Â·Â·.

ÃÂ

DEPARTMENT OF

OVERSEAS TRADE

neiemeTHE MINERALS AND ENERGY INDUSTRIES IN 1976(A Review by the Deputy Prime Minister and Minister for National Resources, the Rt Hon. J. D. Anthony)The year just ended was one in which the Government’s approach to Australia’s mineral and energy development was one of starting stopped clocks.Some clocks have been restarted; others have been wound up, and need only a shake or two to get them ticking again.After three years during which time and development had seemed t o :stand still,  the impetus of development had been lost.In contrast with the period to 1972, no new major project had got off ground in three years.Progress in advancing the North-West Shelf gas project and three major Bowen Basin coking coal projects had stalled awaiting Government decisions.Exploration had run down, particularly petroleum exploration.There was a taxation structure which discriminated .against the minerals industry.Tax measures recognising the special characteristics of the industry had been removed, and a crude oil levy and coal export duty operated as a disincentive to exploration and development.about the climate in which they could operate in Australia and a. consequential withholding of foreign investment, particularly from mineral exploration.The administration of export controls was restrictive to the point of intruding in commercial negotiations.There was confusion and uncertainty among foreign investors

2.

Uncertainty was widely expressed in Japan - our largest

actual and potential market for minerals - about the reliability

of Australia as a supplier, and hence there was a reluctance by

the Japanese to enter into new long-term contracts upon which new

developments could be based.

Communication between the Commonwealth and State

Governments, and the Commonwealth and industry, was limited.

In a climate where mineral exploration and new development

had all but ceased, the Government had begun taking up interests in

the industry through the Petroleum and Minerals Authority and the

Australian Atomic Energy Commission.

Acted Quickly

So there were plenty of areas in which Government action

was needed, and that action came quickly.

Despite the fact that some matters had to wait until the

new Government’s first Budget, there were quick moves in a number

of directions.

We acted to remove obstacles to progress in the minerals

and energy area by:

.  visits to Japan by the Prime Minister and Minister for

National Resources to explain the Government’s policies

to our foremost trading partner, seek information on

Japan’s policies and future raw materials, energy and

foodstuff requirements and to restore confidence in

Australia as a reliable and assured source of supply

. ensuring closer communication through institution of

regular counterpart talks between Australian and Japanese

officials .

. announcing sensible guidelines for overseas investment

- guidelines which will not hinder development but will

ensure that Australians have every opportunity to

participate in our country’s development

. approving in principle limited export of natural gas

from the North-West Shelf so as to facilitate the

development of that great resource

3.

. approving equity arrangements in the three major

prospective Queensland coal projects.  There are now

no remaining Commonwealth Government impediments to

the development of the Hail Creek, Nebo and Norwich

Park projects

. actively co-operating with the States in taking the

necessary action to grant further exploration permits

over vacant prospective areas. For example, during

1976 applications were invited in respect of 29 areas

in offshore W.A. Two new permits have already been

granted and applications in respect of the remainder

are currently under consideration

. changing the approach to export controls in a way that

respects rather than usurps the role of private enterprise

. divesting its predecessor's involvement in the industry

by moving to withdraw the AAEC from uranium exploration

and dispose of the assets acquired by the former PMA on

Ã¢ÂÂ  '  commercial terms.

One major and continuing obstacle to mineral and energy

development remains.

That is the cost increases which occurred during the

three years of marking time, and which have now raised new

questions about the economics of projects about which there was

little doubt had they got moving when they should have.

The Government's recent action in devaluing the Australian

dollar will have a beneficial impact on this situation as a result

of the improvement in the competitive position of Australian mining

companies compared with those in other countries, and through the

removal of doubts which had been seriously eroding the confidence

of investors in new ventures.

New Incentives

As soon as it could, the Government acted to restore

incentive to industry.

In line with its pre-election undertaking, the Government

in June introduced an investment allowance - a special income tax

deduction designed to give stimulus to investment in avgry^abde

range of new plant and equipment.

4.

Following the report of the Industries Assistance

Commission on the petroleum and mining industries, the Government

reviewed the whole taxation structure of the industry. 1  Â·  I  ’  ...

As a result, in recognition of the special circumstances

of the minerals industry:

.  petroleum exploration expenditure is immediately

deductible against income from any source

.  allowable capital expenditure on development of a

petroleum field is deductible from any income

.  allowable capital expenditure on development is

deductible over five years, compared with 25 years

hitherto

.  allowable capital expenditure on transportation

facilities is deductible over either 20 years or

,  10 years at the taxpayer's option

. allowable capital expenditure now includes port

development not previously deductible

. crude oil from new discoveries was freed from the

$2 per barrel production excise, thus removing a

deterrent to petroleum exploration

. as a first step towards completely phasing-out the

coal export duty within three years,  duty on nonÂ­

coking coal was removed and rates on coking coal

reduced

.  so that there would be clear guidelines for foreign

investors,  the Treasurer announced, in April the

Government's foreign investment policy.

