PARLIAMENTARY INQUIRY – CMPA calls for Balanced Regulation

The CMPA contracted PETER DAY of Peter Day Consulting Pty Ltd to report on the inquiry into greenfields mineral exploration and project development in Victoria. Below is an extract of this CMPA submission.

IN February 2011, the Economic Development and Infrastructure Committee (EDIC) of the Parliament of Victoria was requested to inquire into greenfields mineral exploration and project development in Victoria.

Under the inquiry’s terms of reference, the Committee is required to inquire and report to Parliament on the benefits and drivers of and barriers to greenfields mineral exploration and project development in Victoria. In particular, the Committee is required to examine:

• Victoria’s mineral endowment (often referred to as ‘prospectivity’) across a portfolio of commodities (including energy earth resources and extractives products);
• The regulatory environment;
• Fees, charges and royalties;
• National and international perceptions of Victoria’s prospectivity and regulatory environment;
• The success and failure of projects in Victoria’s mining development pipeline;
• Different approaches and programs applied in other Australian and international jurisdictions to foster increased investment in greenfields exploration for, and development of, minerals and energy earth resources;
• The different roles of government (this may include, but is not limited to, targeted industry engagement, facilitation and generation of geological survey information);
• Opportunities to increase the net benefits from Victoria’s minerals and energy earth resources, and to potentially provide for self sufficiency in low cost energy and extractive materials, consistent with the principle of economic efficiency; and
• Consideration of the costs and benefits of greenfields mineral exploration (economic, social and environmental), and whether there are opportunities to improve the management of potential conflicts between exploration and other land uses.

In late June 2011 the EDIC invited the CMPA to make a submission to the inquiry and a comprehensive submission was subsequently submitted late in August 2011.

The executive summary in its entirety from the submission is shown below. Th e summary is very relevant in that it clearly and articulately spells out the position of the members of the CMPA and what they have been saying about the problems with the extractive industry for a number of years.

EXECUTIVE SUMMARY

“The early 21st century has seen a significant worldwide shortfall in available replacement earth resources. This is a consequence of a failure by public and private capital to undertake meaningful greenfields mineral exploration. While this shortfall may not have reached critical proportions, should demand remain firm at prevailing levels, the fundamentals of supply and demand will continue to change towards diminished supply, which will inevitably go into significant deficit in the medium to long term.

Global insecurity and economic instability threaten to exacerbate this problem, as otherwise attractive exploration terranes are excluded for non-geological reasons. The risk-averse strategy of eking out mineralisation from brownfield sites is unsustainable. It is crucial therefore that greenfield sites are opened for development to meet these rising demands. But how open are they in Victoria?

The houses and gardens owned by Victorians are built from, and utilise material produced by, the extractive industry in the State. The extractive industry has grown to meet the demands of population growth and associated development. The value of extractive production delivered to construction now exceeds the value of coal delivered into power production in Victoria. However, spiralling regulatory demands involving the insidious sterilisation of land from extractive and other productive operations together with attendant costs are destroying the industry as we know it. The costs of the houses and gardens of Victorians will increase substantially as required extractive material will have to be imported from farther afield, nearby States or even overseas. Unquestionably, these impacts will involve significant employment losses with their associated economic and social costs.

The Committee’s Inquiry provides the opportunity to highlight to the Parliament the very simple point that without energetic people who are prepared to risk their own capital in wealth creating markets in the search for earth resources from greenfield sites, development will stall and supply will dry up. This submission presents the case that restrictive regulation dissuades investors and unreasonable regulators slam the door on development. Important as they might be, regulators do not add to the value of productive goods and services. They do not risk their capital nor meet increasing demands for earth resources. The demonstration of ever increasing regulatory burden attests to their lack of understanding of this basic fact. The CMPA acknowledges the recent efforts by the DPI in recognising the dilapidated state of the regulatory apparatus under its administration. It is only reasonable to expect that the outcome of their efforts will be more efficient and balanced regulation.

The plea by the Association is for balanced regulation. Balance in the quest of increasing social and environmental needs with the need of industry to be able to confidently risk its capital and ingenuity in the pursuit of profit-making ventures in a fiercely competitive environment. Balanced regulation will provide benefits for consumers of earth resource products. They will have more choices of product, more choices in terms of access to product and more choices in the optimum mix of prices of products reflecting vibrant competition and a low cost regulatory environment. Balanced regulation will also allow small business enterprises including family businesses to flourish within their own operating market segments without the costs of unnecessarily complex regulation that makes their businesses vulnerable to anti-competitive pricing and ultimate poaching by multi-national operators.

The Inquiry’s Terms of Reference are very broad. The CMPA believes there are no new solutions. It has all been said before.

The Government has regulatory gate-keeping arrangements in place although they must be improved. Regulatory balance is the key and is the answer. This is not complex science but demands grit and determination in the face of newly created regulatory demands from eminent, articulate and oft en convincing people, generally funded from the public’s purse. It is too easy for legislators to go with the populist tide of emotive and plausible arguments presented by these good-willed people. Legislators must resist these challenges in the knowledge that balanced regulation including low cost access to greenfield development sites will provide long term sustainability for all the State’s communities.

This submission responds to the Inquiry’s Terms of Reference by referencing data provided in the Association’s earlier comprehensive report, An Unsustainable Future – The Prohibitive Costs of Securing Access to Construction Material Resources in Victoria. Through the use of detailed case studies that report set out the prohibitive costs of entry to the industry and the overall regulatory environment in which the industry struggles to operate. Most alarming of these regulatory controls is the choking off of extractive industry development in Victoria through the sterilisation of available land.

In addition to a detailed response to the regulatory environment this submission gives an update on the nine case studies used in the An Unsustainable Future report and provides an analysis of the impact of the spiralling levels of rehabilitation bonds on the industry. Rehabilitation bonds are relevant to the fees, charges and royalties element of the Terms of Reference.

The recent increased levels of bonds have been the cause of collapse of some extractive operations already and the cessation of several major new extractive developments – all of which have economic and regional impacts. These impacts, as terrible as they are in themselves, are even more devastating when they are the result of a bond system that is unwarranted and should be completely overhauled anyway.

Finally, the submission considers the success and failure of projects in the sector. Examples are provided where due to the unreasonable and inflexible demands of regulators proposed multi-million dollar extractive operations are halted along with the prospect of associated increased employment and economic activity in the local areas. These failed projects truly highlight the anti-development nature of many regulators who have no understanding of how their actions serve their State so poorly.

The submission presents a range of solutions to the problems that beset the industry that if adopted, would provide opportunities to increase the benefits from the State’s earth resource sector. Primarily these opportunities lie in streamlining and simplifying native vegetation and cultural heritage legislation so that greater access to land for extractive operations can be provided. Also, there is an urgent need to reduce the costs and delays endemic in the administration of Mineral Resources (Sustainable Development) Act 2101. Above all, there is a fundamental need for a more strategic approach to be taken to the planning and development system so that the demands of increasing population on earth resources can be met efficiently and effectively fr om within the State”.

Based on the submissions and public hearings the Committee will propose a range of recommendations to the Victorian Government (Based on the evidence it receives), to which the government must respond within six months from the date that the report is tabled.

Realistically it will be towards the end of 2012 before members become aware of the Government response to the inquiry. The CMPA has and will continue to play a role in this inquiry.

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