The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 23/04/01

Transcript No. 2001/038

Transcript
of
Hon Peter Costello MP
Treasurer

Press Conference
Blue Room, Parliament House
Monday, 23 April 2001
2.00pm

 

SUBJECT: Shell/Woodside

TREASURER:

Ladies and gentlemen, after long and careful deliberations, I have today made orders under the Foreign Acquisitions and Takeovers Act prohibiting Shell from acquiring a substantial shareholding in Woodside which would result in a change of control of Woodside. I want to emphasise at the outset that the Governments policy is, and will continue to be, to welcome foreign investment into Australia. Australia operates a very liberal foreign investment regime and less than 3 per cent of applications for approval under foreign investment are refused. I think by value about 0.1 per cent. But the Foreign Acquisitions and Takeovers Act allows the Treasurer in the national interest to prohibit a change in control where that involves a foreign company.

I have determined that this is one of those rare occasions on which that power should be operated. In particular, in assessing the national interest, I had regard to the fact that the North West Shelf is Australias largest energy resource and has the capacity to be one of our largest export earners.

I believe it is in the national interest of Australia that that resource be developed to its full, and that exports from the North West Shelf are promoted and sold in preference to exports that compete against it from any other part of the world.

The issue that concerned me in relation to this bid was the ownership and control of the operator and marketer of the resource. Over a period of time, I had discussions with both Shell and Woodside and I found Shell to be very forthright, to be very open and I commend them for the way in which they conducted their negotiations.

We discussed a number of proposals which would have separated the operation and the marketing of the resource, but they nearly all involved doing something after the approval and after the takeover and would have required, once the takeover had gone through, for a restructuring which was still contingent upon the agreement of other joint venturers and where there was no certainty that the conditions could be accomplished. In other words, notwithstanding the best efforts of Shell, because this is a joint venture, there was no certainty that conditions subsequent could have been put in place. And, in that circumstance, with the opportunity to make a decision which would have to be an enduring decision, which would have to last for years, notwithstanding changes in corporate strategies, directors responsibilities to their shareholders, and the consent of all of the other parties involved, I took the view that it was not in the national interest to give approval for this bid to go ahead.

I want to emphasise the North West Shelf is probably Australias premier energy resource. The sales of LNG out of the North West Shelf have the capacity to become our biggest exports and in my view it is in the national interest that they be developed and marketed in preference to competing products from anywhere else in the world. I want to emphasise that the North West Shelf has been developed, largely with the contribution of foreign investment. It will continue to operate with significant foreign investment in it. And foreign investors will continue to benefit from it. The issue that was of concern in relation to this proposal was in relation to operation and marketing. I should also say that if an alternative proposal is put up, which meets the Governments objections, it would be considered on its merits. That is a matter for the parties concerned.

JOURNALIST:

Have you had feedback from Shell yet, Mr Treasurer?

TREASURER:

I notified Shell shortly prior to this press conference. And I notified Woodside shortly prior to this press conference. I briefly explained the reasons for my decision.

JOURNALIST:

Are you going to expect any one else to come forward with an alternative proposal?

TREASURER:

Its a matter for other commercial parties. One of the difficulties in this area is that I have to exercise a power under a statute, and I have to be careful to do it in accordance with the law. And the law is that you should show no prejudice and give everybody a fair hearing and not make pre-emptive statements. So that if somebody else does come forward, their application will be considered on its merits, just as this one was. But it will be given a fair hearing just as this one was, and considered and determined in accordance with the statute.

 JOURNALIST:

Treasurer, given the state, given the state of the Australian dollar, how concerned are you that this decision will send a negative signal around global markets and it will see a flight of capital out of Australia? How much did that weigh on your mind as you considered this decision today?

TREASURER:

Look, as I said earlier, Australia has a very liberal foreign investment regime. International investors know that. In 1999-2000 the number of foreign investment proposals that were rejected was 2.4 per cent and by value less than 0.1 per cent. The investors, the joint venturers in the North West Shelf are Shell a foreign company, BP - a foreign company, Chevron a - foreign company and a consortium of Mitsui and Mitsubishi which is a foreign company. So I dont think anybody could say that we havent operated a liberal foreign investment policy in relation even to this resource. And Shell has been a valued partner of that joint venture on the North West Shelf.

The concern here was that the operator, that is the person, the company that decides the investment plans that brings the investment proposals to the Board, that determines the pace of development and that is in charge of marketing is Woodside. So you would have been having a change in the control of the operator and marketer. Now thats the thing thats played on our mind.

I think when youre looking at a resource like the North West Shelf, the exports from the North West Shelf are going to, I hope, be earning revenue for Australia in 5, 10, 15 and 20 years time. And when I was making my decision on this, I thought that it was important to have in mind what would be in Australias comparative advantage in 5, 10, 15 and 20 years time. Thats the way Ive approached this.

