A case of Olympian incompetence by South Australia, THE AUSTRALIAN, BY:PAUL CLEARY ,October 21, 2011 THE royalty agreement negotiated by South Australia for BHP Billiton’s Olympic Dam expansion has robbed the state’s citizens and all Australians of the opportunity to share in the profits of what will become the world’s biggest mine. (at left, Marius Kloppers CEO of BHP BIlliton, and Mike Rann, retiring Premier of South Australia.)
This deal is a monumental example of state government incompetence when it comes to acting as custodian of the nation’s mineral wealth.
South Australia has agreed to a regime based solely on percentages and even cents per tonne of the mine’s production. Mike Rann, who stands down today as Premier, has done South Australians a disservice that will cost them dearly for almost half a century.
Rann and his administration should know full well that these royalties fail to capture a fair share of mining profits. This has been in the economic literature since the 1970s and was made more prominent by the Henry review. Yet the deal does not contain a single element of profits-based taxation.
The case for such measures is all the more compelling given that the mineral resources rent tax will not tax the millions of tonnes of copper, uranium, silver and gold the mine will be produce under the 45-year agreement, because the MRRT only applies to coal and iron ore.
Given that this is an agreement negotiated in the 21st century, it beggars belief the state could have agreed to a regime based exclusively on production-based royalties that hark back to medieval times.
But none of these ideas penetrated the thinking of the South Australian government when it negotiated its 45-year agreement for BHP’s $30 billion expansion.
The three-tier regime involves 3.5 per cent for refined mineral products, meaning copper and gold, and 5 per cent for uranium oxide and uranium-bearing copper concentrates.
There’s also 35c per tonne on extractive minerals sold to a third party, but this is not even indexed for inflation, so its value will diminish over the life of the agreement…..
This agreement will unfortunately stand as a sad and enduring indictment of the weakness of our state governments when it comes to negotiating with powerful mining multinationals.
The power of BHP was abundantly evident when it signed the agreement with the South Australian government on its home turf in Melbourne, rather than in Adelaide, and then declared that its board had already pre-committed $1.2bn in investment ahead of approval by the state and federal parliaments.
Given the environmental legacy of this mine, including above-ground storage of radioactive tailings and risks to water resources, a profits-based royalty could have been paid directly into a sovereign wealth fund. This fund could be used to compensate future generations who will most certainly have to live with greatly depleted mineral resources, and the environmental consequences of this mammoth venture.
These risks were glossed over by Environment Minister Tony Burke when he approved it under federal law. Burke’s description of the project is even more euphemistic than what is found in BHP’s environmental impact statement.
At no point in his media statement did Burke use the word radioactive. ……
Even glossier was Burke’s acceptance of the claim that seepage from the radioactive tailings storage facility would be “neutralised” 4m below the surface by limestone that is 60m deep. None of Burke’s three media advisers responded to questions last week.
BHP is less certain than Burke. Its draft EIS says the mine’s impact on groundwater would “depend” on various unknown factors, such as the “interaction of seepage with the sediments beneath the respective facilities”.
The EIS says that up to 8.2 million litres would seep from the TCF into groundwater each day in the first 10 years of operations, before falling to about 3.2 million litres a day.
Gavin Mudd, a senior lecturer in Monash University’s school of engineering, says BHP “got the lowest cost option on every front”, especially for above-ground storage of radioactive tailings. This is contrary to the practice employed with the Ranger uranium mine.
Mudd says the uncertainty flagged by BHP relates to the way water seeps into limestone creates caves; an imperfect mixing of water into the sediment could cause channels to open up, allowing massive volumes of water to flow into Lake Torrens, less than 100km from the mine.
“You will get these channels opening up — it is the nature of limestone. They have always underestimated seepage. Despite their claims, they still don’t understand as well as they need to to justify their claims,” he says…..
Mudd says the process is flawed because the government is “very reliant on data that comes from the company”.
For a project of this nature and magnitude, with inherent risks for future generations, taking out insurance in the form of a future fund is clearly warranted.
But this won’t happen with the royalties agreed to by the myopic state government. http://www.theaustralian.com.au/business/opinion/a-case-of-olympian-incompetence-by-south-australia/story-e6frg9if-1226172260137