PROJECT SEA DRAGON STAGE 1 LEGUNE GROW-OUT FACILITY DRAFT ENVIRONMENTAL IMPACT STATEMENT

VOLUME 5 - APPENDICES APPENDIX 21 -ECONOMIC IMPACT ASSESSMENT

Volume 5 - Appendices Appendix 21 -Economic Impact Assessment 1

REPORT TO SEAFARMS GROUP LIMITED

5 JULY 2016 PROJECT

SEA DRAGON

SOCIO-ECONOMIC ASSESSMENT STAGE 1 – LEGUNE GROW-OUT FACILITY

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FOR INFORMATION ON THIS REPORT PLEASE CONTACT: CONTRIBUTING TEAM MEMBERS (ALPHABETICAL)

Guy Jakeman ANTONIA HODBY E: [email protected] GUY JAKEMAN Office: +61 2 6103 8200 | D: +61 2 6103 8202 | M: 0417 706 522 DR PETER JOHNSON

RELIANCE AND DISCLAIMER THE PROFESSIONAL ANALYSIS AND ADVICE IN THIS REPORT HAS BEEN PREPARED BY ACIL ALLEN CONSULTING FOR THE EXCLUSIVE USE OF THE PARTY OR PARTIES TO WHOM IT IS ADDRESSED (THE ADDRESSEE) AND FOR THE PURPOSES SPECIFIED IN IT. THIS REPORT IS SUPPLIED IN GOOD FAITH AND REFLECTS THE KNOWLEDGE, EXPERTISE AND EXPERIENCE OF THE CONSULTANTS INVOLVED. THE REPORT MUST NOT BE PUBLISHED, QUOTED OR DISSEMINATED TO ANY OTHER PARTY WITHOUT ACIL ALLEN CONSULTING’S PRIOR WRITTEN CONSENT. ACIL ALLEN CONSULTING ACCEPTS NO RESPONSIBILITY WHATSOEVER FOR ANY LOSS OCCASIONED BY ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF RELIANCE ON THE REPORT, OTHER THAN THE ADDRESSEE.

IN CONDUCTING THE ANALYSIS IN THIS REPORT ACIL ALLEN CONSULTING HAS ENDEAVOURED TO USE WHAT IT CONSIDERS IS THE BEST INFORMATION AVAILABLE AT THE DATE OF PUBLICATION, INCLUDING INFORMATION SUPPLIED BY THE ADDRESSEE. UNLESS STATED OTHERWISE, ACIL ALLEN CONSULTING DOES NOT WARRANT THE ACCURACY OF ANY FORECAST OR PROJECTION IN THE REPORT. ALTHOUGH ACIL ALLEN CONSULTING EXERCISES REASONABLE CARE WHEN MAKING FORECASTS OR PROJECTIONS, FACTORS IN THE PROCESS, SUCH AS FUTURE MARKET BEHAVIOUR, ARE INHERENTLY UNCERTAIN AND CANNOT BE FORECAST OR PROJECTED RELIABLY.

ACIL ALLEN CONSULTING SHALL NOT BE LIABLE IN RESPECT OF ANY CLAIM ARISING OUT OF THE FAILURE OF A CLIENT INVESTMENT TO PERFORM TO THE ADVANTAGE OF THE CLIENT OR TO THE ADVANTAGE OF THE CLIENT TO THE DEGREE SUGGESTED OR ASSUMED IN ANY ADVICE OR FORECAST GIVEN BY ACIL ALLEN CONSULTING.

© ACIL ALLEN CONSULTING 2016

CONTENTS

EXECUTIVE SUMMARY I 1 Introduction 1 1.1 Project details 1 1.2 Location 1 1.3 Data sources 2 1.4 Major assumptions 2 1.5 Glossary of key economic terms 3 1.6 Acronyms 4 1.7 Report structure 4 2 Socio Economic Profile 6 2.1 Population 6 2.2 Demography 7 2.3 Overview of the economy 8 2.4 Infrastructure 15 2.5 Businesses 16 2.6 Workforce 16 2.7 Summary 20 3 Economic Impact Assessment 21 3.1 Project assumptions 21 3.2 Project’s economic feasibility 24 3.3 Real economic output and real income 26 3.4 Employment creation 28 3.5 Contribution to government revenue 31 3.6 Opportunities for regional centres 31 3.7 Contribution to business development 31 3.8 R&D capability 32 3.9 Sustainable development and community well being 32 4 Bibliography 37 A Overview of Tasman Global A–1 A.1 Overview A–1 A.2 A dynamic model A–1 A.3 The database A–2 A.4 Model structure A–5 A.5 Population growth and labour supply A–7 A.6 References A–11

CONTENTS

FIGURES FIGURE ES 1 EMPLOYMENT CREATION: CONSTRUCTION AND OPERATION – STAGE 1 IV FIGURE ES 2 PROJECTED EMPLOYMENT BY OCCUPATION, TOTAL AUSTRALIA – STAGE 1 V FIGURE 1.1 PROJECT SEA DRAGON STAGE 1 LOCATION 2 FIGURE.2.1 ESTIMATED RESIDENT POPULATION: NORTHERN TERRITORY, VICTORIA DALY REGION AND LOCAL REGION (2004 – 2025) 7 FIGURE.2.2 AGE AND GENDER PROFILE: INDIGENOUS AND NON INDIGENOUS PEOPLE: NORTHERN TERRITORY AND VICTORIA RIVER SA2 8 FIGURE 2.3 VALUE OF GROSS STATE PRODUCT BY STATE (JUNE 30) 9 FIGURE 2.4 GROSS STATE PRODUCT: AVERAGE ANNUAL GROWTH 10 FIGURE 2.5 NORTHERN TERRITORY MINING PRODUCTION BY MINERAL GROUP 11 FIGURE 2.6 VALUE OF FISHERIES PRODUCTION: NORTHERN TERRITORY 13 FIGURE 2.7 TOTAL HISTORIC AND PROJECTED VISITOR NIGHT GROWTH: NORTHERN TERRITORY 14 FIGURE 2.8 MEDIAN HOUSE PRICE AND RENTAL PRICE: GREATER DARWIN 15 FIGURE 2.9 UNEMPLOYMENT RATE AND WORKFORCE: LOCAL REGION 17 FIGURE 2.10 INDUSTRY OF EMPLOYMENT: NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL EMPLOYED PERSONS AGED 15+) 18 FIGURE.2.11 NON SCHOOL QUALIFICATION NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL PERSONS WITH A QUALIFICATION AGED 15+) 19 FIGURE.2.12 PERSONAL WEEKLY INCOME: NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL PERSONS AGED 15+) 20 FIGURE 3.1 ESTIMATED CAPITAL AND OPERATING EXPENDITURE BY YEAR: STAGE 1 OF PROJECT SEA DRAGON 22 FIGURE 3.2 ESTIMATED REVENUE BY YEAR: STAGE 1 OF PROJECT SEA DRAGON 23 FIGURE 3.3 DIRECT WORKFORCE: STAGE 1 PROJECT SEA DRAGON: CONSTRUCTION AND OPERATION 23 FIGURE 3.4 PROJECTED CHANGE IN REAL ECONOMIC OUTPUT AND REAL INCOME AS A RESULT OF STAGE 1, RELATIVE TO THE REFERENCE CASE 26 FIGURE 3.5 EMPLOYMENT CREATION: CONSTRUCTION AND OPERATION – STAGE 1 29 FIGURE 3.6 PROJECTED EMPLOYMENT BY OCCUPATION, TOTAL AUSTRALIA – STAGE 1 30 FIGURE 3.7 OCCUPATIONAL CLASSIFICATION: STAGE 1 OF PROJECT SEA DRAGON 34 FIGURE 3.8 LEVEL OF SKILLS REQUIRED: STAGE 1 OF PROJECT SEA DRAGON: LEGUNE SITE 35 FIGURE A.1 ILLUSTRATIVE SCENARIO ANALYSIS USING TASMAN GLOBAL A–2 TABLES TABLE ES 1 PROJECT FINANCIAL ASSUMPTIONS: STAGE 1 OF PROJECT SEA DRAGON II TABLE 1.1 LIST OF ACRONYMS 4 TABLE 2.1 POPULATION ESTIMATES (2014) 6 TABLE 3.1 PROJECT FINANCIAL ASSUMPTIONS: STAGE 1 OF PROJECT SEA DRAGON 21 TABLE 3.2 PROJECTED CUMULATIVE CHANGE IN REAL ECONOMIC OUTPUT AND REAL INCOME IN EACH REGION AS A RESULT OF STAGE 1, RELATIVE TO THE REFERENCE CASE (IN 2015-16 TERMS) 27 TABLE 3.3 LABOUR MARKET SENSITIVITY ANALYSIS – MACROECONOMIC IMPACTS 30 TABLE 3.4 LABOUR MARKET SENSITIVITY ANALYSIS – EMPLOYMENT IMPACTS 31 TABLE A.1 SECTORS IN THE TASMAN GLOBAL DATABASE A–4 TABLE A.2 OCCUPATIONS IN THE TASMAN GLOBAL DATABASE, ANZSCO 3-DIGIT LEVEL (MINOR GROUPS) A–9

E X E C U T I V E SUMMARY

Key findings

Development of Stage 1 of Project Sea Dragon, located at Legune Station in the Northern Territory, would have significant net positive economic benefits at the state and national levels. This study finds that Stage 1 of the Project, over the period 2017 to 2032, would result in direct impacts of: — capital investment of an estimated $411 million — recurrent operating expenditure, including a significant level of local spending on support services, averaging $125 million per year at full production — prawn production valued at an average $195 million per year at full production — a construction workforce of 444 FTE employee years over the two year construction period (385 sourced from the Northern Territory and 59 sourced from the Kununurra region) — an operating workforce of 334 FTE workers (206 sourced from Northern Territory and 88 from the Kununurra region) — tax revenues to Australian governments totalling $50 million in nominal terms over the period to 2032. Compared to the Reference Case (“No Project”), Stage 1 of Project Sea Dragon would result in total direct and indirect impacts measured by Computable General Equilibrium modelling of: — an increase in Northern Territory’s real GSP by a cumulative total (to 2032) of $502 million — an increase in Northern Territory’s real income totalling $350 million over the period to 2032 — an average annual increase in employment of around 161 FTE jobs a year. For Australia as a whole, over the period to 2032 the Project would result in: — an increase the real GDP of Australia totalling of $903 million — an increase in real incomes of Australia totalling $1,478 million — an average annual increase in employment of around 284 FTE jobs a year. The diversification in industry and employment opportunities has the potential to underpin other economically and socially beneficial investments in the broader region, leading to improved outcomes for local residents. These outcomes are important for the area which is economically and socially isolated. They include such benefits as new and expanded prospects for local businesses, a range of skilled and less skilled employment opportunities, diversification of the economy, training and education opportunities, and improvements to local road infrastructure which will benefit a range of industries including the pastoral, tourism, recreational fishing industries as well as local residents. Note that this report focuses on the benefits of Stage 1 of Project Sea Dragon to the Northern Territory and as such has a focus on the benefits to the local town of Timber Creek and the Territory. The location of Stage 1 in proximity to Kununurra in Western Australia, the existing road transport links

i PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

associated with the Project, and the home base of the Traditional Owners of the land on which Stage 1 is located means that many of the benefits of Stage 1 will accrue to Western Australia. The benefits to Western Australia have been noted in this report but not described. The Project

Stage 1 of Project Sea Dragon is a proposal to develop a large, fully integrated, prawn aquaculture system in northern Australia. The Project will be delivered as an integrated production system, providing reliable, long-term, high quality and large scale production of Black Tiger prawns. This report considers the impact of Stage 1 of the Project on the Northern Territory economy. Stage 1 will comprise approximately 1,080 ha of prawn farming capacity plus associated infrastructure onsite. The prawn grow-out facilities are proposed to be located at Legune Station in the Victoria River District of the Northern Territory approximately 106 km away from Kununurra. In addition, there will be approximately $90 million spent on a range of breeding program, processing and export facilities that will be located in Darwin, Exmouth, Kununurra and Wyndham. Other stages will be undertaken subsequent to Stage 1 with the eventual full scale Project reaching 10,000 ha of prawn farming capacity with total capital expenditure expected to be $2.1 billion. Economic benefits from the Project

Stage 1 of Project Sea Dragon can be expected to have a range of economic impacts at national, regional and local levels. It would increase Northern Territory’s gross state product (GSP) and export earnings, and would provide a long-term boost to employment opportunities in both the local region as well as from Darwin during construction and operation. It is also likely to provide a basis for further development of Project Sea Dragon and possibly have some influence on other industries in the region. The benefits from the Project would also flow through to the broader Australian economy as the wages and salaries of Project staff are spent on goods and services and as suppliers provide a range of inputs to the Project. Direct benefits

The key financial assumptions for Stage 1 of Project Sea Dragon are presented in Table ES 1. TABLE ES 1 PROJECT FINANCIAL ASSUMPTIONS: STAGE 1 OF PROJECT SEA DRAGON Item Assumption Capital expenditure A$411 million (US$288 million) Operations expenditure (2018-2040) A$125 million per annum average at steady state Revenue (2018-2040) A$195 million per annum at steady state Local content assumptions (construction expenditure) NT 69.5% Australia/Overseas 30.5% Local content assumptions (operation expenditure) NT 39.4% Australia/Overseas 60.6% Tax and royalty payments (directly paid by Stage 1) $50 million nominal over period to 2032 (accounting for depreciation and interest expenses) Value of exports A$195 million per annum average at full production

SOURCE: SEAFARMS AND ACIL ALLEN CONSULTING

Indirect benefits

While the direct benefits summarised above are important in their own right, the full economic impact of Stage 1 of Project Sea Dragon includes any flow-on effects to other industry sectors. Spending by

ii PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

project participants, employees, government and landowner beneficiaries will lead to “multiplier effects” as the economic activities associated with the Project impact on the broader economy. One of the impacts of the Project will be the opportunities for local businesses. These opportunities include outsourcing of services such as construction services, mechanical and general maintenance services, fire control, weed control, accommodation and catering.

Real economic output The indirect macroeconomic impacts of the Project have been estimated over the period to 2032 using ACIL Allen’s Tasman Global computable general equilibrium (CGE) model. The results point to a range of significant macroeconomic impacts. More specifically, over the period 2017 to 2032, Stage 1 of the Project is projected to increase the real economic output of: ― the Northern Territory (i.e. real GSP) by a cumulative total of $502 million relative to the Reference Case (with a net present value of $347 million, using a 4 per cent real discount rate) ― the Kununurra region by a cumulative total of $108 million relative to the Reference Case (with a net present value of $75 million, using a 4 per cent real discount rate) ― the Rest of Western Australia by a cumulative total of $29 million relative to the Reference Case (with a net present value of $18 million, using a 4 per cent real discount rate) ― Australia as a whole (i.e. real GDP) by a cumulative total of $903 million relative to the Reference Case (with a net present value of $623 million, using a 4 per cent real discount rate). To place these projected changes in economic output estimates in perspective, the discounted present values (using a 4 per cent discount rate) are equivalent to: ― 1.5 per cent of Northern Territory’s current GSP ― 0.04 per cent of Australia’s current GDP.

