CIP Conference - 26 November 1997

Hyatt Regency Perth WA

The Hon Colin Barnett MLA, Deputy Premier and Minister for Resources Development spoke on the Pilbara Petrochemical Project (PPP) and the role of Government.

Key points were that government funding of the domestic gas line to Perth, enabled the development of the North West Gas shelf. Having served its purpose, the line is now being sold. That principle is being applied to the Oakajee harbour project that serves to help the DRI project. The government aims to sell its investment after the project is enabled.

The PPP is seen as an exciting project with a stimulatory effect including the potential production of chemical fertilisers. Australia has adequate LNG reserves so that even were gas exports to rise from 7 million tonnes per year to twenty, there would still be enough for one hundred years underpinning the petrochemical project. The next development being the Gorgon reserves pending Korean support.

To date, the government has received 40 expressions of interest for the PPP with 15 serious contenders. The project is anticipated to cost between A$1.5bn and A$2.0bn providing employment for 500 persons. It will be the last green field project in the Asian region. The government recognises its competitiveness and that it will initially have difficulty in operating at competitive capacity.

Dr Bob Hawkins of Access Economics
Dr Bob Hawkins, Director Access Economics, represented PACIA addressing Australia Chemical Industry - Opportunities and Impediments.

Dr Hawkins described how the chemical industry in Australia now competes in one of the most unprotected economies in the world and that other competing regions were offering ten-year tax holidays, equity investment and other assistance measures. These regions, near to Australia, compete against Australia for investment.

Australia presently has $6 billion of new investments in chemicals that could be realised - $4 billion that are associated with the PPP. Calculating the impact on the economy, allowing for related infrastructure, replaced imports, currency valuation effects, personal consumption would benefit by $0.7 billion per year.

Remco Van Santen
Remco Van Santen, Director ACTED was Chairman opened the conference with a review of the chemical industry in Australia. Australia was undergoing significant change with rationalisation and changing trade performance.

Remco later addressed the subject of core of the petrochemical project with a strategic overview of caustic and chlorine markets as relevant to Australia (as presented Shanghai and Kuala Lumpur). By year 2000, the Asian region would be importing 2 million tonnes of chlorine (as EDC, VCM and PVC), and Australia was importing 1 million tonnes of caustic providing potential markets for the project. As shown in the Asian papers by ACTED, the project has only limited attractiveness before overseas incentives are considered. There is clearly need for Government to provide competitive measures that may need to extend beyond infrastructure.

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Comment
While Dr Hawkins is technically correct, the potential $6bn investment is conservative. A range of products are not classified as chemicals, such as alumina (aluminium oxide), direct reduced iron, magnesium, electrolytic grade manganese dioxide, and the like. They are often produced in chemical processes (eg. nickel in a petrochemical-type operation) or very similar in nature to so called chemicals. Investments in those products are also very sensitive to Australia's competitiveness. Australia has wound back import tariffs but our taxation and incentive regime is clearly not yet competitive.
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