Australia is becoming a sovereign risk

Australian governments seem to be taking lessons from African dictators... Jacking up coal royalties in Queensland is just the latest example of policy that will drive investors offshore.

What Queensland’s Coalition Premier, Campbell Newman, did yesterday was the last straw.

BHP Billiton, Rio Tinto and most other world minerals and energy groups have now concluded that Australia is one if the most dangerous places in the world to invest. We are going to see a capital strike of immense proportions, which will take a long time and much effort to reverse. And when it is reversed miners will still require much greater returns from Australia because of the demonstrated sovereign risk of investing here.

And the trouble is we will not recognise there is a capital strike for two or three years because of the vast number of projects in the pipeline.

In simple terms what Newman did was to impose a steep royalty on Queensland coal miners when most were in the red.

That’s the sort if thing you expect from African dictators. But in Africa, mineral companies know there is high risk so they protect themselves. In Australia, they thought they were investing in a low risk country so did not protect themselves. They will not make that mistake again.

If it were just Campbell Newman you could say that Queenslanders had simply elected someone who does not understand the coal market. But what Newman has done is merely duplicating the style of action from Canberra and some states.

And the issue of sovereign risk goes beyond minerals and energy – sections of the rural industry have been hit just as hard.

So this morning I will point to a few of the ways we have made Australia into a high-risk country, African style.

– Without consultation we introduced a super mining tax. Then we watered it down but the watered down version had the potential to badly affect some miners. The opposition says it will remove the tax. Complete uncertainty.

– The second mining tax was never going to raise large amounts unless there was another boom but the Commonwealth, not understanding this, said it would reimburse companies for state royalty rises. Western Australia and Queensland plan to lift royalties but the Commonwealth is not collecting any money from its tax – a chaotic situation.

– We changed the industrial relations rules, which let lose militant unions onto miners sending their construction and operating costs through the roof.

– Contrary to election pledges we introduced a carbon tax and made sure miners and power generators were hit, either directly or indirectly.

– That carbon tax was then amended which causes further uncertainty and the Opposition is saying it will remove the carbon tax. No one knows what will happen.

– Origin Energy trustingly invested $800 million in a Queensland power station only to be told by Campbell Newman that the price at which it sells power will be sub economic. The same applies to other Queensland power infrastructure investments (Australia’s slow-motion energy train wreck, September 6).

– The Commonwealth government introduced bad occupation health and safety legislation and tried to make it national. Fortunately Victoria and South Australia stood up to them refusing to take the money "bribe” (Hard lessons in Canberra's safety laws, January 18).

– New South Wales approach to long-term gas supplies appears to be set by a radio announcer.

– We stopped beef exports to Indonesia on the basis of a TV show. No consultation. On the fisheries front, after careful discussions with government a major vessel has been brought to Australia to fish. Suddenly the government changed its mind and will not let it fish.

I could go on and on but that’s enough.

The best news in Australia at present on the sovereign risk front, is that the Victorian government looks like showing the nation that it has found a way to curb militant unions and slash construction costs. Hopefully the Victorian example will be followed by other states (Baillieu’s Grocon IR game-breaker, September 12).

Meanwhile we should invite African leaders out here to explain what happens if you behave badly.

Miners and others require much greater returns to offset the risk.


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