Real income An alternative macroeconomic measure of the economic benefit of the Project is provided by the change in real income. Real income is a measure of the ability of residents to purchase goods and services, adjusted for inflation and is a measure of the change in welfare of an economy. Over the period 2017 to 2032, the Project is projected to increase the real income of: ― the Northern Territory by a cumulative total of $350 million relative to the Reference Case (with a net present value of $267 million, using a 4 per cent real discount rate) ― the Kununurra region by a cumulative total of $162 million relative to the Reference Case (with a net present value of $121 million, using a 4 per cent real discount rate) ― the Rest of Western Australia by a cumulative total of $129 million relative to the Reference Case (with a net present value of $85 million, using a 4 per cent real discount rate) ― Australia as a whole by a cumulative total of $1,478 million relative to the Reference Case (with a net present value of $1,048 million, using a 4 per cent real discount rate). To place these projected changes in income in perspective, the discounted present values (using a 4 per cent discount rate) are equivalent to a one-off increase in the average real income of all current residents of: ― the Northern Territory by approximately $1,090 per person This is a noticeable increase in consumer welfare in the context of a single project.

Employment Stage 1 of Project Sea Dragon will create direct and indirect employment. Direct employment is the number of workers directly employed by the Project. Indirect employment is the number of workers employed as a result of the additional expenditure by the Project in the economy which generates enough demand to create additional jobs. Job creation is expressed in full time equivalent job years which is the number of full time staff employed in one year. Over the assessed life of Stage 1 of the Project it is projected that around 4,545 employee years of full time equivalent direct and indirect jobs will be created. More specifically, it is projected that Stage 1 will increase employment in:

iii PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

― the Northern Territory by 2,582 employee years (average annual increase of 161 FTE jobs) ― the Kununurra region by 643 employee years (average annual increase of 40 FTE jobs) ― the rest of Western Australia by 241 employee years (average annual increase of 15 FTE jobs) ― Australia as a whole by 4,545 employee years (average annual increase of 284 FTE jobs). As illustrated in Figure ES 1, the total additional employment is projected to be greatest during the initial construction phase and then broadly constant throughout the projection period, but will experience some variation by region year to year. Even though there aren’t many direct jobs sourced from outside of the Northern Territory and Kununurra region, it is projected that a noticeable level of job creation will occur in the rest of Australia. This is because of the redistribution of profits and taxes from the Project which are expected to flow to the rest of Australia. FIGURE ES 1 EMPLOYMENT CREATION: CONSTRUCTION AND OPERATION – STAGE 1

600

500

400

300

200

100

FTE jobs 2016 2018 2020 2022 2024 2026 2028 2030 2032

NT Kununurra region Rest of WA Rest of Australia

Note: FTE = full-time equivalent. SOURCE: ACIL ALLEN ECONOMIC MODELLING

Stage 1 will employ many different skills. Figure ES 2 shows the broad classifications and numbers of employees stimulated across Australia by the Project over its life. The construction phase data reflect the high proportion of skilled machinery operators and drivers as well as technical and professional personnel required to construct a project of this type. In contrast the operations phase has a higher proportion of jobs as labourers, professionals and machinery operators and drivers.

iv PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE ES 2 PROJECTED EMPLOYMENT BY OCCUPATION, TOTAL AUSTRALIA – STAGE 1

600

500

400

300

200

100

FTE jobs 2016 2018 2020 2022 2024 2026 2028 2030 2032

Labourers Machinery Operators & Drivers Sales Clerical & Administrative Community & Personal Service Technicians & Trades Professionals Managers

Note: FTE = full-time equivalent. SOURCE: ACIL ALLEN ECONOMIC MODELLING

v PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

1 1 INTRODUCTION Introduction

1.1 Project details

Project Sea Dragon Pty Ltd, a wholly owned subsidiary of Seafarms Group Limited (Seafarms) proposes to develop Project Sea Dragon, a large, fully integrated, prawn aquaculture project located in northern Australia. The Project will be delivered as an integrated production system, providing reliable, long-term, high quality and large scale production of Black Tiger prawns (Penaeus monodon). The Project focuses on sustainable land use and integrated design practices to maintain surrounding river and coastal environments and support adjacent agricultural land uses. Project Sea Dragon is a large project with a long development timeline of approximately 7 years between first operations and full scale operations. This report considers the economic impact of Stage 1 of Project Sea Dragon (Stage 1) on the Northern Territory economy. Stage 1 comprises of a Grow-out Facility to be situated on Legune Station located in the north-west of the Northern Territory close to the Western Australian border and the town of Kununurra. The Stage 1 Legune Grow-out Facility will primarily comprise approximately 1,080 ha of prawn farming capacity, plus associated infrastructure onsite. In addition, there will be approximately $90 million spent on a range of breeding program, processing and export facilities that will be located in Darwin, Exmouth, Kununurra and Wyndham Other stages of the Project not considered in this report will include future proposed expansions to reach full scale operations with 10,000 ha of prawn farming capacity. Although not requested by the NT EPA in the EIS TOR, selected impacts on the Kununurra regional economy have been provided in the interest of transparency. 1.2 Location

The Stage 1 Legune Grow-out Facility is proposed to be located at Legune Station in the Northern Territory. Legune Station comprises NT Portion 798 and Portion 3222 in the Victoria River District. Legune Station is currently used for cattle grazing under a pastoral lease. The pastoral lease has an area of approximately 189,000 ha and is located near the western border of the Northern Territory. Road access to the site is from Western Australia. The closest community to the Project site is the Aboriginal community of Marralum, which is located around 34 km to the southwest. The nearest town is Kununurra which is located 106 km by road to the west of the project. The nearest town in the Northern Territory is Timber Creek located to the south east of Stage 1 and approximately 228 km from Kununurra. The project is located wholly within the Victoria Daly Local Government Area.

1 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 1.1 PROJECT SEA DRAGON STAGE 1 LOCATION

SOURCE: ACIL ALLEN

1.3 Data sources

Project data for the construction and operation phases of Stage 1 of Project Sea Dragon described in this report was sourced from Seafarms. All other data regarding the description of the economy and key economic variables has been sourced from publicly available sources. The primary source of data is the Australian Bureau of Statistics including the 2011 Census as well as other updated information held by this agency relating to population and Gross Territory Product. All workforce size and unemployment data is sourced from the Department of Employment. Data for this report has been collected for the following statistical areas which have been referred to as: — Northern Territory – as defined by the boundaries of the Northern Territory. — Local region – as defined by the Victoria River SA2 area as defined by the Australian Bureau of Statistics. This area is 133,608.5 km2 in size and includes the Legune site as well as the town of Timber Creek as the nearest population and business centre in the Northern Territory. A smaller Australian Bureau of Statistics location defined as an SA1 area includes the Legune site but excludes Timber Creek. This area is 23,434 km2 in size and is referred to throughout the document in order to highlight the isolated nature of the Project in terms of population and economic activity. 1.4 Major assumptions

When reading and interpreting this report, a number of key assumptions should be taken into consideration: — all company data is based on indicative estimates as of February 2016 — all data is presented in calendar years unless otherwise stated — all data is presented in Australian dollars — all data is presented in real dollars. This means that its value has been adjusted for inflation

2 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

— the term Stage 1 of Project Sea Dragon refers to Stage 1 of the overall Project and includes both the construction and asset operations phases of Stage 1 — all operations employment figures exclude temporary employees associated with activities such as planned shutdown maintenance and ad hoc scopes of work — assessed/modelled life of the Project refers to the two years of construction of the Project from 2017 to 2018 inclusive plus 15 years of operations from 2018 to 2032. This end date is purely for the modelling purposes. In reality the operational life of the project will be indefinite. 1.5 Glossary of key economic terms

All economic impact results are presented in terms of the direct plus the indirect (or flow on) impact of Stage 1 of Project Sea Dragon. This indirect impact is often referred to in other forums as the multiplier effect. This indirect impact embodies the effect of changes in demands from other industries which is caused when the initial impact from the construction and operations of a new project leads to more spending in the economy which creates more income and taxes which leads to further spending and so on. The indirect impact also embodies any crowding out effects as scarce resources (particularly labour and capital) are directed away from other possible economic activities toward the Project. Gross Product or real economic output A measure of the size of an economy Real economic output is a measure of the output generated by an economy over a period of time (typically a year). It represents the total dollar value of all goods and services produced over a specific time period and is considered as a measure of the size of the economy. At a national level, real economic output is referred to as Gross Domestic Product (GDP). At the state level, economic output (or GDP equivalent) is called Gross State Product (GSP) while at a regional level is usually called Gross Regional Product (GRP). Real income A measure of the welfare of residents in an economy through their ability to purchase goods and services and to accumulate wealth Although changes in real economic output are useful measures for estimating how much the output of the economy may change due to Stage 1 of Project Sea Dragon, changes in real income are also important as they provide an indication of the change in economic welfare of the residents of a region through their ability to purchase goods and services. Real income measures the income available for final consumption and saving after adjusting for inflation. An increase in real income means that there has been a rise in the capacity for consumption as well as a rise in the ability to accumulate wealth in the form of financial and other assets. The change in real income from a development is a measure of the change in the economic welfare of residents within an economy. Employment The number of net full time equivalent job years created as a result of a project Employment is the direct and indirect (flow on) employment as a result of a project. The impact is created as a result of spending in the economy to construct and operate a project. It is a net effect meaning that it takes into account transfers of labour from one job to another (crowding out effects). Job years Real employment is measured in job years. A job year is employment of one full time equivalent (FTE) person for one year. Alternatively in can be expressed as one 0.5 FTE person for two years.

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Net present value The value of a future stream of income (or expenses) converted into current terms by an assumed annual discount rate. The underlying premise is that receiving, say, $100 in 10 years is not ‘worth’ the same (i.e. is less desirable) than receiving $100 today. Real and nominal dollars Nominal dollars are dollars that are expressed in the actual dollars that are spent or earned in each year, including inflation effects. Real dollars have been adjusted to exclude any inflationary effects and therefore allow better comparison of economic impacts in different years. Over time, price inflation erodes the purchasing power of a dollar thereby making the comparison of a dollar of income in 2040 with a dollar of income in 2015 invalid. Adjusting nominal dollars into real dollars overcomes this problem. 1.6 Acronyms

A number of acronyms are used throughout this report. These and their meaning are presented in the following table. TABLE 1.1 LIST OF ACRONYMS Abbreviation Full name ABS Australian Bureau of Statistics AUD or $ Australian dollars billion Billion measured by 1x109 (or 1,000 million) as per the US convention CGE Computable General Equilibrium (model) FIFO Fly in-fly out work practice FTE Full time equivalent GDP Gross Domestic Product GRP Gross Regional Product GSP Gross State Product ILUA Indigenous Land Use Agreement t Tonnes

1.7 Report structure

This report describes the economic impacts of Stage 1 Project Sea Dragon on the Northern Territory and the Local region. The report aims to address the NT EPA Guidelines for the Preparation of an Economic and Social Impact Assessment for Project Sea Dragon (Northern Territory Environment Protection Authority, 2015). While Stage 1 is located in the Northern Territory, its location close to the town of Kununurra in Western Australia and its road transport links mean that many of the economic benefits of Stage 1 will flow to Western Australia. There will however be benefits to the Northern Territory and this report describes those benefits. The report begins with Chapter 2 outlining the historical and projected economic and socioeconomic baseline data of the Northern Territory and the Local region. This Chapter uses latest publicly available data to describe the economy including the population, key industries and the characteristics of the workforce. This baseline provides context around the economic modelling and to provide a measure against which the economic impacts can be described. Chapter 2 then describes the economic impact of the Project using economic modelling and other economic analysis. Chapter 3 examines the impacts of the Project and provides management measures to address those impacts in the form of an Economic Impact Management Plan.

4 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

Appendix A provides a description of the Tasman Global Model and its key assumptions. This model is the Tasman Global Computable General Equilibrium (CGE) model used to estimate the economic impact of Stage 1 of Project Sea Dragon.

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2 S O C I O E C O N O M I C 2 PROFILE Socio Economic Profile

The following sections outline the economic and social setting in which Stage 1 of the Sea Dragon Project will operate in the Northern Territory. All data and analysis is based on latest available statistical data. Note that in some instances, latest available data is as of the 2011 Australian Bureau of Statistics Census. While slightly outdated, this data does provide a good indication of the baseline. 2.1 Population

This section describes the current, historical and projected population of the Northern Territory and the Victoria River SA2 area.

2.1.1 Population density and distribution The estimated resident population of the Northern Territory is currently (as of 30 June 2015) just over 244,300 people with the majority of the population concentrated around the capital city of Darwin, and the central Australian town of Alice Springs. The current population of the Victoria River SA2 is 2,787 people which is just over one per cent of the population of the Northern Territory. The Victoria River SA2 covers a large area of nearly 134,000 km2 and is comprised of a number of small populations. The closest of these to the Project is the town of Timber Creek which is located 195km east of the Western Australian border on the Victoria Highway. It is home to around 231 people (2011 Census) however this number can change particularly during the wet season when the population increases as nearby communities are unable to be accessed. Table 2.1 shows estimates of the population of areas surrounding Legune Station where Stage 1 of Project Sea Dragon is located. It includes information for the Victoria Daly Local Government Area in which the Project is located and the town of Timber Creek which is the nearest population centre located in the Northern Territory. TABLE 2.1 POPULATION ESTIMATES (2014) Location Population Northern Territory 245,000 Victoria Daly LGA 3,326 Victoria River SA2 2,787 Timber Creek* 231 SOURCE: (AUSTRALIAN BUREAU OF STATISTICS, 2015), * (AUSTRALIAN BUREAU OF STATISTICS, 2012) FOR 2011 ONLY In terms of population density, the Northern Territory is home to around 0.2 persons per km2 and the Victoria River SA2 is home to 0.02 persons per km2. In order to highlight how sparsely populated the area around the Project is, in the 23,434 km2 area immediately surrounding Stage 1 of Project Sea Dragon as measured by the Australian Bureau of Statistics SA1 area, there are just 73 people.

6 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

2.1.2 Historical and forecast population growth Figure.2.1 shows the estimated resident population of the Northern Territory and the Victoria River SA2 area over the decade from 2004 to 2014 and the projected population to 2025. The Figure shows that the population of the Victoria River SA2 has experienced population decline of around 1.1 per cent per annum since 2005 with the decline occurring from 2006 before stabilising in 2012 and 2013 and falling again during 2014 and 2015. In the year to 2015, there was a decline in the population of 2.4 per cent which is equivalent to a loss of 70 people from the area. As a comparison point, the population of the Victoria Daly Local Government Area has also been included. It shows a ten year historical population growth rate for the area of -0.3 per cent per annum and a similar profile to the Victoria River SA2 of decline since 2006 before achieving a fairly stable population since 2012. In contrast, the population of the Northern Territory has risen by an average of 1.6 per cent per annum over the decade to 2015 as a result of increases in Darwin of around 1.5 per cent per annum (Australian Bureau of Statistics, 2015). However overall population growth in the Northern Territory has slowed considerably from 2014 to 2015 to around 0.4 per cent per annum. FIGURE.2.1 ESTIMATED RESIDENT POPULATION: NORTHERN TERRITORY, VICTORIA DALY REGION AND LOCAL REGION (2004 – 2025)

5,000 350,000

300,000 4,000 250,000

3,000 200,000

2,000 150,000 100,000 1,000 50,000

0 -

2011 2020 2004 2005 2006 2007 2008 2009 2010 2012 2013 2015 2016 2017 2018 2019 2021 2022 2023 2024 2025 2014p Northern Territory Victoria River Victoria Daly

SOURCE: AUSTRALIAN BUREAU OF STATISTICS CAT 3218.0. ESTIMATED RESIDENT POPULATION NOTE: P = PRELIMINARY ESTIMATION

In the future, the population of the Northern Territory is expected to continue to increase at around 1.7 per cent per annum to 2025 which is slightly above historical growth (NT Government, 2015). Population growth in the Victoria River SA2 and the Victoria Daly Local Government Area have been estimated based on population growth rates for the Barkly region published by the Northern Territory Government (NT Government, 2015) of 0.9 per cent per annum which are above ten year historic growth rates for both jurisdictions and should therefore be treated with caution. 2.2 Demography

The age and gender profile of people living in the Northern Territory and the Victoria River SA2 is presented in Figure.2.2 for Indigenous and non Indigenous people. The Figure shows the Northern Territory has a standard population profile which are characterised by a higher number of people of working age and is typical of larger populations and a more sophisticated economy. However, the demographic profile of the Victoria River SA2 shows a large number of young children and a comparative lack of population in the 30+ age groups suggesting that people from this demographic tend to leave the area possibly to find employment elsewhere.

