Royal Commission Into Commercial Activities of Government Act 1992, to Inquire and Report Whether There Has Been —
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CHAPTER 13 TERMS OF REFERENCE 1.1 TO 1.4 ROTHWELLS The rescue of Rothwells Limited 13 CHAPTER 14 TERMS OF REFERENCE 1.1 TO 1.4 ROTHWELLS The immediate aftermath of the rescue and continuing liquidity problems 14 CHAPTER 15 TERMS OF REFERENCE 1.1 TO 1.4 ROTHWELLS SGIC'S acquisition of shares in BHP Limited 15 CHAPTER 16 TERMS OF REFERENCE 1.1 TO 1.4 ROTHWELLS Rothwells from mid November 1987 to early April 1988 16 CHAPTER 17 TERMS OF REFERENCE 1.1 TO 4 ROTHWELLS SGIC'S acquisition of shares in the Bell Group Limited and subsequent NCSC investigations 17 CHAPTER 18 TERMS OF REFERENCE 1.1 TO 1.4 ROTHWELLS The Kwinana petrochemical project to the signing of the memorandum of understanding 18 TABLE OF CONTENTS 18.1 PICL - history 2 18.2 PICL emerges as a solution to the Rothwells' problem 22 18.3 Crucial June/July meeting 38 18.4 July negotiations and preparation of memorandum of understanding 59 18.5 Negotiations with Mr Dempster 76 18.6 Cabinet - 28 July 1988 78 18.7 Memoranda of Understanding 81 18.8 Mr Dowding's understanding 87 18 - 1 18.1 PICL - history 18.1.1 Following the settlement on 3 June 1988 of the NCSC inquiry into the Bell Group share transaction, PICL began to emerge as a solution to the Rothwells' problem and efforts were concentrated in that direction. A proper understanding of the events requires an examination of the more significant features of the development from mid-1985. Chapter 18 deals with the events from 1985 to the agreement in principle between Bond Corporation and the Government to buy PICL, as reflected in a memorandum of understanding signed on 28 July 1988. The events from 28 July to the settlement of the sale on 17 October 1988 are discussed in chapter 19. Chapter 20 covers the events following settlement until the appointment of a provisional liquidator for Rothwells on 3 November 1988, together with some of the matters that arose in the liquidation. For ease of reference, throughout chapters 18, 19 and 20 we have referred to the various entities within the Bond group of companies as "Bond Corporation". 18.1.2 In July 1985 Mallina Holdings Ltd (Mallina), a company associated with Mr Dallas Dempster, and several other companies were invited to seek a mandate to conduct a feasibility study for the extraction of LPG from the North West Shelf gas. Mallina responded with a fairly ambitious proposal for a massive complex including an LPG plant, an ammonia-urea fertiliser plant and a petrochemical plant. Wesfarmers was eventually granted that mandate. 18.1.3 In August 1985, Mallina wrote to the Minister for Minerals and Energy, Mr Parker, indicating that the company would now concentrate its efforts on an LPG/ethane/EDC[ethylene dichloride]/VCM[vinyl chloride monomer]/caustic soda complex and it wrote again in September 1985 outlining proposals for a petrochemical plant. A copy of the correspondence was sent to the Premier, Mr Burke, who indicated to Mr Parker that he wanted to discuss the matter with him. By letter of 5 November 1985 Mr Parker responded to Mallina indicating general support for such a project and advising that he had requested further discussions be arranged between representatives of Mallina, officers of the Department of Resources Development ("DRD") and SECWA. 18.1.4 Mallina sought the exclusive mandate to proceed with a feasibility study on the petrochemical complex, and meetings and studies occurred during 1986, including a meeting with the Premier in March 1986. Doubts had earlier been expressed by SECWA personnel about the financial capacity of Mallina and/or Mr Dempster to 18 - 2 carry out the project but, on 8 September 1986, Mr Parker wrote to Mallina advising he had decided to seek Cabinet agreement to the granting of the exclusive mandate to Mallina. In accordance with that advice, Mr Parker presented a submission to Cabinet dated 15 September 1986 in which he recommended that a six month exclusive mandate be granted to Mallina. However, on 6 October 1986, Cabinet decided to call for expressions of interest. 18.1.5 On 19 September 1986, Mallina wrote to Mr Parker advising that Petrochemical Industries Company Limited (PICL) had been registered to carry out the mandate. Mr Dempster, Mr Connell, Mr Lucas and Mr Brian Rakich were named as directors and the letter advised that the company was a joint venture between Dempster Nominees Pty Ltd and L R Connell & Partners. 