Report shows falling local content

PREMIER Colin Barnett has admitted that the state government and resources companies dropped the ball on the issue of local content, but he remains opposed to Labor’s plan for tough new laws.

Instead the government is looking to widen its definition of local content so there is less focus on construction and fabrication jobs.

It is also planning to revamp the Industry Capability Network, which is charged with bringing together project developers and local suppliers.

Speaking at a business lunch last week, Mr Barnett acknowledged the concern over declining Australian content on resource projects, particularly for steel fabrication firms.

“There are always issues and local fabrication has been an issue, where the (resources) industry probably dropped the ball, and maybe government has dropped the ball over recent years too,” he said.

“You can bring in laws, I don’t agree with that, or you can do what happened a couple of months ago.

“The heads of Woodside, Chevron, BHP and Rio Tinto went down to Kwinana on a Saturday morning with me and we sat down with the fabricators around the table.”

“I think the (heads) were impressed by the degree of robotics and automation.”

The performance of resources companies was spelled out in a local content report, tabled in parliament last month.

It showed that iron ore projects typically achieve about 90 per cent Australian content (see table).

A conspicuous exception is Citic Pacific’s Sino Iron project, which has had a high level of Chinese content in the engineering and construction phases.

The report says changed market conditions have been particularly pronounced for offshore energy projects.

“Local industry participation has fallen from a peak of 72 per cent for train 4 of Woodside’s North West Shelf project to 45 to 55 per cent for the Pluto and Gorgon projects,” it says.

Chevron Australia managing director Roy Krzywosinski said this week the company had been working hard to maximise local content on the $43 billion Gorgon project.

To date, it has awarded $10 billion of work to local suppliers and expects to reach $20 billion over the next few years.

Mr Krzywosinski acknowledged that, “some local steel fabricators have been doing it tough in recent times”.

Hence, he was pleased that Gorgon was able to award a $50 million contract to AusGroup subsidiary AGC Industries last month.

“It is in everyone’s interest that there is a long-term sustainable and competitive local fabrication industry,” Mr Krzywosinski said.

“After all, the construction phase for these projects is only about five years, but we need support from local industry for a project’s entire operating life, which lasts for decades.”

Mr Barnett had a similar message, saying there was too much focus on the construction phase.

“It is the long-term operational part that we need to build, that’s where the consistency is, year in and year out,” Mr Barnett said.

The premier cited mining services company Ausdrill as an example of a successful local business that exports its skills.

“We can’t become protective, we need to build the service industries and build broader mining and petroleum industries,” Mr Barnett said.

The Australian Steel Institute expressed disappointment at the lack of detail in the much-anticipated local content report.

“While it is a positive development that we now have a report to begin scrutinising, the lack of detail makes any meaningful analysis impossible,” ASI state manager James England said.

“The report provides a single percentage figure for each project, effectively masking the low levels of local content in the engineering and fabrication sectors.

“We need open, detailed and transparent reporting on the local content in our major resources project.

The local content report provided some hints of the government’s plans,

It says industry participation plans will require more detail about sourcing methods and intentions.

The report also says the concept of local content will be broadened to include operational support, project related R&D, indigenous and community support, training and technology transfers.