< Previous60 | April 20, 2020April 20, 2020 April 20, 2020 April 20, 2020 W HAT’S considered ‘normal’ will look different after Western Australia emerges from the coronavirus lockdown. That doesn’t mean it will look worse, however, because the current setback is a perfect opportunity to rethink the way the state works. WA has never been an easy place to govern because of its small population and vast dis- tances, but a starting point for rearranging the furniture is ending the economically damag- ing practice of fly-in, fly-out. Popular with mining com- panies because of a belief that flying workers to and from a remote location is cheaper than housing them (and their families), FIFO has always been flawed as a long-term way of developing the state. [T]he current setback is a perfect opportunity to rethink the way the state works The virus outbreak and the tough no-travel rules introduced by Australian governments have demonstrated that FIFO has limits that would not exist if a mine’s workforce lived nearby. But the real issue with FIFO is that it has done nothing for the creation of communities in the north-west or Kimberley regions, where much of the state’s resources wealth lies. The reason FIFO took off in the first place was that the big miners were able to convince the state government during a period of low commodity prices that, unless they could cut costs by ending a requirement to provide housing for remote workers, they would consider closing the mines. With that gun held to the gov- ernment’s head the result was a win for mining companies and a loss for the state, which is what some leading politicians warned would happen unless mining companies were forced to take regional development seriously. The original State Agreements detailed exactly what a mining company had to do to protect Time for rethink of State Agreements The big changes forced on the mining sector’s FIFO operations is a perfect example of how upheaval in business can present opportunities to improve when the crisis has passed. FIFO: WA mine sites have long relied on a fly-in, fly-out workforce. With the miners having been forced to alter FIFO arrange- ments due to the difficulties of moving workers across state bor- ders, and even within WA, during the COVID-19 pandemic, now is a perfect opportunity to revisit State Agreements in the name of development. Magnetite moves VALUE-ADDING, which is some- thing the big miners have tried to do in the past (and failed), will become an interesting discussion point in talks between the miners and the state government over the next year or so because of the example being set by Fortescue Metals Group. A lot of humble pie will need to be eaten in the boardrooms of BHP and Rio Tinto if Fortes- cue, the rival they love to hate, demonstrates that it has cracked the value-adding puzzle. What Fortescue is doing at its Iron Bridge project is an attempt to prove that low-grade mag- netite ore can be turned into a valuable product at a fraction of the cost Sino Iron has managed at its multi-billion-dollar disaster, which has suffered massive cost overruns and completion delays. As well as showing Sino how magnetite can add to the life of a mining operation and boost the its licence to mine material that belongs to the people of WA. Not only was it a requirement that housing, roads and telecom- munications be provided, but the mining companies were also expected to co-fund community centres and other activities. The agreements covering the iron ore sector also required the miners to invest in value-added mineral processing to prevent them from high-grading their mines (a move designed to extend the life of the industry). Over time those social commit- ments have been either forgotten or ignored by both sides of the deal. Successive governments on both sides of the political divide have agreed to watered-down commitments as the flow of roy- alties rose to become one of the state’s biggest revenue sources. However, the reason the roy- alties rose is because mining revenues skyrocketed for the (pre- dominantly foreign controlled) mining companies, shipping out huge dividends to match the tonnes of ore going overseas. average grade of what’s shipped out, the Fortescue experiment will be waved in front of BHP and Rio Tinto when they’re asked to have another go at doing what they promised 50 years ago. Be prepared IT is not just mining that will need an overhaul after the virus passes, with two other items worth including on the restruc- turing list. • A fresh look at a regional allowance or generous tax break to encourage workers and their families to relocate to regional centres. • The building of a critical materials stockpile for the next time WA goes into isolation, as the Swiss have done with their national store of up to six months of