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. 2001/039

Transcript
of
Hon Peter Costello MP
Treasurer

7.30 Report - Interview with Kerry OBrien
Monday, 23 April 2001

E&OE

SUBJECTS: Shell/Woodside, Budget

OBRIEN

Peter Costello, in what way might Shell have acted against Australias interests if it had been allowed to merge with Woodside?

TREASURER:

Well, the decision which was before us was for Shell to take control of Woodside. Woodside is the manager, the operator and the marketer of the North West Shelf. Now, I think it is in Australias national interest in regard to this energy asset that we have the best marketing possible and that we ensure that Australias exports are getting preference in relation to exports from any other country in relation to those markets.

OBRIEN

And how might Shell have done otherwise?

 TREASURER:

I wanted to have a situation, I think the other joint venturers did, where the manager was independent, where the manager was pushing the maximum exploitation of the resource and the manager would be pushing exports from the North West Shelf in preference to exports from any other field in any other part of the world. This has the capacity, in 5, 10 and 15, 20 years, to be one of Australias most significant exports. It could be one of our biggest export earners.

OBRIEN:

I saw your press conference today. You seemed reluctant to acknowledge that your real concern was based on Shells other interests in natural gas deposits in other parts of the world. In other words, that they might have a potential conflict of interest. That is at the hub of it, isnt it?

TREASURER:

Kerry, I put it in the positive. I am not making any derogatory comments about Shell Australia.

OBRIEN:

No, it is not derogatory. I think people would understand that there is a natural conflict of interest with their shareholders, that does not have to be derogatory.

TREASURER:

Well, Shell Australia has been a company which has been involved in the North West Shelf and other areas for a long time in Australia and it has done a good job. But I want to make sure that this significant resource, this is Australias largest energy resource, is developed to its maximum potential, and that when people are competing for contracts in China and Japan, that the North West Shelf is pushed as number one priority, in Australias interest. I believe that is in the national interest of Australia. I dont want the LNG from the North West Shelf to be an also product along with exports from other countries. I want the people that are marketing and operating the North West Shelf to have not a skerrick of a doubt that they want to put Australia first and they want to get that market for Australia.

OBRIEN:

Well, Professor Ian Harper, who as you know, built a case for the Shell takeover of Woodside. He says today that this would still only give Shell one-third of the North West Shelf, how can they possibly dictate a situation that might slow down the North West Shelf production as a priority in terms of exports when, when it has got other partners protecting their two-thirds investment?

TREASURER:

Because there is a difference here between the ownership of the asset. The ownership of the asset goes six ways. There are six joint ventures which Shell is one and Woodside is another. But there is something different about Woodside. Woodside is not just the one-sixth owner of the asset, Woodside is the operator and the marketer. So, you are talking about a change in relation to who is operating it and who is marketing it. The operator is the person that comes forward with the investment plans, that puts to the other joint venturers how fast it is going to be developed. And the operator is the one that goes into the markets and pushes the marketing of the resource. I made it clear in my decision, this was not a decision about the ownership of the asset, this was a decision about who was going to manage, operate and market. And after a lot of discussions with Shell they came up with proposals in relation to management and operation that would be put in place subsequently, that I was faced with the decision, should you approve it, with those things to be done in the future and no guarantee that they even could be done. Or, would you take the view that you wanted this to be unequivocally managed, operated and marketed for Australia, and I took the view that it was in our national interest to make it unequivocally managed, operated and marketed for Australia.

OBRIEN

Professor Harper also makes the point that this represents a $10 billion investment for Shell. Why would they not want to see the maximum result for that $10 billion investment? In what circumstance could you think of a situation where they would actually want to slow down production of the North West Shelf, or the sales internationally?

TREASURER:

Well, Shell has more than $10 billion invested around the world in a whole host of resource projects and Shell no doubt, in the interest of its own shareholders, looks at maximising its global profit. From the Australian perspective I look at maximising Australias exports. We look at these things from a different perspective. We have a foreign investment regime, Kerry, which allows us in the unusual case where we think theres a national interest question to decide in Australias national interest. I did not find this an easy decision. It was a tough decision. There were arguments going both ways but on balance I thought we would make it entirely clear that the manager, the operator and the marketer would be developing and exploiting and selling that resource without fear of any other export or any other profit centre anywhere else in the world.

