16/12/2010 - 00:00

Public political posturing largely put to one side as commercial realities take hold

16/12/2010 - 00:00

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It remains to be seen if the nation’s mining leaders retain their high-visibility profiles on the next stage.

Public political posturing largely put to one side as commercial realities take hold

THE turmoil surrounding the proposed mining tax will enter the history books as a telling lesson in how not to reform a tax system.

But will that be its only legacy? Could it have created a political awakening among a class of mining leaders that could have long-lasting consequences beyond the monumental few months of 2010?

The mining tax debate that started with the federal government’s surprise May 2 launch of its Resource Super Profits Tax certainly brought attention to a host of Western Australian-based resources executives who had previously been below the national radar.

Rio Tinto Australian and iron ore chief executive Sam Walsh, Hancock Prospecting chairman Gina Rinehart and Atlas Iron managing director David Flanagan all came to national prominence as a result of the government’s tax drive and subsequent attacks on the industry.

The public was also reacquainted with major mining chiefs such as entrepreneurs Andrew Forrest and Queensland’s Clive Palmer, as well as Melbourne-based BHP Billiton CEO Marius Kloppers.

Industry heads Mitch Hooke, from the Canberra-based Minerals Council of Australia, and Simon Bennison, from the Association of Mining & Exploration Companies in WA, also became well known through numerous media appearances.

These people were seen challenging (then) Prime Minister Kevin Rudd, Treasurer Wayne Swan and Treasury secretary Ken Henry, at times face to face. They stood with megaphones on the back of utes, they spoke at press conferences or they appeared from closed-door meetings in Perth and Canberra.

They were also among the funders of a massive advertising and public relations campaign (see story overleaf) that cost north of $20 million when the activities of several different industry groups and companies acting alone are combined.

They created the perception that they had united a traditionally fractured industry.

Ultimately they were the people whose pressure brought down a prime minister, forced a significant back down from the federal government, and nearly cost Labor the September election less than three years after its landslide victory.

Whether or not this heady political commitment continues remains to be seen.

Mr Walsh, for instance, spoke recently to a WA Business News audience of about 750 people. It was a massive event, which shows the profile he has created. But his prepared speech made no mention of the recent tax debate and his significant role in it. Instead his tone was much more that of the traditional business executive.

That’s in contrast to his unusually frank description in early June of the federal government’s consultation process for the RSPT when he raised the matter while questioning then Deputy Prime Minister Julia Gillard at a Chamber of Commerce and Industry WA event.

‘‘Quite frankly it has been dysfunctional and really hopeless,” Mr Walsh famously told Ms Gillard.

Nevertheless, ongoing debate about the RSPT’s replacement, the Minerals Resource Rent Tax, and the fact that Rio Tinto was a major contributor to a war chest that is thought to still have more than $80 million pledged to it, keeps him very relevant.

The federal government’s agreement with the major miners in early July included refunding royalty payments made to the states. The government has since claimed that deal did not include any new royalties levied by the states. It is a major sticking point, which proves that a deal with politicians is very different to one struck in the commercial world.

As a result, this month, Mr Walsh has raised his head above the battlement again to demand the federal government sticks to its deal.

“The royalty issue is a significant issue,” Mr Walsh told a Melbourne Mining Club luncheon a fortnight ago.

“It could potentially mean significant payments, and a significant reduction in values to projects.

“It wasn’t an accident in drafting. It wasn’t a clerical error. It was something where there were hours put into those words and we are expecting that the government will hold up to its promise on that.”

As a major executive in a significant multinational company, Mr Walsh is unlikely to be playing political cards any more than commercial reality requires him to do so. Viewed as a potential successor to his boss Tom Albanese, Mr Walsh’s interest will be in dampening the impact of the tax on his operations and, ultimately, shareholders of Rio Tinto.

Mr Forrest remains in the spotlight. The Fortescue Metals Group boss always had more than his share of attention, however, due in part to his brief reign as Australia’s richest person and his own colourful ability to play political trump cards for promotional purposes, such as sharing the stage in 2008 with Mr Rudd at the launch of his Australian Employment Covenant to create 50,000 indigenous jobs.

At the height of the tax debate, though, the FMG founder stepped up to a level of political involvement that superseded his previous high-profile efforts.

Just as FMG’s slogan, ‘The Third Force in Iron Ore’, has positioned it as the alternative to the Pilbara’s big miners, BHP and Rio Tinto, so Mr Forrest sought to engineer a different political solution when the government and the mining giants via the MCA appeared to be seeking their own reconciliation.

Mr Forrest has subsequently confirmed he had a deal with Mr Rudd.

It is understood that agreement on detail was struck between FMG’s Stephen Pearce and one of Mr Rudd’s closest advisers on June 21, during a visit to Canberra of Chinese vice-president Xi Jinping.

“That would have got past the impasse, where everyone could live with each other,” said one player close to the action.

Unfortunately for Mr Forrest’s plan, Mr Rudd was deposed on the evening of June 23 and his successor, Julia Gillard, chose to negotiate a deal with the three major miners – Rio Tinto, BHP and Xstrata.

The MRRT was announced on July 2, dividing the industry after a brief period of perceived unity, and cutting the biggest funders of the anti-tax campaign out of the picture as an election loomed.

Mr Forrest remains frustrated with the deal, which limits the tax to iron ore and coal but favours companies that can fund development from their balance sheets rather than debt.

Last month, Mr Forrest fronted a Senate Committee on Fuel and Energy hearing held in Perth and railed against the MRRT.

