Transcript No. 2001/038

Transcript

of

Hon Peter Costello MP

Treasurer

Press Conference
Blue Room, Parliament House
Monday, 23 April 2001
2.00pm

 

SUBJECT: Shell/Woodside

TREASURER:

Ladies and gentlemen, after long and careful deliberations, I have today made

orders under the Foreign Acquisitions and Takeovers Act prohibiting Shell from

acquiring a substantial shareholding in Woodside which would result in a change

of control of Woodside. I want to emphasise at the outset that the Governments

policy is, and will continue to be, to welcome foreign investment into Australia.

Australia operates a very liberal foreign investment regime and less than 3

per cent of applications for approval under foreign investment are refused.

I think by value about 0.1 per cent. But the Foreign Acquisitions and Takeovers

Act allows the Treasurer in the national interest to prohibit a change in control

where that involves a foreign company.

I have determined that this is one of those rare occasions on which that power

should be operated. In particular, in assessing the national interest, I had

regard to the fact that the North West Shelf is Australias largest energy

resource and has the capacity to be one of our largest export earners.

I believe it is in the national interest of Australia that that resource be

developed to its full, and that exports from the North West Shelf are promoted

and sold in preference to exports that compete against it from any other part

of the world.

The issue that concerned me in relation to this bid was the ownership and control

of the operator and marketer of the resource. Over a period of time, I had

discussions with both Shell and Woodside and I found Shell to be very forthright,

to be very open and I commend them for the way in which they conducted their

negotiations.

We discussed a number of proposals which would have separated the operation

and the marketing of the resource, but they nearly all involved doing something

after the approval and after the takeover and would have required, once the

takeover had gone through, for a restructuring which was still contingent upon

the agreement of other joint venturers and where there was no certainty that

the conditions could be accomplished. In other words, notwithstanding the best

efforts of Shell, because this is a joint venture, there was no certainty that

conditions subsequent could have been put in place. And, in that circumstance,

with the opportunity to make a decision which would have to be an enduring

decision, which would have to last for years, notwithstanding changes in corporate

strategies, directors responsibilities to their shareholders, and the consent

of all of the other parties involved, I took the view that it was not in the

national interest to give approval for this bid to go ahead.

I want to emphasise the North West Shelf is probably Australias premier energy

resource. The sales of LNG out of the North West Shelf have the capacity to

become our biggest exports and in my view it is in the national interest that

they be developed and marketed in preference to competing products from anywhere

else in the world. I want to emphasise that the North West Shelf has been developed,

largely with the contribution of foreign investment. It will continue to operate

with significant foreign investment in it. And foreign investors will continue

to benefit from it. The issue that was of concern in relation to this proposal

was in relation to operation and marketing. I should also say that if an alternative

proposal is put up, which meets the Governments objections, it would be considered

on its merits. That is a matter for the parties concerned.

JOURNALIST:

Have you had feedback from Shell yet, Mr Treasurer?

TREASURER:

I notified Shell shortly prior to this press conference. And I notified Woodside

shortly prior to this press conference. I briefly explained the reasons for

my decision.

JOURNALIST:

Are you going to expect any one else to come forward with an alternative proposal?

TREASURER:

Its a matter for other commercial parties. One of the difficulties in this

area is that I have to exercise a power under a statute, and I have to be careful

to do it in accordance with the law. And the law is that you should show no

prejudice and give everybody a fair hearing and not make pre-emptive statements.

So that if somebody else does come forward, their application will be considered

on its merits, just as this one was. But it will be given a fair hearing just

as this one was, and considered and determined in accordance with the statute.

 JOURNALIST:

Treasurer, given the state, given the state of the Australian dollar, how concerned

are you that this decision will send a negative signal around global markets

and it will see a flight of capital out of Australia? How much did that weigh

on your mind as you considered this decision today?

TREASURER:

Look, as I said earlier, Australia has a very liberal foreign investment regime.

International investors know that. In 1999-2000 the number of foreign investment

proposals that were rejected was 2.4 per cent and by value less than 0.1 per

cent. The investors, the joint venturers in the North West Shelf are Shell

a foreign company, BP – a foreign company, Chevron a – foreign company and

a consortium of Mitsui and Mitsubishi which is a foreign company. So I dont

think anybody could say that we havent operated a liberal foreign investment

policy in relation even to this resource. And Shell has been a valued partner

of that joint venture on the North West Shelf.

The concern here was that the operator, that is the person, the company that

decides the investment plans that brings the investment proposals to the Board,

that determines the pace of development and that is in charge of marketing

is Woodside. So you would have been having a change in the control of the operator

and marketer. Now thats the thing thats played on our mind.

I think when youre looking at a resource like the North West Shelf, the exports

from the North West Shelf are going to, I hope, be earning revenue for Australia

in 5, 10, 15 and 20 years time. And when I was making my decision on this,

I thought that it was important to have in mind what would be in Australias

comparative advantage in 5, 10, 15 and 20 years time. Thats the way Ive approached

this.

