08/04/2010 - 00:00

No shortage of challenges as Aboriginal business ventures into new territory

08/04/2010 - 00:00

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There is no one-size-fits-all when it comes to engaging indigenous enterprises.

AS Western Australia revs up for another resources boom, those servicing some of the state’s biggest mining and energy projects have issued a new call for local content.

The call is not just coming from the designers and engineers of Perth’s CBD bemoaning the loss of work to Reading or Houston.

Instead, it is coming from Aboriginal people who inhabit the state’s regions.

Like much about the indigenous community, though, these calls are not uniform. They come from different viewpoints on just how this should be achieved and have different views on the success, to date, of past efforts in increase Aboriginal engagement.

A common view from Aboriginal leaders is that indigenous-owned enterprises have to work directly on development projects if their people are going to shrug off the setbacks of the past century and do more than live off a monetary windfall.

Fighting concerted opposition from a green-led coalition, Kimberley Land Council CEO Wayne Bergmann (pictured, top far right) sees the proposed LNG hub at James Price Point north of Broome as a chance to do exactly that.

Mr Bergmann believes backing the hub represents much more than money in the bank and social infrastructure. In fact, he sees it as even more than just jobs in an area where a big proportion of the population don’t even go to high school.

“What is happening is Aboriginal people are using the lever of native title negotiations to become major players in the economic opportunity,” Mr Bergmann told WA Business News.

“We’re asking, as part of compensation settlements, that there would be guaranteed contracts and business opportunities.

“Aboriginal companies can joint venture with credible business entities and become part of the business solution for whatever the development is.”

Mr Bergmann does not necessarily have a preference for the structures involved, suggesting that each development opportunity would have to be treated on its merits; but he does want to see local communities taking a free-carried interest in the project via Aboriginal companies.

“Then Aboriginal people are owners of the business, doing construction or whatever may be happening,” he said.

“It is not just compensation from royalties.”

It’s an argument that any successful WA businessperson is unlikely to counter. Many business owners would argue the highest level on the food chain of economic freedom is operating their own profitable enterprise.

However, Mr Bergmann knows this is a change from past practice and one of the obstacles may be the resources companies, whose positive rhetoric on Aboriginal engagement may not be matched by business practice on the ground.

He confirmed that the KLC had been involved in potential contract negotiations in the past that had got 99 per cent of the way but failed at the final hurdle because the financial drivers of the developer could not be met.

The Kimberley Aboriginal leader looks at the experience to his south, in the Pilbara, where more than 40 years of big resources operations have started to spawn some success stories.

Biggest among them is Ngarda Civil and Mining, a joint venture between the Ngarda Ngarli Yarndu Foundation, Indigenous Business Australia (each with 25 per cent equity), and Leighton Contractors, which holds the remaining 50 per cent.

Ngarda has an estimated $400 million in contracts with BHP Billiton alone, including more than $300 million to mine at the Yarrie iron ore project over five years. Ngarda also earns between $20 million and $30 million a year from various contracts with Rio Tinto, and recently finished work on the $170 million Gap Ridge village for Woodside Petroleum.

In some respects, Ngarda is on its own, representing almost 90 per cent of the estimated $80 million that BHP spent on indigenous-owned businesses last financial year.

“We have had discussions with them about how they do it,” Mr Bergmann said.

However, it is not just joint ventures or big contracts that the Aboriginal leader wants to see. Acknowledging that big contracts generally need expertise, he would be happy to see some jobs broken down into smaller parts to allow small enterprises or sole operators a chance to win business.

“This is greenfields for us,” Mr Bergmann said.

“If we got this right it could be the silver bullet for government to wake up the sleeping giant, the Aboriginal potential in business.

“We represent the biggest labour force in the country that is underemployed, so we have the biggest potential.”

But there are other voices that are much harsher critics of current policy and think mistakes of the past are being repeated – including the prospect of joint ventures linked to community-owned corporations. Take, for instance, a group of Aboriginal business owners from the Pilbara who believe they are not getting a look in when it comes to the bulk of the work that takes place in the sparsely populated, yet richly endowed, north-west.

The businesses owners have formed the fledgling Pilbara Aboriginal Contractors Association, which recently called for legislation to mandate indigenous content on resources projects in a report entitled ‘A Review of Contractual Arrangements Between Australian Aboriginal Enterprises and the Resource Industry’.

“Despite the long lasting and highly profitable nature of the resource sector, Aboriginal people and in particular Aboriginal contractors have not reaped any of the benefits that one would have expected to flow to the local community, especially in more recent times when governments and business has accepted and adopted a corporate social responsibility, and not just an economic responsibility,” the report released by PACA stated.

“… the state government should, as part of its social and economic responsibilities to Aboriginal people, introduce legislation to require business entities to open up business opportunities to Aboriginal contractors.”

While such a call could be dismissed as little more than a special interest group drumming up business for itself, PACA has, at the same time, touched many raw nerves in the resources sector by accusing some big players of inflating claims of business relationships with indigenous groups as part of their efforts to meet corporate social responsibility obligations.

It has to be noted that PACA is sponsored by BHP, a company the lobby group claims is a model in indigenous engagement.

PACA’s views – both as an organisation and privately among its members – have been robust and, often, just as damning of others from the Aboriginal community and rival businesses with minimal indigenous ownership as they are of most resources companies and other infrastructure developers that operate in the area.

One successful businessman and PACA member, who did not want to be named for this article, was highly critical of the numerous joint ventures that operate across the region, often between a non-indigenous mining contractor and an Aboriginal community-owned entity as a junior partner.

Generally local community equity in such joint ventures will be at least 25 per cent, enough to get recognition as an indigenous business – both from the mining companies and PACA itself.

