ISAAC REGIONAL COUNCIL SUBMISSION HOUSE STANDING COMMITTEE ON INDUSTRY, INNOVATION, SCIENCE AND RESOURCES - INQUIRY INTO HOW THE MINING SECTOR CAN SUPPORT BUSINESSES IN REGIONAL ECONOMIES
Current as at 10.08.2018
Presented by Office of the Mayor & Chief Executive Officer
TABLE OF CONTENTS
PRECIS 4
RELEVANCE OF THE INQUIRY TO THE ISAAC REGION 4
CASE STUDIES: THE ISAAC EXPERIENCE 5
LOCAL BUYING PROGRAM 5
ANGLO AMERICAN E-BUSINESS DIRECTORY/E-DIRECTORY 6
INAPPROPRIATE PAYMENT TERMS 7
BARRIERS TO GREATER USE OF REGIONAL BUSINESSES IN THE PROCUREMENT OF SERVICES BY THE MINING SECTOR 8
BARRIERS IN PROCUREMENT PROCESSES 8
BARRIERS TO INNOVATION 9
BUILDING THE SKILLS AND EXPERTISE OF REGIONAL BUSINESSES TO LEVERAGE OPPORTUNITIES IN THE MINING SECTOR 10
HOW THE FEDERAL GOVERNMENT CAN ENSURE THAT BUSINESSES IN REGIONAL ECONOMIES BENEFIT FROM MINING DEVELOPMENT 10
FLY-IN, FLY OUT (FIFO) WORKFORCES 11
REGIONAL CONNECTIVITY 12
ANY OTHER RELATED MATTER 12
DIFFICULTY IN CONDITIONING OPERATIVE RESOURCE PROJECTS 12
WHAT’S IN A NAME: THE DEFINITIONS OF ‘LOCAL’, ‘REGIONAL’ AND ‘MINING SECTOR’ 13
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INTERNAL MINING SECTOR PROCESSES 14
POTENTIAL FOR UNIQUE TREATMENT OF THE SUPPLY OF GOODS AND SERVICES TO WORKFORCE CAMPS (CAMP ACCOMODATION) 17
ROYALTIES FOR REGIONS 17
PROVISION OF SEED MONEY TO REGIONAL BUSINESSES TO INCREASE MACHINERY CAPACITY 18
RESOURCES 2030 TASKFORCE 18
DATA 18
SUMMARY OF RECOMMENDATIONS 18
CONCLUSION 23
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SUBMISSION: INQUIRY INTO HOW THE MINING SECTOR CAN SUPPORT BUSINESSES IN REGIONAL ECONOMIES
Isaac Regional Council (IRC) welcomes the opportunity to provide a submission to the Standing Committee on Industry, Innovation, Science and Resources in relation to how the mining sector can support businesses in regional economies. IRC extends its appreciation to the Minister for Resources and Northern Australia, Senator the Hon Matthew Canavan for requesting the inquiry.
PRECIS In this submission, IRC, through its experience, explores examples of collaboration between the mining sector and regional businesses in addition to specific areas where the mining sector and the government could offer improved support to businesses in regional economies. To that end, the approach adopted by IRC in this submission is multi-focal, with a dual focus both on current and potential contributions by the mining sector as well as the potential for policy/legislative and financial support to be provided by the Government. Specifically in relation to the current and potential contributions by the mining sector to regional businesses and regional economies, IRC’s submission is underpinned by the broad concept that such support is reliant on “commitment and alignment across a broad range of functions, including: those who make the decisions on contract strategy, those who administer the tender process, end-users who are managing the contracts, major contractors responsible for managing smaller contracts and staff tasked with building relationships with the community”.1 IRC considers that the increased support of regional businesses by the mining sector will result in better outcomes for both regional businesses and the mining sector. IRC has identified and emphasised the importance of effective mining sector local procurement processes and strategies in increasing support for regional businesses. IRC is encouraged by the existing local procurement measures put in place by the mining sector but acknowledges that there remains room for improvement. This submission is based on several decades of empirical evidence as the host region to currently 26 primarily metallurgical Bowen Basin coal mines. The Greater Whitsunday Alliance (GW3) has also made a submission on behalf of and in the context of the broader Mackay, Isaac and Whitsunday Region, and same is supported by Isaac Regional Council.