Now in answer to your question, Australia welcomes foreign investment. Theres been no change of policy there. But we also have to have an eye with the national interest to the maximum exploitation of our resources and the maximising of Australias exports revenues and these are some of the matters that I considered in making my decision.

JOURNALIST:

What was the advice to you of the Foreign Investment Review Board? Did your decision correspond with that advice? Or did you override the FIRB in this matter? And the second question has to do with were you rolled by the Prime Minister on this matter?

TREASURER:

In relation to the second, the answer is no. This is my decision. Under the statute I am required to make this decision. And I made it.

On the first question, the Foreign Investment Review Board did not come to an agreed position. The Foreign Investment Review Board offered two alternatives to me, because it could not agree itself. One of the alternatives was to prohibit the offer and another was to approve it on conditions. Now, I thought the problem with conditions is that they were conditions subsequent, not conditions precedent, that after the bid went through various things would happen.

For those various things to happen it would require the agreement of the joint venturers and a whole lot of other things over which Shell had no control. So the most that you could say was it would use its best endeavours to do certain things with no guarantee that they would come about. In the circumstances I was concerned about that. There are occasions in foreign investment where you can give conditions precedent. Do "A" and the bid goes ahead. This was not one of those. By the nature of the project involved. And so the two alternatives that were offered to me were to either take the decision which I have or to take a decision with conditions subsequent on everybodys understanding that the party concerned had no capacity unilaterally to bring them about. And the most we could ask for was best endeavours.

JOURNALIST:

Mr Costello, how wide were your consultations within Government including the Prime Minister and (inaudible)? Did you take soundings in Cabinet in reaching this decision? How much were you influenced by what has come through as strong community feeling on the issue?

TREASURER:

Look, numbers of people have lobbied over this - backbenchers, Parliamentary Committees, Ministers, community organisations, but I can tell you, the decision is mine. Treasurers get a bit immune to lobbying after a while and I had the responsibility of making the decision, thats what the law said, thats what the courts say you have got to do, so I made it.

JOURNALIST:

(inaudible)

TREASURER:

Colleagues expressed views to me, which they are entitled to do. But at the end of the day the decision was mine, and I did not find this an easy decision. If it had been an easy decision we would not have sought the extension. We extended the time, we had numbers of meetings with the parties. In the end the Foreign Investment Review Board, itself, could not come to a concluded decision and so I had to make it, and I did.

JOURNALIST:

(inaudible)

TREASURER:

Sorry, Laura, then...

JOURNALIST:

(inaudible)

TREASURER:

Shell put forward the view that it has been a joint venture in the North West Shelf for a long time. It has. It brings enormous technical expertise to the North West Shelf, and it does; that, if it were given the opportunity to bring its resource and marry it with Woodsides resource this would allow it to promote the development. It would argue that its interest is to maximise the profit out of the development and Shell has been a good corporate citizen in Australia. I totally accept it, I have no doubt whatsoever. I have no complaint about Shell, I think Shell has behaved honorably and well throughout. Shell saw the points in relation to the operator and manager, it saw those points, and there was extensive discussion as to how those points would be met. I have explained the technical difficulty in meeting them. Now, you have got to take a decision at the end of the day. I am not pretending that Shell would agree with this decision, obviously it wouldnt. It may also want to put another proposal to the Government and if it does we will consider it on its merits. But, at the end of the day a particular proposal is made and somebody has to decide whether or not that will go ahead and I made that decision. I did not find it an easy decision. Nobody that was involved in this thought that this was an easy decision. It is one of the hardest decisions that you will ever come across in public life and the reason it is hard is that there are arguments both ways.

JOURNALIST:

(inaudible)...in terms of the actual structure of the consortium (inaudible).. in terms of the relevant economic (inaudible)?

TREASURER:

Look, there was strong, first of all these bids are extremely complicated bids. So, yes, there is a level of technical complexity to them. But it was a hard decision because there were arguments both ways. You know, I did not find this a love game, to use a tennis analogy. I thought this was poised evenly at deuce and those games can go either way and so I found it a hard decision to make, but, I guess the evidence of that is that the Foreign Investment Review Board, itself, couldnt come to a concluded decision on the matter, so, it gave me two alternatives.

JOURNALIST:

What is the (inaudible)...new operator, a new controller of marketing to sell the gas...

TREASURER:

Look, LNG exports, whether they, primarily to East Asia, we are talking about East Asia here, in those markets where there is a real demand for energy and it is going to grow, the supply could come from Australia, it could come from the Middle East, it could come from other areas in South East Asia, it could come from developments to the north of Japan, and I want it to come from the North West Shelf. I want it to come from the North West Shelf to the maximum possible. This represents Australias largest energy resource and in time could be our biggest export earner, and it is in Australias national interest, I believe, that Australian exporters, exports, are pushed and promoted in preference to exports from any other area.

