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Department of Mines - State Economic Development Strategy Submission.
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C 0 N F I D E N T I A L
C A B I N E T M I N U T E
Brisbane, 8th August, 1988
Decision No. 54852
Submission No. 49448 TITLE: Department of Mines - State Economic Development Strategy Submission.
CABINET decided:-
That the contents of the Submission be noted.
CIRCULATION: Department of Mines and copy to r1inistor. Premier's Department and copy to Premier and Trcasurero Treasury Department and copy to Minister. All other Ministers for perusal and return.
d.~ Certified Tr ue C9py JI )}//-~ .
Secretary~ - to Ca b'inet. ~94~8
SECURITY CLASSIFICATION "C" - CONFIDENTIAL
Submission No. •·•••·····••···••·21
C<>I>.Y' No......
FOR CABINET
DEPARTMENT OF MINES Sl'ATE ECONOMIC DEVELOPMENT Sl'RATEGY SUBMTI:SION
1. Honourable Ministers will recall that the State Economic Development Strategy is being prepared within the Premier's Department and with the assistance of Stanford Research Institute in conjunction with Strategies Pty Ltd, Consultants.
2. Submissions have been invited from Government Departments and t he private sector to assist in preparing the strategy. Following this request, the Department of Mines as the Government agency responsible for the planning and management of one of the leading sectors in the Queensland economy, has prepared a Submission on the mineral and energy resource n 5 · sector of the State. A copy of the Executive Summary is attached at 3 ,,,.0 Attachment I together with the complete Submission. a:J "' c: ..... CD 3. The Submission covers important issues affecting the prospects of the ~ Queensland mineral resource sector and the contribution of the sector to Q. the State's economy. Because of its current size and prospects, the GI,._.. minerals and energy industry is recommended as one of the main sectors (") to be targetted for encouragement and support. ~ n :l 0 4. The Submission also lists policies and actions proposed for inclusion in the - strategy. These policies and actions, which compliment and supplement 0 policies and actions already in place within the Department of Mines, are G) ()"""" designed to stimulate expansion and development of the sector with a view caCD Q to maximising its contribution to the future economy of the State. :::s :l 5. In line with this concept, the recent re- organisation of the Department of Mines involved program management grouping. The new structure and subsequent actions have an active focus on identification of opportunities, and the targetting of the more promising projects through strong promotional and marketing efforts.
6. SUBMl'rl'ED for the information of Cabinet.
MARTIN TENN! MINISTER FOR MINES AND ENERGY
Brisbane 4th August, 1988 ATTACHMENT I
1.
EXECUTIVE SUMMARY
Introduction
This submission is made by the Department of Mines as part of its contribution to the preparation of a State Economic Development Strategy. The submission covers important issues affecting the prospects of the Queensland mineral resource sector and the future contribut ion of the sector to the State's economy.
A limited time was provided for submissions. Consequently, it was not possible to carry out the level of research or prepare the standard of documentation commensurate with the significance of the mineral resource sector and its role in the future economy of Queensland.
Resource Base
Queensland has a wide range of deposits of metallic and industrial minerals, fossil fuels and gemstones. In particular, the State's coal, oil shale, bauxite, mineral sands, magnesite, sapphire and opal deposits are of major significance by world resource or trade standards. Copper, silver, lead, zinc and gold are other important economic resources of the State.
These geological resources allied with the m1n1ng industries well developed technical and marketing skills have provided a comparative advantage for the State to compete successfully on world markets.
Current Economic Significance
The mineral resource sector has for many years played an important and growing role in the Queensland economy.
Exploitation of the State's mineral and energy resources leads directly to economic activities involved in exploration, extraction, primary processing and transportation.
Indirectly, the sector has widespread influence throughout the economy. The sector provides broad industry support upstream through purchase of goods and services and has linkages downstream to smelting, refining and manufacture of metal products. Additional economic activity is generated throughout the economy through multiplier linkages.
Directly and indirectly the mineral resource sector is an important generator of exports, investment, State Government revenue, employment and infrastructure development. The level of rontribution of the mineral resource sector varies across the State with the industry in some areas being the mainstay of the regional economy. The mining industry is arguably the most effective instrument for decentralization within Queensland.