In relation to investment in the field of minerals and

energy, the Government laid down guidelines to encourage fbreign

investment in Australia because of the considerable contribution

it can make to Australian development and prosperity.

But,  at the same time, we ensured that such investment

would be on a basis of fair sharing of net benefits as between the

foreign investor and the needs and aspirations of the Australian

community.

i

5.

To revive communication between the Commonwealth and

State Governments, the Australian Minerals Council, which had

not met during the previous three years,  was reconvened.

At its first meeting the Council was reconstituted as

the Australian Minerals and Energy Council and its role expanded

to include consideration of energy matters.

The Department of National Resources now keeps in close

contact with companies and has frequent consultations with

industry associations. .

As an example, a Coal Exporters’ Division was established

within the Australian Coal Association in February 1976, to

communicate the industry’s viewpoint on export related matters.

Research Moves

The Government has moved, on several fronts,  including

the Australian Minerals and Energy Council, to further develop

Australia’s capability in energy research and development.

Emphasis has been given to co-operation between the

Department responsible for energy policy matters (the Department

of National Resources) and the CSIRO which carries out most of

the non-nuclear energy research undertaken by Government in

Australia.

The Department,  in conjunction with the CSIRO,  is

undertaking a comprehensive survey of energy-related research and

development activity and expenditure in Australia. A pilot study

within CSIRO has already been completed.

In October 1976, a joint CSIRO/Department of National

Resources mission visited the United States Energy Research and

Development Administration and other energy centres in the United

States to study organisational and financial aspects of energy R

and D and to investigate opportunities for collaboration with the

US energy bodies.

I have had discussions recently both in Australia and

in the Federal Republic of Germany with representatives of a

West German consortium interested in studying the economic

feasibility of establishing a coal-conversion plant in Australia.

6.

A number of other proposals is also under discussion

between private companies in Australia and overseas.

The extensive actions by the Government which I have

described have created the climate necessary for the private

sector and the mining and energy industries in particular to

lead off Australia’s economic recovery.

However, the Government realises that the world is

experiencing the most severe recession since the Second World War.

The decline in the growth of the Japanese economy in

particular has inevitable consequences for Japan’s need for

additional supplies of minerals.

There is a substantial time lag to bring proposals to a

stage where projects can proceed.

Revival Under Wav

But there are signs that development began to revive in

1976. Three major new Queensland coal projects have been approved

under the new, sensible foreign investment guidelines.

It is to be hoped that in the coming months, the companies *.

studies now under way will be translated into concrete development

proposals.

Coal developments in the pipeline are not confined to

these projects. Several others, in New South Wales and Queensland,

are responding to the budgetary stimulus both in the taxation field

and by the decision to phase-out the coal export duty.

The North-West Shelf Joint Venturers submitted development

proposals to the Government in April 1976, of major proportions

with an estimated capital cost of up to $2 billion.

This would be the largest undertaking in Australian history

and would make a significant contribution to the Australian economy.

The proposals have been under joint consideration with the

West Australian Government.  Good progress has been made and it is

hoped some of the key decisions in relation to the development will

be made early in 1977Â·

7.

The West Australian Government announced in December 1976,

that preliminary work for the planning and construction of the

$650 million Alwest alumina refinery in the Wagerup area would

begin in early 1977Â· Construction is expected to take a minimum of

two years.

Hamersley and Cliffs Robe River are to expand the capacity

of their iron ore projects by a total nine million tonnes a year.

The Agnew nickel mine is expected to commence production

in 1978 and the capacity of Western Mining’s Kalgoorlie smelter is

to be correspondingly increased to process the output of the mine.

The project involves total expenditure of $102 million (including

$24 million already spent).

The Woodlawn base metals project near G o u l b u m  (N.S.W.)

is to proceed with production in 1978.

The Eneabba mineral sands project in Western Australia

is currently being brought on stream.

The development by BH South Ltd of the vast phosphate

rock deposits in North-West Queensland has been encouraged by

the Government’s agreement in principle that Duchess phosphate

rock be admitted into the domestic market at the rate of 250,000

tonnes per annum this finaneial year and 500,000 tonnes next year.

The Australian Petroleum Exploration Association expects

a sharp rise in the number of exploration and development wells to

be drilled in Australia in 1977Â·

A survey by the Association of its members showed that

a 30 per cent increase in exploration drilling, as well as a 200

per cent increase in development well completions, is expected

in 1977.

In some respects I am disappointed that a great deal

more progress has not been achieved in getting the mining and

energy industries back to their proper place in the Australian

scene.

But I think it is fair to say that, despite considerable

difficulties, real forward movement has taken place, and that the

nation’s mining industries are now poised for a great new surge of

development.

8.

The Government,  in 1977 and succeeding years, will

be keen to play its part to the full in assisting private

enterprise to bring that new development to fruition.

CANBERRA. A.C.T. 77/2

5 January 1977

