11/04/2018 - 15:59

Kwinana development highlights intervention debate

11/04/2018 - 15:59

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At a time when debate about a potential outer harbour project south of Perth is building momentum, a look at the history of development in Kwinana’s industrial zone provides an illustration of the impact of government intervention in the state’s economy, for better or worse.

Kwinana development highlights intervention debate
Alcoa's alumina refinery in Kwinana is one of four in the state.

At a time when debate about a potential outer harbour project south of Perth is building momentum, a look at the history of development in Kwinana’s industrial zone provides an illustration of the impact of government intervention in the state’s economy, for better or worse.

A Committee for Perth report released today tracks the evolution of the Kwinana industrial hub from 1952, when the Western Australian government signed a state agreement with a forerunner of BP to kickstart building of an oil refinery.

At that point, the suburb was undeveloped and isolated from the Perth CBD.

The then McLarty Liberal government commenced a program of infrastructure building, including dredging and roadworks, which cost about $440 million in today’s money, according to the committee’s report.

Now, about 5,000 people are employed in the industrial precinct, with roughly $16 billion of annual output.

There’s also a significant level of synergies between Kwinana’s industrial businesses, with nearly 160 product flows between 30 key players, the report said.

More than 60 per cent of workers in the Kwinana zone earn more than $1500 per week, the committeee's data shows.

Across the rest of Perth, it was only 32 per cent.

Committee for Perth chair Marion Fulker said the state's investment paid off many times over.

“The initial investment from the state government was a great attractor because businesses moving into the KIA benefitted, as they were provided with all of the crucial infrastructure and requirements that were needed by heavy industry," Ms Fulker said.

"Ultimately, the establishment of BP Australia’s refinery went on to set a precedent for a much broader pattern of industrial development in the south-west corridor of Perth and Peel."

That created an agglomeration of activity, she said.

Speaking at a Committee for Perth breakfast today, Westport taskforce chair Nicole Lockwood said her previous work looking at planning of growth clusters suggested it required government to be active as an enabler.

“What we’re looking for is the next phase of government intervention to allow for a catalyst for the market to come in,” Ms Lockwood said

“The idea that the market will just do it and solve it isn't actually correct.

“We’ve seen waves of government intervention and visionary leadership at times in our (state’s) history and Kwinana is one, the Pilbara is another.

“We’re at another point in history where we need that visionary leadership to catalyse the next wave of evolution.”

The report does not detail what exactly the role of government might be, however, and does not analyse the opportunity costs of interventions. 

Former economics lecturer and ex-federal member for the seat of Stirling, Ron Edwards, pointed out there was a very large amount of undeveloped land in the Kwinana industrial area.

“62 per cent of (the Kwinana industrial land) is vacant… which is extraordinary,” Dr Edwards told Business News.

He said that raised questions over whether excessive intervention was potentially creating a white elephant.

In his current role acting as an adviser to landowners in Mandogalup, Dr Edwards said he questioned whether the economic value of the unused space was being unlocked.

“If you don't put a proper price on land you get bad economic allocations,” he said.

“If you sterilise it and make it vacant, nothing happens to it.

“Simply saying, ‘build it and they will come’, (has produced white elephants),” Dr Edwards said.

According to the committee’s report, the last major private greenfields development in the Kwinana zone was the building of the Kwinana Cogeneration power facility two decades ago.

A new project in the area will be completed in the next couple of years, however, with the construction of the Tianqi Lithium processing plant.

Agreements

State agreements were another interventionist tool have been used in the development of Kwinana, with half a dozen agreements covering projects in the area.

Around 60 projects statewide covered have been by the mechanism.

In a 2006 piece for the Australian Resources and Energy Law Journal, Richard Hillman said it was difficult to evaluate the impact of such agreements because they insulate from competitive pressures.

“The fundamental  flaw with state agreements, in imposing obligations as part of ad hoc negotiations, is that there is no clear standard by which to identify the cost of the obligations or their success,” he said.

“As a basic proposition, government assistance to industry through ad hoc concessions is inefficient.

“The recipient of a benefit does not adequately measure its true cost to society when making an investment decision.”

Now that most resources projects are financed internally by big players, and the state’s reputation as a jurisdiction is much stronger, the benefits were much reduced compared to when the agreements were first used, Mr Hillman said.

Two potential benefits from the use of agreements were certainty of rules and better land access, he said.

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