The government’s decision last week to force gas exporters to hold more in reserve for Australian customers may change the ‘price of power’, but in more ways than one.
Its long-term impact may be less on energy costs, and more on the price of political power.
That’s because the emergency ‘Domestic Gas Security Mechanism’ is being introduced without apology to the vested interests upon whose toes it is stepping.
And even more significantly, it’s getting a pretty smooth ride from media commentators. The political landscape really is changing.
Businesses hate retrospective laws, and such laws should be avoided wherever possible. They do, unquestionably, create ‘sovereign risk’.
An investor that sees a nation as fickle and unreliable is more likely to take their money elsewhere – though like any economic phenomenon, it’s the marginal projects that pull out first.
The problem in Australia in recent years is that the issue of sovereign risk has been blown out of all proportion.
Take, for instance, the outcry over the Rudd government’s ill-fated RSPT mining tax in 2010.
My then-colleague Robert Gottliebsen summed up the horror of many commentators: “Australia is on the brink of the greatest capital strike in its history and one of the largest ever seen in the world. In the vicinity of $100 billion of resource projects that were almost certain to go ahead are now headed for mothballing until the resources tax is either abandoned or severely modified.”
Well yes, that’s what BHP and Rio Tinto were telling many journalists behind closed doors. And yes, BHP did set up a ‘war room’ to fight the tax from its Melbourne HQ.
But that’s what the boards of BHP or Rio Tinto are supposed to do. Directors who see their shareholders’ interests being attacked have a duty to pursue such campaigns as ruthlessly as the law permits.
The job of a democratically elected government, by contrast, is to weigh up the threat of a ‘capital strike’ and the impact on other future investment decisions and make a call somewhere between kow-towing to the big end of town and crippling the economy that voters rely on. There is always a middle ground.
But in 2010 the media, on balance, picked up the ‘sky is falling’ line and ensured that any hope of a decent mining tax was destroyed for good.
The ‘MRRT’ tax that Julia Gillard hastily negotiated with the miners behind closed doors when she became PM in June of that year ended up raising virtually no revenue.
The miners had rolled the government, and the ‘fourth estate’ media cheered them all the way.
Things are playing out very differently with the government’s gas reservation plans.
The industry, through Australian Petroleum Production and Exploration Association chief executive Malcolm Roberts, has predictably warned that: “At a time when we need billions in new investment to create more gas supply, any intervention that creates sovereign risk is alarming.”
And yet the government has nonetheless indicated that it will do whatever is necessary to shore up power supplies in the coming summer, and keep gas-powered businesses afloat.
Mr Gottliebsen seems to have joined the new spirit of economic nationalism. He wrote on Thursday: “[The government has] taken the first step to avoiding what I have called ‘the greatest peace time crisis to face the nation since the depression’ … my full marks go to our Prime Minister, energy minister and the rest of the cabinet.
“If the Gladstone three — the Santos, Origin and Shell consortiums — are unhappy I say ‘too bad’. No nation can allow its industries to be destroyed by the actions of groups like the Gladstone three.”
Personally, this columnist would have preferred more journalists to say ‘too bad’ to the bleating mining lobbyists in 2010.
At that time, the federal budget had been ravaged by the global financial crisis, state-based royalties were failing to capture a sensible share of the mining-boom billions, and the ‘Dutch disease’ caused by the sky-high dollar was killing off businesses and jobs in other sectors of the economy.
That’s why the government’s gas policy, and the media reaction to it, is so important.
It offers some hope that the government and fourth estate media are getting a better handle on who they work for – local voters and tax-payers first, global investors second.