As Julia Gillard gets set to win today’s leadership contest with Kevin Rudd and Campbell Newman becomes increasingly confident he will be the next Queensland premier, both leaders appear unaware there is an issue simmering below the surface that is set to dominate the next few months.
On the surface, the industrial dispute between BHP Billiton and the coal unions, which are led by the CFMEU, is about shift practices. But in BHP’s view it is all about who is going to control the mines, so it is very similar to the Qantas dispute.
But there is a fundamental difference. BHP has plans to spend $10 billion in an enormous expansion of its Queensland coal operation. BHP has not yet decided to abandon that plan and is most unlikely to make that decision until after the March 24 Queensland election is well and truly over.
But last November, when the coal industrial dispute was simmering below the surface and BHP’s Queensland coal mines were still working at 90 per cent of capacity, I wrote that if BHP chief executive Marius Kloppers was backed into a corner he would be just as tough as Qantas chief Alan Joyce.
Accordingly, BHP has now put on its agenda the possibility of mothballing its massive $10 billion investment in Queensland coal expansion and spending the money on its Indonesian coal deposits (A BHP union clash set for take-off, November 21).
Since then CFMEU has escalated the dispute and there are now extended strikes. The CFMEU has been buoyed by the apparent cave-in by the Port Kembla Coal Terminal management in NSW.
Traditionally the Australian mining industry unions controlled hiring and shifts, with the rights to put delegates on site and virtually run the mines. As a result, Australia had some of the highest cost and most inefficient mines in the world.
In the 1990s, led by Rio Tinto, the management of mining companies regained control of the mines. As a result, Australian costs fell sharply and workers enjoyed much higher pay rates. But the unions have long yearned to regain control and the Gillard industrial relations package was carefully crafted to give unions the weapons to regain control in industries where they had bargaining power.
This is most effective where there is substantial capital investment, with airlines and mining prime examples. But the unions underestimated the resolve of Qantas chief Alan Joyce, who was prepared for Qantas to lose close to $200 million rather than lose management control.
Marius Kloppers will be prepared to lose much more if necessary – and he has a much stronger balance sheet.
BHP has strict rules on major new projects – the additional capacity must be produced at a price that enables BHP to secure a return even if there is a big fall in the price.
The $10 billion Queensland coal expansion met that criteria but the current union demands, if achieved, would jeopardise the capital investment because if there was a fall in coal prices, the higher costs would make the development uneconomic.
The rise in the Australian dollar will have dinted the economics but if the unions were to continue the dispute, or if BHP was backed into a corner, then almost certainly the coal expansion funds will be shifted to Indonesia.
Just imagine the outrage that will come from Campbell Newman, assuming the opinion polls are correct and he becomes premier. That outrage will be directed at Julia Gillard and the new Industrial Relations Minister Bill Shorten, who is reviewing the Gillard legislation.
BHP will need to decide whether to cop the union antics on the chin for a few months and await the Shorten review or whether to signal its intentions. The CFMEU shows no signs of giving in and, although that can change, the stage is set for another Qantas-style confrontation, with the all the inevitable political fallout.
Is BHP the new Qantas?
BHP Billiton seems willing to lose far more revenue than Qantas to win its industrial dispute, and if backed into a corner would almost certainly shift coal expansion funds to Indonesia.
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