An Unsustainable Future – The prohibitive costs of securing access to construction material resources in Victoria

This Sand & Stone special feature provides the Executive Summary to the An Unsustainable Future report.

This major undertaking by the CMPA for the first time:

• Documents the real costs in both owner’s time and professional charges in obtaining a new Work Authority or an extension to an existing Work Authority,
• Establishes a reference point for bench marking future industry costs,
• Clearly identifies the costs of regulation for prospective new industry entrants, and
• Stimulates discussion with Government to work with industry to develop an extractive industry framework which will deliver a sustainable and secure future for the industry.

It also presents the significant issues raised in the nine case studies that are the basis of the report, together with a range of actions that will improve the industry’s long term sustainability.

A copy of the full report can be downloaded from the CMPA website or please contact the Secretariat if you would like a hard copy of the complete report.

A special thank you to the quarry owners and operators who provided the detailed case study information, Peter Day in preparing the report and the many people who provided additional advice in the development of this report.

Victoria’s community is at risk of having to pay more for houses and roads due to a slow, costly, repetitive, uncertain extractive industry Work Authority approvals process combined with ever increasing regulatory burdens such as the new native vegetation and heritage requirements for new or extended quarry operations.

These risks have lead to reduced investment in new quarry operations during a time of increasing demand. This has the potential to limit future supply, increase product costs, leading to increased costs of public infrastructure projects, decreased housing affordability and an increased environmental footprint of transport.

Government needs to recognise its stewardship role in the effective management of the State’s valuable construction material resources and to ensure they are not sterilised for future generations use. It needs to provide a secure and realistic pathway for industry to access resources.

There is an opportunity for Government and industry to work together to develop an extractive industry framework which will deliver a sustainable and secure future for the industry; one that allows continuation of supply of cost effective construction materials to the community.

INTRODUCTION

Extractive industries provide the raw materials for building and construction, which is vital to the State’s development. Victorian production in 2007/08 was valued at $739 million with extractive industries directly employing more than 2,200 people.

Entry to the extractive industry in Victoria is restricted by a myriad of legislative measures enacted by three levels of government. The local government administers the planning permit system, the State government administers the industry-specific legislation (the Extractive Industries Development Act 1995 or EID Act which will be merged with the Mineral Resources (Sustainable Development) Act 1990 or MRSD Act from 1 January 2010*1) and other environmental law, while the Federal Government administers a second tier of environment and biodiversity conservation legislation. As a result there is no single regulating body that has particular responsibility for the industry and each government sector can look to the other when criticism is leveled at the overall impact of regulation.

It is not surprising that entry restrictions and controls are characterised by duplication, an escalating demand for information, and a real sense that the tiers of government are working in isolation. This is compounded by local councils which appear to be uncertain of their role and subsequently take a cautious approach – resulting in further duplication and application cost.

*1 – The Victorian Government has passed legislation which will repeal the EID Act and bring the extractive industry regulations under the MRSD Act from 1 January 2010.

This photo demonstrates what happens when the mix of elements in the metallurgical steel of a crushing chamber becomes unbalanced and leads to catastrophic failure.

It is a similar situation when the mix of elements in the planning system is unbalanced. It also leads to catastrophic failure.

SUMMARY OF FINDINGS

The survey completed by the CMPA in 2008-09 of 9 extractive industry companies has revealed a range of matters that bear directly on the competitiveness of the industry in Victoria. These are summarised here.

Costs of the approvals process

• The regulatory compliance cost of the Work Authority process is largely dependent on the complexity of the issues at the site and the time taken to gain a decision. Costs range from $10,000 to $1.25 million for a ‘planning permit’ approval, with higher costs ranging from $1.9 to $5.1 million for an ‘EES’ approval. This cost spread over the first five years production varies within a band $0.38-$1.79 per tonne or 3-12 per cent of the unit rate for hard rock extraction and $0.20-$0.62 per tonne or 2-5 per cent of the unit rate for sand and sand/soil.
• Costs associated with sand developments are significantly less than those associated with hard rock quarry developments due to the lower environmental risks and impacts of sand extraction.
• The case studies indicate that the capital costs associated with attending VCAT and the appeal process range from $149,800 to $558,251. Where the application is not successful the capital costs will have to be written down over a self assessed period.
• The opportunity cost associated with delays in the approvals process are the real costs borne by businesses. The average time for these case studies to grant a Work Authority of 3½ years represents lost production valued up to $54.6 million for a hard rock operation or $13.65 million for a sand operation.

This has not always been the case. The Natural Resources & Environment Committee of the Victorian Parliament draft report on its Inquiry into Planning Issues for Extractive Industry (August 1992) indicated that it would cost about $60,000 (equivalent to $95,000 in 2009 dollars) to develop a Work Plan for a reasonable sized operation.