essential foodstuffs and household goods. As one report described it recently, the only shortage in Zurich supermarkets is custom- ers. The shelves are full despite Switzerland being hit hard by the virus thanks to sharing a border with northern Italy. Too much of a good thing is simply wonderful - Mae West Tim Treadgold tim.treadgold@businessnews.com.au BYSTANDER OPINIONApril 20, 2020 63 | April 20, 2020 April 20, 2020 April 20, 2020 As difficult as governments’ decisions on locking-down the nation have been, the timing of their easing or reversal will be equally as contentious. The end of the beginning I N November 1942, Winston Churchill famously said the German defeat at El Alamein represented not the end of the war, or even the beginning of the end, but perhaps the end of the beginning. Given the COVID-19 pandemic has been likened to a war by many of our political leaders, I feel no shame in paraphrasing or just after the public calls for it. You don’t have to be an expert to realise that a possible out- come of such a move could be another wave of infections, albeit with a lot more infra- structure in place to deal with it. Nevertheless, having had so few known infections does leave us open to another big and dangerous wave. And that could happen no matter how long the lockdown goes on for. Let’s face it, we can’t have our medical sector on emergency standby forever. They are ready and waiting for a wave right now. The best outcome is to ensure that surge is both sizeable enough to prove the community is developing immu- nity but manageable enough such that our resources can handle it without unnecessary deaths. So it makes some sense to con- sider opening the doors to wider infection sooner rather than later. As I have suggested briefly before, that may take the shape of allowing those who are least at risk (people under 70 without underlying conditions known to be deadlier in the face of this disease) to live freely. When I mean live freely, I mean go to work, the pub or even holiday in most areas of Western Australia. I don’t mean visit aged care facilities, see their sick relatives in hospital or go for a weekender in Walpole, which, apparently, doesn’t want them in any case. This means much of our domestic economy is back sooner rather than later to a speed that at least allows most businesses to get off life support, if they had to be on it. Do we open our borders? Yes, incrementally, erring towards the places that have the problem similarly under control. Do we allow foreign students in? Yes, as above. In the end, if COVID-19 carriers arrive but only come in contact with those who won’t be seriously affected in big numbers, they will help us get the level of infection right. In fact I’d leave that for the scientists and economists to squabble over. Now the panic has receded, it’s time for good old-fashioned horse-trading over the risks and rewards of each step towards normality. I apologise in advance to the elderly, those being treated for serious diseases such as cancer, and even people with asthma. They will have to live with some form of seclusion or isolation for a fair bit longer than most of the population. Having said that, with the greater populace working and paying taxes, we will be able to afford to better look after those left in isolation and, having experienced a wider lockdown, perhaps those left at home will have both the understand- ing and the sympathy of the majority. I realise this may sound more simple than no doubt it will turn out to be, but we can only try. As Churchill once said (appar- ently): “It is always wise to look ahead, but difficult to look fur- ther than you can see.” SPACES: Adherence to social distancing rules is having an effect. Photo: Gabriel Oliveira the British wartime prime minis- ter to make a point. So where are we in this war? Less than a month into a lockdown, of sorts, and already the data is starting to show Aus- tralia may be on track to avoid the worst of the virus in terms of mass infections and deaths, with our state probably even better off. Yes, it is early days and we must be cautious about claims of a speedy recovery. Then again, if we have seri- ously blunted the impact of the virus and managed to avoid the catastrophic loss of life that has occurred in Europe and the US, there is no time like the present to start thinking what comes next. Clearly, easing of certain restrictions in the coming weeks will be something governments will consider, either just before Connect with Mark Pownall Mark Pownall mark.pownall@businessnews.com.au @MarkPownall Clearly, easing of certain restrictions in the coming weeks will be something governments will consider, either just before or just after the public calls for it OPINION64 | April 20, 2020April 20, 2020 April 20, 2020 April 20, 2020 