18.1.6 Mallina was involved with the Government in a dispute over its failure to pay royalties in connection with an operation unconnected with PICL. Suggestions have been made that Mallina was thereby out of favour. As to why Mallina ceased to be involved with seeking the mandate, Mr Dempster said he acted after he was told Mallina would not get the mandate it was seeking. Once that advice was received, Mr Dempster said he sought the involvement of Mr Connell and PICL was formed as a 50/50 joint venture between them. He said Mr Connell was perceived as a very significant financier in Western Australia and believed he would add financial credibility to the project. 18.1.7 The sequence of events is as follows: 6-24 August 1986 Articles appeared in The Western Mail concerning Mallina's failure to pay certain royalties. 8 September 1986 Mr Parker advised Mallina he intended to seek Cabinet agreement to granting a mandate to Mallina. His decision was made when he was aware of the dispute over royalties. 13-14 September 1986 Further article about royalties. 18 - 3 15 September 1986 Mr Parker signed the submission to Cabinet recommending the granting of the mandate to Mallina. 16 September 1986 Mr Dempster instructed solicitors to form a public company with a name as close as possible to Petrochemical Industries Company Limited. 19 September 1986 Mallina wrote to Mr Parker informing him of PICL's incorporation. 6 October 1986 Cabinet decided to call for expressions of interest. 14 October 1986 Formal incorporation of PICL. 18.1.8 In the light of The Western Mail articles, in our view it is surprising that Mr Parker would have recommended Mallina on 15 September 1986 if he had decided that Mallina was not a suitable vehicle for the mandate. Mr Dempster was unable to explain the timing, but he strongly denied any proposition that he decided to remove Mallina and include Mr Connell on a 50/50 basis to improve his position. He pointed out that if Mallina had stayed in the deal he owned 27% of Mallina's half interest and, through Dempster Holdings, he would have owned the other 50% interest in the project. In effect, by going into business with Connell, he reduced his interest in the project by 27%. 18.1.9 It is also surprising that Mr Parker wrote to Mallina on 19 April 1989 stating that by "the middle" of September 1986, it had become apparent that the joint Mallina Holdings/Dempster Nominees submission seeking an exclusive petrochemical mandate would be unacceptable to Government. On 15 September Mr Parker signed the submission to Cabinet recommending approval to the Mallina Holdings/Dempster Nominees' submission. When faced with that apparent conflict Mr Parker said it was "around that time, that's why the phrase `the middle' is used, I imagine ...". 18.1.10 These issues have not been satisfactorily explained but their resolution is not necessary for our purposes. 18 - 4 18.1.11 Although Cabinet approved the calling of expressions of interest on 6 October 1986, it was not until 5 December 1986 that Mr Parker wrote to Mallina indicating that Cabinet had decided to ascertain whether there were other parties interested. On 20 December 1986 an advertisement appeared in The West Australian requesting expressions of interest and Mr Graeme Blackman of SECWA was critical of the nature and very limited circulation of the advertisement for a project of this size and nature. By letter of 10 July 1992, Mr R G Suttie, Director of Resource Processing Development in the Department of State Development, advised the Commission that following Cabinet's decision of 6 October 1986 DRD identified a list of companies that had previously shown interest in a Western Australian petrochemical project. Eleven major international companies who had expressed interest over the previous three to four years were identified and Mr Parker sent letters of 4 December 1986 to each of those companies. He also wrote to Mallina and the one other local company which had expressed interest, Parry Corporation. Mr Suttie advised that advertisements were placed in The Australian Financial Review of 19 December, The West Australian of 20 December and The Weekend Australian of 20 December 1986. In addition copies of the Minister's letter were sent to the Western Australian Government representative in Tokyo and the Agent General in London. The Tokyo representative advised the DRD of discussions about the project with Ashai Chemical and Mitsubishi Corporation in Tokyo. 18.1.12 The results were summarised in a memorandum from the Acting Co- Ordinator, Mr B A Goodheart to Mr Parker of 20 January 1987. Generally there was a lack of interest, although Mr Goodheart expressed his belief that canvassing the companies and advertising nationally had resulted in the Government's position being widely known in the industry. Four written submissions were received. Barclays Australia Ltd, Pak-Poy and Kneebone Pty Ltd sent qualification documents setting out their consultancy capabilities in the areas of project evaluation, project financing, technical investigations and environmental studies and offering to assist the Government and the selected "project proponent" in any of these areas.