Foreign ownership, Cossie, Mark Scott, Orica, Snowy float

1. Tracking foreign ownership of Australia's resource projects

By Stephen Mayne, list obsessive

Crikey has produced more than 100 lists over the years and my favourites include dodgy honorary doctorates, unionists who sold out, cheque-book journalism and the Crikey Revised Wealth list. However, we're kicking one off today that might just end up being the most revelatory of the lot – owners of Australia's great resource projects.

We all know the story of Australia's booming economy and budget surpluses thanks to the China-driven commodities boom. This is because the federal government scoops up company tax at the rate of 30% of profits, regardless of who owns the Australian-based asset. But how much richer would we be if the vast majority of Australia's resources projects weren't majority owned by foreign interests?

I've never seen anyone accurately quantify the scale of this foreign ownership, or assess the royalties that are paid to state governments for onshore projects and the Federal government for offshore oil and gas operations. Therefore, we're going to do it and the cut-off is a current value of at least $1 billion. We'll add five projects a day until we run out and would appreciate your contributions as this will be a major research exercise and we'll try to eventually rank them all by value.

Who owns Australia's resource dowry?

North West Shelf: The six equal participants in the North West Shelf Venture each own 16.67%. Woodside Petroleum, 38% owned by Shell, is the operator, then you have Shell itself, BHP Billiton, which is 40% Australian owned, BP, Chevron Corp and Japan Australia LNG (MIMI) Pty Ltd comprising a partnership between Japan's Mitsui and Mitsubishi. The Chinese government's CNOOC holds a 25% share in China LNG, a new joint venture within the existing structure that diluted the other parties down to 12.5% each. Exempt from the Petroleum Resource Rent Tax, which is levied at 40% of gross profit, but does pay royalty of about 10%, 68% of which passes to the Federal government. Overall Australian ownership is about 10% and a total of $19 billion has been invested so far.

Bayu-Undan and Darwin LNG: This gas field is 250km south of Suai in East Timor and 500km north-west of Darwin. The pipeline and recently commissioned $2.4 billion Darwin plant is operated by Houston-based ConocoPhillips with 56.72%. Other shareholders include Italy's ENI 12.04%, Santos 10.64%, INPEX 10.52%, Tokyo Electric 6.72%, and Tokyo Gas 3.36%. The entire output will be sold to Tokyo Electric and Tokyo Gas for 17 years. East Timor gets 90% of the royalties which are estimated to be worth $200 million a year when the project reaches full production. Given sky-rocketing oil and gas prices, the development is probably worth up to $5 billion. Australian ownership is about 7% and East Timor ownership is zero.

Boddington Gold Mine: Denver-based Newmont owns two thirds and South Africa's AngloGold Ashanti one third after Newcrest sold its 22.22% equity interest for $225 million in March this year, although this excludes project debt. The $1.9 billion redevelopment is forecast to generate one million ounces a year worth about $850 million on current prices. Australian ownership would be 5% at best through Normandy shareholders who accepted Newmont's scrip takeover. Gold is free of state royalties in WA.

Rolleston Coal Mine: Swiss-based Xstrata's recently opened Queensland mine which cost $540 million. Sumisho Coal Australia and IRCA Rolleston each own 12.5%. Will generate $20 million a year for the Queensland government on the 7% royalty when production hits 8 million tonnes a year and generates revenue of about $400 million. Worth at least $1.5 billion given thermal coal contract prices have risen from $US32 a tonne to $US54 a tonne since 2002. Australian ownership close to zero.

Kalgoorlie Super Pit: 50-50 joint venture between Canadian company Placer Dome and Denver-based Newmont which produced 833,320 ounces in 2005, worth $725 million based on current spot prices. Australian ownership of our biggest gold mine is less than 5% through Newmont and no gold royalty is payable in Western Australia.

Feedback, corrections, additions and insights to smayne@crikey.com.au and feel free to help out on the valuations, plus historical figures on how much the individual projects have produced over the years and what they would be worth today if sold.




4. Secrecy – Peter Costello's character flaw

By Stephen Mayne, already behind after buying 80 Fortescue Metals shares yesterday

What a wimp our wannabe Prime Minister is. The Australian's business commentator Matthew Stevens was spot on this morning when he blasted the Treasurer for not sticking his head above the parapet to explain why he'd overturned the National Competition Council's attempted declaration of BHP Billiton's $2 billion Mt Newman railway in the Pilbara.

Similar themes were pushed by Fred Brenchley and John Durie in The AFR because it was a big decision and sent shares in Fortescue Metals tumbling $1.23 or 16.8% to $6.07, a $292 million market capitalisation wipe-out.

When Costello made his controversial decision to block the Shell takeover of Woodside in 2001, he was big enough to come out and argue the case. This time he is refusing to explain his thinking, even though BHP Billiton CEO Chip Goodyear thought it was important enough to call a press conference and investor briefing yesterday.

