Gas Pipeline with No Gas – Chinese and Singapore tax dodgers leave the public with elephantine bill

by Michael West | Apr 22, 2024 | Finance & Tax, Latest Posts

The Australian public has bought a big-long gas pipeline from foreign tax cheats – but there’s no gas. It’s a white elephant! Jemena and sleepy regulators AEMC are the culprits. Energy consumers and taxpayers the victims. Michael West reports.

Energy bosses cover for tax cheat, public gets elephantine bill

They can’t say they weren’t warned this would be a shocker. They were warned by energy analyst Bruce Robertson and environment lawyer David Barnden more than five years ago. And so it is that the public has paid for a billion-dollar gas pipeline that has no gas running through it. They built it anyway.

Our story begins in the foyer of an office block in Sydney’s CBD in 2019 when yours truly – a journalist – was blocked from attending a public meeting of a regulator, the mob which sets the rules for the energy market, the AEMC (Australian Energy Market Commission). The proposed Northern Gas Pipeline was to open up three Northern Territory & Queensland basins for gas fracking.

John Pierce, then chairman of the befuddled AEMC, gave the excuse that yours truly had not filled out a pre-registration form to attend the meeting, a meeting incidentally which had plenty of empty seats.

Fast forward five years, and the 622km pipeline between Tennant Creek and Mount Isa has been built, but the Northern Gas Pipeline ceased to operate in September 2022 due to lack of gas volume.

The NGP again stopped transporting gas in early February, and two weeks ago, the pipeline operator Jemena informed NGP customers that it expected gas flows would not resume until at least June.

The irony is that the NT is the beneficiary of the pipeline, but southerners are paying for it as the NT is subsidised by the Federal Government. A further irony is that the Tax Office has since pinged the operator, Chinese and Singapore-owned Jemena, for tax evasion.

This at a time when the Albanese government is under fire from Liberal Party media outlets for subsidising the renewable energy transition, the Future Made in Australia policy.

Tax Office passes Go, collects $50m cash, saves a further $170m

The AEMC had been well warned. Bruce Robertson wrote a report on Jemena’s Northern Gas Pipeline in May 2016.

The Northern Gas Pipeline report warned:

“In 2015 Jemena’s shareholders restructured their investment in the company. They converted their Trust loans into $3.2 billion of shares and an $800m convertible note (see note 22b of the 2015 Jemena accounts). The $800m of convertible instruments is classified in the accounts as debt. It is arguable whether these securities have debt or equity characteristics.

“A common way of tax avoidance is for a parent company to charge high non-commercial interest rates on debt. This has the effect of reducing the profit before tax of a corporation and transferring that wealth to the parent company or intermediaries that may be located in lower tax jurisdictions. Jemena’s convertible notes are a debt instrument according to their accounts. The rate charged on these notes is not commercial. At 10.25% it is far above a commercial borrowing rate for a company such as Jemena. APA Group (APA), a similar company operating pipelines, paid an interest rate of 4.97% in 2015. In our opinion this is a method of transferring wealth generated by Jemena to the parent governments (those of Singapore and China) and reduce Australian Income tax costs.”

Environment lawyer David Barnden picked up on the report and wrote a letter pointing out Jemena’s sketchy tax ploy to the Tax Office. Things move slowly in the land of the regulator, but the Tax Office did move. They settled an action against Jemena on March 8 this year.

The settlement had three key aspects

  1. A $50.8m payment to the Australian Tax Office “for past years”.
  2. Jemena has been forced to change its financial structure to eliminate the convertible notes that caused the tax evasion in the first place.
  3. But there is no fine, no penalty at all for the $800m convertible note tax rort. 

“It’s great to see the Australian Taxation Office finally collecting some tax off these government-owned corporations,” Robertson told MWM. Corporations owned by other governments, not our government that is! Not only has the ATO collected $50.8m in back taxes but it has neutralised the instrument that would have cost it a further $170m out to 2050 based on the size of the settlement. Jemena’s auditor is KPMG.

Another privatisation fail

Failure of regulators and, in this case, the AEMC in particular, has put Australia in a pickle, says Robertson

“Jemena runs vital gas transmission pipelines – services which used to be provided by our government. We have now privatised these monopoly assets (albeit, in this case, privatised them to a foreign government corporation. The use of the term privatisation is pretty loose as Jemena is really a foreign government corporation.”

Jemena is wholly owned by the State Grid Corporation of China and SP Group. Essentially Jemena is owned by the governments of China and Singapore.

Jemena

Source : SGSPA annual report 2023 page 56

“Clearly, some pretty politically sensitive negotiations occurred over this tax liability given our current delicate relations with one of our largest trading partners, says Robertson. “The sensitivity explains the low settlement figures and the lack of a fine.

