While Julia Gillard was in Beijing to forge a closer relationship with China, in another part of the city executives and directors of a major Chinese company headed by the legendary Ren Jianxin were facing an Australia-China decision that could cost many thousands of Australian jobs and change the face of our nation.
And the Chinese corporate decision could have a direct effect on the people in Gillard’s electorate. Gillard would have had no knowledge of the possible Chinese decision but Ren Jianxin would have been acutely aware of her presence in Beijing.
I would not know about this strange situation but for the fact that Business Spectator columnist Keith Orchison was last week chairing an energy conference in Sydney being addressed by the NSW Minister for Resources Chris Hartcher.
Business Spectator and Orchison have been warning for years that a combination of appalling corporate and government (state and federal) decisions is set to leave New South Wales short of gas and the state will face (Time to recharge the Keating method, April 10) huge gas price hikes. Now discussion about the looming crisis is out in the open and in answer to a question, Hartcher at the seminar let his guard down and said that a company employing more than 500 people was considering closing down operations if there was a big price hike in gas.
Hartcher did not name the company but the most obvious was Chinese owned Qenos, which takes gas from the Cooper Basin in New South Wales to make low density polyethylene at the former Orica plant in Botany Sydney and gas from Bass Strait to make high density polyethylene at Altona, Melbourne which is in Gillard’s electorate.
Qenos products are essential raw materials for vast areas of Australian manufacturing. It employs 730 people but its customer base covers a huge variety of enterprises.
On Friday morning I phoned Qenos, but executive chairman Ross McCann and chief executive Jonathan Clancy were not available. I explained that I wanted to know whether Qenos was the company that Hartcher was referring to. I phoned again on the Friday afternoon to make sure they got the message and to emphasise that because of the importance to Australia they could call me at any hour of the day or night over the weekend.
Yet I really did not expect a call because ultimately McCann and Clancy will not make the closure decision. Although the private equity group Blackstone is an equity holder, the Qenos operation is controlled by China National Chemical Corporation (ChemChina),China’s largest chemical conglomerate and a Fortune 500 enterprise.
ChemChina, although a state owned company, is a remarkable corporate achievement story. Ren Jianxin, who was a farmer during the Cultural Revolution and at one stage cleaned teapots and boilers, brought together more than 100 state owned enterprises to form ChemChina. Then in 2008 Ren Jianxin bought Qenos, having earlier expanded into France. (Ren Jianxin has been awarded the rank of commander in France's prestigious Legion of Honour).
In the early years ChemChina rode a price boom to make good profits from their Qenos investment. They have also made major recent investments in their Altona plant. But more recently life in Australia has been tough for Qenos. The high dollar has slashed the price of imports and between 2007 and 2012 we increased the gas price to Botany by 40 per cent and to Altona by 27 per cent. Electricity prices went up 32 per cent, helped by Julia Gillard’s carbon tax and other government decisions.
Australia's corporate and government mistakes in the Australian gas industry must be exasperating Ren Jianxin and ChemChina. We installed three LNG export plants in Gladstone Queensland on insufficient gas reserves and so the LNG exporters have now bought gas from the Cooper Basin, paying export prices, and the New South Wales government has stopped exploitation of the NSW coal gas, which means shortages. The Cooper Basin gas prices are set to skyrocket. Meanwhile NSW may try and get gas from Victoria, which will boost the Bass Strait prices. These events will push up Qenos feedstock prices to uneconomic levels while everywhere else global gas prices are under downward pressure.
Naturally Qenos must consider its position. The combined corporate/government stupidity that saw too many LNG pants being erected in Queensland at once, a carbon tax, and ‘head in the sand’ attitudes by Australian state and federal politicians must amaze the Chinese. Still they put on a good show for Julia in Beijing.