Perhaps the man most likely is developing a serious aversion to public scrutiny – his ban of Crikey from the budget lock-up just being one manifestation of a broader character flaw. It's hard to conclude anything else given the ongoing fight before the High Court about the Treasurer's right to stymie Australia's Freedom of Information laws on spurious grounds.

As former NSW Auditor General Tony Harris pointed out in The AFR yesterday, Cossie even refused to release publicly available Hansard transcripts as part of The Australian's noble fight against secrecy. He also fought the Australian Press Council's attempt to appear in the case.

Harris was a tad petty in failing to credit The Australian, although John Fairfax and Rural Press have joined News Ltd in its High Court fight, but his overall point was strong:

You could see this anti-information philosophy at work when Costello issued a conclusive certificate withholding from the media documents already in the hands of the public. His reluctance to share documents is shown in Treasury's latest annual report. In 2004-05, the department allowed full access to information in six cases, part access in seven and no access in nine.

Information is power in the modern age and the Howard Government has also substantially weakened our system of campaign finance disclosure by lifting the threshold for donations from $1500 to $10,000. The amazing control over troop movements and any sort of Defence activity is another feature of the Howard Government's hardline approach to disclosure and transparency.

However, under Prime Minister Costello this obsession with secrecy appears likely to get even worse. And that, along with Cossie's infamous glass jaw, is the most worrying aspect of the succession.




14. In defence of Mark Scott

By Stephen Mayne

The fear and loathing pouring out against new ABC managing director Mark Scott, including in Crikey yesterday, has been way out of all proportion. The poor bloke is a senior media executive who will take a substantial pay cut to take on an important public service role. There's no suggestion that he was anything other than capable at Fairfax where he has held senior executive positions for the past five years.

Sure, he hasn't specifically run a broadcasting company before but the bloke will not be out there manning the satellites or being executive producer of Lateline. Scott's job is primarily to allocate scarce budget resources to the right people so that the ABC can fulfil its charter and provide interesting, entertaining and informative content across its many radio, television and online platforms.

Sure, his role as a former Liberal staffer 12 years ago was probably the clincher for a board and government anxious to rein in the perceived biases of the ABC and it will probably help when it comes to fighting the government for more funds. However, is there any sign that The Age or The SMH has gone soft on the Howard Government since Mark Scott took control of those papers?

Sure, you can argue about the episode that Crikey broke at the time about The Age's 2004 election editorial, but this wasn't clear cut and both then editor Michael Gawenda and deputy editor Simon Mann stated publicly that they made the decision on economic grounds. In hindsight, The Age's credibility would be lower today if it had followed Crikey's contrarian line and editorialised for Mark Latham to be in The Lodge.

There's no doubt there were probably better alternatives if taxpayers were prepared to put someone on a huge package and dramatically expand its budget. In fact, News Corp heavyweight David Hill is on the record saying he'd love the job based on this extract from Away Game: Australians in American Boardrooms, a recent book by Australian journalist Luke Collins:

Hill, who is now president of Murdoch's DirecTV Entertainment Group, said: "I love doing what I'm doing. Mentally, it's very rewarding. I can't see myself doing anything in Australia. The only thing I'd want to do in Australia, and this is going to sound really ridiculous: I would love to go back and run the ABC for two or three years. Go in there and kick some a*se big time and try to turn it into something that's truly representative of Australian culture." It seems extraordinarily unlikely that the ABC would take a chance on someone like Hill – that is, a genuine television professional who would throw a few bombs around the organisation. But it would have been fun to watch.

David Hill is Australia's most famous and influential television producer. He pioneered Wide World of Sports and cricket coverage, most notably introducing innovations such as stump cam; co-ordinated coverage of the Olympics; did news, Federal elections, Logies ceremonies and everything else before joining Rupert Murdoch to spearhead BSkyB's development and then the global Fox Sports operation.

However, would someone like Hill really be independent when he's spent a lifetime working for Murdoch and Packer? The ABC's editorial independence and fearless approach to reporting is its most vital contribution to a society that has been damaged by dodgy deals between politicians and media moguls over the years.

The pathetic ABC bashing in The Australian yesterday, which editor-in-chief Chris Mitchell really does edit for Rupert, just demonstrates how the world's most powerful man would love to have some lapdog running Aunty.

And did anyone else laugh at James Packer this week lambasting Telstra's "embarrassing" broadband performance? PBL has been using its clout to hold back new technologies for years and the last thing it wanted was fast broadband that undermined Foxtel.

Mark Scott will do a solid job as ABC managing director. He won't trash the joint and he'll allow program makers to do their job, while diligently managing resource allocation and all the creative egos. In the circumstances, the board could have done a lot worse.