7 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

The profiles also show the large number of Indigenous people that live in the Northern Territory, particularly in the Victoria River SA2 where 76 per cent of the population is Indigenous compared to around 27 per cent of the population of the Northern Territory.

FIGURE.2.2 AGE AND GENDER PROFILE: INDIGENOUS AND NON INDIGENOUS PEOPLE: NORTHERN TERRITORY AND VICTORIA RIVER SA2

Northern Territory 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 10,000 8,000 6,000 4,000 2,000 00 2,000 4,000 6,000 8,000 10,000 Non indigenous males Non indigenous females Indigenous males Indigenous females

Victoria River 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 175 125 75 25 25 75 125 175 Non indigenous males Non indigenous females Indigenous males Indigenous females

SOURCE: AUSTRALIAN BUREAU OF STATISTICS 2011 CENSUS DATA BY PLACE OF USUAL RESIDENCE. NON INDIGENOUS INCLUDES PERSONS WHO DID NOT STATE THEIR CULTURAL BACKGROUND

2.3 Overview of the economy

The value of the Gross State Product of the Northern Territory is currently $23.1 billion (2014-15). This is equivalent to 1.4 per cent of Australia’s Gross Domestic Product which was worth $$1.6 trillion in 2014-15 and is the smallest share of Australia’s total Gross Domestic Product as illustrated in Figure 2.3 which shows Gross Product by State and Territory.

8 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 2.3 VALUE OF GROSS STATE PRODUCT BY STATE (JUNE 30)

1,600,000 25,000

1,400,000 20,000 1,200,000

1,000,000 15,000

800,000 All All otherstates ($million)

600,000 10,000 NorthernTerritory ($million)

400,000 5,000 200,000

0 0

2004 2007 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015

NSW Vic QLD SA WA Tas ACT NT

Note: as of June 30. SOURCE: AUSTRALIAN BUREAU OF STATISTICS CATALOGUE 5220.0 CURRENT PRICES

2.3.1 Historic economic growth Whilst the Territory contributes only a small share of Australia’s Gross Domestic Product, it is experiencing high rates of growth as illustrated in Figure 2.4 which shows the annual average growth in Gross State Product by State. In the period from 2013-14 to 2014-15, the Gross State Product of the Northern Territory grew in real terms by 10.5 per cent which was the highest growth rate of any State or Territory in Australia and the highest rate of growth experienced by the Northern Territory over the past decade. The reason for this growth was the large investments associated with the construction of major projects such as the Ichthys development. In contrast, the Gross Domestic Product of Australia grew by 2.3 per cent over the same time period. Growth in Northern Territory Gross State Product is fairly volatile due to the small size of the economy and the comparatively large impact of major projects and global market conditions. Over the decade to 2014-15, the Gross State Product of the Northern Territory grew by an average annual compound growth rate of 4.1 per cent per annum which is the second highest of any jurisdiction behind Western Australia whose economy grew by 5.3 per cent per annum and far less than the 10.5 per cent growth experienced by the Territory over the last year. In comparison, the Gross Domestic Product of Australia grew by an average of 2.7 per cent per annum over period 2005-06 to 2014-15.

9 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 2.4 GROSS STATE PRODUCT: AVERAGE ANNUAL GROWTH

Australia ACT Northern Territory Tasmania Western Australia South Australia Queensland Victoria New South Wales

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 % per annum

Average annual compound growth rate (2005-06 to 2014-15) Annual growth (2013-14 to 2014-15)

SOURCE: (AUSTRALIAN BUREAU OF STATISTICS, 2015)

2.3.2 Forecast economic growth The Northern Territory Government forecasts economic growth in the Northern Territory to moderate from current levels to reach 4.5 per cent in 2014-15, where it will remain until 2016-17. This rate is above historical trend levels and reflects the ongoing effects of business investment in the Northern Territory. After 2015-16, the economy of the Northern Territory is expected to transition from one of high growth led by the construction of major developments including the Ichthys Project, the Darwin Marine Supply Base and the Defence Support Hub to one of above trend growth of around 3.0 per cent per annum led by the production phases of these major investments. In comparison, the Federal Government forecasts that Gross Domestic Product growth in Australia will remain well below forecasts for the Northern Territory. Real Gross Domestic Product growth is expected to remain constant in 2014-15 at 2.5 per cent before gradually increasing to reach 3.25 per cent in 2016-17.

2.3.3 Local region economy The economy in the Local region is limited and dominated by industries that support the local population base. These include the government sector including the provision of local government services, and the retail sector. Apart from these, the key industries in the region are the pastoral industry and the tourism industry. The pastoral industry is made up of a number of cattle stations that primarily produce cattle for the live export industry with the majority of cattle from the Katherine region exported through the Port of Darwin and through the ports of Broome and Wyndham in Western Australia. The area forms part of the Katherine and surrounds visitor region. It is a tourist destination known for its barramundi fishing, the Keep River National Park which is situated 180 kilometres west of Timber Creek, and the Judbarra Gregory National Park which contains significant remnants of Aboriginal and European history. The town of Timber Creek is the base from which a large number of visitors visit the region. In 2015, there were 255,000 visitors to the Katherine and surrounds tourism region however no details of visitors to the Timber Creek area were available. There is potential for economic development through the Ord Stage 3 development. Ord Stage 3 will provide up to 14,500 hectares of new arable farming land (subject to agreement with native title

10 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

holders) by constructing irrigation channels in the Northern Territory which join those already constructed in Ord Stages 1 and 2. The Northern Territory Government is currently seeking proponents to facilitate the development which is located around 50 km to the south west of Stage 1 of Project Sea Dragon near the Keep River.

2.3.4 Major industries In terms of the value of industry contribution, the main industries in the Northern Territory are the construction; government and community services; and mining industries. Together, these industries account for about half of the Territory’s total economic value. The largest employers are the community services; construction; and retail and wholesale trade industries.

Mining Mining is the most significant industry in the economy of the Northern Territory accounting for 12.3 per cent of total Gross State Product in 2014-15 (NT Treasury, 2016). The major commodities are manganese, gas and liquids, and LNG production. In 2014-15, the value of mining production in the Northern Territory was estimated to be $3.2 billion which is below the $3.6 billion recorded in 2013-14 and in 2012-13 as illustrated in Figure 2.5. The declines are primarily as a result of a fall in the production of alumina and iron ore as illustrated in Figure 2.5 which shows the production of minerals in the Territory over time by mineral grouping. FIGURE 2.5 NORTHERN TERRITORY MINING PRODUCTION BY MINERAL GROUP

25 16 14 20 12

15 10 8

10 6 Million Million tonnes

4 Million (gold)grams 5 2 0 0 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Alumina products Bauxite Iron ore Zinc/lead concentrate Manganese Mineral sands Other minerals Gold

SOURCE: (NORTHERN TERRITORY, 2010 - 2016).

In addition, latest statistics show energy production in the Northern Territory in 2013-14 was $3.6 million per annum. Production of energy products is expected to be higher in 2014-15 as the Dingo gas field and the Surprise oil field in Central Australia which commenced production in 2015, come into full production. The Ichthys field is expected to commence production in 2017.

Government sector The government sector in the Northern Territory is a significant share of the economy through the provision of services such as Government Administration, Defence, Education and Health. Together they account for around 18.3 per cent of Territory Gross State Product. This comparatively large share is largely a result of the requirement to provide services to a number of small and scattered populations throughout the Northern Territory, including a large number of Aboriginal communities.

11 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

The Defence sector is a major share of the Northern Territory’s economy comprising around 6.9 per cent of the Gross State Product compared with 1.9 per cent of Australia’s GDP. Defence spending in the Territory increased by 10.6 per cent or $144 million to $1.5 billion in 2013-14.

Agriculture, forestry and fishing The agriculture, forestry and fishing industry in the Northern Territory comprises cattle and other livestock (including buffalo, crocodiles, poultry, pigs and camels), horticulture (fruit, vegetables, nursery and cut flowers) and mixed farming (field crops, hay and seeds, and forestry). In 2014-15 the agriculture, forestry and fishing industry in the Territory accounted for 1.8 per cent of Gross State Product and an estimated one per cent of employment. The total cattle herd in the Northern Territory is around 2.2 million with large herds of cattle located in the rangelands around Alice Springs. The Northern Territory is the largest exporter of cattle in Australia producing over 500,000 cattle for the live export market in 2014-15 accounting for nearly all the turnoff from the Territory. The largest live cattle export port in Australia in terms of throughput is the Port of Darwin which exported over 613,000 cattle in 2014-15. Cattle are primarily bound for Indonesia which currently accounts for 80 per cent of the live cattle trade from the Territory. A recent development in the industry was the construction of the Livingstone Abattoir in in Darwin, which came into production in late 2014. The abattoir has the capacity to slaughter 1,000 cattle per day or 100,000 cattle per annum and as of September 2015 was reportedly slaughtering 400 cattle per day. Horticulture is also a key agricultural industry with the main production being fruits such as melons, bananas and mangoes; vegetables including okra, bitter melon, snake beans, pumpkin and cucumber; and cut flowers. The value of horticulture production in the Territory was estimated at $115 million in 2013-14 including $80 million of fruit, over $17 million of cut flowers and $16 million of vegetables. In the Katherine region the main horticulture developments are located in Katherine. The industry in this area is based largely on mangoes and citrus. It is an important employer in the area particularly for people living in the towns and communities outside of Katherine. The commercial fishing industry in the Northern Territory includes the harvesting of wild catch fisheries, aquaculture, and the processing of catch. The industry is largely made up of the capture of snapper, barramundi and shark. The catch of crustaceans is dominated by prawns and mud crabs. The value of total fisheries production in the Territory was estimated at $55 million in 2014-15 as illustrated in Figure 2.6 which shows the historical and projected value of the fishing industry in the Northern Territory. The fishing industry is in decline mainly as a result of falls in the production of aquaculture but also in the wild catch of fish and crustaceans. In 2013-14 the estimated value of the prawn catch by the Northern Prawn Fleet Commonwealth managed Fishery increased by just under four per cent to $10.9 million as shown in Figure 2.6. The value of production in 2015-16 is estimated to increase further to $11.4 million (Department of Primary Industry and Fisheries, 2016). Output from the Northern Prawn Fleet for 2013-14 is estimated at 0.7 tonnes which is a three per cent increase on the previous period (Department of Primary Industry and Fisheries, 2014).

12 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 2.6 VALUE OF FISHERIES PRODUCTION: NORTHERN TERRITORY

70,000

60,000

50,000

40,000

$ '000 $ 30,000

20,000

10,000

0 2011-2012 2012-2013 2013-2014 2014-2015f 2015-2016f

Fish Crustaceans Aquaculture Molluscs & Echinoderms Northern Prawn Fishery

Note: Northern Prawn Fishery is a Commonwealth managed fishery, with zones for WA, NT and QLD SOURCE: (DEPARTMENT OF PRIMARY INDUSTRY AND FISHERIES, 2016)

Tourism Tourism is an important component of the Northern Territory economy contributing 4.0 per cent of the Gross State Product of the Territory in 2013-14. It is also one the largest employers in the Northern Territory providing around 8,000 jobs or 5.7 per cent of employment (NT Treasury, 2015). Much of this employment is in regional areas where there is limited economic diversification and few opportunities. In 2014-15 there were nearly 1.5 million visitors to the Northern Territory and total visitor expenditure was nearly $1.5 billion. Figure 2.7 shows the historic and forecast growth in visitor nights in the Territory. It shows that there has been very strong growth in the number of visitor nights in the Territory in 2014-15 of over 30 per cent however long term projections of visitor growth are expected to remain at more conservative levels. Over the five years to 2019-20, the average number of visitor nights is expected to grow by around 4.3 per cent per annum. This growth is in keeping with forecasts of most other jurisdictions in Australia and is consistent with the five year Australian average annual growth rate of 4.4 per cent per annum (Tourism Research Australia, 2015). There are 8,500 accommodation rooms in the Northern Territory with a current room occupancy rate of 65 per cent. The Project is located in the Katherine sub tourism region where there are just seven accommodation establishments with no further details as to the number of rooms or their occupancy rates recorded (Australian Bureau of Statistics, 2015). The wider Katherine tourism region had a room occupancy rate of 53 per cent in 2013-14 peaking at 68 per cent during the peak September Quarter (Tourism NT, 2015). The closest population centre to the Project is Timber Creek which has basic motel facilities and a caravan park. The peak occupancy rates in the town tend to be in the months of August, September and October which coincide with the peak tourist season in the regional areas of the Northern Territory.

13 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 2.7 TOTAL HISTORIC AND PROJECTED VISITOR NIGHT GROWTH: NORTHERN TERRITORY

40.0

30.0

20.0

10.0

0.0 Annual Annual growth (%)

-10.0

2015-16 2020-21 2011-12 2012-13 2013-14 2014-15 2016-17 2017-18 2018-19 2019-20 2021-22 2022-23 2023-24 2024-25

-20.0

Darwin Rest of NT Total NT

SOURCE: (TOURISM RESEARCH AUSTRALIA, 2015)

Housing sector In 2015, the median house price in the Greater Darwin area was $608,750 which shows a slight easing after realising strong growth in 2012 and 2013 as illustrated in Figure 2.8 which shows the median house price in Darwin over time (NT Treasury, 2015). This trend is evident by comparing long term growth rates to current growth rates. Over the decade to 2014, median house prices in Darwin rose by an average of 6.0 per cent per annum compared to an annual average growth rate of 4.1 per cent during 2015 (Real Estate Institute of Northern Territory Inc, 2016). The rental market in Greater Darwin is currently flat with both experiencing falling rents and higher vacancy rates. In Darwin, rents for three bedroom houses fell by 15.4 per cent during 2015 and the weekly rent for two bedroom units fell by 11.6 per cent. In 2015, the vacancy rate for all dwellings in Darwin was 8.9 per cent an increase of 3.5 per cent on the previous year (Real Estate Institute of Northern Territory Inc, 2016).

14 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 2.8 MEDIAN HOUSE PRICE AND RENTAL PRICE: GREATER DARWIN

SOURCE: (NT TREASURY, 2015)

No house price information is available for housing in Timber Creek. There are approximately 24 privately owned houses in the town, along with five Council houses, and the remainder is NT Housing provided for government workers located in the town (Victoria Daly Regional Council). 2.4 Infrastructure

The following sections provide a brief overview of the key economic and social infrastructure in Darwin and Timber Creek that will support Stage 1 of Project Sea Dragon. Note that the location of Stage 1 and its road transport connections means that it will largely be supported by the town of Kununurra in Western Australia however there will be some linkages to infrastructure in the Northern Territory.

