06/06/2012 - 10:16

Uncertain investment environment puts pressure on local and multinational players

06/06/2012 - 10:16

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AS the world enters its fifth year of economic turbulence and even the best-insulated businesses in Western Australia are being affected, the factors that determine business influence in this state are changing.

While retailing, hospitality, tourism and manufacturing have long struggled to make a mark at the top echelons of corporate power, the ever-tightening economic situation has forced WA Business News to reassess the most powerful in the state.

In business terms, LNG and iron ore remain the most important sectors of the economy, so rich that governments of all persuasions want to increase their reliance on the tax streams they offer.

But even in these important areas, the steady ground of recent years has shifted.

When capital was, in effect, unlimited, corporate chiefs who could make a strong base case for investment usually got their way. Their influence lay in their local power, and connections with politicians and the community, which were needed to get past regional obstacles.

Rio Tinto Iron Ore and Australia chief executive Sam Walsh sat comfortably at the head of that table. His counterpart at BHP Billiton, Ian Ashby, was not in the same league due to his more internal focus, but his replacement, Jimmy Wilson, is viewed as a worthy counterpart to Mr Walsh when he settles in.

But Mr Wilson arrives at a pivotal moment in the resources cycle.

His assumption of the position, in a new tower built largely to house BHP in Perth, coincides with the company’s top brass playing down the likelihood of as much as $80 billion in capital spending decisions, which were previously expected to be approved this year.

The debt crisis that has emerged since Greece’s economic woes became extreme last year has altered the investment equation, even for the global miners. The more persuasive arguments in the ear of the mining majors leadership – Tom Albanese at Rio Tinto and Marius Kloppers with his chairman Jac Nasser at BHP – are coming from investors and bankers who worry about the markets and a heavy reliance on Chinese growth.

Alcoa of Australia chief executive Alan Cransberg faces the same problem, as will Glenn Kellow, who has taken on the new Perth-based role as the head of BHP’s aluminium and nickel businesses.

This issue is less obvious among those in oil and gas.

Chevron Australia chief Roy Krzywosinski is an obvious exception. Not only is he presiding over the nation’s single biggest development project – the LNG Gorgon development–  but Chevron also approved the $29 billion Wheatstone project well after the problems in Europe re-emerged.

Similarly, Shell’s Australian boss Anne Pickard last year received the go-ahead for the Prelude offshore floating LNG plant. Prelude involves packing a whole LNG plant on the world’s biggest ship, a tricky and challenging project steeped in risk. 

If Ms Pickard can pull that off, Shell will have unlocked a major technological opportunity for LNG and her influence is likely to project well beyond Australia’s shores.

All of these executives represent foreign companies with extensive operations in WA. Some, such as Mr Walsh and Mr Cransberg, have major roles in community organisations outside their pure commercial interests that add to their influence.

Home-grown companies

Within the WA-headquartered companies there is a different breed of management that stands out from the major multinationals, especially when capital is restricted and decision-making is withdrawn to the core.

Hancock Prospecting chairman Gina Rinehart and Fortescue Metals Group’s Andrew Forrest are obvious examples.

 In dollar terms they may not have had the clout when it came to expansion projects, but with the resources tide receding their personal determination, broader political interests and significant individual wealth make them less one-dimensional when it comes to overall influence.

Atlas Iron executive chairman David Flanagan is another example of this; albeit he has started later and gained a political voice well above his station, as measured by shareholding value or tonnes exported.

Mr Flanagan does plan a big expansion at Atlas and is leading efforts to develop a fourth rail network, possibly with Queensland-based QR National led by Lance Hockridge.

Railway access is the critical infrastructure required to be more than a bit-player in the Pilbara.

It is notable that Mr Forrest and Mr Flanagan have also moved to put in key management beneath them, as their entrepreneurial flair makes way for a more managerial approach.

Gindalbie Metals and Sundance Resources chairman George Jones is seen as very influential due to his close links with China – Ansteel is a joint venture partner with Gindalbie in the Karara project – as well as being able to reach the ear of Premier Colin Barnett.

Intriguingly, Mr Jones’ influence over development in the Mid-West was challenged by bureaucrat-turned-CEO John Langoulant, who received a setback late last year when the joint venture partners behind his Oakajee port project could not finalise funding. 

With the project now in the hands of Mitsubishi, Mr Langoulant’s influence will depend on negotiations between the Japanese and Chinese regarding the port’s funding, though he keeps his hand in chairing state superannuation vehicle GESB.

Other important players in WA are media magnate Kerry Stokes, Wesfarmers CEO Richard Goyder and Woodside CEO Peter Coleman.

Building billionaire Len Buckeridge’s influence has waned somewhat this year as housing construction has slumped and various projects of his have become mired in litigation. Once the enemy of the state Labor government, he is now battling the Barnett government on several fronts.    

The boardroom

The non-executive director class faces the same challenges as executives of the multinationals.

Those who wielded influence in the past – by virtue of the stature of the companies they represented and the circles within which they moved – are less prominent today.

Executive chairmen – like some of those listed in our top 10 – with skin in the game seem to be more powerful because they can make things happen more readily, but are also more attuned to the risks involved because their money is also tied up.

Michael Chaney is an exception to that rule.

The chairman of Woodside and National Australia Bank is a heavyweight in town and has a strong voice nationally. Arguably, that is as much due to his extraordinary success running Wesfarmers as a result of his current duties. He is also very active in the not-for-profit sector.

Other boardroom players of note are Synergy and iiNet chairman Michael Smith, FMG director and Macquarie WA chairman Mark Barnaba, and Minara Resources CEO Peter Johnston, who chairs the influential Minerals Council of Australia.

Investment banker and philanthropist John Poynton, iiNet founder Michael Malone, well-connected property developer Nigel Satterley, and FMG managing director Nev Power round out the WA contingent of influence.

Outsiders

Like the major resources companies, there are many notable businesses that influence WA from bases outside this state. Some notable examples are Qantas, led by Alan Joyce, and Virgin, headed by John Borgetti. WA’s isolation and the increasing importance of fly-in, fly-out workers mean the airlines’ battle for supremacy has ramifications for the state. 

UK-headquartered Serco is doing major work in prisons and healthcare, including the Fiona Stanley Hospital being built by Brookfield, which has inherited Multiplex’s domination of the Perth construction sector.

NBN Co CEO Michael Quigley will be in charge of billions of investment here, and its timing. Clive Palmer remains a major player through his iron ore deposits and funding of conservative political interests.

David Knox may be based in Adelaide but Santos has extensive interests in WA, as do foreign resources investors such as US-based Apache Energy, Japan’s Mitsui and South Korea’s Posco.

China’s influence is also evident through resources.

Companies such as Sinosteel, represented here by Tony Cheng, and CITIC Pacific, led locally by Dongyi Hua, have leaders on the ground to represent them in WA. Others such as Asia Iron, Ansteel and MCC are less obvious. 

An interesting player is Madam Wang Yiner, China’s consul-general based in East Perth. With state-owned companies and even private Chinese companies borrowing from state banks thought to be beholden to directives from Beijing, its representative in Perth is a very important person.

To add to that flavour, we have also included China’s National Development Reform Commission, which ultimately approves foreign investment by state-owned companies. While China’s growth is slowing, the NDRC remains one of the most powerful investment decision makers in the world.

It is not just the world situation that dictates how NDRC acts, of course. There is a once-a-decade changeover in power taking place in the Chinese Communist Party and that is influencing investment decisions emanating from our largest trading partner.

No-one wants to have a bad deal on their hands at a time like this; yet a another reason for caution from the most influential both inside and outside WA.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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