Statistics showing the economic significance of the total mineral resource sector are not available because of classification and confidentiality problems.
The extractive operations sub- sector had a total turnover of $4925 million in 1985/86. The turnover of the major commodity groupings were $3300 million for coal (67%), $920 million for metallic minerals (19 %), $445 million for oil and gas (9 %) and $260 million for other minerals including construction materials (5 %). 2.
Other indicators of the economic significance of the mineral resource sector are:
Foreign Export contribution (1986 /87): $4500 million (58% of State total)
New Capital Expenditure 1982/83 - 1986/87 (5 year average): $666 million (23% of State total)
Estimated Annual Net State Revenue Contribution $670 million (33% State raised revenue, (1986 /87): 18% Total State revenue)
Estimated Direct and Indirect Employment (mid 1987): 81 000 persons (7% of State total)
The workforce statistics quoted above include full and part-time jobs. Translation into full time equivalents would increase the significance of the employment generated directly by the mining industry and indirectly through multiplier linkages to other dependent sectors.
Over the last twenty years major expansion of the industry has occurred. The turnover of the extractive industry sub-sector has recorded a compound growth rate of 19% over the period 1970/ 71 to 1985/86. More recently the pace of growth has slowed. In 1987 /88 the level of employment and the total value of output in real terms has appeared to plateau or marginally decline. This levelling off has resulted from a fall in the coal market which has more than offset increases in most other n 3 · commodity markets. The slow--down in the expansion of the coal industry has been 3 ..., ..:::T due to highly competitive world market conditions and industry cost conditions "' stifling investment in mine expansions thereby reducing tonnages available for export.
Constraining Influences
Important factors impacting on industry cost competitiveness and constraining development of the mineral resource sector are:
the level of Government charges; inefficient work practices; alienation of resources from mining (10 % of the State's land is already closed to access or under threat of closure); the holding of land under idle exploration titles and mining leases; international trade barriers and subsidies; and high costs of coastal shipping and some parts of the onshore maritime industry associated with non-bulk trades.
State Government Charges
Of the above constraining influences, industry has voiced its concern with regard to the level of State Government charges through rail and port charges, royalties and taxes. The level of State Government revenue collection (estimated $670 million net contribution by the mining industry in 1986/87) has come under increa sing criticism from many quarters within the industry in recent years. A further cost imposed on many mine developments is the requirement to pay for infrastructure works beyond those directly associated with the mining project or dedica t ed transport and handling systems. 3.
The coal industry pays State Government charges for rail freight and port services. These charges were increased for projects initiated during the resource development "boom" of the late 1970's and early 1980's, but notwithstanding reductions in rail freight already offered by the Government, the mining companies complain that the charges have not been reduced in line with the very substantial decline (in both real and absolute terms) in prices for coal exports. Low coal prices and high Government charges could impose constraints that virtually preclude development of new coal mines until market prospects improve.
Similar levels of charges are not imposed on other sectors of the economy. The consequence is that resources are attracted away from the mining industry, particularly the export coal industry, into other protected sectors. Resource allocation is thereby being distorted, economic efficiency is being reduced and the full potential of the State's economy is not being realised.
A critical issue in the State Economic Development Strategy therefore will be the State Government's tax policy on the mining industry. Through the royalty system administered by the Department of Mines, the industry should give a fair and adequate return to the community for the exploitation of the State's resources. A higher level of collection for reasons of budgetary requirements could imply short term fiscal considerations have been given priority over longer-term economic d evelopment.
Industry Strengths
Queensland's large and often high quality resources provide a potential comparative advantage for the State to continue to compete successfully on world markets. m Other strengths of the industry are: c
Industry Competitiveness
A profitable mineral resource sector yielding a competitive level of return in relation to the industry risk is a prerequisite for the industry to play a continuing major role in the Queensland economy. In all markets with the possible exception of mineral sands, Queensland mining companies believe that they are price takers and this position is not expected to change. Therefore, for the industry to be profitable and make sales in international markets, the mineral resource sector must be cost competitive with alternative supply sources. Commodity markets are expected generally to remain highly competitive. The traditional dominant exporters such as Australia, United States, Canada and South Africa are being challenged by Brazil, Colombia, Venezuela, Chile, China, India and others. 4.