“This is an ill-conceived, sledgehammer approach that kills off the incentive to invest for anyone outside of the big three miners with whom the Gillard Labor government has cut a side arrangement,” he said.

“The MRRT will not only act as a barrier to entry to iron ore markets for the vast majority of Australian miners, it will do so while red-carpeting the existing dominant players who’ve been given an inside run.

“The notion that the government is engaged in genuine consultation on the tax is fanciful.

“It’s a sham, with no changes to the principles underpinning the tax nor the revenues the government expects to squeeze out of junior miners.”

Despite the adrenalin rush that high-end political machinations might create, there is evidence that stepping up to the public plate for a one-off issue might not necessarily lead to a permanent state of activism.

Take Mr Flanagan, for instance.

At a recent public engagement he told the audience that the public rally had been a significant moment for him, after putting himself forward as a spokesman against the tax. His company had even taken out full-page page advertisements in the national press on the first week of the debate.

“When I saw hundreds of people coming up in groups to say this tax was a bad thing, it was empowering,” Mr Flanagan said.

“To see 3,000 people there and to speak to other Labor people behind closed doors and realise that had an effect on them, that is democracy.

“We have the opportunity to make our voice heard and I think we should use it when those sorts of things happen.”

Despite this experience, he claims he is not considering politics as an alternative career.

Mr Flanagan told WA Business News the intense scrutiny that comes with politics is a factor that puts him off.

He also concedes that political life lacks appeal for other reasons.

“I think it’s easier for me to execute a business plan than politicians who have to constantly negotiate with countless factions and competing interests,” Mr Flanagan said.

“It’s not so hard getting alignment within a company and 25,000 shareholders.

“I can’t imagine the energy wasted seeking alignment in politics that is unproductive.

“The biggest contribution I think I can make is to help execute good mines that help make Australia great.”

Perhaps this response is typical of those who are caught up in political events of some magnitude. A good example in WA was lawyer Bevan Lawrence, who was politically active in the late 1980s.

He first came to public prominence as a key player in the activist group People Against the Australia Card, a national protest that led to abandonment of the proposed legislation by the Hawke Labor government.

Two years later, in 1989, he was a founder of People for Fair and Open Government, which campaigned for political reform in WA as the excesses of the WA Inc era emerged. The organisation played a big role in later persuading the state government headed by his sister Carmen to establish a Royal Commission into WA Inc.

Mr Lawrence did not go on to a political career.

Curtin University political historian professor David Black cannot recall any precedents regarding activist business people entering the political sphere in the long term as a result of their experiences.

Professor Black said the political atmosphere as a result of mining tax remains super-charged even as we head into 2011.

“There is no question that mining is at the centre of it all at the moment,” he said.

“It is hugely surprising for the players in this field to find themselves in the centre of the current political debate.”

Professor Black suggests the miners will continue to be in the limelight because of the sector’s immediate impact on the economy.

But he said despite the unprecedented electoral polarisation along state lines at the federal poll in September, which Labor narrowly won with the help of independent candidates, there is no guarantee that the mining leaders will remain relevant beyond the life of that issue.

Some observers of history have noted the decision of politically frustrated iron ore magnates Lang Hancock and Peter Wright to establish their own WA newspaper, The Independent, in 1969. Mr Hancock also heavily funded the political campaigns of conservative Queensland Premier Joh Bjelke-Petersen.

Mr Hancock was prompted into such efforts due to his fights with the WA and federal governments over the development of mines in the Pilbara and concerns about socialism.

His daughter, Gina Rinehart, one of the nation’s richest people, appears to be equally worried about Australia’s direction. While she had some low-key political engagement before the RSPT – she had already formed and launched the Australians for Northern Development and Economic Vision – the mining tax appears to have spurred her to much more significant action.

Previously a very private person, she took the extraordinary step of addressing the mining rally at Langley Park on June 10, leading chants demanding that the government “axe the tax”.

“Our political leaders and those who support their at times ill-informed views need to move out of their dangerously small bubble and consider what is happening in the real world around them, and fully recognise the effects on Australia if our mining and related industries become uncompetitive in world markets,” wrote Ms Rinehart last week in response to a television interview by WA Business News columnist Tim Treadgold.

“This dangerously small bubble needs exposure to the real world, because China and other markets will not want to pay for overpriced commodities from Australia, they will increasingly purchase elsewhere if we become uncompetitive, and this needs to be recognised.”

Observers can only speculate as to whether these views are the primary reason for Ms Rinehart’s recent major investment in national media. Late last month, she spent $165 million buying a 10 per cent stake in Ten Network, a move that also earned her a board seat alongside another recent investor, James Packer.

Last week, she moved again, purchasing $50 million worth of newspaper publisher Fairfax Media shares.

No-one is prepared to say what the main motivation for these purchases is, and the iron ore magnate is not offering any views for public consumption.

It is, however, in marked contrast to her peers and yet another sign that the perceived unity in the minerals sector created by the RSPT is dead.

At one point in the middle of the hottest part of the tax debate, all of these mining figures mentioned in this story were talking to each other regularly, or communicating through key information brokers.

But that brief closeness is now gone.

The big players are again at odds with the smaller ones over the tax deal that suited them.

And no-one other than Ms Rinehart, and possibly Queensland maverick Clive Palmer, appears to see the need to play politics directly beyond the resources sector lobby.

Outside the pure tax debate and the desire to keep the resources sector strong, it appears that few of these players have that much in common when it comes playing politics.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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