Darwin Darwin is the main population centre in the Northern Territory and is the key government and services sector for the Northern Territory. It offers a modern standard of living and a high standard of social infrastructure expected of a city. The city is a significant part of the AustralAsia Trade Route, which includes: the AustralAsia Railway that links Darwin to the national rail network, an expanded East Arm Port, abundant industrial land at the adjoining Darwin Business Park and a growing number of shipping links with Asia. Darwin is becoming an important supply, service and distribution base for major minerals and energy projects located in the north of Australia, the Timor Sea and South-East Asia. In the near term, significant investment from the INPEX Ichthys LNG Project which is nearing completion, the Darwin Marine Supply Base and the Defence Support Hub will continue to underpin the continued rapid growth in the Darwin economy. The operation of these developments will provide growing demand for employment and goods and services to support their production phases. At the same time, large lifestyle developments such as the Darwin Waterfront Precinct will enhance the social, cultural and general liveability aspects of the city for residents and tourists.

Timber Creek The town of Timber Creek is a service centre for the surrounding Indigenous communities of Muruning, Myatt, Gulardi, Gilwi Bulla, Amanbidji and Menngen as well as nearby cattle stations. It is also supports the local tourism industry.

15 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

There is a public primary school which caters for students from preschool up to year nine. The Timber Creek Health Centre is operated by the Katherine West Health Board Aboriginal Corporation that services the town and the surrounding communities of One Mile, Gilwi, Myatt and Mialuni. It is open week days and is staffed by a doctor and four nurses as well as visiting physicians. The Victoria Daly Regional Council also offers a number of social services including aged care, in home disability services and home and community care. A police station and Court House is located in the town. There is a very basic level of infrastructure in Timber Creek. The town is located on the Victoria Highway which is a sealed double lane Highway. There is a gravel airstrip located 7 km west of the town that is maintained by the Victoria Daly Regional Council and services chartered day time flights only. Power is supplied by 3 diesel powered generators, water is supplied from bores, and the town operates a septic tank effluent disposal system. Telstra 3G mobile phone and internet service is available within about 5 km of the town of Timber Creek. 2.5 Businesses

Darwin is the main service centre for the Northern Territory supporting a wide range of industries including the government sector, the oil and gas industry, mining and the defence sector. It continues to position itself as a strategic position for shipping, regional freight and as a distribution gateway. There are around 14,500 businesses in the Northern Territory as of June 2014 with the greater Darwin area home to around 71 per cent of businesses while nearly 16 per cent of businesses are located in Alice Springs (NT Department of Business, 2015). A number of large projects have been constructed in the Northern Territory in recent years. These include the INPEX Ichthys LNG Project, the Darwin Marine Supply Base, the Defence Support Hub, and Darwin Waterfront Precinct which are all either in or close to completion. The construction and operation of all of these projects have required businesses located in Darwin for the supply of goods and services. There are therefore a number of businesses located in Darwin with recent experience in supporting the construction and subsequent operation of a developments that are comparable to Stage 1. Stage 1 of Project Sea Dragon is surrounded by pastoral stations. The closest businesses located to the Project in the Northern Territory are located in Timber Creek, though Kununurra is closer and comprises a noticeably larger population and range of businesses. The town of Timber Creek has a basic level of services including a general store, petrol outlet, motel facilities, caravan park and auto mechanic. The offices for the Victoria Daly Regional Council are located in the town as well as the Council’s civil works depot. The Ngaliwurru-Wuli Association (NWA) depot which is the main contractor for NT Housing is located in the town as well as the Bradshaw and Timber Creek Contracting and Resources company, which is a local construction, building and maintenance company that was established with the support of the Northern Land Council and is experienced in working for government including the Australian Defence Force. The Timber Creek NLC Rangers are also located in town. This business offers a range of services including maintenance, fire control and weed control services. 2.6 Workforce

There is a large workforce in the Northern Territory of nearly 122,000 people of which around 6,000 are currently seeking work. This equates to an unemployment rate in the Northern Territory of around 4.2 per cent (2015) where the unemployment rate is defined as the number of people seeking work as a percentage of the workforce, as reported by the Department of Employment (Department of Employment, 2015). Figure 2.9 shows the unemployment rate in the Northern Territory and in the Local region for the period from December 2010 through to December 2015. It also shows the size of the workforce in the Local region over time including the number of unemployed people. The workforce in the Local region has grown over time and currently comprises of around 1,500 people of which around 120 job seekers are unemployed. The unemployment rate in the Local region is very volatile but generally follows the trend of the rate for the Northern Territory. It is directly influenced by the number of job seekers with the number of employed people remaining fairly constant during the period graphed. The current unemployment rate

16 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

in the Local region of 7.8 per cent (2015) is well above the rate for the Territory but is lower than in previous years when it reached as much as 9.9 per cent (2013). This higher unemployment rate is reflective of the limited job opportunities in the area and the difficulties that job seekers face in securing employment. It is also likely that there are further people from the area that are not currently seeking work due to the low expectation of gaining employment resulting in an unemployment rate that is not reflective of the actual number of job seekers in the area. FIGURE 2.9 UNEMPLOYMENT RATE AND WORKFORCE: LOCAL REGION

12.0 1,600

1,500 10.0 1,400 8.0 1,300

6.0 1,200

1,100 4.0

1,000 Unemploymentrate (%) 2.0 900

0.0 800

06/2012 12/2010 06/2011 12/2011 12/2012 06/2013 12/2013 06/2014 12/2014 06/2015 12/2015

Victoria Daly employed Victoria Daly unemployed Northern Territory Victoria Daly

SOURCE: DEPARTMENT OF EMPLOYMENT. NOTE: PEOPLE AGED 15 TO 65

2.6.1 Industry of employment The dominance of the government sector as a major employer in the Northern Territory is highlighted in Figure 2.10 which shows the industry of employment for employed residents of the Northern Territory and the Local region as of the 2011 Census. Forty per cent (n = 32,375 workers) of the employees in the Northern Territory are employed in the industries of Public administration and safety, Education and training and Health care and social assistance which largely reflect the industries that comprise the government sector including services provided by Local, Territory and Federal governments. In comparison, 44 per cent (n = 365) of the Local region are employed in this sector. The employment profile of the Local region is influenced by the surrounding pastoral industry as well as population centres such as the town of Timber Creek which provide goods and services to the local and surrounding communities. The three main industries of employment in the Local region employ two thirds of local residents. They are the Public administration and safety industry which employs 29 per cent of local residents, Agriculture, forestry and fishing which employs 26 per cent, and Education and training (10%). Further analysis of this data shows that 25 per cent of residents of the Local region worked in the Sheep, beef cattle and grain farming industry and 24 per cent worked in Local Government Administration. There is little employment in other industries as illustrated in the Figure. The three main industries of employment in the Northern Territory are the Public administration and safety industry with 21 per cent of total employment, the Health care and social assistance industry (10%) and the Construction industry with 8.2 per cent of total employment. As of the 2011 Census, the Agriculture, forestry and fishing industry was a relatively small employer in the Northern Territory accounting for just two per cent of jobs or just under 2,000 residents. In 2014- 15, the industry accounted for around one per cent of Territory employment. Despite this, the industry provides good opportunities for local people employing 217 residents of the Local region in 2011

17 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

including 41 in the SA1 area immediately surrounding Stage 1 of Project Sea Dragon. The industry therefore accounted for 82 per cent of the residents of the SA1 area in 2011. FIGURE 2.10 INDUSTRY OF EMPLOYMENT: NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL EMPLOYED PERSONS AGED 15+)

28%

21%

14%

7%

0% Northern Territory Victoria River SA2

Agriculture, forestry and fishing Mining Manufacturing Electricity, gas, water and waste services Construction Wholesale trade Retail trade Accommodation and food services Transport, postal and warehousing Information media and telecommunications Financial and insurance services Rental, hiring and real estate services Professional, scientific and technical services Administrative and support services Public administration and safety Education and training Health care and social assistance Arts and recreation services Other services SOURCE: AUSTRALIAN BUREAU OF STATISTICS 2011 CENSUS DATA BY PLACE OF USUAL RESIDENCE. EMPLOYED PERSONS AGED 15 AND OVER

2.6.2 Skills level Fifty seven per cent of people aged 15 and over in the Northern Territory hold a non-school qualification compared to 41 per cent of the Local region. Figure.2.11 shows the non-school qualifications of people aged 15 and over who hold a qualification and who live in the Northern Territory, compared to those that live in the Local region as of the 2011 Census. The Figure shows that in both regions, the most commonly held qualification is a Certificate.

18 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE.2.11 NON SCHOOL QUALIFICATION NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL PERSONS WITH A QUALIFICATION AGED 15+)

40% 35% 30% 25% 20% 15% 10% 5% 0% Northern Territory Victoria River SA2

Postgraduate Degree Graduate Diploma & Graduate Certificate Bachelor Degree Advanced Diploma & Diploma Certificate

SOURCE: AUSTRALIAN BUREAU OF STATISTICS 2011 CENSUS DATA BY PLACE OF USUAL RESIDENCE. PERSONS WITH A QUALIFICATION AGED 15 AND OVER

In the Local region, 16 per cent of qualified people hold a Bachelor degree or higher (Postgraduate Degree, Graduate Diploma and Graduate Certificate, and Bachelor Degree) while the equivalent for the Northern Territory is 26 per cent. The lower qualifications in the Local region are most likely a result of the limited employment opportunities in the region. In the SA1 area immediately surrounding Stage 1 of Project Sea Dragon (where the economy is almost entirely made up of the pastoral industry), there is a very high level of qualifications with 61 per cent of the population aged 15 and over holding a qualification and 48 per cent of qualified people holding a Bachelor degree or higher. In terms of absolute numbers, the number of qualified people aged 15 and over in the Local region is 691 people which is just under one per cent of all the people in the Northern Territory who hold a qualification. 2.6.3 Income The 2011 Census recorded 32 per cent of the population in the Northern Territory earning in excess of $1,000 per week and 6 per cent of the population earn in excess of $2,000 per week. Incomes in the Local region are far lower with only 11 per cent of the population earning in excess of $1,000 per week and less than one per cent of the population earning in excess of $2,000 per week. Lower incomes are a result of the employment profile of the region.

19 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE.2.12 PERSONAL WEEKLY INCOME: NORTHERN TERRITORY AND LOCAL REGION (% OF TOTAL PERSONS AGED 15+)

24%

20%

16%

12%

8%

4%

0% Northern Territory Victoria River

Negative/Nil income $1-$149 $150-$249 $250-$399 $400-$599 $600-$799 $800-$999 $1,000-$1,299 $1,300-$1,599 $1,600-$1,999 $2,000 or more

SOURCE: AUSTRALIAN BUREAU OF STATISTICS 2011 CENSUS DATA BY PLACE OF USUAL RESIDENCE. PERSONS AGED 15 AND OVER

2.7 Summary

The Northern Territory is experiencing strong economic growth when compared to Australia, as a result of continued economic activity from major developments including the construction of the Ichthys development. Despite this, a number of economic indicators are showing signs of the easing of economic activity including from falling median house prices, falling rents and the closure of several mines. The economy in the Local region is very limited and based on the pastoral industry as well as the provision of government services and the supply of goods and services to the local and surrounding population. The key industries in the region are the pastoral industry and the tourism sector. The unemployment rate in the Local region is very volatile. It is currently sitting at 7.8 per cent which is lower than in 2013 but much higher than in 2010 and well above the current rate for the Northern Territory of 4.2 per cent. The Local region surrounding Stage 1 of Project Sea Dragon is characterised by a lack of economic opportunities, a high rate of unemployment, a small and declining population, low skills levels and low incomes. The outlook for the Local region is positive with forecasts of a stable of population and the potential for economic growth as a result of the Ord Stage Three development.

20 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

3 E C O N O M I C IMPACT 3 ASSESSMENT Economic I mpact Assessment

Stage 1 of Project Sea Dragon will involve a large amount of expenditure to construct and operate. This spending will create a stimulus to the economy. This Chapter sets out the economic impact of Stage 1 of Project Sea Dragon on the Northern Territory economy. It should be noted that Stage 1 will largely be serviced from the nearby town of Kununurra in Western Australia and therefore many of the economic benefits of Stage 1 will flow to Western Australia. There will however be significant economic benefits to the Northern Territory. 3.1 Project assumptions

The key financial assumptions for Stage 1 of Project Sea Dragon are presented in Table 3.1 and discussed in the following sub sections. TABLE 3.1 PROJECT FINANCIAL ASSUMPTIONS: STAGE 1 OF PROJECT SEA DRAGON Item Assumption Capital expenditure A$411 million (US$288 million) Operations expenditure (2018-2032) A$125 million per annum average at steady state Revenue (2018-2032) A$195 million per annum at steady state Local content assumptions (construction expenditure) NT 69.5% Australia/Overseas 30.5% Local content assumptions (operation expenditure) NT 39.4% Australia/Overseas 60.6% Tax and royalty payments (directly paid by Stage 1) $50 million nominal over period to 2032 (accounting for depreciation and interest expenses) Value of exports A$195 million per annum average at full production

SOURCE: SEAFARMS AND ACIL ALLEN CONSULTING

3.1.1 Capital expenditure Stage 1 of Project Sea Dragon is expected to cost A$411 million (US$288 million) to construct. The overall Project including all stages is expect to cost around US$1.5 billion to construct with construction staged over a seven year period. Stage 1 of the project will be constructed over two years beginning in 2017 with the peak construction occurring in 2018. The capital cost in the first year is expected to be A$192 million (US$125 million) and A$249 million (US$162 million) in the second year.

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3.1.2 Operations expenditure Production at Stage 1 is expected to begin at the end of 2018. Production will be small in the first year and will ramp up to reach a steady state in approximately 2024 which is the seventh year of operation. There will be a correspondingly small amount of operation expenditure in the first year of operation as illustrated in Figure 3.1. Expenditure will then rise to reach a steady state average of around $125 million per year from 2021 which is the fourth year of operation. Note that these costs exclude labour. Total labour costs (including income, superannuation, Payroll taxation and Workers Compensation insurance) over the modelled operational life of Stage 1 are expected to be $484 million or an average of around $21 million per annum. It should be noted that the project is expected to have an indefinite operational life and that the 2032 end date has simply been chosen for modelling purposes. FIGURE 3.1 ESTIMATED CAPITAL AND OPERATING EXPENDITURE BY YEAR: STAGE 1 OF PROJECT SEA DRAGON

180 160 140 120 100 80 60 40 20 A$m 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Capital expenditure Operations expenditure

Note: All dollar values expressed in 2015 real terms SOURCE: SEAFARMS

3.1.3 Revenue during the modelled life of the project Revenue is expected to be realised from 2019 which is the first year of production. At steady state production, the Project is expected to generate A$195 million per annum in revenue. Steady state production is expected to be reached in 2024 which is the seventh year of operation as illustrated in Figure 3.2 which shows expected revenue by year over the modelled life of the Project.

