17/02/2011 - 00:00

Lack of local content starts to bite

17/02/2011 - 00:00

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The lack of orders for local fabrication workshops is starting to become a political problem for the government.

IT seemed an innocuous remark at the time, but it’s now likely to come back and embarrass the premier, Colin Barnett.

He was being pressed last year on the lack of early orders from new projects in the mining and petroleum sectors for the fabrication workshops south of Fremantle, which were operating well below capacity.

Just wait until work on the Gorgon and other big projects gather pace, he said, because the level of activity at the workshops would eventually have them “bulging at the seams”.

But the workforce and industry concerns that were evident early are now being borne out. As construction on the projects build-up and more contracts are let, industry isn’t seeing the local activity it expected.

In fact so worried is the industry at the lack of orders coming through for new work that it has formed an alliance with Unions WA in a desperate attempt to reverse the trend.

Coincidentally, Mr Barnett is also concerned at the level of local orders, and he made his views known when he met industry chief executives behind closed doors last week.

The premier is understood to have said the issue raises at least two problems. The first is a political challenge for him.

As premier he has always been at home promoting the resources sector for the economic benefits it has brought – and will continue to bring – to Western Australia. The state has become the nation’s powerhouse, provides a massive source of export income, and has the lowest unemployment rate of the mainland states.

But the concerning news is that the proportion of local content in the planning and construction stages has slipped over the years. At one point it was hovering around 90 per cent. The latest readings have that figure dipping below 50 per cent; and that is why the fabrication industry is up in arms.

Many businesses enlarged their facilities and invested in new plant in anticipation of an expanding order book. Unfortunately for them it hasn’t happened.

So the pressure is building on the government to do all it can to turn this around. Unions are demanding that the government introduce legislation to enforce local content provisions in all major projects.

That is likely to get a sympathetic ear from the Labor Party and the Greens.

But it is the last type of legislation a Liberal premier would be comfortable supporting, on the grounds that market forces drive such decisions.

That leads in to the second problem, and that is a commercial one. The companies naturally say they award contracts on the basis of price and quality.

And if local industry can produce the goods in those two areas, they will get the work.

This raises questions as to whether the local workshops are big enough and have the expertise to provide equipment on the scale that the north-west projects require.

On that basis the mining and resource companies seem inclined to favour having the work done offshore where the scale of operations is greater and labour costs lower. The equipment is delivered in many cases in modules, where it can simply be inserted in its position in the production line.

But the companies must be seen to be good corporate citizens in exploiting the resources that belong to all Western Australians, as the premier frequently points out. They say they also have a responsibility to their shareholders to ensure profit margins are enhanced and costs minimised.

If significant contracts were awarded locally, no doubt economies of scale would apply and average costs would be reduced.

It’s a sensitive issue. So sensitive in fact that when I raised it in Political Perspective late last year, an operative from a major resource company was quickly on the phone to point out a multi-million dollar engineering contract had just been let to a locally based firm. The sub text was, of course, ‘we are doing the right thing’. But local industry and the unions would like them to do a lot more.

That is why they have decided to launch a social media, print, radio and television campaign as part of the build-up to a march through the city on March 15, which is expected to conclude with a rally at Parliament House.

Mr Barnett and other political leaders have one month to refine their responses and, in the government’s case, get some runs on the board with regard to new contracts.

Otherwise the issue could get very heated indeed, lending weight to claims that many are missing out on the benefits of the investment boom.

And the pressure for legislation on increased local content, from the unions and those fabrication workshops which were tipped to be “bulging at the seams”, will only increase.

Political challenges

OPPOSITION leader Eric Ripper did not give his new look front bench much time to prepare before state parliament resumed this week after the summer recess.

The shadow cabinet reshuffle was the fallout from the ham-fisted challenge in which (then) Labor’s Treasury spokesman, Ben Wyatt, threw down the gauntlet to Mr Ripper, only to see his rebel support base evaporate behind him.

It was a harsh lesson for the young Victoria Park MP. But once Mr Ripper decided Mr Wyatt had to be demoted, it took an agonisingly long time for the portfolios to be rearranged.

And the real beneficiaries are the government ministers expecting to be put on the spot by their opposite numbers who had been working on strategies for weeks.

Not that there is any room for complacency in the government. This is its third full year in power, and a big list of issues requiring legislation has been building up. After a flood of law and order measures in the first two years, it is time to widen the net.

Legislation for fixed four-year terms has been promised for some time. Electoral Affairs Minister Norman Moore is expected to opt for a fixed Saturday in March every fourth year when he finally unveils his plan.

Long-awaited laws on prostitution, which have proved elusive for governments of both colours, are tipped to finally surface. That will be a lively debate.

Law and order will still be there. The Corruption and Crime Commission will be given increased powers to pursue organised crime, and Police Minister Rob Johnson will press for tougher drink driving laws.

And it’s expected the rules governing how lobbyists operate will be tightened.

This will also be the year for Eric Ripper to show that he and Labor can turn the heat up on the government. If they can’t there might be another opposition front-bench reshuffle in 12 months, starting from the top.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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