Governments push local barrow

A new scheme to maximise local content on major projects formally took effect on January 1. Mark Beyer takes a close look at how major Western Australian projects are performing.

MAXIMISING local content has long been an objective of Western Australian governments, but often the rhetoric has not been backed by concrete action.

A new incentive policy backed by Federal and State governments, combined with tangible initiatives such as the Jervoise Bay industrial complex, holds out the promise of more progress in future.

The track record of major projects in WA is mixed.

The Australian content of projects currently under way, or in advanced planning, varies from as little as 50 per cent to as high as 92 per cent (see fact box).

The WA content is even lower but in most cases comprises the bulk of Australian content (see story next page).

A mix of factors drive local content levels on major projects, including the corporate culture of project proponents, the capabilities of local firms and the supply of skilled labour.

“It makes good business sense to maximise local content,” said Woodside’s Rob Hannan, project services manager on the $1.6 billion Train Four project.

“It has become second nature because there is a long-term benefit for us.”

Key benefits include the logistical ease of working with local companies, during both the construction phase and the ongoing servicing of a project.

“If a contractor in Kwinana runs into a problem, I can jump in the car and drive down to see them,” Mr Hannan said. “If the contractor is in Italy, it takes a whole day just to fly there.”

A new scheme backed by the Federal and State governments provides a potentially large incentive for projects to maximise local content.

The Enhanced Project By-law Scheme, which took effect on January 1, allows major projects to obtain an exemption from tariff duty on capital goods imports.

While duty concessions have been available in the past, the new scheme widens the range of eligible industries beyond mining and resource processing to include manufacturing and gas supply.

The $84 million timber processing plant due to be built this year by Denis Cullity’s Wesbeam was the first manufacturing project to be covered by the new scheme.

The range of eligible goods covered by the scheme has also been widened.

Importantly, it also imposes a stricter test on projects applying for the concession.

Guy Illy, a director of consulting firm Trade Consultants, said the duty exemptions were not granted lightly.

“The project must develop a procurement strategy and have it approved by AusIndustry prior to any final purchasing negotiations,” he said.

“They have to prepare an Australian Industry Participation Plan and prove to Aus-Industry that the strategy has been implemented as planned, prior to the importation of any goods.”

The potential rewards are substantial. Mr Illy estimates the scheme could deliver savings of about $10 million on a typical $1 billion processing project.

AusIndustry spokesman Peter Viney said nine WA projects with a combined value of $6 billion had applied for duty exemptions under the new scheme.

Encouraging major projects to seek local content is only one side of the equation.

Ensuring local firms can be competitive and meet the technical needs of major projects is equally important.

Woodside’s Rob Hannan said a handful of firms had seized the opportunity offered by big projects to expand their business and look beyond the WA market.

However they are a small minority.