Australia has started the fight to become more competitive in resource plant investment.
Over the weekend I was in Perth and, while it's still early days, I found good news coming out of the city on the construction costs front. And in Queensland there are also encouraging early signs.
John Hannagan, the Australian chairman of Russian aluminium giant Rusal, has slammed the high construction costs in erecting Australian mineral processing plants.
Hannagan is right -- we are way over the top -- but so is our rival Canada.
I am not sure if the Canadians have started on the journey back to being competitive, but Australia is just getting started. Clearly the high dollar is part of the problem and there are pressures pushing it lower (see Sentiment switch could hit Australian dollar, May 26).
While we do not control that game, we do have control over basic construction costs.
In WA, the long journey to regain competitiveness has started with a change at the top of the body that played a key role in many of the disastrous labour agreements that gave unions a free hand and boosted costs: the Western Australian Chamber of Commerce and Industry.
The cost blowouts at the Gorgon/Wheatstone development were in part due to foolish Gorgon managers allowing the WA chamber to do the industrial relations work that the managers should have done themselves. The unions took full advantage of the bad agreements and Gorgon has only itself to blame (Miners must fess up on IR dirt, December 5 2012; Unmasking the Gorgon cost monster, December 6 2012).
Deidre Willmott has now been appointed as CEO of the WA chamber. My Perth friends tell me she is a top operator, although she faces a hard task teaching her staff and their legal advisers how to avoid making Gorgon-style industrial relations mistakes.
In The Australian, there are photos of three engineering graduates who cannot find jobs. They should stage their protests outside the WA Chamber for its role in the mining costs debacle.
Deidre Willmott’s new broom at the WA Chamber is being helped by the federal government’s proposed new building rules and the looming glut of building labour as the mining investment boom winds down.
Some of the larger builders in Perth tell me that in the four years of the mining construction boom, wage payments on Perth building sites rose 20 per cent. They have now fallen 20 per cent and are back to pre-boom levels. They are still high but are around the level of the eastern states.
But the builders are preparing to negotiate enterprise bargaining agreements with the building unions, and are insisting that the federal government’s requirements be incorporated into the new agreements, even though they have not yet passed through the parliament. At least one builder is prepared to walk away and not sign an agreement if the unions refuse to incorporate federal government rules.
That means that subcontractors will be able to compete for work using different labour arrangements. Longer term, it means that in some routine areas, people from the home building industry will be able to do jobs at a far lower cost.
In the eastern states, some builders are threatening to ignore the proposed legislation because they realise they do not have the management skills to run their operations unless they are in a cartel with the unions. Australia would be better off if these companies left the industry or found new managers.
In Queensland, private equity operators have quietly started to invest in closed or close-to-closing coalmines. Through independent contracting, they have made the mines profitable -- even at current coal prices. The cost savings are enormous, although those working in the mines have maintained their incomes. It’s about efficiency.
There is a long way to go, but we have started.