Now in answer to your question, Australia welcomes foreign investment. Theres

been no change of policy there. But we also have to have an eye with the national

interest to the maximum exploitation of our resources and the maximising of

Australias exports revenues and these are some of the matters that I considered

in making my decision.

JOURNALIST:

What was the advice to you of the Foreign Investment Review Board? Did your

decision correspond with that advice? Or did you override the FIRB in this

matter? And the second question has to do with were you rolled by the Prime

Minister on this matter?

TREASURER:

In relation to the second, the answer is no. This is my decision. Under the

statute I am required to make this decision. And I made it.

On the first question, the Foreign Investment Review Board did not come to

an agreed position. The Foreign Investment Review Board offered two alternatives

to me, because it could not agree itself. One of the alternatives was to prohibit

the offer and another was to approve it on conditions. Now, I thought the problem

with conditions is that they were conditions subsequent, not conditions precedent,

that after the bid went through various things would happen.

For those various things to happen it would require the agreement of the joint

venturers and a whole lot of other things over which Shell had no control.

So the most that you could say was it would use its best endeavours to do certain

things with no guarantee that they would come about. In the circumstances I

was concerned about that. There are occasions in foreign investment where you

can give conditions precedent. Do “A” and the bid goes ahead. This

was not one of those. By the nature of the project involved. And so the two

alternatives that were offered to me were to either take the decision which

I have or to take a decision with conditions subsequent on everybodys understanding

that the party concerned had no capacity unilaterally to bring them about.

And the most we could ask for was best endeavours.

JOURNALIST:

Mr Costello, how wide were your consultations within Government including the

Prime Minister and (inaudible)? Did you take soundings in Cabinet in reaching

this decision? How much were you influenced by what has come through as strong

community feeling on the issue?

TREASURER:

Look, numbers of people have lobbied over this – backbenchers, Parliamentary

Committees, Ministers, community organisations, but I can tell you, the decision

is mine. Treasurers get a bit immune to lobbying after a while and I had the

responsibility of making the decision, thats what the law said, thats what

the courts say you have got to do, so I made it.

JOURNALIST:

(inaudible)

TREASURER:

Colleagues expressed views to me, which they are entitled to do. But at the

end of the day the decision was mine, and I did not find this an easy decision.

If it had been an easy decision we would not have sought the extension. We

extended the time, we had numbers of meetings with the parties. In the end

the Foreign Investment Review Board, itself, could not come to a concluded

decision and so I had to make it, and I did.

JOURNALIST:

(inaudible)

TREASURER:

Sorry, Laura, then…

JOURNALIST:

(inaudible)

TREASURER:

Shell put forward the view that it has been a joint venture in the North West

Shelf for a long time. It has. It brings enormous technical expertise to the

North West Shelf, and it does; that, if it were given the opportunity to bring

its resource and marry it with Woodsides resource this would allow it to promote

the development. It would argue that its interest is to maximise the profit

out of the development and Shell has been a good corporate citizen in Australia.

I totally accept it, I have no doubt whatsoever. I have no complaint about

Shell, I think Shell has behaved honorably and well throughout. Shell saw the

points in relation to the operator and manager, it saw those points, and there

was extensive discussion as to how those points would be met. I have explained

the technical difficulty in meeting them. Now, you have got to take a decision

at the end of the day. I am not pretending that Shell would agree with this

decision, obviously it wouldnt. It may also want to put another proposal to

the Government and if it does we will consider it on its merits. But, at the

end of the day a particular proposal is made and somebody has to decide whether

or not that will go ahead and I made that decision. I did not find it an easy

decision. Nobody that was involved in this thought that this was an easy decision.

It is one of the hardest decisions that you will ever come across in public

life and the reason it is hard is that there are arguments both ways.

JOURNALIST:

(inaudible)…in terms of the actual structure of the consortium (inaudible)..

in terms of the relevant economic (inaudible)?

TREASURER:

Look, there was strong, first of all these bids are extremely complicated bids.

So, yes, there is a level of technical complexity to them. But it was a hard

decision because there were arguments both ways. You know, I did not find this

a love game, to use a tennis analogy. I thought this was poised evenly at deuce

and those games can go either way and so I found it a hard decision to make,

but, I guess the evidence of that is that the Foreign Investment Review Board,

itself, couldnt come to a concluded decision on the matter, so, it gave me

two alternatives.

JOURNALIST:

What is the (inaudible)…new operator, a new controller of marketing to sell

the gas…

TREASURER:

Look, LNG exports, whether they, primarily to East Asia, we are talking about

East Asia here, in those markets where there is a real demand for energy and

it is going to grow, the supply could come from Australia, it could come from

the Middle East, it could come from other areas in South East Asia, it could

come from developments to the north of Japan, and I want it to come from the

North West Shelf. I want it to come from the North West Shelf to the maximum

possible. This represents Australias largest energy resource and in time could

be our biggest export earner, and it is in Australias national interest, I

believe, that Australian exporters, exports, are pushed and promoted in preference

to exports from any other area.