The contractor brings the skills and capital, the Aboriginal corporation contributes an access agreement.

“It doesn’t mean anything,” said the businessman.

“They just use those deals to get the job.

“Very little flows back.

“A selective few are prospering while the rest of the people get nothing.”

He was equally scathing of a new agreement further north, as part of the Ord River expansion project, which Regional Development and Lands Minister Brendon Grylls had pitched as a major driver of indigenous participation.

Mr Grylls announced a joint venture between Leighton and Indigenous Business Australia as its preferred proponent for a $50 million construction contract at the Ord-East Kimberley expansion project. The JV is expected to work with MG Corporation, an entity established by the local Miriuwung Gajerrong people who are signatories to the Ord final agreement.

Among the key objectives of this agreement is that the project would seek joint ventures, alliances and subcontract arrangements directed at increasing the use and capacity of indigenous businesses.

Project insiders say it is being structured to avoid the mistakes of past ventures.

It is quite challenging to non-indigenous perceptions of progress when an Aboriginal business operator sees such a deal as a backward step.

PACA executive officer Tony Wiltshire was not dismissive of all joint ventures but largely agreed with the sentiments of the unnamed businessman above. Mr Wiltshire said past experience showed that much had been promised from many of these agreements, but was often not delivered.

Mr Wiltshire said that generally came down to how the agreement was worded and how much time the community had to get good advice and absorb the issues.

Nevertheless, the PACA boss believes that, after start-up phase, individually owned businesses were better placed than Aboriginal community-owned corporations because they had a core focus.

“Aboriginal (community-owned) corporations’ main focus is not business; its core business is to facilitate land-use agreements and pay for a range of services for the members,” Mr Wiltshire said.

Circular argument

One of the issues at the heart of this is just how to achieve significant Aboriginal business involvement. It’s the classic case of the chicken and the egg.

For instance, WA Business News is aware of one substantial miner in the region who sacked an indigenous contractor after repeated warnings about safety.

This was not an isolated incident.

To the mining community, safety sits higher in the hierarchy than giving indigenous enterprise a leg up.

The Chamber of Minerals and Energy executive officer people strategy, Mike Prime, puts it more diplomatically.

“It is essential for the resources sector to be focused on safety within productivity,” Mr Prime said.

“Obviously companies that are trying to develop indigenous enterprises also have to look at safety within productivity.”

He said that, even though the industry group and many resources companies wanted to increase the engagement of Aboriginal businesses, project developers had to take account of skills, experience and ability when determining contracts.

Some see the inevitable result of this is a two-tiered mining services sector, where smaller, less challenging roles were often awarded to indigenous enterprises while bigger, complex contracts required an experienced non-indigenous player or a joint venture in which they dominated.

Many note that indigenous businesses more often win contracts for waste removal, catering and landscaping rather than the actual mining itself.

These tend to have less value, require fewer skills and offer less risk to mining companies.

Small change

To some, this is another form of discrimination, which allows mining companies to claim indigenous engagement without offering the leverage of a big contract that can lift a company out of small business territory.

But to others, you simply have to start somewhere.

Aboriginal Enterprises in Mining, Exploration and Energy chairman Parry Agius, who is also CEO of South Australia’s Native Title Services, believes that small contracts offer the opportunity for start-ups.

“You actually increase the opportunity for people to be employed,” Mr Agius said.

“Someone who earns $50,000 a year and runs a successful business is still profitable.”

Pilbara Logistics general manager Tony Connors is one who is not exactly complaining about winning the contracts others may reject. His company employs up to 100 people at any one time on such work.

“Some of the contract sizes are not seen as big enough. We are happy for people to continue on with that mindset,’’ Mr Connors said.

Nevertheless, Mr Connors said this did not necessarily suit the objectives of other indigenous businesses in the market.

“There is a still reticence on behalf of the mining companies to parcel out significant slices of work without indigenous businesses partnering with established white businesses,” he said.

“White businesses know that and probably don’t go in with the same spirit as they do with other business.”

Mr Connors said they gave the impression that “they are doing us a favour”.

He believes joint ventures between experienced non-indigenous companies and Aboriginal community-owned corporations were flawed because they tended to be regionally restrictive and were unlikely to last longer than the contract they were formed to win.

In contrast, he points to Pilbara Logistics owner Geoff Stocker as an example of someone who has formed a sustainable business.

Mr Connors is opposed to establishing enterprises with a structure that differed little from other forms of paternalism.

“If you hand someone a business and tell them to run it, as soon as they have to look for work they will struggle,” he said.

“There needs to be a broader view of things where businesses come in and have to contribute to the community, not in terms of royalties or profit sharing but the longer lasting benefits such as employment and training and you will find, like Geoff [Stocker], there will be a significant number of people who, once they have received the training, will be entrepreneurial enough to start a business.”

Bridging the gap

However maligned they are by private Aboriginal entrepreneurs, many in influence regard joint ventures as a way of bridging the skills gap and helping to create Aboriginal business capacity through the opportunity to work with experienced operators.

There are even suggestions that these arrangements are simply the way that many indigenous communities prefer things.

This is a view recently put to WA Business News by one of the state’s most senior mining executives, Rio Tinto Iron Ore managing director Pilbara mining operations, Greg Lilleyman.

Earlier this year, when PACA accused Rio Tinto of failing to use Aboriginal contractors, preferring joint ventures such as one between native title holders Eastern Guruma and mining services group NRW to build and operate a mine at its Western Turner Syncline deposit near Tom Price, Mr Lilleyman said his company tried to take into account the different ways native title holders wanted to do business.

“We don’t try to dictate how these groups set themselves up and who they should work with,” he said.

“We recognise different groups have different pathways to achieving their goals.”

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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