, that is just what the company behind the Gorgon LNG project, Chevron Corporation, might have done to Capt’n Grumpy’s bones, in a place far from his home base in false-comfort central.

In the Gulf of Mexico, Chevron is 50 per cent owner of what looks to be one of the world’s great oil discoveries. More drilling is required in the ultra-deep waters surrounding the Jack No.2 well, but early best guesses are that somewhere between three billion and 15 billion barrels of oil has been discovered. “This could not have happened in a better place,” said Larry Nicholls, chief executive of Devon Energy, a 25 per cent shareholder in the Jack well.

The message from Nicholls is that the Jack discovery is in America’s backyard. Development in waters that are 2,100 metres deep (and then a further 6,000m to the oil itself) will be technically tricky, but it can be done. The cost will also be high, but the cash can be found, even if measured in the multi-billion dollar range.

And here’s the problem for Capt’n Grumpy in the form of a question from Briefcase. What’s in the best interests of Chevron. To go for the black gold in its backyard or fiddle around with a troublesome gas project on the other side of the planet where a political leader is showing his true Bolshi colours and proposing to restrict future cash flow?

Business is not rocket science. It’s really quite easy. Right now the chaps at Chevron are saying ‘go for the gold in the gulf’. Go for the place where our capital is most welcome, and that means opening Chevron’s corporate wallet for the next phase of the Jack discovery.

Fuelled with the confidence that comes from a world-class discovery, Chevron will be suggesting, quite loudly, that Capt’n Grumpy take his 20 per cent gas reservation tax and file it somewhere painful.

•••

If losing the gas-tax debate isn’t embarrassing enough, there are a number of other issues involving competition which are starting to prove somewhat painful for the WA government – not that the government actually realises that it is in a competitive environment.

Capital works are a prime example of hidden competition at work. On the one hand, Capt’n Grumpy knows that the people (also known as the voters) want more roads, bridges, schools, and hospitals.

But he’s also discovering that he can’t deliver fast enough to match the 14 per cent economic growth rate. Why? Because he’s being beaten by the competition from the private sector, which is soaking up every spare wheelbarrow, trowel and concrete mixer in the state.

Schools are another fascinating area of competition that a true believer in a state-funded education system can’t understand – as illustrated with another Briefcase question. Why are an increasing number of parents voting with their chequebooks and sending their kids to church schools?

Answer: the church schools are better, they incorporate personal discipline into the syllabus, have good teaching programs and attract parents who can afford it which, in a state with a 14 per cent economic growth rate, is more each year.

Hospitals are another example of the state losing to private competition without actually understanding that it’s in competition. And, as for telephone companies, why on earth would any government in Australia want to be in a business competing with global giants such as Vodafone and Singapore Telecom?

•••

What Capt’n Grumpy is experiencing is the dark side of a boom, a place where fast growth has a habit of producing unpleasant results – something that building products king, Len Buckeridge, understands well.

It was Len who once told Briefcase that: “A boom is a good time to go broke,”… or something awfully like that.

For some time after hearing that, Briefcase wondered whether dear old Len was pulling its leg. He’s been known to do that, as well as tell the most dreadful jokes. When you’re as old, as cantankerous and as rich as Len you can pretty much say what you like.

But Len’s warning was all about rising costs, shoddy workmanship and the other problems of rapid growth – a warning that should be ringing in Capt’n Grumpy’s ears, if he could bring himself to listen to a class enemy.

Cash might well be flooding into the state Treasury, but it’s also flowing out just as fast as government employees scramble for pay rises to match those being paid in the private sector – yet another example of competition doing its deadly work against the state.

There is no doubt that police, teachers and nurses deserve to be handsomely paid. But, how can you do that when you are competing for quality staff with a private sector driven by that most un-socialist of all motivations – profit.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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