Increasingly, mmmg companies including Queensland companies are adopting a global outlook. To attract e xploration and development investment and thereby contribute to the State's economy, Queensland must be seen as having a favourable investment climate.
Future Prospects
Achievement of cost competitiveness is expected to lead towards opportunities for:
expansion and diversification of mining; development of downstream processing; export marketing of mining expertise; and spinoffs to high technology and equipment manufacturing sectors (ie. increased service industries for the existing and expanded mining sector).
The Australian Bureau of Agricultural and Resource Economics (ABARE) has prepared forecasts of Australia's mineral exports to the Year 2000. The best estimate of ABARE is for strong growth in the value of exports of steaming coal, lead, bauxite and mineral sands; moderate growth for copper and zinc; and sluggish growth for coking coal. Interpreting the forecasts broadly to the Queensland industry indicates an overall growth in the value of the mineral sector output from 1986 to 2000 of approximately 47% in real terms.
Structural change in the industry through f urther downstream processing will lead to value being added to Queensland's exports and of the economy being stimulated both directly and more generally indirectly through intersectoral linkages. Through 0 ;:; encouragement of integrated extraction and processing investments the mining 3 0,,. industry can act as an important base for stimulating expansion in linked industries. CD "'en c
In addition to those listed above, minerals identified with value-added potential includes coal (coke). To encourage full processing in Que ensland the Department of Mines is planning to allocate or condition mining titles, where appropriate, to favour parties committing to further value-added developments.
These projects along with expansions of existing operations represe nt opportunities for substantial investment and will be important elements in Queensland's overall economic growth. 5.
State Economic Development Strategy
The mineral and energy sector's future will be influenced significantly by a number of factors outside the control of the mining industry and the State Government. Nevertheless, the mining industry and the State Government are in a position to adopt policies and take actions within the framework of a State Economic Development Strategy which can have a major bearing on the future development of the industry and on its contribution to the economy of the State.
The industry fundamentals of deposit quality and cost efficiency remain sound. The sector is well placed to reap the benefits of any strengthening of world markets and greater support from Government through removal of impediments.
Because of its current size and prospects a strategy for the future economic growth of Queensland must include strong support for the minerals and energy sector. The minerals and energy sector will need to be recognised as a source of major direct and indirect economic benefits to the State. The mining industry warrants selective targetting as one of the main sectors for encouragement and support . Under the alternative of unfavourable treatment the likelihood is for the industry to stagnate or even decline with consequential damaging effect on the State's economy.
The State Economic Development Strategy should clearly recognise the leading role of the private sector in the development of the minerals and energy resources of Queensland. The leading role allocated to the private sector recognises that it is best placed to initiate new projects and manage operations. n ::r 3 n ..:::r The Government's major role should be set as one of encouragement and CD .... "' facilitation. This role may be summarised in terms of the creation of an attractive c: CD business climate which stimulates exploration and investment and which helps ~ industry achieve efficiency and cost competitiveness. Q. I\) GI The State Economic Development Strategy needs to focus on efficiency and cost () ~ competitiveness since these factors will set the pattern for the long-term ~ () development of the mineral resource sector. The strategy also needs to focus on :l 0 the accessibility and pro motion of the State's mineral and energy resources. -0 ~ The Depar tment of Mines is the Government agency with responsibility for planning Ci)() and management of the mineral resource sector. In discharging these i responsibilities, the Department is continuing to actively encourage expansion and CD Q development of the mineral resource sector consistent with Government policy. ::> ::J The policies and actions proposed in the submission for inclusion in the State Economic Development Strategy compliment and supplement the policies and a actions already in place within the Department of Mines. -
Important components of the State Economic Development Strategy are proposed to include:
GOAI.S
State: A diversified sound economy yielding increasing community wealth and strengthening regional development.
Mineral Resource Industry: A profitable, efficient and expanding sector targetted as one of the major sectors of the State Economy. A target increase in real output value of a minimum of 50% by the year 2000. 6.