This report’s “non EES” case studies have an average cost of $317,000 to develop a Work Plan. This is more than a three times increase in costs (accounting for inflation) over 17 years to get the same outcome. This is the cost of government bureaucracy.

Time frames associated with the Approvals process

The case studies indicate the following approval process time frames:

• For ‘standard’ proposals, an average time of just over 2 years (25 months) from the initial screening meeting to the granting of a Work Authority.
• For more contentious projects involving appeal to VCAT, an average time of at least 46 months from the initial screening meeting to the granting of a Work Authority.
• A project that requires an EES could be expected to take on average 5¾ years.

The components of this time lag (excluding EES examples) are:

• On average it takes about 10 months from the initial screening meeting to lodgement of a draft Work Plan to the DPI.
• On average it takes about 6 months from lodgement of the draft Work Plan with the DPI until the draft Work Plan is endorsed.
• On average it takes about 8½ months for a decision to be made by the local council on an application for a planning permit.
• On average it takes 1½ months from the date of the final planning decision to DPI granting a Work Authority.

The case studies within the report represent some recent examples of the approvals process. Industry wide data indicates that they are not isolated occurrences. Even for relatively small sites in regional areas with few neighbours and minimal contentious issues, the approvals process could be expected to take about 2½ years, with larger sites with more complex issues taking longer.

This has not always been the case. In 1990, a significant new quarry operation in Melbourne’s northern fringe in a Special Use Zone (Extractive) progressed through the new Work Authority process and was granted approval in just 11 months. It would be highly unlikely that this approval would be granted in the same time frame now.

General industry activity

There were a total of 868 work authorities granted under the former EID Act in Victoria with only 580 actual operating sites with a further 153 at the ‘proposal’ stage and fourteen in the ‘application’ stage(*2).

Analysis of Work Authority activity(*3) data for the period 2000-1 to 2007-8 reveals that:

• Proposals have declined by 38 per cent over the period but have remained relatively stable since 2002-3;
• Applications have declined steadily & by 74 per cent over the period;
• The number of Work Authorities has increased by 22 per cent over the period but most of this increase occurred in a single year (2001-2 to 2002-3) when shallow extraction was included in the approval process; and
• The number of proposals that reach the application stage fell from 22 per cent in 2000-01 to 9 per cent in 2007-8. This has occurred despite increasing levels of demand as illustrated by increasing production levels.
• There is a deterioration of investment interest evident by the decreasing number of Work Authority applications when demand has been rising. Arguably the decreasing level of proposals that go on to the application stage is illustrative of a falling off of interest in investing in the industry once the sovereign risk is understood.
• Only one significant new quarry operation (rehabilitation bond greater than $50,000) has been approved each year since 2004-5.

While demand is rising as evidenced by the rise in overall production, the decreasing number of Work Authorities would suggest the future of the industry is at risk. At a time of increasing demand when new quarries would be expected to be developed, very few significant operations are in fact being approved. Of the 275 new Work Authorities granted between 2000-01 and 2007-08, only 18 (7%) were for significant operations with only 6 being hard rock operations.

The lack of new quarries being developed or existing operations expanding will lead to a decrease in supply and competition in the market place.

Failure to develop new quarries will cause an increase in the cost of construction materials, leading to increased cost of building and infrastructure projects and a subsequent decrease in housing affordability.

With 10 tonne/person/year of construction material used within Victoria, a future material supply shortage could be expected to give rise to price increases of 35 per cent and above. Such a price rise is a reasonable estimate given that there are existing examples of quarries without nearby competition that have ex bin prices in excess of 30 per cent above the industry average.

A 35 per cent price increase would equate to an extra $4.55/person/year (ex gate) or an extra $240 million/year cost for Victoria. Such a significant price increase has never occurred in the industry.

Increased restriction of supply of stone due to increased regulatory burden is further demonstrated in the 2009 Cement Concrete & Aggregates Australia (CCAA) report, The impact of the native vegetation framework on extractive resources in the Melbourne supply area. This report concludes that the current Native Vegetation Framework effectively sterilises significant resources of sand and stone in the Melbourne area. With these regulatory restrictions, sand resources in the Melbourne area are expected to be exhausted by 2024 and the stone resources by 2030.

If quarries are forced to move further away from their market due to, say, urban encroachment limiting expansion of an existing site, increases in transport costs associated with longer haul distances from quarry to market will further increase the cost of product. In addition there is greater environmental impact (greenhouse gases, noise and air pollution) and social costs (road maintenance, road accidents) from transporting materials a longer distance.

Research by the CMPA in its submission to the EPA on the Protocol for Environmental Management in 2006 indicates that to increase cartage by say 50km for only half of Victoria’s current production being moved by an average of 1 million truck movements per year, results in an extra 50 million kilometres being driven, discharging an extra 67,000 t CO2-e into the atmosphere each year.

