In the wake of the fuel crisis caused by the invasion of Iran, few will argue exploring the feasibility of new Australian fuel refinery is a bad thing. But will taxpayers’ risks be considered? Rex Patrick reports.
As part of the Federal Government’s $15B package to secure Australia’s fuel security, the Prime Minister has announced a $4 million pre-feasibility study to build a new large-scale oil refinery in Australia. Indian multinational company Perdaman will do the study looking into the optimal refinery configuration, supporting port infrastructure and the necessary logistics; presumably a preliminary business case.
Details are scarce. If a new facility was to be built in WA, would the taxpayer have to chip in on the build? Would taxpayers be asked to underwrite its ongoing operations? Perhaps they’re answers that fall out of the pre-feasibility study.
But if Australia’s oil and gas policy track record is anything to go by, the refinery (no matter how good or bad you think the idea is) will likely be built on a ‘corporatise the profits and socialise the losses’ model?
The Government must avoid this.
Gas: how Australia privatised the profits and socialised the losses
Refineries Closing Down
Australia currently has two refineries; one in Brisbane and one in Geelong.
In 2000, we had eight refineries. In 2003, the refinery at Port Stanvac in SA was closed. In 2012 and 2104 the refineries at Clyde and Kurnell in NSW closed. In 2015, the refinery at Bulwer Island in Queensland closed. In 2021, the Kwinana refinery in WA and the Altona refinery in Victoria closed.
Why did they close?
Our refineries were ageing, dealing with changing fuel markets and were uncompetitive compared to much larger scale refineries in places like Singapore and South Korea.
It became cheaper to import refined fuel rather than produce it in Australia. The refinery companies, as is normal for any commercial entity, made choices centred around their bottom line.
Fuel Security Bill
In June 2021, the Parliament reacted to two of our last four refineries closing by passing the Fuel Security Bill 2021. Amongst other things, the Bill introduced a fuel security services payment to cover refineries’ downside risk. The payments provided up to 1.8 cents per litre if a refinery’s margins fell to the point where it was making a loss. No payments would be made when a refinery was making a profit.
The refinery companies got to keep the profits and taxpayers got to underwrite their losses. $2B was set aside as a price to be paid for Australian facilities to remain open until 2027. That proved to be a good investment during the fuel crises.
Lesson Learned?
There are lessons to be learned in all of this.
Moving forward the Government must ensure energy security, but must also make sure that the fuel companies don’t end up continuously sucking from the taxpayers’ teat.
The announced $4 million pre-feasibility study appears to be solely taxpayer funded. MWM contacted Perdamen for details of their own financial commitment to the study but the company did not respond.
Against the $2B ‘stop loss’ arrangements of the current refineries, $4M seems modest. But Perdaman has indicated publicly that the study will advance a refinery towards an investable development opportunity. It appears that they’ll own the intellectual property in the study and hold all the cards as to what Australia’s options will be moving forward?
Loans or grants?
It’s guaranteed they’ll be asking the Australian Government for something from taxpayers to proceed.
Will they ask for loans (like they have with their $6.4 billion investment in a future domestic urea production facility at Karratha in WA)? Or will they ask for grants? Will they simply invest in an environment where Australian regulators seem to turn a blind eye to companies that engage in transfer pricing to avoid paying tax (MWM does not suggest the current management at Perdaman has that in mind).
The Government needs to be anticipating the answer to these questions and looking to shape future contributions to the refinery as an equity stake rather than gifts we have made to others in the past?
Support for local capabilities, especially those that give us resilience is worthy, but let’s have a Commonwealth official on the board with an eye to our national interest, and to serve as a deterrent to some future management team engaging in tax evasion … or price gouging in the event of another fuel crisis.
Really, you might question MWM … an energy company acting against the interests of the nation who provides them an opportunity for profit? You could hardly imagine that.
Rex Patrick is a former Senator for South Australia and, earlier, a submariner in the armed forces. Best known as an anti-corruption and transparency crusader, Rex is also known as the "Transparency Warrior."