“If Australia has got itself in a pickle over gas the NT is next level with its support for an industry that has cost NT and federal taxpayers dearly. This long tradition seems unlikely to abate anytime soon with the Federal and NT governments’ multi-billion dollar support for a petrochemicals and gas complex at Middle Arm in the NT and continued support for the failing Beetaloo shale gas projects.”  

Beetaloo fracking projects he says are likely to be swept away by the imminent global LNG glut, falling demand and a rash of very low priced LNG entering the market from the USA and Qatar.

The original reason for the report that pointed out the taxation liability was not Jemena’s tax shenanigans. That was merely a by-product of the analysis. What the report was about was the lack of financial viability of the NT government sponsored Northern Gas Pipeline owned by Jemena.

It proved prescient – and its title Pipedreams has seen the Northern Gas pipeline turn into a nightmare for the NT government. The NT government needed a pipeline built between Tennant Creek and Mt Isa to connect the NT with the Eastern States to sell its excess gas. 

Gas deal: “a massive transfer of wealth from gas customers to China and Singapore”

The NT government, far from just providing services to the people of the NT, is also in the gas business.  

David Barnden’s submission to the AEMC explained how the government entered the gas trading business and how it has gone.

“In 2006, the NT entered a take or pay contract with ENI’s offshore Blacktip gas project. From 2009, the NT was required to pay for 23 PJ of gas per year. That amount is about the demand required to produce electricity for the Darwin and Katherine regions. However, under the contract, the volume NT must pay for, regardless of whether it uses it, ramps up to 37 PJ/a. The problem is that there is no demand for the excess gas. The contract runs for 25 years to 2034.” 

The over-contracting comes as no surprise. Even back in 2006, the NT Utility Commission’s December review stated:

Contract quantities available from Blacktip will be in excess of projected requirements under the Commission’s high growth scenario through to 2015-16 and beyond.

By 2018, the NT took 65TJ per day from ENI’s Blacktip field leaving 36TJ a day unused. Having paid for this extra 36TJ a day of gas for every single day to 2034, but having no prospects of using it, the NT government contracted Jemena to build a new $800 million pipeline to funnel the gas to somewhere it could be used. 

The extra Blacktip gas is shipped to Darwin. It then flows through the Amadeus Gas Pipeline to a junction at Tennant Creek, where the new NGP joins and along the 622-kilometre link to Mt Isa. Gas can be used by industry at Mt Isa or backhauled to Sydney or Melbourne through an existing pipeline network at minimal cost. 

“NT is the foundation customer for the NGP. Jemena has a contract with the NT government to ship 31TJ of the over-contracted gas each day to Mt Isa. That contract runs for 10 years. The gas is ultimately sold by the NT to Incitec Pivot at a reduced price.”

Jemena's Northern Gas Pipeline in construction

Jemena’s Northern Gas Pipeline in construction

AEMC fail

The David Barnden submission to the AEMC also fell on deaf ears. In a number of respects, the AEMC seems to have not fulfilled its duties. The submission has aged very well, whereas the AEMC’s decision to wave the Northern Gas Pipeline through the regulatory hoops looks poor. 

“So, from the get-go, the Northern Gas pipeline was a stuff-up to cover up another NT government stuff up,” says Robertson.

The trouble is Jemena has built the pipe and the NT government no longer has the gas to put down it. ENI’s Blacktip field that supplied the NT government under a “take or pay” contract has had major production issues since 2022

The result was the $800m gold-plated Northern Gas Pipeline ceased to operate in September 2022 due to a lack of volumes.

And the production problems at Blacktip don’t seem to have been resolved. “In 2022, the NGP supply issues forced the NPG to shut for three months, then in 2023 the pipeline transported no gas for a further three months over two separate periods. The NGP again stopped transporting gas in early February and last week pipeline operator Jemena informed NGP customers it expected gas flows would not resume until at least June.”

“The NT government has massive obligations to be the foundation customer for the $800m Northern Gas pipeline paying the governments of Singapore and China tariffs that are at nose-bleed levels to transport gas it doesn’t have to supply a contract with Incitec Pivot that it cannot fulfil.”

A little sting in the tail for taxpayers and energy customers in the southern states is that Southerners are paying for it. The NT government is not self-funding.

“The NT’s and Federal governments gas obsession has cost all of us dearly. We are compounding the problem with massive commitments to the failing Beetaloo basin and the NT’s latest folly the multibillion dollar Middle Arm gas and petrochemicals complex in Darwin.

Surprise! CSIRO gas funded research lowballs emissions from Darwin’s Middle Arm petro-port and Beetaloo fracking

Editor’s Note: they can always lop the top off this pipeline and make it the world’s longest skateboard half-pipe

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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