22 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 3.2 ESTIMATED REVENUE BY YEAR: STAGE 1 OF PROJECT SEA DRAGON

200 180 160 140 120 100 80 60 40 20 A$m 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Note: All dollar values expressed in 2015 real terms SOURCE: SEAFARMS

3.1.4 Direct employment Stage 1 of Project Sea Dragon is expected to create direct employment of 444 full time equivalent workers over the two year construction period from 2017 to 2018 as illustrated in Figure 3.3 which shows the location from where workers will be sourced from by year. The peak construction workforce will occur in the second year of construction when a full time equivalent workforce of just over 300 workers will be employed. At peak employment, it is expected that 244 of these workers will be sourced from the Northern Territory and the remaining 59 peak construction workforce will be sourced from Western Australia. In steady state operation, the Project will employ 334 full time equivalent workers of which 265 workers will be required at the Legune site and the remainder will be located in Kununurra. Nearly 60 of these jobs will be sourced from Western Australia and some 206 workers will also be sourced from the Northern Territory. In total, it is expected that nearly two thirds workers on Stage 1 of the Project will be sourced from the Northern Territory. FIGURE 3.3 DIRECT WORKFORCE: STAGE 1 PROJECT SEA DRAGON: CONSTRUCTION AND OPERATION

450 400 350 300 250 200 150

100 Numberworkers of 50 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Northern Territory Rest of Australia

SOURCE: SEAFARMS

23 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

3.1.5 Tax and royalty payments (directly paid by Project) During the construction and operation of Stage 1, it is expected that $50 million (nominal) of direct taxation revenue will be paid to the Government including the Northern Territory Government and the Federal Government primarily in the form of Company taxation and Payroll taxation. Payroll taxation is a general purpose tax that is currently levied by the Northern Territory Government at rate of 5.5 per cent of the total wages paid by an employer in the Northern Territory where the annual threshold before it becomes payable is $1,500,000. Stage 1 is estimated to pay over $484 million in wages in the 15 modelled years of operation, an average of around $21 million a year. Over 60 per cent of these wages will be incurred in the Northern Territory. Assuming no deductions, these payments will result in estimated total Payroll taxation payments of $184,000 per year in operation paid in Australia. Payments to the Northern Territory Government will be an estimated $700,000 per annum in operation.

3.1.6 Project life The construction of Stage 1 will take just under 24 months to construct with the peak construction period occurring in the second year of operation. The operational life of Stage 1 is expected to be indefinite. For the purposes of the modelling, ACIL Allen has only modelled an operational life of 15 years to 2032.

3.1.7 Workforce in construction and operation The construction of Stage 1 is expected to require 444 workers employed directly on the site and the operation of Stage 1 is expected to require an average of 334 workers per annum of which 206 workers per annum will be required at the Legune site. Further details of the workforce in construction and operation is presented in Section 3.1.4. 3.2 Project’s economic feasibility

3.2.1 Financial capacity The terms of reference set out in the EIS (Northern Territory Environment Protection Authority, 2015) requests ‘a summary of the Project’s economic feasibility’. In addition, the EIS requests detailing ‘the financial capacity to implement the Project’. First, it should be noted, that ‘economic feasibility’ is different from ‘financial capacity’: the former is indifferent to who owns and operates the project, while the latter requires an understanding of the projected cash flows in the context of the owner’s financial capacity and other commitments. Second, ACIL Allen has not undertaken an exhaustive due diligence process and is not privy to the detailed financial circumstances of Seafarms and therefore is limited in the assessment that can be made regarding the ‘financial capacity to implement the Project’. Based on the financial model data provided to ACIL Allen, by the fourth year of operations Stage 1 of the Project is expected to produce positive EBITDA in the order of A$20-30 million a year. This implies a gross profit margin of around 15-23 per cent of revenues. Over the complete forecast period (2017- 2032) Stage 1 is projected to have an average gross profit margin of 15.5 per cent. Based on this, Stage 1 of the Project would seem to be an economically feasible project during operations. Separate to the viability during operations is the viability for the investors and whether the risk- weighted return on capital is likely to be sufficient to warrant investment. The answer to this question is critical in being able to determine whether Seafarms has the financial capacity to implement the Project. Based on the current accounts of Seafarms it would seem that Stage 1 of Project Sea Dragon will be funded by a mixture of new equity and debt. It will also represent a substantial upscaling of the current business (from revenues of around $30 million a year to nearly $200 million a year). Potential investors and creditors would therefore need to have comfort in the investment before the Project will proceed. Three key questions from potential funders of the project would be: — Does the company have experience and a proven track record of profitable production?

24 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

— How certain are the projected cashflows? — What management measures will Seafarms put in place to cope with the rapid upscaling of the business? These questions are addressed in turn below.

Experience Seafarms currently operates black tiger prawn hatcheries, grow-out farms and a processing facility in Australia producing approximately 1,500 tonnes of prawn products each year. Consequently the company has proven prior experience in growing black tiger prawns and understands the challenges and risks involved. The existing facilities provide important opportunities to develop staff training, systems and process management, information systems and occupational health and safety processes with their commercial sales providing important brand and merchandising experience. Consequently, although new challenges will be presented due to the different environment and scale of the Legune farms, it seems that Seafarms has strong experience in anticipating and/or reacting to potential issues that may arise in Project Sea Dragon.

Cashflow risks There are two major factors that will affect the potential cashflows of the project: lower prices compared to forecasts and substantially lower production compared to expectations. The market prices for the product of the project are largely out of the hands of the proponents. Forecasting prices is always difficult, but those used have been supplied by a recognised long-time adviser of international seafood prices – Urner Barry. Based on the information we have, we do not have any major concerns in using the supplied international price forecasts. It is important to note however, that it is a staged project with subsequent stages providing the opportunity for significant economies of scale. This provides management options for the business to move down the cost curve in the event of a sustained reduction in the average realised product prices. Risks within the control of Seafarms are around successfully realising the projected tonnages of saleable product. The location of the farm presents possible challenges from the natural environment including: — predation of pond stock by birds — competition from colonisation of ponds by non-target species, such as prawns and fish imported in sea water — impacts on production and product export due to extreme weather. The EIS details how these risks are expected to be addressed.

Adequate management systems The existing board and Chief Financial Officer have experience in running publicly listed businesses of sizes greater than what is anticipated to occur as a result of Stage 1. The internal reporting systems that have been developed for the existing Cardwell operations were deliberately designed and set up in anticipation of the large upscaling that would occur as a result of Project Sea Dragon. Consequently there seems to be a low risk of the management not being able to cope with the large step-change in the size of the business.

Summary Seafarms have already approached potential investors and creditors and reports that there is strong interest. The Bankable Feasibility Study due to be completed in late 2016 will provide a stronger basis for determining the appetite of the market to finance Stage 1. At this point in time however, there is no obvious reason to doubt the financial capacity of Seafarms to successfully progress the development and operation of Stage 1 of Project Sea Dragon.

25 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

3.2.2 Assess the risks of the project not realising its projected economic benefits The most relevant possible opportunity cost of the Project not realising production is likely to be the effect of the alteration to the landscape and consequent carrying capacity of livestock in the event that the operators ceasing production and abandoning the Project. Given that Stage 1 is projected to have minimal impact on the carrying capacity of the livestock business this does not seem to be a high risk. Another risk may be that the local content estimates are not as high as anticipated. However, this impact is not expected to be significant based on the assumption that local businesses would not undertake business decisions without securing signed contracts. Overall therefore, there does not seem to be much risk to other people or the NT Government associated with the project not realising its projected economic benefits. 3.3 Real economic output and real income

Figure 3.4 shows the impacts of the construction and operation of Stage 1 on real economic output for each region. This is measured as the change between the policy case (with Stage 1 of the Sea Dragon Project) compared to the reference case (without the Sea Dragon Project). Figure 3.4 shows a summary of the projected cumulative change in real economic output or Gross Product, and real income as a result of Stage 1 under various net present value discount rates. Overall, it can be seen that Stage 1 of the Project is projected to produce a noticeable increase in annual real economic output and real income for all modelled regions. FIGURE 3.4 PROJECTED CHANGE IN REAL ECONOMIC OUTPUT AND REAL INCOME AS A RESULT OF STAGE 1, RELATIVE TO THE REFERENCE CASE

Real economic output Real income

160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 A$m A$m -20 -20 -40 -40 2016 2018 2020 2022 2024 2026 2028 2030 2032 2016 2018 2020 2022 2024 2026 2028 2030 2032

NT Kununurra region Rest of WA NT Kununurra region Rest of WA Rest of Australia Rest of Australia Australia Australia

Note: Real economic output for the Northern Territory is equivalent to real GSP while real economic output at the Australia level is equal to real GDP. All dollars are in 2015-16 terms. SOURCE: ACIL ALLEN CONSULTING

It can be seen that the largest changes in real economic output occur broadly in line with the projected value of production (see Figure 3.2 in Section 3.1.3). This is not surprising as the operations phase is where the key benefits of the Project will be realised – namely, through the increased value of production obtained from the current resources. In contrast, the construction phase is largely increasing demand for scarce factors of production and so has a smaller effect on economic output compared to the size of the investment. However, the additional construction activity associated with the Project has a noticeable effect on the real income of residents in the Northern Territory as there is increased demand for labour and goods and services and this boosts local incomes relative to the Reference Case. The projected negative real economic output in the Northern Territory in 2017 and 2018 is due to the projected operating loss in the initial years as the production is ramping up.

26 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

TABLE 3.2 PROJECTED CUMULATIVE CHANGE IN REAL ECONOMIC OUTPUT AND REAL INCOME IN EACH REGION AS A RESULT OF STAGE 1, RELATIVE TO THE REFERENCE CASE (IN 2015-16 TERMS) Real economic output Real income Total (2017 to NPV (4% NPV (7% Total (2017 to NPV (4% NPV (7% 2032) discount rate) discount rate) 2032) discount rate) discount rate) 2015-16 A$m 2015-16 A$m 2015-16 A$m 2015-16 A$m 2015-16 A$m 2015-16 A$m Northern Territory 502 347 269 350 267 224 Kununurra region 108 75 58 162 121 99 Rest of Western Australia 29 18 13 129 85 63 Rest of Australia 264 183 143 836 576 446 Total Australia 903 623 483 1,478 1,048 832 Note: NPV = net present value. Real economic output for Northern Territory is equivalent to real GSP while real economic output at the Australia level is equal to real GDP. SOURCE: ACIL ALLEN CONSULTING

3.3.1 Real economic output The expenditure in the construction and operation of Stage 1 of Project Sea Dragon will generate a stimulus to the Gross Product of the Northern Territory and Australia in the form of the direct expenditure on Stage 1 and the indirect stimulus to expenditure in the wider economy that this creates. This contribution has been estimated using a Computable General Equilibrium (CGE) model incorporated with Project data supplied by Seafarms. Details of the model and its assumptions are presented in Appendix A. Over the period 2017 to 2032, Stage 1 of the Project is projected to increase the real economic output of: ― the Northern Territory (i.e. real GSP) by a cumulative total of $502 million relative to the Reference Case (with a net present value of $347 million, using a 4 per cent real discount rate) ― the Kununurra region by a cumulative total of $108 million relative to the Reference Case (with a net present value of $75 million, using a 4 per cent real discount rate) ― the Rest of Western Australia by a cumulative total of $29 million relative to the Reference Case (with a net present value of $18 million, using a 4 per cent real discount rate) ― Australia as a whole (i.e. real GDP) by a cumulative total of $903 million relative to the Reference Case (with a net present value of $623 million, using a 4 per cent real discount rate). To place these projected changes in economic output estimates in perspective, the discounted present values (using a 4 per cent discount rate) are equivalent to: ― 1.5 per cent of Northern Territory’s current GSP ― 0.04 per cent of Australia’s current GDP.1

3.3.2 Real income Real income is a measure of the ability of residents to purchase goods and services, adjusted for inflation. A rise in real income indicates a rise in the capacity for current consumption, but also an increased ability to accumulate wealth in the form of financial and other assets. The change in real income from a development is a measure of the change in welfare of an economy. The extent to which the local residents will benefit from the additional economic output depends on the level of ownership of the capital (including the natural resources) utilised in the business as well as any wealth transfers undertaken by Australian governments as a result of the taxation revenues generated by the Project. Given the assumed high proportion of the potential employees for Stage 1 of the Project that will live in the Northern Territory, a significant amount of the additional personal incomes that are generated as a result of the Project are projected to stay in the Northern Territory. However, as only a small

1 Based on Northern Territory FY2015 GSP = $23,139 million and Australian FY2015 GDP = $1,610 billion (source: ABS Catalogue Number 5220.0, Table 1, released 20-Nov-2015).

27 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

proportion of the Project is owned by local residents, a significant portion of the wealth generated by the economic activity is transferred outside of the Northern Territory (primarily to overseas shareholders). Unlike mining projects, the Northern Territory Government won’t receive much additional direct taxes from the Project. The Australian Government will however receive additional company tax and GST but where this additional income will be spent is unknown and for this study was assumed to be spent proportionately to the population in each region of Australia. An alternative assumption is that it would be allocated according to the jurisdiction in which it was raised. Consequently, a lot of the real income benefit associated with the Project, in absolute terms rather than in per capita terms, is projected to accrue to residents outside of the Northern Territory. More specifically, over the period 2017 to 2032, the Project is projected to increase the real income of: ― the Northern Territory by a cumulative total of $350 million relative to the Reference Case (with a net present value of $267 million, using a 4 per cent real discount rate) ― the Kununurra region by a cumulative total of $162 million relative to the Reference Case (with a net present value of $121 million, using a 4 per cent real discount rate) ― the Rest of Western Australia by a cumulative total of $129 million relative to the Reference Case (with a net present value of $85 million, using a 4 per cent real discount rate) ― Australia as a whole by a cumulative total of $1,478 million relative to the Reference Case (with a net present value of $1,048 million, using a 4 per cent real discount rate). To place these projected changes in income in perspective, the discounted present values (using a 4 per cent discount rate) are equivalent to a one-off increase in the average real income of all current residents of: ― the Northern Territory by approximately $1,090 per person This is a noticeable increase in consumer welfare in the context of a single project. 3.4 Employment creation

Stage 1 of Project Sea Dragon will create direct and indirect employment. Direct employment is the number of workers directly employed by the Project. Indirect employment is the number of workers employed as a result of the additional expenditure by the Project in the economy which generates enough demand to create additional jobs. Job creation is expressed in full time equivalent job years which is the number of full time staff employed in one year. A key issue when estimating the impact of a project is determining how the labour market will clear.2 As discussed in Section A.5, for this analysis, increases in the demand for labour in the Northern Territory can be met by three mechanisms: increasing migration from the rest of Australia; increasing participation rates and/or average hours worked; and by reducing the unemployment rate. In the model framework, the first two mechanisms are driven by changes in the real wages paid to workers in the Northern Territory while the third is a function of the additional labour demand relative to the Reference Case. Given the moderate unemployment rate assumed throughout the projection period, changes in the real wage rate accounts for the majority of the additional labour supply in the policy scenarios relative to the Reference Case. Given its importance to the projected impacts, sensitivity of the results to relaxation or tightening of the standard Tasman Global labour market assumptions is presented in Section 3.4.2. It should be noted that this analysis does not assume any change in net foreign migration as a result of the Project.

2 As with other CGE models, the standard assumption within Tasman Global is that all markets clear (ie. demand equals supply) at the start and end of each time period, including the labour market. CGE models place explicit limits on the availability of factors and the nature of the constraints can greatly change the magnitude and nature of the results. In contrast, most other tools used to assess economic impacts, including I-O multiplier analysis, do not place constraints on the availability of factors. Consequently, these tools tend to overestimate the impacts of a project or policy.