JOURNALIST:

(inaudible)…conflict of interest?

TREASURER:

Well, I just want to be sure in my own mind that the operation and the marketing

is conducted in such a way as Australias exports are developed and pushed

in preference to exports from any other place.

JOURNALIST:

Treasurer, (inaudible)…and secondly, …

TREASURER:

Well, I think the BHP – Billiton merger requires further approval and it will

be dealt with on its merits again. Anything that is good for Australia we ought

to be approving and if we have concerns in the national interest we will look

at it very carefully. I dont want to comment on that because that is not now

before me.

In relation to Shell, look Shell put an offer in relation to Woodside, in shares

and various structure and a price and it was that offer that I am now deliberating

on, have deliberated on. It can put another offer any day of the week and then

we will look at that as well.

JOURNALIST:

(inaudible)

TREASURER:

Well, you see, the thing about the conditions is, they are all things that

would be done subsequent. It was not anything to be done beforehand, it was

what would be done subsequent. If this goes ahead we would look at re-structuring

in the following way. Now, the trouble here is that this is something that

has six joint venturers who all have an interest, and who all have to agree

to the subsequent re-structuring. The concern was, what if any one or two of

those joint venturers did not agree? Then, notwithstanding Shells best efforts,

it may be that the conditions were not fulfilled. I am not casting any aspersions

on Shell, because they might have busted their boiler to do it, but it was

not actually within their province to be able to deliver those subsequent conditions,

and so, you are faced with the decision, do you approve it on various conditions,

hoping that they will be brought about but with no guarantee? Or do you take

the view that the national interest is such that you dont approve it, and

I took the latter.

JOURNALIST:

(inaudible)… in terms of foreign investment?

TREASURER:

Pardon?

JOURNALIST:

In a general sense (inaudible)…is there any need for concern about the level

of foreign investment in Australia?

TREASURER:

Look, I made this point before. Foreign investment has built Australia, from

the moment that people stepped off the First Fleet in Botany Bay, they brought

foreign investment with them. And it was the financial houses of London that

built and financed industries in Australia from its inception, and foreign

investment is something that we welcome and has been uncompromisingly good

for this country, and will be in the future.

In rare occasions, and I have given you the figures, there may be a national

interest in restricting. We have restricted foreign investment, for example,

in Telstra, we have restricted it in Qantas, we have restricted it in relation

to the media. This is one of those rare occasions where we have placed a restriction

on an energy resource. Now, you should not read in any more to this, than the

fact that, in relation to this transaction, there was a national interest consideration

which outweighed allowing it to go ahead. That is the only thing I would read

into this. I was asked to make a decision on this transaction and I made a

decision on this transaction. I did not make a decision on any other transaction

and I would not interpret from this to any other transaction, except to say,

I will do what the statute requires me, that is when they come in front of

me I will consider the national interest.

JOURNALIST:

(inaudible)

TREASURER:

Sorry.

JOURNALIST:

You mentioned (inaudible)… but wasnt it a concern that down the track Shell

would (inaudible)…

TREASURER:

Well, let me put it in the positive. The concern…

JOURNALIST:

(inaudible)

TREASURER:

Yes. Let me put it in the positive. The concern I had was that the exports

from the North West Shelf of Australia be promoted in all circumstances in

preference to all competing supplies. I thought that was in our national interest

and that was one of the considerations that weighed on me very heavily.

JOURNALIST:

(inaudible)..way of saying you did accept up to a point (inaudible)…

TREASURER:

You know, I said earlier, I have no complaints at all with Shell. It has been

a valued member of the Australian corporate community and a valued investor,

and it still continues to hold one-sixth of the resource. Lets make no mistake

about that. But, when it came to looking at operating and marketing the resource,

I just thought it was in our national interest that the operation and the marketing

be done in such a way that our resources were always promoted and sold in preference

to anybody elses and that was one of the considerations that I had on my mind.

JOURNALIST:

(inaudible)..North West Shelf (inaudible)…

TREASURER:

Well, nobody is saying that Australia is going to develop the North West Shelf

without foreign investment. After todays decision, in the North West Shelf,

there is still Shell as a joint venturer, a foreign company, BP as an investor,

foreign company, Chevron as an investor, foreign company and MIMI, Mitsui and

I think Mitsubishi, so, after todays decision there are still four foreign

investors in the North West Shelf and there is BHP and there is Woodside. And

nobody is saying that the foreign investors are not welcome to invest in the

North West Shelf. After today they still hold a preponderance of the resource.

This is not a question about where the ownership of the resource lay, this

was a question about the operation and the management of the resource as a

whole. Now, those joint venturers have agreed as between themselves, that it

would be Woodside, that is the operator and the manager, and along came a bid

which would have changed the shareholding in Woodside, changed the shareholding

in the operator and the manager, marketer, I should say, operator, manager

and marketer, probably a fair way of saying it. And it was that aspect of the

transaction that concerned me and it was that aspect of the transaction that

I had to make a determination on.

Thank you very much.