OBRIEN:

Do you acknowledge the danger, the risk that financial markets will read your decision as one designed to protect the political interests of the Government more so than the case youre building for protecting the national interests of Australia?

TREASURER:

Kerry, under the legislation I only have one question to address my mind to. And that is a question of national interest. And if I get the national interest wrong, I can be sued. My legal advice was that is the only question that I should turn my mind to. It is the only question I turned my mind to. I wanted to decide this in accordance with the statute on the basis of what is for Australias national interest. Now Kerry, people will say, you know, it had this effect in the first 5 minutes, or the first 5 seconds or the first 15 minutes, I determined when I was going to make this decision I wouldnt think about 5 minutes or 50 minutes or even 5 hours. Im thinking about 5 years, 10 years, 15 years and 20 years and I had to make a decision today as to what would be in our interest in 10 and 20 years time. This is the decision I came to. It wasnt an easy one. But these were the reasons that motivated me.

OBRIEN:

But in terms of broad perceptions including market perceptions, you are also as a Government fighting for your political life and this has become a hot political issue. How do you persuade the markets that this is a decision in the national interest, not a decision to protect your own political skins?

TREASURER:

Well the point I would make to foreign investors is this. Australia operates a pretty liberal foreign investment regime. There are not many applications that are knocked back, less than 3 per cent, mainly those are in the real estate area. But we have always maintained this discretion. It has always been my policy to retain it. That where a national interest question comes up, every country has the right to look after its national interest and Australia no less than any others. I would say to foreign investors at the end of this decision, the fact is there are still the foreign investors in the North West Shelf of Shell, BP, Chevron and Mitsui Mitsubishi. There are still 4 foreign investors in the North West Shelf. And nothing has affected their investment in the North West Shelf and they are welcome to be there and to develop the resource. But you ask me the question do I think that the manager and the operator and the marketer should have other competing demands, I say no, I want them to think only of exploiting Australias resources and maximising our export income.

OBRIEN:

So political pressure from Pauline Hansons One Nation, from Western Australian Liberal colleagues, from disaffected voters, played no part in your decision?

TREASURER:

Kerry, Ive never in my life taken political pressure from Pauline Hanson. I think everybody who knows me knows that. And I dont think I have to convince you on that. There are a lot of people who had a lot of views on this backbenchers, Ministers, companies. They all lobbied me. I said at the press conference today, one of the things about being a Treasurer is you get pretty impervious to lobbying. You get a lot of it and the lawyers had said to me, the statute says to me, decide it on one ground only, national interest. Thats what I applied my mind to. I think I got it right.

OBRIEN:

Youre confident that any drop in the Aussie dollar as a result of this decision will be short lived?

TREASURER:

Kerry Id say to foreign investors, Australia is open for foreign investment. Now I said earlier, we knocked back by number about 3 per cent of applications mainly in real estate, 0.1 per cent by value, on the North West Shelf there are still four foreign companies that are holding four-sixths of the asset. People know that we welcome foreign investment. But on this issue who do you think should be operating, managing and marketing the resource? I took the decision that it would be better to have a company that didnt have other considerations, other deposits and exports from other countries on its balance sheet. It was only interested in one thing, maximising Australias resource and maximising Australias exports.

OBRIEN:

Very briefly on the May Budget Mr Costello, less than a month away now. Are you concerned by the leaked documents revealing proposals to increase charges on drugs for diabetics and cholesterol treatment and to cut money to reverse rising salinity levels and improving air quality?

TREASURER:

Kerry, every year theres Budget speculation and Budget leak, and every year Ive taken the same approach which is I neither confirm or deny. Those documents go out there, you wont know the full details of the Budget until its announced.

OBRIEN:

Peter Costello were out of time. Thanks for talking with us.

TREASURER:

Thank you.