28 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

3.4.1 Total employment Over the assessed life of Stage 1 of the Project it is projected that around 4,545 employee years of full time equivalent direct and indirect jobs will be created. More specifically, it is projected that Stage 1 will increase employment in: ― the Northern Territory by 2,582 employee years (average annual increase of 161 FTE jobs) ― the Kununurra region by 643 employee years (average annual increase of 40 FTE jobs) ― the rest of Western Australia by 241 employee years (average annual increase of 15 FTE jobs) ― Australia as a whole by 4,545 employee years (average annual increase of 284 FTE jobs). As illustrated in Figure 3.5, the total additional employment is projected to be greatest during the initial construction phase and then broadly constant throughout the projection period, but will experience some variation by region year to year. Even though there aren’t many direct jobs sourced from outside of the Northern Territory and Kununurra region, it is projected that a noticeable level of job creation will occur in the rest of Australia. This is because of the redistribution of profits and taxes from the Project which are expected to flow to the rest of Australia. FIGURE 3.5 EMPLOYMENT CREATION: CONSTRUCTION AND OPERATION – STAGE 1

600

500

400

300

200

100

FTE jobs 2016 2018 2020 2022 2024 2026 2028 2030 2032

NT Kununurra region Rest of WA Rest of Australia

Note: FTE = full-time equivalent. SOURCE: ACIL ALLEN ECONOMIC MODELLING

Sensitivity of the results to relaxation of the tight labour market assumption is presented in Section 3.4.2. Naturally, the Project will employ many different skills. Figure 3.6 shows the broad classifications and numbers of employees stimulated across Australia by the project over its life. The construction phase data reflect the high proportion of skilled machinery operators and drivers as well as technical and professional personnel required to construct a project of this type. In contrast the operations phase has a higher proportion of jobs as labourers, professionals and machinery operators and drivers.

29 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 3.6 PROJECTED EMPLOYMENT BY OCCUPATION, TOTAL AUSTRALIA – STAGE 1

600

500

400

300

200

100

FTE jobs 2016 2018 2020 2022 2024 2026 2028 2030 2032

Labourers Machinery Operators & Drivers Sales Clerical & Administrative Community & Personal Service Technicians & Trades Professionals Managers

Note: FTE = full-time equivalent. SOURCE: ACIL ALLEN ECONOMIC MODELLING

3.4.2 Labour market sensitivity analysis This section analyses the sensitivity of the modelled impacts to an alternative labour market assumption. Namely, an ‘unconstrained labour market’, where the supply of labour (at the reference case wage rates) is fully responsive to demand. Under this assumption there is an “unlimited” pool of labour available to meet any additional labour demand generated by the Project, relative to the Reference Case. Note, that this does not mean that there is an infinite supply of labour, rather that all additional labour demands generated by the Project (at the Reference Case wage rates) can be met without needing to crowd out employment from other industries. With the exception of the availability of other factors of production, this assumption is the same as those obtained from using the upper level estimates from input-output employment multipliers3. The results are presented in Table 3.3 and Table 3.4. TABLE 3.3 LABOUR MARKET SENSITIVITY ANALYSIS – MACROECONOMIC IMPACTS Real economic output Real income Policy Case Unconstrained Policy Case Unconstrained 2015-16 A$m 2015-16 A$m 2015-16 A$m 2015-16 A$m Northern Territory 502 1,427 350 1,256 Kununurra region 108 250 162 276 Rest of Western Australia 29 204 129 284 Rest of Australia 264 842 836 1,324 Total Australia 903 2,723 1,478 3,139 SOURCE: ACIL ALLEN CONSULTING

3 More specifically, the Type 2A employment multipliers which include the direct, production induced and consumption induced effects.

30 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

TABLE 3.4 LABOUR MARKET SENSITIVITY ANALYSIS – EMPLOYMENT IMPACTS Policy case Unconstrained Employee years Employee years Northern Territory 2,582 8,716 Kununurra region 643 1,471 Rest of Western Australia 241 1,655 Rest of Australia 1,078 15,093 Total Australia 4,545 26,935 SOURCE: ACIL ALLEN CONSULTING

3.5 Contribution to government revenue

The construction and operation phases of Stage 1 will generate a number of Federal, Territory and Local Government revenues. Federal Government revenue will be realised through Company taxation, Income taxation and GST payments. Government revenues will rise significantly as a result of the Project. The Northern Territory Government will receive revenue from additional taxes including Payroll taxation and Stamp Duties. The Victoria Daly Regional Council which is the Local Government Authority in the vicinity of Stage 1 in the Northern Territory may receive revenue through an increase in revenue from any taxes and charges that are applicable to the Project. The direct Company taxation payments as a result of Stage 1 have been estimated by Seafarms while all other direct taxation estimates have been generated by ACIL Allen based on data supplied by Seafarms. 3.6 Opportunities for regional centres

The benefits from Stage 1 of Project Sea Dragon to the Northern Territory are important as the site is located in a sparsely populated area with a basic economic structure. There are few businesses located in the area with most private organisations involved in the pastoral industry and in the supply of goods and services to the local populations. The largest population centre in proximity to Stage 1 is the town of Kununurra which is located in Western Australia where many of the benefits of Stage 1 will accrue. In the Northern Territory, the closest town is Timber Creek which is located 195km east of the Western Australian border on the Victoria Highway. It is the permanent home to around 231 people (2011 Census) and supports a limited number of businesses. Despite its size, there are businesses in the town which can support the construction and/or operation of Stage 1 including businesses involved in accommodation, meeting room catering and hire, civil works, maintenance, weed and fire control and property management. The long term requirements of Stage 1 therefore present important opportunities for these businesses and for local job seekers many of whom are Indigenous people. Stage 1 will require a large workforce with many of the positions not requiring a high level of skills or work experience. These positions are particularly important for local regional people, many of whom do not have skills or work experience. Stage 1 also allows local people to gain employment on a major project and in an industry which is not currently represented in the region. These opportunities are presented in greater detail in subsequent sections of this report.

3.7 Contribution to business development

The majority of business opportunities associated with Stage 1 will present to businesses located in Kununurra. This is because Kununurra is the closest town to Stage 1 and the most accessible by existing transport routes. There will however be benefits to businesses located in the Northern Territory.

31 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

There are very few existing businesses located in the Northern Territory in the locality of Stage 1 of Project Sea Dragon with most nearby businesses being pastoral stations producing cattle for the live export trade. The closest non farming businesses in the Northern Territory are located in the town of Timber Creek. These include companies offering: — Local construction, building and maintenance services. — Rangers offering maintenance, fire control and weed control services. — Plumbing, electrical, mechanical, and general maintenance services. Companies in Timber Creek prior experience in working for the government including the Australian Defence Force and would seem to have the skills and experience necessary to provide services to Project Sea Dragon in the construction and operation phases of the Project. The Victoria Daly Council offices in Timber Creek include offices, a conference room, Council Hall and a kitchen which are available for hire, as well as the Council owned civil works depot. The types of opportunities offered by Stage 1 to businesses in the Northern Territory are long term in nature and many of the opportunities match those that are supplied by local businesses. Stage 1 will therefore assist in supporting these businesses and if they are successful in obtaining work, will allow them to undertake longer term business planning including employment training and development and career progression. In order to maximise the opportunities for businesses in the Northern Territory, Stage 1 of Project Sea Dragon will use the NT Industry Capability Network (ICN) as a gateway to advertise opportunities for local businesses, service providers and training and education institutions located in the Northern Territory.

3.8 R&D capability

A significant opportunity is the ongoing Research and Development work that will arise from the breeding program and other productivity initiatives. Seafarms will seek to enter into a formal arrangement with Charles Darwin University to progress this Research and Development opportunity. 3.9 Sustainable development and community well being

Stage 1 of Project Sea Dragon will foster sustainable development and community wellbeing in an area of the Northern Territory which is characterised by poor economic opportunities and a high rate of unemployment. The following sections outline the types of ways in which Stage 1 will assist in the development of the area and in community well-being.

3.9.1 Estimated overall regional economic benefits Economic modelling by ACIL Allen found that over the period 2017 to 2032, Stage 1 of the Project is projected to increase the real economic output of the Northern Territory in terms of the Gross State Product of the Northern Territory, by a cumulative total of $502 million or an average of around $31 million per annum from the direct and indirect impacts of the Project. In terms of real incomes or the ability of local residents to accumulate wealth, Stage 1 will add $351 million or an average of almost $22 million per annum. These benefits are significant and represent an important boost to the economy of the Northern Territory and the well being of its residents. As well as these benefits will be other contributions such as those associated with the direct and indirect employment from Stage 1, business opportunities, training required to skill workers for Stage 1 and so on. These benefits are described in greater detail in the following sections.

3.9.2 Employment creation The construction and operation of Stage 1 of Project Sea Dragon will result in the creation of direct and indirect employment. Because of the existing access to the Legune site, it is likely that the majority of these opportunities, particularly the direct opportunities, will favour job seekers and

32 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

businesses in Kununurra in Western Australia. There will however also be job creation in the Northern Territory. Stage 1 will require an estimated 444 FTE employee years of direct labour in construction and, at full production, will directly employ 334 people full-time in operation of which around 206 will be sourced from the Northern Territory. There are around 40 unskilled job opportunities and around 30 semi-skilled job opportunities available on the operation Stage 1 which could be serviced by direct employees or through businesses providing direct services to the site. These occupations include: — over 30 aquaculture workers required for the farm and in the post harvest facilities — around six general labourers required for the grow out facility and to assist in controlling bird predation — equipment operators, warehouse supervisors and drivers required at the Legune site — village operations staff at Legune which will require around six full time equivalent positions — three full time equivalent Indigenous rangers — cattle station workers including a peak of 20 to 22 workers in the dry season associated with mustering and a twelve month average of around five workers. There will be a number of other less skilled job opportunities however these positions will be domiciled in Kununurra. They include truck drivers for feed and fuel supplies and bus drivers. Mechanical maintenance contractors, electrical, instrumentation and communications contractors, and power plant operators will also be required. It is expected that these positions will also be domiciled in Kununurra.

3.9.3 Population retention Stage 1 is located in a very sparsely populated area. The closest population centre in the Northern Territory is located at Timber Creek which is around 195km east of the Western Australian border on the Victoria Highway. The town is home to around 230 permanent residents. There are no official population forecasts for the town however the Northern Territory Government provides a population forecast for the surrounding Barkly region of 0.9 per cent per annum for the next decade (NT Government, 2015). It should be noted however that there has been little to no historic population growth in the town. Stage 1 of Project Sea Dragon therefore provides opportunities for local businesses and labour to become involved in the Project. If these opportunities are taken up by residents of Timber Creek and the surrounding remote areas, Stage 1 will assist in retaining population in these areas of the Northern Territory.

3.9.4 Opportunities for Indigenous participation Seafarms is committed to providing significant Indigenous employment opportunities. Mechanisms for such employment opportunities could be through direct employment and/or via local Indigenous businesses. Seafarms anticipates that provision of indigenous employment will constitute part of an Indigenous Land Use Agreement (ILUA) that is currently being sought for the project. Seafarms notes that the representatives of the Traditional Owners have asked that matters in relation to a potential LIUA remain confidential. Seafarms anticipates that indigenous employment additional to, or beyond the commitments made within any ILUA will be available. Whether these jobs are direct or via indigenous businesses depends on a range of factors including business capability and capacity and preferred modes on employment. Note that the traditional owners of the land on which Stage 1 is located are the Miriuwung and Gajerrong people many of whom are resident form much of the time in the East Kimberley region of Western Australia.

3.9.5 Community value of any infrastructure, such as roads, camps, etc Access to the Legune site is currently via the Legune Road and the Keep River Road which represent approximately 120km of unsealed roads. Stage 1 of Project Sea Dragon will require a 7.5km section of this road upgraded in Western Australia and 38km in the Northern Territory. An additional 53km of road will be upgraded on the Legune site. The road upgrades required to transport freight and workers to and from the Legune site, could benefit potential users of the road including those associated with

33 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

the Ord Stage 3 development, pastoralists, tourists, recreational fishers and cattle trucks which will provide benefits to the wider economy in the Northern Territory.

3.9.6 Estimated workforce/contractor numbers by occupational classification The construction of Stage 1 will directly employ around 444 workers over the two years of construction and at steady state workforce, Stage 1 will employ around 334 workers of which 139 workers will be required at the Legune site. The occupational classification of workers that will be directly hired by Stage 1 in construction and operation is presented in Figure 3.7 where the occupational classification is based on the Australian Bureau of Statistics Australian and New Zealand Standard Classification of Occupations (ANZCSO). The Figure shows that the most common occupations that will be employed by Stage 1 in construction are machinery operators and drivers, and labourers. Together these two occupations will employ 69 per cent of the construction workforce. In operation, the most common occupations will be labourers who will account for around 46 per cent of the workforce. FIGURE 3.7 OCCUPATIONAL CLASSIFICATION: STAGE 1 OF PROJECT SEA DRAGON

Managers

Professionals

Technicians and trades workers

Community and personal service workers

Clerical and administrative workers

Sales workers

Machinery operators and drivers

Labourers

200 150 100 50 00 50 100 150 200 Number of FTE workers Construction Operation

SOURCE: ACIL ALLEN ECONOMIC MODELLING

3.9.7 Overall employment training proposed during commencement, construction and operations Seafarms will work closely with the Northern Territory Government to ensure that government training assistance aligns with the qualifications required for the jobs being created. It is estimated that in operation, a workforce of 139 staff will be required at the Legune site of which half will be semi-skilled or unskilled positions requiring Year Ten or Year 12 equivalent, TAFE qualifications or on the job experience. Just under 40 per cent of positions will be skilled positions which will require university, TAFE or on the job experience.

34 PROJECT SEA DRAGON SOCIO-ECONOMIC ASSESSMENT

FIGURE 3.8 LEVEL OF SKILLS REQUIRED: STAGE 1 OF PROJECT SEA DRAGON: LEGUNE SITE

60 51 50

40 33

30 25

Numberof FTE jobs 20

10 6 6 6 2 2 2 2 3 0 0 1 0 0

0

High High High High

Skilled Skilled Skilled Skilled

Unskilled Unskilled Unskilled Unskilled

Semi Skilled Semi Skilled Semi Skilled Semi Skilled Semi Aquaculture Administration Post Harvest Quality

SOURCE: SEAFARMS

There are a number of training providers in Darwin and Kununurra that will be able to participate in the project development and in the ongoing operations phase. Planned Indigenous employment, training and other project participation.

3.9.8 Local employment estimates The construction of Stage 1 will require 444 workers of which around 385 will be sourced from the Northern Territory. It is likely that most of these workers will be sourced from Darwin given the location of the site in a remotely populated area and in an area in which few businesses are located. Stage 1 will therefore provide a large demand for labour from the Northern Territory over a two year period providing opportunities in a range of skilled and semi-skilled positions. Further details regarding the anticipated skills requirements of the construction phase are presented in Section 3.9.6. The operation of Stage 1 will require a workforce of around 334 full time equivalent staff of which 265 full time equivalent staff will all be located at the Legune site. At full scale, the complete Project Sea Dragon will employ around 1,600 to 1,700 full time equivalent staff located at Legune and Darwin in the Northern Territory and Kununurra and Exmouth in Western Australia. The primary sites will be Legune and Kununurra. Seafarms will seek to maximise employment opportunities for local residents at the Legune site and will ensure the development and implementation of a targeted Indigenous employment strategy. A significant number of the proposed jobs will provide opportunities for the local and regional indigenous population. These will include a number of jobs that will match the skill sets of local Indigenous people such as Indigenous Rangers as well as new job opportunities for local Indigenous people on the aquaculture farm and in the accommodation facilities. The local community has services in place to provide Indigenous employment to employers. The Victoria Daly Council supports a Remote Jobs and Communities Program which aims to assist local people to get training so that they can secure jobs and participate more in their local communities. Many of the skilled employment opportunities (breeding and hatchery operations) are expected to be located in the environs of Darwin. Further jobs in management, administration and logistics are also to be located in Darwin.