JOURNALIST:

(inaudible)...conflict of interest?

TREASURER:

Well, I just want to be sure in my own mind that the operation and the marketing is conducted in such a way as Australias exports are developed and pushed in preference to exports from any other place.

JOURNALIST:

Treasurer, (inaudible)...and secondly, ...

TREASURER:

Well, I think the BHP - Billiton merger requires further approval and it will be dealt with on its merits again. Anything that is good for Australia we ought to be approving and if we have concerns in the national interest we will look at it very carefully. I dont want to comment on that because that is not now before me.

In relation to Shell, look Shell put an offer in relation to Woodside, in shares and various structure and a price and it was that offer that I am now deliberating on, have deliberated on. It can put another offer any day of the week and then we will look at that as well.

JOURNALIST:

(inaudible)

TREASURER:

Well, you see, the thing about the conditions is, they are all things that would be done subsequent. It was not anything to be done beforehand, it was what would be done subsequent. If this goes ahead we would look at re-structuring in the following way. Now, the trouble here is that this is something that has six joint venturers who all have an interest, and who all have to agree to the subsequent re-structuring. The concern was, what if any one or two of those joint venturers did not agree? Then, notwithstanding Shells best efforts, it may be that the conditions were not fulfilled. I am not casting any aspersions on Shell, because they might have busted their boiler to do it, but it was not actually within their province to be able to deliver those subsequent conditions, and so, you are faced with the decision, do you approve it on various conditions, hoping that they will be brought about but with no guarantee? Or do you take the view that the national interest is such that you dont approve it, and I took the latter.

JOURNALIST:

(inaudible)... in terms of foreign investment?

TREASURER:

Pardon?

JOURNALIST:

In a general sense (inaudible)...is there any need for concern about the level of foreign investment in Australia?

TREASURER:

Look, I made this point before. Foreign investment has built Australia, from the moment that people stepped off the First Fleet in Botany Bay, they brought foreign investment with them. And it was the financial houses of London that built and financed industries in Australia from its inception, and foreign investment is something that we welcome and has been uncompromisingly good for this country, and will be in the future.

In rare occasions, and I have given you the figures, there may be a national interest in restricting. We have restricted foreign investment, for example, in Telstra, we have restricted it in Qantas, we have restricted it in relation to the media. This is one of those rare occasions where we have placed a restriction on an energy resource. Now, you should not read in any more to this, than the fact that, in relation to this transaction, there was a national interest consideration which outweighed allowing it to go ahead. That is the only thing I would read into this. I was asked to make a decision on this transaction and I made a decision on this transaction. I did not make a decision on any other transaction and I would not interpret from this to any other transaction, except to say, I will do what the statute requires me, that is when they come in front of me I will consider the national interest.

JOURNALIST:

(inaudible)

TREASURER:

Sorry.

JOURNALIST:

You mentioned (inaudible)... but wasnt it a concern that down the track Shell would (inaudible)...

TREASURER:

Well, let me put it in the positive. The concern...

JOURNALIST:

(inaudible)

TREASURER:

Yes. Let me put it in the positive. The concern I had was that the exports from the North West Shelf of Australia be promoted in all circumstances in preference to all competing supplies. I thought that was in our national interest and that was one of the considerations that weighed on me very heavily.

JOURNALIST:

(inaudible)..way of saying you did accept up to a point (inaudible)...

TREASURER:

You know, I said earlier, I have no complaints at all with Shell. It has been a valued member of the Australian corporate community and a valued investor, and it still continues to hold one-sixth of the resource. Lets make no mistake about that. But, when it came to looking at operating and marketing the resource, I just thought it was in our national interest that the operation and the marketing be done in such a way that our resources were always promoted and sold in preference to anybody elses and that was one of the considerations that I had on my mind.

JOURNALIST:

(inaudible)..North West Shelf (inaudible)...

TREASURER:

Well, nobody is saying that Australia is going to develop the North West Shelf without foreign investment. After todays decision, in the North West Shelf, there is still Shell as a joint venturer, a foreign company, BP as an investor, foreign company, Chevron as an investor, foreign company and MIMI, Mitsui and I think Mitsubishi, so, after todays decision there are still four foreign investors in the North West Shelf and there is BHP and there is Woodside. And nobody is saying that the foreign investors are not welcome to invest in the North West Shelf. After today they still hold a preponderance of the resource. This is not a question about where the ownership of the resource lay, this was a question about the operation and the management of the resource as a whole. Now, those joint venturers have agreed as between themselves, that it would be Woodside, that is the operator and the manager, and along came a bid which would have changed the shareholding in Woodside, changed the shareholding in the operator and the manager, marketer, I should say, operator, manager and marketer, probably a fair way of saying it. And it was that aspect of the transaction that concerned me and it was that aspect of the transaction that I had to make a determination on.

Thank you very much.