A recent report by Access Economics for CCAA(*4) estimated that an extra 50 km transport distance costs an extra $8.89/tonne in direct transport, environmental and social costs. If only half of Victoria’s current production had to be transported an extra 50 km, it would result in an increase of $240 million/year in the cost of construction materials.

*2 – The ‘proposal’ stage application according to DPI is recorded when a screening meeting has been conducted by a DPI inspector with relevant parties. The ‘proposal’ figures are derived from DPI statistics that are out of date as they include around 10% of withdrawn proposals. The ‘application’ stage refers to when a Work Authority application is lodged with all requirements to obtain an approved Work Authority, i.e. approved Work Plan, planning permit, rehabilitation bond, land owners consent, insurance and application fee.

*3 – ‘Activity’ refers to the summation of all proposals, applications and granted Work Authorities.

*4 – Economic contribution of the extractive industries in Victoria, 2006, Access Economics Pty Ltd for CCAA

Potential cost increases of construction materials due to additional transport and shortage of supply could equal $480 million/year.

The community and Government will pay the price for increased regulatory burden.

This failure needs Government action now. A streamlined approvals process needs to be implemented urgently.

REQUIRED ACTIONS BY GOVERNMENTS

Changing Goal Posts

• The Work Authority/Work Plan approval process should be centrally managed by the DPI. DPI should have the power to manage planning referral obligations to referral agencies to achieve an endorsed Work Plan, eliminating duplication of referrals. Council approval process should focus on offsite impacts with these aspects subsequently incorporated into the Work Plan.
• Regulatory creep should not be accepted as the status quo and new regulations must only be introduced once an existing and equivalent cost requirement is eliminated

Streamlined Approval Process

• Introduce a refined Work Plan/Work Authority approval process with the following aspects:
  • A Code of Practice applicable to all quarries,
  • Simplified Work Plans,
  • A Work Authority containing generic conditions, rehabilitation bond, Code of Practice and Work Plan provided to Council with Planning Permit application,
  • Planning Permit application submitted to Council at the same time as DPI grants WA number,
  • Planning Permit conditions refer to only off site impacts outside of the Work Authority boundary.

Best Practice Regulation

• Regulatory bodies should make decisions based on evidence according to the triple bottom line of social-environmental-economic values without undue political pressure.
• DPI and local government should streamline Work Authority/Work Plan approvals that recognise DPI’s regulatory reach.
• The administration of the MRSD Act should aim at achieving performance based outcomes that lower the costs and reduce the time of approvals for proponents.
• Mandatory time frames for certain milestone decisions should be introduced and enforced, including Ministerial decisions.
• New regulation should not be introduced unless appropriate resources are devoted to administer the regulation effectively.
• The State Government should implement the recommendations of VCEC’s environmental regulation inquiry concerning the mining and extractive industries (assuming they are as per the draft recommendations).
• Referral agencies must be accountable. Regulators must be able to publicly defend their decisions.
• DPI should focus on its role to improve approval outcomes.
• The role of the independent Mining Warden should be expanded so that it has the power to expedite decisions and ensure time frames within the Work Authority/Work Plan approval process are met by potentially adjudicating in such matters with powers to make orders. Such a role for the Warden should be optional at the request of the proponent.

Appeals Process

• Objectors in the VCAT process should be required to substantiate their claims
• VCAT and Ministerial decisions should be based on relevant public information.
• VCAT should provide a low cost mechanism for all parties.
• VCAT should take account of all the material already provided by proponents and relevant pre-existing studies rather than require consultants to present at the hearing.
• An appeal mechanism for proponents should be introduced in the environmental effects statement process.

Accountability

• A cost : benefit analysis of new legislation should be conducted 5 years after implementation. If the legislation does not provide a net benefit, changes must be made to ensure this is achieved.

SIGNIFICANT ISSUES RAISED

The survey identified a range of issues and these are listed here; each was raised by more than one survey participant.

Changing Goal Posts

• Duplication and escalating information requirements;
• Increasing regulatory requirements;
• Duplication in roles of DPI and local councils;
• Inconsistent regulatory interpretation and advice.

Best Practice Regulation

• Unreasonable time in processing applications;
• Unacceptable costs of approvals process;
• Lack of resolve by regulatory agencies;
• Lack of State stewardship of the resource;
• Lost opportunity in dollars and time.

Appeals Process

• Unstructured and inequitable approach to community consultation;
• Unaccountable political intervention;
• Need for appeal system for Environmental Effects Statement (EES) decisions;
• Unnecessarily complex and one-sided VCAT system. Accountability
• Inadequate assessment of the costs of new regulations.

ACTIONS REQUIRED

The issues raised by the survey participants and from the subsequent detailed analysis has identified a range of actions that need to be taken by the Victorian Government to arrest the unsustainable environment in which the extractive industry is currently operating.

The actions identified are consistent with the Government’s red tape reduction policy and in line with best regulatory practice.

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