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3.9.9 Other contributions to local communities, including traditional owners Other contributions to traditional owners will be enshrined in the Indigenous Land Use Agreement (ILUA) that is in the process of being negotiated. As it is a work in progress, the contents cannot be disclosed at this time.

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4 4 BIBLIOGRAPHY Bibliography

5 BIBLIOGRAPHY Australian Bureau of Statistics. (2012). 2011 Census of Population and Housing. Canberra: Government of Australia. Australian Bureau of Statistics. (2015). 3218.0 Regional Population Growth, Australia. Canberra: Government of Australia. Australian Bureau of Statistics. (2015). 5220.0 Australian National Accounts: State Accounts . Canberra: Australian Government. Australian Bureau of Statistics. (2015). Regional Population Growth, Australia Cat: 3218.0. Canberra: Government of Australia. Australian Bureau of Statistics. (2015). Tourist Accommodation Northern Territory 2014-15. Canberra: Government of Australia. Department of Employment. (2015). Small Area Labour Markets. Canberra: Government of Australia. Department of Primary Industry and Fisheries. (2014). Overview and Outlook 2014. Darwin: NT Government . Department of Primary Industry and Fisheries. (2016, April 15). Key Industry Sectors Trends and Analysis. Retrieved from Department of Primary Industry and Fisheries: http://www.nt.gov.au/d/annualreport/1415/01-key-industry-sectors.html Northern Territory. (2010 - 2016). Northern Territory Mining Production various years. Darwin: Northern Territory Government. Northern Territory Environment Protection Authority. (2015). Project Sea Dragon Stage 1 Legune Grow Out Facility. Darwin: NT Government. NT Department of Business. (2015, September 04). Business. Retrieved from Department of Business: http://www.dob.nt.gov.au NT Government. (2015). Northern Territory population projections summary. Darwin: NT Government. NT Treasury. (2015). NT Budget 2015/16: Northern Territory Economic Overview. Darwin: NT Government. NT Treasury. (2016). Northern Territory Economic Brief: Gross State Product 2014-15. Darwin: NT Government. Real Estate Institute of Northern Territory Inc. (2016). The Northern Territory Real Estate Local Market Report: December Quarter 2015. Darwin: Real Estate Institute of Nothern Territory Inc. Tourism NT. (2015). Regional Report Katherine and Surrounds. Darwin: NT Government.

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Tourism Research Australia. (2015). State and Territory Tourism Forecasts. Canberra: Australian Government. Victoria Daly Regional Council. (unknown). Timber Creek Community Plan 2015-16. Timber Creek: Victoria Daly Regional Council.

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A. O VERVIEW OF A TASMAN GLOBAL Overview of Tasman Global

A.1 Overview

Tasman Global is a dynamic, global computable general equilibrium (CGE) model that has been developed by ACIL Allen for the purpose of undertaking economic impact analysis at the regional, state, national and global level. A CGE model captures the interlinkages between the markets of all commodities and factors, taking into account resource constraints, to find a simultaneous equilibrium in all markets. A global CGE model extends this interdependence of the markets across world regions and finds simultaneous equilibrium globally. A dynamic model adds onto this the interconnection of equilibrium economies across time periods. For example, investments made today are going to determine the capital stocks of tomorrow and hence future equilibrium outcomes depend on today’s equilibrium outcome, and so on. Thus a dynamic global CGE model, such as Tasman Global, has the capability of addressing total, sectoral, spatial and temporal efficiency of resource allocation as it connects markets globally and over time. Being a recursively dynamic model, however, its ability to address temporal issues is limited. In particular, Tasman Global cannot typically address issues requiring partial or perfect foresight, however, as documented in Jakeman et al (2001), it is possible to introduce partial or perfect foresight in certain markets using algorithmic approaches. Notwithstanding this, the model does have the capability to project the economic impacts over time of given changes in policies, tastes and technologies in any region of the world economy on all sectors and agents of all regions of the world economy. Tasman Global was developed out of the 2001 version of the Global Trade and Environment Model (GTEM) developed by ABARE (Pant 2001), and has been evolving ever since. In turn, GTEM was developed out of the MEGABARE model (ABARE 1996), which contained significant advancements over the GTAP model of that time (Hertel 1997). A.2 A dynamic model

Tasman Global is a model that estimates relationships between variables at different points in time. This is in contrast to comparative static models, which compare two equilibriums (one before a policy change and one following). A dynamic model such as Tasman Global is beneficial when analysing issues where both the timing of and the adjustment path that economies follow are relevant in the analysis. In applications of the Tasman Global model, a Reference Case simulation forms a ‘business-as-usual’ basis with which to compare the results of various simulations. The Reference Case provides projections of growth in the absence of the changes to be examined. The impact of the change to be

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examined is then simulated and the results interpreted as deviations from the Reference Case (see Figure A.1).

FIGURE A.1 ILLUSTRATIVE SCENARIO ANALYSIS USING TASMAN GLOBAL

Policy case – With Project Sea Dragon Economic indicator (eg GDP, Impact of Project employment, Sea Dragon income, etc)

Reference case – Without Project Sea Dragon

2015 2020 2025 2030

SOURCE: ACIL ALLEN CONSULTING

A.3 The database

A key advantage of Tasman Global is the level of detail in the database underpinning the model. The database used for this analysis is derived from the Global Trade Analysis Project (GTAP) database (version 8.1). This database is a fully documented, publicly available global data base which contains complete bilateral trade information, transport and protection linkages among regions for all GTAP commodities. It is the detailed database of its type in the world. Tasman Global builds on the GTAP database by adding the following important features: ― a detailed population and labour market database ― detailed technology representation within key industries (such as electricity generation and iron and steel production) ― disaggregation of a range of major commodities including iron ore, bauxite, alumina, primary aluminium, brown coal, black coal and LNG ― the ability to repatriate labour and capital income ― explicit representation of the states and territories of Australia ― the capacity to explicitly represent multiple regions within states and territories of Australia. Nominally, version 8.1 of the Tasman Global database divides the world economy into 141 regions (133 international regions plus the 8 states and territories of Australia) although in reality the regions are frequently disaggregated further. ACIL Allen regularly models Australian projects or policies at the regional level. For this project the model has been aggregated to 5 economies, namely: Northern Territory, Kununurra region, the Rest of Western Australia, The Rest of Australia, and the Rest of the World. The Tasman Global database also contains a wealth of sectoral detail currently identifying up to 70 industries (Table A.1). The foundation of this information is the input-output tables that underpin the database. The input-output tables account for the distribution of industry production to satisfy industry

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and final demands. Industry demands, so-called intermediate usage, are the demands from each industry for inputs. For example, electricity is an input into the production of communications. In other words, the communications industry uses electricity as an intermediate input. Final demands are those made by households, governments, investors and foreigners (export demand). These final demands, as the name suggests, represent the demand for finished goods and services. To continue the example, electricity is used by households – their consumption of electricity is a final demand. Each sector in the economy is typically assumed to produce one commodity, although in Tasman Global, the electricity, transport and iron and steel sectors are modelled using a ‘technology bundle’ approach. With this approach, different known production methods are used to generate a homogeneous output for the ‘technology bundle’ industry. For example, electricity can be generated using brown coal, black coal, petroleum, base load gas, peak load gas, nuclear, hydro, geothermal, biomass, wind, solar or other renewable based technologies – each of which have their own cost structure.

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TABLE A.1 SECTORS IN THE TASMAN GLOBAL DATABASE Sector Sector 1 Paddy rice 36 Paper products, publishing 2 Wheat 37 Diesel (incl. nonconventional diesel) 3 Cereal grains nec 38 Other petroleum, coal products 4 Vegetables, fruit, nuts 39 Chemical, rubber, plastic products 5 Oil seeds 40 Iron ore 6 Sugar cane, sugar beef 41 Bauxite 7 Plant- based fibres 42 Mineral products nec 8 Crops nec 43 Ferrous metals 9 Bovine cattle, sheep, goats, horses 44 Alumina 10 Animal products nec 45 Primary aluminium 11 Raw milk 46 Metals nec 12 Wool, silk worm cocoons 47 Metal products 13 Forestry 48 Motor vehicle and parts 14 Fishing 49 Transport equipment nec 15 Brown coal 50 Electronic equipment 16 Black coal 51 Machinery and equipment nec 17 Oil 52 Manufactures nec 18 Liquefied natural gas (LNG) 53 Electricity generation 19 Other natural gas 54 Electricity transmission and distribution 20 Minerals nec 55 Gas manufacture, distribution 21 Bovine meat products 56 Water 22 Meat products nec 57 Construction 23 Vegetables oils and fats 58 Trade 24 Dairy products 59 Road transport 25 Processed rice 60 Rail and pipeline transport 26 Sugar 61 Water transport 27 Food products nec 62 Air transport 28 Wine 63 Transport nec 29 Beer 64 Communication 30 Spirits and RTDs 65 Financial services nec 31 Other beverages and tobacco products 66 Insurance 32 Textiles 67 Business services nec 33 Wearing apparel 68 Recreational and other services 34 Leather products 69 Public Administration, Defence, Education, Health 35 Wood products 70 Dwellings

NOTE: NEC = NOT ELSEWHERE CLASSIFIED

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The other key feature of the database is that the cost structure of each industry is also represented in detail. Each industry purchases intermediate inputs (from domestic and imported sources) primary factors (labour, capital, land and natural resources) as well as paying taxes or receiving subsidies. A.4 Model structure

Given its heritage, the structure of the Tasman Global model closely follows that of the GTAP and GTEM models and interested readers are encouraged to refer to the documentation of these models for more detail (namely Hertel 1997 and Pant 2001, respectively). In summary: — The model divides the world into a variety of regions and international waters. − Each region is fully represented with its own ‘bottom-up’ social accounting matrix and could be a local community, an LGA, state, country or a group of countries. The number of regions in a given simulation depends on the database aggregation. Each region consists of households, a government with a tax system, production sectors, investors, traders and finance brokers. − ‘International waters’ are a hypothetical region where global traders operate and use international shipping services to ship goods from one region to the other. It also houses an international finance ‘clearing house’ that pools global savings and allocates the fund to investors located in every region. − Each region has a ‘regional household’4 that collects all factor payments, taxes, net foreign borrowings, net repatriation of factor incomes due to foreign ownership and any net income from trading of emission permits. — The income of the regional household is allocated across private consumption, government consumption and savings according to a Cobb-Douglas utility function, which, in practice, means that the share of income going to each component is assumed to remain constant in nominal terms. — Private consumption of each commodity is determined by maximising utility subject to a Constant Difference of Elasticities (CDE) function which includes both price and income elasticities. — Government consumption of each commodity is determined by maximising utility subject to a Cobb-Douglas utility function. — Each region has n production sectors, each producing single products using various production functions where they aim to maximise profits (or minimise costs) and take all prices as given. The nature of the production functions chosen in the model means that producers exhibit constant returns to scale. − In general, each producer supplies consumption goods by combining an aggregate energy- primary factor bundle with other intermediate inputs and according to a Leontief production function (which in practice means that the quantity shares remain in fixed proportions). Within the aggregate energy-primary factor bundle, the individual energy commodities and primary factors are combined using a nested-CES (Constant Elasticity of Substitution) production function, in which energy and primary factor aggregates substitute according to a CES function with the individual energy commodities and individual primary factors substituting with their respective aggregates according to further CES production functions. − Exceptions to the above include the electricity generation, iron and steel and road transport sectors. These sectors employ the ‘technology bundle’ approach developed by ABARE (1996) in which non-homogenous technologies are employed to produce a homogenous output with the choice of technology governed by minimising costs according to a modified-CRESH production function. For example, electricity may be generated from a variety of technologies (including brown coal, black coal, gas, nuclear, hydro, solar etc.), iron and steel may be produced from blast furnace or electric arc technologies while road transport services may be supplied using a range of different vehicle technologies. The ‘modified-CRESH’ function differs from the traditional CRESH function by also imposing the condition that the quantity units are homogenous.

4 The term “regional household” was devised for the GTAP model. In essence it is an agent that aggregates all incomes attributable to the residents of a given region before distributing the funds to the various types of regional consumption (including savings).

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— There are four primary factors (land, labour, mobile capital and fixed capital). While labour and mobile capital are used by all production sectors, land is only used by agricultural sectors while the fixed capital is typically employed in industries with natural resources (such as fishing, forestry and mining) or in selected industries built by ACIL Allen. − Land supply in each region is typically assumed to remain fixed through time with the allocation of land between sectors occurring to maximise returns subject to a Constant Elasticity of Transformation (CET) utility function. − Mobile capital accumulates as a result of net investment. It is implicitly assumed in Tasman Global that it takes one year for capital to be installed. Hence, supply of capital in the current period depends on the last year’s capital stock and investments made during the previous year. − Labour supply in each year is determined by endogenous changes in population, given participation rates and a given unemployment rate. In policy scenarios, the supply of labour is positively influenced by movements in the real wage rate governed by the elasticity of supply. For countries where sub-regions have been specified (such as Australia), migration between regions is induced by changes in relative real wages with the constraint that net interregional migration equals zero. For regions where the labour market has been disaggregated to include occupations, there is limited substitution allowed between occupations by individuals supplying labour (according to a CET utility function) and by firms demanding labour (according to a CES production function) based on movements in relative real wages. − The supply of fixed capital is given for each sector in each region. The model has the option for these assumptions to be changed at the time of model application if alternative factor supply behaviours are considered more relevant. — It is assumed that labour (by occupation) and mobile capital are fully mobile across production sectors implying that, in equilibrium, wage rates (by occupation) and rental rates on capital are equalised across all sectors within each region. To a lesser extent, labour and capital are mobile between regions through international financial investment and migration, but this sort of mobility is sluggish and does not equalise rates of return across regions. — For most international regions, each consumer (private, government, industries and the local investment sector), consumption goods can be sourced either from domestic or imported sources. In any country which has disaggregated regions (such as Australian), consumption goods can also be sourced from other intrastate or interstate regions. In all cases, the source of non-domestically produced consumption goods is determined by minimising costs subject to a Constant Ratios of Elasticities of Substitution, Homothetic (CRESH) utility function. Like most other CGE models, a CES demand function is used to model the relative demand for domestically-produced commodities versus non-domestically produced commodities. The elasticities chosen for the CES and CRESH demand functions mean that consumers in each region have a higher preference for domestically produced commodities than non-domestic and a higher preference for intrastate or interstate produced commodities versus foreign. — The capital account in Tasman Global is open. Domestic savers in each region purchase ‘bonds’ in the global financial market through local ‘brokers’ while investors in each region sell bonds to the global financial market to raise investible funds. A flexible global interest rate clears the global financial market. — It is assumed that regions may differ in their risk characteristics and policy configurations. As a result, rates of return on money invested in physical capital may differ between regions and therefore may be different from the global cost of funds. Any difference between the local rates of return on capital and the global cost of borrowing is treated as the result of the existence of a risk premium and policy imperfections in the international capital market. It is maintained that the equilibrium allocation of investment requires the equalisation of changes in (as opposed to the absolute levels of) rates of return over the base year rates of return. — Any excess of investment over domestic savings in a given region causes an increase in the net debt of that region. It is assumed that debtors service the debt at the interest rate that clears the global financial market. Similarly, regions that are net savers gives rise to interest receipts from the global financial market at the same interest rate. — Investment in each region is used by the regional investor to purchase a suite of intermediate goods according to a Leontief production function to construct capital stock with the regional

