05/10/2011 - 11:15

Confusion over policy objectives

05/10/2011 - 11:15

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Recent debate over the state’s coal mines and energy utilities seems to have confused the issues of ownership and industry regulation.

Wesfarmers sparked an unexpected political controversy last week when it announced the sale of its Premier Coal business to Chinese group Yancoal, an established coal mine owner on Australia’s east coast.

It follows the earlier sale of Griffin Coal to India’s Lanco group, and meant the state’s two coalmines are destined for foreign ownership.

Premier Colin Barnett responded the next morning by saying the sale of the two coal miners to foreign owners “is of great concern to me”.

Mr Barnett said his government was looking at the potential implications of the Premier sale and floated the possibility he might ask the Foreign Investment Review Board to reject the deal.

“We will certainly be ensuring that the state’s interest – and by that (I mean) coal supply and coal price – is protected,” he told journalists.

“That will be our concern, and we will want to be absolutely assured of reliability and security of supply to the people of Western Australia. And if we are concerned over that, once the analysis is done, then we will certainly take that to FIRB.”

Mr Barnett’s broader goal is commendable and follows problems this year with Lanco, which threatened to scrap some of its coal supply agreements in an effort to win better prices for its own mine.

“The experience with Lanco was not a good one. And threatening to tear up contracts, threatening not to supply, did bring about state intervention,” the premier said.

As an aside, the Lanco issue showed that, despite the trend towards globalisation, there are very large differences in the business culture of various countries.

It is extraordinary that an established business such as Lanco thought it could buy into the Australian market, having paid a surprisingly large $750 million price for Griffin, and then complain the business was not commercially viable and try to get out of its contractual commitments.

Lanco came in with eyes wide open, yet its actions have put it offside with the government and resulted in Griffin Group’s administrators being unable to complete the planned $1.2 billion sale of the Bluewaters power stations, which use Griffin coal.

Mr Barnett’s comments came soon after his latest musings on the ownership of two of the state’s most important utilities – Verve Energy and Synergy.

Mr Barnett has long been a critic of the break-up of the old Western Power and recently has pointed to the fact that the commercial interests of the energy generator and the energy retailer are not always aligned.

But does that mean the two utilities should be merged? That would simply hide the issue from public scrutiny and force the two divisions of one utility to argue their case. Or does it mean the regulation of the energy sector may need to be fine-tuned?

Similarly, does concern about security of coal supplies mean that foreign ownership should be reviewed? Or does it mean the state should put in place a regulatory framework that applies irrespective of the ownership structure? A parallel can be drawn with the debate over reserving a portion of the state’s gas reserves for the domestic market.

This was driven by a view that the gas reserves are a strategic asset of the state and there would be a lost opportunity if all of it were exported as liquefied natural gas.

These examples are not exhaustive. They point to a fundamental principle of good policy making.

Government should outline clear rules for all participants in business, whether they are existing or new, and whether they are Australian or foreign.

All businesses need to behave responsibly and that means following the law and being responsible corporate citizens.

These traits are not tied to nationality – there are Perth companies that have behaved irresponsibly and, equally, there are foreign businesses that are models of good behaviour.

The rules of the game should apply to all.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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