Department of Mines: Ensure that Queensland's minerals and energy resources are assessed, developed and utilised to the maximum extent practicable consistent with sound economic, safety and environmental management.
POLICIES AND ACTIONS
Encourage and support expansion and development of the mineral resource sector;
Create a more attractive climate for investment in exploration and mining project development;
Permit the mineral resource sector to work towards its own objectives within a clearly defined Government policy framework;
Identify mining and downstream processing projects with future economic potential;
Actively target companies likely to be interested in the identified opportunities;
Encourage productivity gains, cost reduction and greater international competitiveness through improvement in work and management practices;
Encourage the use of advanced technology and innovations in production, transport and marketing; n :;· 3 n ::T Promote structural change and increase the value added in the industry CD .... "''" through further smelting, refining and manufacturing of metal products; -c:
Promote a higher level of research into markets, commodity trends and product opportunities;
Encourage private and public sector participation in manpower planning, job training and development;
Increase efforts by the industry and Government into research and development aimed at improving industry efficiency, productivity and markets for technology;
Improve efficiency, increase reliability and lower the costs to users of coastal shipping and waterfront operations; 7.
Achieve a smaller, more efficient and more accountable public sector;
Restrict the public sector from participation in activities which are normally undertaken by the private sector. Limit State intervention to circumstances where clear evidence exists of significant public benefit from direct Government action;
Redraft legislation governing the industry to enable a positive and efficient administrative structure;
Encourage the small mining sector to participate in the general industry support program mes for the small business sector;
Endeavour to encourage the Commonwealth Government to adopt a more balanced and rational approach to matters related to environmental issues and export controls;
Support a balanced environmental policy which allows the industry access to resources through adoption of multiple and sequential land use approach;
Ensure the industry performs as responsible environmental managers;
Adopt a tax structure based on equity, economic efficiency, stimulation of economic growth and simplicity which yields a stable revenue flow to which is matched Government expenditure obligations;
Broaden the tax base to reduce reliance on the mineral resource sector;
Reform the mineral tax structure to encourage more equitable treatment of the industry and more efficient allocation of resources;
Restrict infrastructure capital contributions to works directly associated with the mine development, transport and handling systems;
Finalise the review by the Department of Mines of the royalty system ensuring the system is competitive nationally and yields a fair and equitable return for exploitation of the State's mineral resources; and
Provide within the royalty system flexibility to give more incentive for downstream processing and for marginal mining projects during the project establishment period.
Role of the Department of Mines
In the development of the State Economic Development Strategy some consideration must be given to the role likely to be taken by the Department of Mines in any new structure.
The Department of Mines recently has redefined its goals and objectives, and restructured into ten programs including Mineral Resources Development, Energy Resources Development and Utilisation, and Resource Economics, each having a strong emphasis on facilitating exploration and development as well as targetting areas of potential.
A suitable legislative and administrative framework is a precondition for accelerated growth. The Department is currently reviewing relevant legislation. 8.
In the performance of its duties over past years, the Department of Mines has developed a unique, detailed and intimate understanding of the mineral resource sector in Queensland, and of the problems faced by private sector companies in pursuit of their goals. The strengths of the Department in this regard will be of considerable value to the Government, and should be used to maximum effect in developing and implementing the new economic strategy.
The recent re-organisation has given Program Managers the task of transforming these understandings and strengths into project proposals for industry expansion and development. These Managers will be responsible for the promotion and marketing to national and international industry of the more attractive proposals.
In further facilitating development and diversification of the Queensland minerals and energy resources sector, the Department of Mines as the responsible agent for the Queensland Government, needs to continue to play a key role in encouragement and support of private sector initiatives, with responsibility particularly for initial Government - company negotiations.
In the implementation of new projects companies are currently required to deal with a large number of Departments. This arrangement is overly cumbersome and time consuming and could at least in the inital phases be replaced by more efficient procedures.
As part of total implementation of mineral resource development the Department of Mines should have a continuing managerial role, with firm responsibility to see .., :;· projects to completion wherever possible by offering "one stop shop" facilities, with 3 .... ~ inputs as required from other Government Departments. CD "' c: ...