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investor cost minimising by choosing between domestic, interstate and imported sources of each intermediate good via the CRESH production function. The regional cost of creating new capital stock versus the local rates of return on mobile capital is what determines the regional rate of return on new investment. — In equilibrium, exports of a good from one region to the rest of world are equal to the import demand for that good in the remaining regions. Together with the merchandise trade balance, the net payments on foreign debt add up to the current account balance. Tasman Global does not require that the current account be in balance every year. It allows the capital account to move in a compensatory direction to maintain the balance of payments. The exchange rate provides the flexibility to keep the balance of payments in balance. — Emissions of six anthropogenic greenhouse gases (namely, carbon dioxide, methane, nitrous oxide, HFCs, PFCs and SF6) associated with economic activity are tracked in the model. Almost all sources and sectors are represented; emissions from agricultural residues and land-use change and forestry activities are not explicitly modelled but can be accounted for externally. Prices can be applied to emissions which are converted to industry-specific production taxes or commodity- specific sales taxes that impact on demand. Abatement technologies similar to those adopted in Australian Government (2008) are available and emission quotas can be set globally or by region along with allocation schemes that enable emissions to be traded between regions. More detail regarding specific elements of the model structure are discussed in the following sections. A.5 Population growth and labour supply

Population growth is an important determinant of economic growth through the supply of labour and the demand for final goods and services. Population growth for each region represented in the Tasman Global database is projected using ACIL Allen’s in-house demographic model. The demographic model projects how the population in each region grows and how age and gender composition changes over time and is an important tool for determining the changes in regional labour supply and total population over the projection period. For each of region, the model projects the changes in age-specific birth, mortality and net migration rates by gender for 101 age cohorts (0-99 and 100+). The demographic model also projects changes in participation rates by gender by age for each region, and, when combined with the age and gender composition of the population, endogenously projects the future supply of labour in each region. Changes in life expectancy are a function of income per person as well as assumed technical progress on lowering mortality rates for a given income (for example, reducing malaria-related mortality through better medicines, education, governance etc.). Participation rates are a function of life expectancy as well as expected changes in higher education rates, fertility rates and changes in the work force as a share of the total population. Labour supply is derived from the combination of the projected regional population by age by gender and the projected regional participation rates by age by gender. Over the projection period labour supply in most developed economies is projected to grow slower than total population as a result of ageing population effects. For the Australian states and territories, the projected aggregate labour supply from ACIL Allen’s demographics module is used as the base level potential workforce for the detailed Australian labour market module, which is described in the next section.

A.5.1 The Australian labour market Tasman Global has a detailed representation of the Australian labour market which has been designed to capture: — different occupations — changes to participation rates (or average hours worked) due to changes in real wages — changes to unemployment rates due to changes in labour demand — limited substitution between occupations by the firms demanding labour and by the individuals supplying labour, and

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— limited labour mobility between states and regions within each state. Tasman Global recognises 97 different occupations within Australia – although the exact number of occupations depends on the aggregation. The firms who hire labour are provided with some limited scope to change between these 97 labour types as the relative real wage between them changes. Similarly, the individuals supplying labour have a limited ability to change occupations in response to the changing relative real wage between occupations. Finally, as the real wage for a given occupation rises in one state relative to other states, workers are given some ability to respond by shifting their location. The model produces results at the 97 3-digit ANZSCO (Australian New Zealand Standard Classification of Occupations) level which are presented in Table A.2. The labour market structure of Tasman Global is thus designed to capture the reality of labour markets in Australia, where supply and demand at the occupational level do adjust, but within limits. Labour supply in Tasman Global is presented as a three stage process: 1. labour makes itself available to the workforce based on movements in the real wage and the unemployment rate; 2. labour chooses between occupations in a state based on relative real wages within the state; and 3. labour of a given occupation chooses in which state to locate based on movements in the relative real wage for that occupation between states. By default, Tasman Global, like all CGE models, assumes that markets clear. Therefore, overall, supply and demand for different occupations will equate (as is the case in other markets in the model).

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TABLE A.2 OCCUPATIONS IN THE TASMAN GLOBAL DATABASE, ANZSCO 3-DIGIT LEVEL (MINOR GROUPS) ANZSCO code, Description ANZSCO code, Description ANZSCO code, Description 1. MANAGERS 3. TECHNICIANS & TRADES WORKERS 5. CLERICAL & ADMINISTRATIVE 111 Chief Executives, General Managers and 311 Agricultural, Medical and Science 511 Contract, Program and Project Legislators Technicians Administrators 121 Farmers and Farm Managers 312 Building and Engineering Technicians 512 Office and Practice Managers 131 Advertising and Sales Managers 313 ICT and Telecommunications 521 Personal Assistants and Secretaries 132 Business Administration Managers Technicians 531 General Clerks 133 Construction, Distribution and Production 321 Automotive Electricians and Mechanics 532 Keyboard Operators Managers 322 Fabrication Engineering Trades Workers 541 Call or Contact Centre Information 134 Education, Health and Welfare Services 323 Mechanical Engineering Trades Workers Clerks Managers 324 Panelbeaters, and Vehicle Body Builders, 542 Receptionists 135 ICT Managers Trimmers and Painters 551 Accounting Clerks and Bookkeepers 139 Miscellaneous Specialist Managers 331 Bricklayers, and Carpenters and Joiners 552 Financial and Insurance Clerks 141 Accommodation and Hospitality Managers 332 Floor Finishers and Painting Trades 561 Clerical and Office Support Workers 142 Retail Managers Workers 591 Logistics Clerks 149 Miscellaneous Hospitality, Retail and Service 333 Glaziers, Plasterers and Tilers 599 Miscellaneous Clerical and Managers 334 Plumbers Administrative Workers 341 Electricians 2. PROFESSIONALS 342 Electronics and Telecommunications 6. SALES WORKERS 211 Arts Professionals Trades Workers 611 Insurance Agents and Sales 212 Media Professionals 351 Food Trades Workers Representatives 221 Accountants, Auditors and Company 361 Animal Attendants and Trainers, and 612 Real Estate Sales Agents Secretaries Shearers 621 Sales Assistants and Salespersons 222 Financial Brokers and Dealers, and Investment 362 Horticultural Trades Workers 631 Checkout Operators and Office Cashiers Advisers 391 Hairdressers 639 Miscellaneous Sales Support Workers 223 Human Resource and Training Professionals 392 Printing Trades Workers 224 Information and Organisation Professionals 393 Textile, Clothing and Footwear Trades 7. MACHINERY OPERATORS & DRIVERS Workers 225 Sales, Marketing and Public Relations 711 Machine Operators Professionals 394 Wood Trades Workers 712 Stationary Plant Operators 231 Air and Marine Transport Professionals 399 Miscellaneous Technicians and Trades 721 Mobile Plant Operators 232 Architects, Designers, Planners and Surveyors Workers 731 Automobile, Bus and Rail Drivers 233 Engineering Professionals 732 Delivery Drivers 234 Natural and Physical Science Professionals 4. COMMUNITY & PERSONAL SERVICE 733 Truck Drivers 241 School Teachers 411 Health and Welfare Support Workers 741 Storepersons 242 Tertiary Education Teachers 421 Child Carers

249 Miscellaneous Education Professionals 422 Education Aides 8. LABOURERS 251 Health Diagnostic and Promotion Professionals 423 Personal Carers and Assistants 811 Cleaners and Laundry Workers 252 Health Therapy Professionals 431 Hospitality Workers 821 Construction and Mining Labourers 253 Medical Practitioners 441 Defence Force Members, Fire Fighters 831 Food Process Workers 254 Midwifery and Nursing Professionals and Police 832 Packers and Product Assemblers 261 Business and Systems Analysts, and 442 Prison and Security Officers 839 Miscellaneous Factory Process Workers Programmers 451 Personal Service and Travel Workers 841 Farm, Forestry and Garden Workers 262 Database and Systems Administrators, and 452 Sports and Fitness Workers ICT Security Specialists 851 Food Preparation Assistants 263 ICT Network and Support Professionals 891 Freight Handlers and Shelf Fillers 271 Legal Professionals 899 Miscellaneous Labourers 272 Social and Welfare Professionals

SOURCE: ABS (2009), ANZSCO – AUSTRALIAN AND NEW ZEALAND STANDARD CLASSIFICATIONS OF OCCUPATIONS, FIRST EDITION, REVISION 1, ABS CATALOGUE NO. 1220.0.

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Labour market database The Tasman Global database includes a detailed representation of the Australian labour market which has been designed to capture the supply and demand for different skills and occupations by industry. To achieve this, the Australian workforce is characterised by detailed supply and demand matrices. On the supply side, the Australian population is characterised by a five dimensional matrix consisting of:  7 post-school qualification levels  12 main qualification fields of highest educational attainment  97 occupations  101 age groups (namely 0 to 99 and 100+)  2 genders. The data for this matrix is measured in persons and was sourced from the ABS 2011 Census. As the skills elements of the database and model structure have not been used for this project, it will be ignored in this discussion. The 97 occupations are those specified at the 3-digit level (or Minor Groups) under the Australian New Zealand Standard Classification of Occupations (ANZSCO) (see Table A.2). On the demand side, each industry demands a particular mix of occupations. This matrix is specified in units of full-time equivalent (FTE) jobs where an FTE employee works an average of 37.5 hours per week. Consistent with the labour supply matrix, the data for FTE jobs by occupation by industry was also sourced from the ABS 2011 Census and updated using the latest labour force statistics. Matching the demand and supply side matrices means that there is the implicit assumption that the average hours per worker are constant, but it is noted that mathematically changes in participation rates have the same effect as changes in average hours worked.

A.5.2 Labour market model structure In the model, the underlying growth of each industry in the Australian economy results in a growth in demand for a particular set of skills and occupations. In contrast, the supply of each set of skills and occupations in a given year is primarily driven by the underlying demographics of the resident population. This creates a market for each skill by occupation that (unless specified otherwise) needs to clear at the start and end of each time period.5 The labour markets clear by a combination of different prices (i.e. wages) for each labour type and by allowing a range of demand and supply substitution possibilities, including: — changes in firms demand for labour driven by changes in the underlying production technology: – for technology bundle industries (electricity, iron and steel and road transportation) this occurs due to changes between explicitly identified alternative technologies – for non-technology bundle industries this includes substitution between factors (such as labour for capital) or energy for factors — changes to participation rates (or average hours worked) due to changes in real wages — changes in the occupations of a person due to changes in relative real wages — substitution between occupations by the firms demanding labour due to changes in the relative costs — changes to unemployment rates due to changes in labour demand, and — limited labour mobility between states due to changes in relative real wages. All of the labour supply substitution functions are modified-CET functions in which people supply their skills, occupation and rates of participation as a positive function of relative wages. However, unlike a

5 For example, at the start and end of each week for this analysis. Tasman Global can be run with different steps in time, such as quarterly or bi-annually in which case the markets would clear at the start and end of these time points.

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standard CET (or CES) function, the functions are ‘modified’ to enforce an additional constraint that the number of people is maintained before and after substitution.6 Although technically solved simultaneously, the labour market in Tasman Global can be thought of as a five stage process: 1. labour makes itself available to the workforce based on movements in the real wage (i.e. it actively participates with a certain average hours worked per week) 2. the age, gender and occupations of the underlying population combined with the participation rate by gender by age implies a given supply of labour (the potentially available workforce) 3. a portion of the potentially available workforce is unemployed implying a given available labour force 4. labour chooses to move between occupations based on relative real wages 5. industries alter their demands for labour as a whole and for specific occupations based on the relative cost of labour to other inputs and the relative cost of each occupation. By default, Tasman Global, like all CGE models, assumes that markets clear at the start and end of each period. Therefore, overall, supply and demand for different occupations will equate (as is the case in other markets in the model). In principle, (subject to zero starting values) people of any age and gender can move between any of the 97 occupations while industries can produce their output with any mix of occupations. However, in practice the combination of the initial database, the functional forms, low elasticities and moderate changes in relative prices for skills, occupations etc. means that there is only low to moderate change induced by these functions. Thus the changes are sufficient to clear the markets, but not enough to radically change the structure of the workforce in the timeframe of this analysis. Factor-factor substitution elasticities in non-technology bundle industries are industry specific and are the same as those specified in the GTAP version 8.1 database7, while the fuel-factor and technology bundle elasticities are the same as those specified in GTEM.8 The detailed labour market elasticities are ACIL Allen assumptions, previously calibrated in the context of the model framework to replicate the historical change in the observed Australian labour market over a five year period9. More specifically, all labour market elasticities are neutral across industries, regions, age and gender with each responding to changes in relative wages with the ability to change occupations having an elasticity of 0.1, the ability to migrate between different regions of Australia having an elasticity of 0.025, the ability to alter hours worked/participation rate having an elasticity of 0.000375. The unemployment rate function in the policy scenarios is a non-linear function of the change in the labour demand relative to the reference case with the elasticity being a function of the unemployment rate (ie the lower the unemployment rate the lower the elasticity and the higher the unemployment rate the higher the elasticity). A.6 References

Australian Government (2008), Australia’s Low Pollution Future: the economics of climate change mitigation, Australian Government, Canberra. Dixon, Parmenter, Sutton, & Vincent (1997), ORANI: A Multisectoral Model of the Australian Economy. Dixon, P.B. and Rimmer, M.T. (2002), Dynamic general equilibrium modelling for forecasting and policy. Contributions to Economic Analysis 256, North Holland, Amsterdam

6 As discussed in Dixon et al (1997), a standard CES/CET function is defined in terms of effective units. Quantitatively this means that, when substituting between, say, X1 and X2 to form a total quantity X using a CET function a simple summation generally does not actually equal X. Use of these functions is common practice in CGE models when substituting between substantially different units (such as labour versus capital or imported versus domestic services) but was not deemed appropriate when tracking the physical number of people. Such ‘modified’ functions have long been employed in the technology bundles of Tasman Global and GTEM. The Productivity Commission have proposed alternatives to the standard CES to overcome similar and other weaknesses when applied to internationally traded commodities. 7 Narayanan et al. (2012). 8 Pant (2007). 9 This method is a common way of calibrating the economic relationships assumed in CGE models to those observed in the economy. See for example Dixon and Rimmer (2002).

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Hertel, T. (1997), Global Trade Analysis: modelling and applications, Cambridge University Press, Cambridge. Jakeman, G., Heyhoe, E., Pant, H., Woffenden, K. and Fisher, B.S. (2001), The Kyoto Protocol: economic impacts under the terms of the Bonn agreement. ABARE paper presented to the International Petroleum Industry Environmental Conservation Association conference, ‘Long Term Carbon and Energy Management - Issues and Approaches’, Cambridge, Massachusetts, 15-16 October. Narayanan, G., Badri, Angel Aguiar and Robert McDougall, Eds. (2012). Global Trade, Assistance, and Production: The GTAP 8 Data Base, Center for Global Trade Analysis, Purdue University. Pant, H.M. (2007), GTEM: Global Trade and Environment Model, ABARE Technical Report, Canberra, June

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