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Failures serve to highlight policy risks

TRYING to pick winners is a risky business for governments.

Western Australia has at least four cases where the government of the day backed individual companies or projects and got it wrong, at great cost to the State’s taxpayers.

The four examples cover a wide spectrum, illustrating how many things can go wrong when governments try to pick winners.

The most expensive mistake was the decision, way back in 1989, to grant Orbital Engine Corporation a $19 million loan, interest free for 25 years.

The cost to the WA Treasury of servicing this debt would be conservatively estimated at $1 million a year, putting the total cost over the term of the loan at $25 million.

Readers with long memories may recall that governments in the 1980s were criticised for not giving Orbital enough assistance.

However, the dream of high-volume manufacturing plants churning out thousands of Orbital fuel injection systems remains just that. Orbital has achieved some commercial success in the marine and motorcycle engine markets but nothing compared with the inflated expectations of 15 years ago.

Another expensive mistake was the decision to subsidise the Mid-West pipeline and power station.

The sole user of this infrastructure was the $120 million Windimurra vanadium project, which was closed by its Swiss owner Xstrata in February, less than three years after it was commissioned.

As a result, Western Power has written down the value of its pipeline and power assets by $16.4 million, to $9.7 million.

In addition, the State Government continues to pay Western Power an $800,000 interest subsidy on the $14 million loan used to help fund the assets.

Opposition leader Colin Barnett, who was energy minister when the Windimurra project proceeded, has defended the subsidy on the basis that the infrastructure could underpin further projects in the Murchison region.

Similarly, the former coalition government argued that planned infrastructure for the Kingstream Steel project north of Geraldton (which has not proceeded) could have supported further development in the area.

The current government faces similar, though arguably less risky, issues in respect of the Burrup Peninsula.

It has approved a $137 million infrastructure package to support gas-processing projects.

The reality is that only one project (Burrup Fertilisers) has commenced and while several others (e.g. Methanex and GTL Resources) may also proceed, there is no guarantee.

Even if several big projects do proceed, past experience with companies such as Coflexip Stena Offshore (now Technip Coflexip Oceania) and Ansett – and the collapse of the taxpayer-subsidised Australian Magnesium Corporation in Queensland – shows that building a new plant does not ensure lasting success.

French company Coflexip obtained $8.5 million of taxpayers’ money in the mid 1990s when it established a pipe manufacturing plant in North Fremantle.

The factory operated for less than four years, closing in 1999 with the loss of about 45 jobs.

The company put the plant on a care-and-maintenance basis, but it has since been closed permanently. Despite this, Coflexip is still a major employer in WA, with about 200 staff in various administrative and contracting roles.

It has won some major contracts in WA, including a $100 million contract (in joint venture with Subsea 7) for sub-sea installation activities on Woodside’s North West Shelf project.

Another State government initiative that ended badly was a $2 million grant to Ansett in 2000 to establish a call centre at Joondalup.

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