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'This wave of
Mining investment boom exposes hypocrisy in claims of sovereign risk |
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COMPARING Australia to Greece would be patently ridiculous to most people. Sure, things here are hardly perfect. But no one would dispute that the debt-stricken nation is another league, with increasingly bitter protests over budget cuts required as part of last week's deal with its creditors. Despite these vast differences, conflating Australia's situation with that of Greece is exactly what some in the business community are carelessly doing. How could this be so? I'm referring to that favourite catch-phrase lobbyists use when trying to undermine a policy they oppose: ''sovereign risk.''
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This phrase has been used ad nauseam by business groups, miners in particular, in their fight against policies they don't like - none more so than the mining tax and carbon price. With mining tax legislation coming into Parliament this week, expect the shouting to continue. For all the bluster, sovereign risk means something completely different. It refers to the risk of a radical change in the economic environment for an investor - think of the 50 per cent ''haircut'' Greece's creditors will wear. Putting these rather large semantic differences aside, how has Australia's ''sovereign risk'' problem affected investment? As figures published today show, the proposed changes have done little to stem the flow of mining cash flooding into the nation. Despite all the complaints about pricing carbon and taxing mining profits, the quarterly Deloitte Access Economics Investment Monitor shows the value of definite projects swelled by 51.3 per cent to $406.8 billion in the year to September. Boardrooms may well have thought carefully about the new policies while considering these mammoth projects, but it didn't stop them. Nor has the tax threat stopped proposals for investments that may still come to fruition. The value of possible projects leapt by 31.8 per cent in the year, to $256.9 billion, today's report says. All up, the total pool of investment under way or on the drawing board has reached a staggering $894.1 billion. But how do we know it wouldn't have been even bigger if not for the new imposts? We don't. But there is little evidence that companies have lived up to their threat to shelve projects, and some of the biggest whingers have been investing like mad. Here are just a few examples. Billionaire and prominent Liberal Party donor Clive Palmer has been one of the most vocal critics predicting damage from pricing carbon. Yet his $8.3 billion Galilee Basincoal mine in Queensland was one of the biggest projects to pop up on the Deloitte Access database last quarter. Brazil's Vale, the world's second biggest miner, complained this month that taxing mining profits and pricing carbon increased sovereign risk. But in August, Vale's board was happy to commit $US875 million for a massive coal mine, also in Queensland. This wave of investment is sweeping across the coal industry - one of the biggest critics of the carbon price. During five years of debate over pricing carbon, the value of potential coal projects has increased from about $10 billion to more than $50 billion. The reasons are clear enough - there are blistering profits to be made. In the last decade, the price of the highest quality coal has increased roughly six-fold - more than making up for any new taxes. Treasury secretary Martin Parkinson highlighted this point at Senate estimates two weeks ago, saying the extra cost of the mining tax and carbon price was ''very small''. When asked about sovereign risk, he suggested we judge miners by their actions. ''I would have to conclude that the arguments about sovereign risk carry little weight given that investment in some of the affected sectors is at record levels and that the investment intentions have continued to grow very, very strongly,'' Dr Parkinson said. ''I suppose it is one of those things - sovereign risk is in the eye of the beholder, and all we have are the facts of what people are intending to invest in the mining sector.'' Despite the statistics, many business groups continue to howl about ''sovereign risk'', and the Opposition has been almost gleeful in seizing on the accusation. Finance spokesman Andrew Robb has listed no less than 17 areas - from poker machine pre-commitment to the national broadband network - that have caused foreign investors to head elsewhere. ''Evidence on the ground confirms that international investors are taking an increasingly dim view of Australia as an investment destination as Labor undermines our comparative advantages,'' Robb claimed in July. What evidence, exactly? For all the fuss, Tony Abbott's ''blood pledge'' to unravel the carbon price comes far closer to posing a genuine risk for global investors. By signalling that carbon credits bought by big companies under Labor may not be refunded under a Coalition government, he risks removing a property right without compensation. As University of NSW law professor George Williams wrote recently, such policy could end up challenged in the High Court. That complex legal battle would only create more uncertainty. So where is the business outrage over the ''blood pledge''? Spokesmen from the most-affected electricity sector have spoken out, but in muted tones compared with the corporate attacks on pricing carbon. Mining magnates such as Palmer have been silent. They appear to have suddenly lost their interest in making sure investors don't face abrupt changes in the rules of the game. Hypocrisy like this suggests that cries of ''sovereign risk'' should be taken with a grain of salt. It was an unconvincing argument in last year's ''super profits'' tax debate and it only loses credibility as the resources boom gathers steam. Authors: mining - Yahoo! News Search Results |