23. Orica dobs in a crook, Crikey dobs in an Orica conflict

By Stephen Mayne, owner of 25 Orica shares

In light of the AWB kickbacks debacle, wasn't it terrific to see the news (page 12 of The AFR) out of Indonesia yesterday that explosives giant Orica had dobbed in a bribe-seeking official who has now been arrested.

East Kalimantan is a booming mining region and Orica has been trying to get approval to build a $200 million explosives plant for years, but was held up by demands for bribes from Omay Wiraatmadja, the president of its prospective local partner Pupik Kaltim, a state-owned fertiliser company.

Stupid Mr Wiraatmadja actually put his $US10 million demand in writing so Orica took it straight to President Yudhoyono a month ago and Wiraatmadja has now been arrested on a range of corruption charges.

The country will now probably get the largest greenfield investment by an Australian company since 1998 without corrupt means being deployed. This section of the Federal Attorney-General's Department website explains why bribery of foreign officials has been a criminal offence since December 1999, punishable with a maximum ten years behind bars.

By the way, I owe Orica an apology for excluding them from last Wednesday's story (item 9) about Australian companies thriving overseas. After the Dyno Nobel takeover, Orica has about 14,000 employees, offices in 50 countries and sells into another 50 countries. Its workforce is split 6,000 in Australia and 8,000 offshore and it now has 50% of its sales offshore, producing 40% of earnings.

Meanwhile, did anyone else think it was a bad joke that former Orica CEO Phillip Weickhardt was the Productivity Commissioner sent out to front the public defending the draft report yesterday claiming we don't need to phase out plastic bags?

Er, has everyone forgotten that Orica is Australia's largest chemical and plastics company and Phil was listed as owning 36,589 shares and 595,000 options in the 2000 annual report before he was finally sacked for poor performance?

Orica shares hit a low of $4 in 2001 but Weickhardt's replacement Malcolm Broomhead turned the ship around beautifully and the stock is at $22.85 this morning. It would be a good deal lower if plastic bags were banned in Australia, so Weickhardt was completely inappropriate to do this report.




24. Nonsensical shareholder limits – full list

By Stephen Mayne, pre-registered for a Snowy Hydro prospectus

I've been vocal on ABC radio in recent days ripping into the Victorian, NSW and Federal Government for their nonsensical 10% shareholder limit for the forthcoming float of Snowy Hydro. All such parochial nationalism does is depress the share price and reduce the proceeds that will go to taxpayers.

In fact, it is instructive to look at other companies over the years which have had shareholder restrictions. Most of them were privatised or regulated by state governments which have repeatedly sold assets at knockdown prices and then later approved a takeover at a much higher price.

AGL: was 5% to combat Sir Ron Brierley in 1986 when he amassed 40% but then legislative limits dropped in 2002
AMP: 5% constitutional limit for first five years as a listed company until 2003
ASX: started with a 5% limit, now 15% after change in 2000
AWB: only grain growers can vote for directors and even the non-voters are limited to 10%
Banks: general 10% limit, Treasurer can approve individual shareholder going to 15% and governor-general above that
Bankwest: restrictive articles imposed as part of privatisation
Burswood: original a 5% limit, lifted to 10% and then dropped ahead of the PBL raid in 2003
Colonial: 5% limit when demutualised
Free-to-air Television networks Seven, Ten and PBL: only 15% of voting shares can be owned offshore
John Fairfax: 25% maximum for individual direct foreign investor
Jupiters Casino: started at 5%, lifted to 10% then taken over by Tabcorp in 2002
NSW TAB: started at 5%, lifted to 10% in 2002 then taken over by by Tabcorp in 2003 with NSW Government approval
Qantas: maximum foreign ownership 49%
Tabcorp: started with 5% limit and overall 40% foreign cap, then lifted to 10% in 2002 with no foreign limit
Telstra: maximum foreign ownership 35% and individual foreign 5%
Santos: still 15% maximum shareholder limit thanks to SA legislation dating back to Alan Bond's raid in the late 1970s
Suncorp Metway: restrictive articles imposed as part of privatisation
St George Bank: 10% shareholder limit for first 10 years to 2002, then open to constitutional change

Senator Bill Heffernan is right to argue that the 10% shareholder cap will eventually come off, but his xenophobic declaration that Snowy will definitely fall into foreign hands is bunkum because it would be an extremely brave Federal Government that granted Foreign Investment Review Board proposal for such a move. And what foreign raider would want all that grief anyway?

However, what on earth is wrong with the industry fund-owned Pacific Hydro coming along and offering to buy Snowy Hydro for $4 billion a few months after the float? All those companies listed above have traded at lower share prices due to the various caps and the same will occur with Snowy, meaning us taxpayers will not maximise the sale proceeds when selling this asset.

Copyright © 2024 The Mayne Report. All rights reserved

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