OUTPUT: Woodside’s Pluto started producing in 2012. exploration company to a major LNG player, and the others came. Court also set in train plan- ning for the Dampier-Bunbury gas pipeline to provide an alter- native energy source to Collie coal. Critics said the project was premature, especially after the signing of a controversial take- or-pay contract between the North West Shelf partners and the State Energy Commission. The pipeline was completed in 1984 under Brian Burke’s Labor government. Demand grew so quickly it was claimed the pipe should have been bigger. It was sold in 1998 by the government of Richard Court for $2.4 billion. Two other major develop- ments have added strategic importance to WA’s resources sector. In December 1987, Burke signed the Channar Joint Venture Agreement in which Hamersley Iron (now Rio Tinto) entered into a venture with Chi- nese interests to mine ore near Paraburdoo. It was China’s biggest overseas investment at the time. Hamersley had sent its first shipment of Pilbara iron ore to China in 1973; now China is easily the dominant customer. In 2006 as environment min- ister, Mr McGowan approved the $57 billion Chevron LNG project on Barrow Island, despite opposition from conservation- ists. Construction and other approvals were granted in Colin Barnett’s first term as Liberal premier. The local work gener- ated helped cushion WA against the fallout from the GFC. Now iron ore is set to become Australia’s first commodity to exceed $100 billion in annual export earnings. Once again the resources sector is poised to soften a downturn, thanks to the foresight of WA leaders from both sides of politics. But Mr McGowan’s challenge continues. He must remain on top of each new problem tossed up by the virus issue and, aided by the resources sector, adroitly steer WA’s economic recovery. WA is the state best placed for a quick rebound, courtesy of the resources sector Resources vision rewarded M ARK McGowan’s firm handling of the challenges linked with the COVID-19 pandemic has won wide support and enhanced his leadership credentials. Like Scott Morrison on the national stage, the Western Australian premier has been as decisive as his messages to the public have been clear. Mr McGowan’s actions and those of his government have had a big impact. In so doing he joins a line of post-WWII premiers who have left a major mark on the state. It’s undeniable that thousands of WA businesses have taken a hit from federal and state gov- ernment decisions to contain the spread of the virus. But the reac- tion has been tempered by the unprecedented sums of money being committed to soften the blow. However, when the nation starts to emerge from the tough measures imposed on travel and public gatherings, trade and commerce begins to rebuild and confidence returns, WA is the state best placed for a quick rebound, courtesy of the resources sector. The sector is the backbone of WA’s economy. Iron ore exports lead the way ahead of lique- fied natural gas, despite recent soft world prices. Although production in the sector has been trimmed due to measures to protect workers’ health, the wheels are still turning and the ship-loading bays at Port Hed- land and Dampier have been kept busy. It is WA government decisions since 1960 led by premiers with vision that has made this possible. Showing the way is David Brand. After leading his coalition government to victory in 1959, he and his industrial development minister Charles Court set about convincing the Menzies govern- ment in Canberra to lift the ban on iron ore exports that had applied since 1938. Massive reserves had been found in the Pilbara. Even after a 20-month cam- paign, the export ban was only partially relaxed; but that was enough. With Court given initial responsibility for attracting pri- vate investment, managing the selection of the companies to be involved and identifying initial markets in Europe and Japan, the Pilbara was jumping by the end of the 1960s and the WA economy was being transformed. When he became premier in 1974, Court switched his attention to LNG and opening up the North West Shelf’s gas resources, exploration for which was initially shunned by the big producers. But major discover- ies helped transform Woodside from a sleepy Victorian Support for the resources sector across the political divide spans decades, and will again be vindicated when WA emerges from COVID-19 restrictions. Peter Kennedy peter.kennedy@businessnews.com.au POLITICAL PERSPECTIVE OPINIONHELPING YOU GET THROUGH THE UPS AND DOWNS OF BUSINESS We’re here to help and ready to talk. Please reach out to discuss the options which might be right for you. 1Interest capitalisation is the addition of unpaid interest to the outstanding loan balance. 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