05/08/2010 - 00:00

Offshore production, onshore pressures

05/08/2010 - 00:00

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There are no simple answers when it comes to managing big national issues.

HOW globally competitive in our outlook should we be?

I have to say that I have waxed and waned in my opinion on this over time. Should we demand cheap gas for local companies that are value adding to our other commodities? Should we require that large-scale projects are designed and constructed here?

These are two of the most obvious areas where the booming demand for natural resources, notably oil and gas, has bypassed the local service sector.

Industries such as alumina are screaming out for cheaper energy to power their value-adding processes. Local engineers have already given up the possibility of designing more LNG trains; having developed the expertise for the early phases of the North West Shelf they have more recently lost out to Houston or Reading to a degree that is simply irreversible.

The latest to cry foul are the steel fabricators, who say that too much of the construction for the north-west is taking place offshore, with modules shipped in from Singapore or other South-East Asian destinations.

The Australian Steel Institute reckons we risk losing a big number of specialist skills and trades if we continue to allow work to go offshore.

So how do we arrange a buy-local policy that works?

The construction sector is always going to be lumpy. All the projects that are being developed up north have very finite construction periods; after that the jobs will be operational, care and maintenance. If the steel industry is in decline, it is possible a buy-local policy would just be propping it up temporarily to stave off the inevitable. Of course others believe that helping to grow the sector during this opportune moment in history would position it for the future.

Local value adding to commodities is just as problematic. Why should we demand the oil and gas sector sacrifices profitability to keep up the margins in the aluminium sector?

Isn’t that just robbing Peter to pay Paul? But then again, so many people argue we need to value add to what we have, despite a long history of failing to do that during a period of relatively cheap gas.

The issue to me is whether the resources sector is just a cash cow to milked to fund other sectors of the economy or if it could generate real economic growth in other resources-related value-adding sectors in a long lasting or sustainable way.

Clearly the federal government believes the former. It wants to tax the mining sector and spread the wealth far beyond the place where it is earned. It will be used to build call centres in Tasmania and football stadiums in Coffs Harbour.

But the other side of the ledger is equally difficult to sustain as a fair argument.

Why should an aluminium producer get a leg up over a gas processor? Why should someone spending billions on an LNG plant have to have the plans drawn up in Perth when the people in Reading can do it easier and more cheaply?

These are tough questions that are hard for anyone in political life to easily decide upon.

Personally, even though I can see both sides of the argument, I tend to believe that allowing market forces to dictate the outcome works best – especially if there is a framework of laws that provides for proper competition.

While I am suspicious of the Australian Competition and Consumer Commission’s decision on marketing of gas from sites such as Gorgon, I have to give the umpire the benefit of the doubt. The ACCC has taken on bigger and uglier opponents than big oil companies, so if we disagree with the outcome we must go back the law involved and change it.

In any event, that is simply tweaking what exists, rather than wholesale change that some advocate.

Ultimately, what WA does best is run resources operations. To date, that is something that must be done by people living here.

The only fear I have in the back of my mind is that technology may put even that guaranteed work out of reach of local companies and employees.

If Rio Tinto can consider running its Pilbara iron ore operations remotely from a site near Perth Airport, isn’t it possible that one day that work could be conducted from somewhere cheaper in an offshore location?

As ridiculous as that may sound, that might be the outcome if the people of Australia continue to demand to have their cake and eat it too. As an election looms amid a debate on reducing population growth, business is warning us we need more people than seems feasible to work on the developments in the north-west.

I don’t believe you can have both. Preservation of our existing way of life comes at a cost too.

Clunker politics

I HAVE argued many times about the value of a federation for spreading decision-making. In my view, competition between states provides some insurance against poor decision-making, with the outcome that better outcomes will be found in the longer run.

In contrast, centralised decision-making has less of the checks and balances that a federated system has. Take for instance, international education. WA’s industry had a number of failures about 20 years ago so the state, which regulates the sector, changed the regulations to provide a better marketplace.

It was a state-based reaction to a state-based problem. This time around, problems have occurred in NSW and Victoria, which have weaker regulation in this sector. Instead of those states changing their systems to follow the WA lead, the federal government has belatedly come over the top to provide a national solution.

Many in the WA sector believe this unnecessary over-reaction is, ironically, costing local educators more than the in the east coast where the current problems exist.

Of course, government watchers like me realise that there are numerous cases where jurisdictions simply fail to learn from one another – be they federated systems or not.

Take the federal government’s Cash for Clunkers election promise to buy old cars to get them off the road. From what I understand, this idea was used in Europe and America as an environmentally friendly stimulus project. It failed on both counts, yet somehow Labor thinks it will work here.

• mark.pownall@wabusinessnews.com.au.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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