RELEVANCE OF THE INQUIRY TO THE ISAAC REGION The Isaac region is a local government area in Central Queensland situated approximately 1,000km north- west of Brisbane and 900km south of Cairns, with access to world-class export infrastructure. The Isaac region is a resource rich region spanning a large portion of the Bowen and Galilee Basins and is home to 26 active coal mines, many further coal mines under development and gas exploration in the early stages. The Isaac region produces more than half (approximately 54%) of Queensland’s saleable coal, with the majority of that coal being metallurgical coal. The Isaac economy is largely driven by the mining and resource sector, which contributes $5.9 billion (over 78%) to the region’s total GRP and directly employs 37.7% of the Isaac region’s workforce. Mining, construction and manufacturing accounts for over 86% of the region’s total output.
1 Esteves, AM. et al 2010. Procuring from SMEs in Local Communities: A Good Practice Guide for the Australian Mining, Oil and Gas Sectors. University of Queensland Centre for Social Responsibility in Mining (SMI-CSRM), Brisbane, Queensland.
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Given the heavy mining related footprint in the Isaac region, as a matter of course, IRC has been heavily involved in providing feedback regarding the Environmental Impact Statement (EIS) and Social Impact Assessment (SIA) for a number of major resource projects in the Isaac region and understands the differing challenges related to the regulation of mining projects which have been approved compared with the regulation of mining projects which are currently undergoing EIS and SIA processes. IRC acknowledges the important efforts of the Moranbah Traders Association, Clermont Community & Business Group and Nebo Community Development Group in advocating for regional businesses within the Isaac region. As part of this submission, IRC conducted a survey of local Isaac businesses. The overwhelming sentiment from businesses within the Isaac region was summed up by one business owner who stated that “Mining is important to regional businesses in [the] Isaac [region] and it would benefit us all further if they would look at local businesses first”.
CASE STUDIES: THE ISAAC EXPERIENCE At the outset, it is noted that IRC does not have any affiliation with any mining proponent referred to below. IRC purely wishes to provide examples of initiatives taken by the mining sector within the Isaac region, which may assist the Federal Government in developing any models that arise from the Inquiry:
LOCAL BUYING PROGRAM In 2012, BHP Billiton Mitsubishi Alliance (BMA) in partnership with other stakeholders developed a local procurement program, the ‘Local Buying Program’ (LBP) to increase the visibility and availability of sourcing opportunities for goods and services available to local businesses located within the region. In 2013, BHP Billiton Mitsui Coal (BMC) also joined the program. The program has since extended interstate in association with other BMA and BMC projects.2 It is understood that the LBP has two components: 1. Sourcing transactional mechanism delivered through an Agent Partnership with C-Res (a cost neutral organisation). The program encourages the competitive supply of goods and services to BHP Billiton; and 2. Local Buying Foundation (LBF) which is the trust where payments are held and disbursed by C-Res on behalf of the Local Buying Foundation Advisory Committees (LBFAC).3 The Program enables small local businesses to supply goods and services to BHP, BMA and BMC operations via a competitive tender process with reduced payment terms. Businesses also receive direct support from C-Res Business Engagement Advisors and the Program Administration Team. C-Res outlines that the benefits for businesses in participating in the LBP include: “Greater supplier exposure to BMA and BMC operations through an online supplier directory Greater exposure to work opportunities; A simplified engagement tool (Local Buying Program website); Appropriate payment terms (21 days from receipt of invoice); Simpler supplier on boarding process;
2 Local Buying Foundation 2016, About: Building Capacity through the Local Buying Foundation (Qld & NSW), Accessed 11 July 2018,
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Qualification criteria specific for small business; and Continuous support from C-Res”.4 In order to qualify, businesses must employ less than 20 full time equivalent employees (not including casual staff, subcontractors, trainees or apprentices) and have a significant physical presence near one of BHP’s core assets. Between 1 July 2017 and 30 June 2018, LBP reported the following data relevant to the Queensland operation: $83,495,537 - Approved spend to local Suppliers;5 6,318 - Approved Work Opportunities created by BHP employees;6 772 - Businesses approved to supply via the LBP;7 and 12.9 - Day average payment period from receipt of Invoice.8 IRC has also conducted an independent survey of local businesses in the Isaac region. The responses to the survey indicate that the majority of businesses who cited mining/manufacturing related to mining as their major source of income received at least 30 purchase orders or contracts through the LBP during the life of LBP and in excess of $5,000.00 in contract/purchase order income per annum through LBP. To break that figure down further, 28% of business surveyed who cited mining/manufacturing related to mining as their major source of income received over $120,000.00 of their income per annum through LBP and ultimately over 70% of businesses stated that they considered that their business growth had been supported by LBP/C-Res. Both the figures reported by LBP and the independent survey results collected by IRC indicate that LBP has been a success story within the Isaac region and is an example of genuine mining sector support of regional businesses, particularly with reference to shortening payment terms. IRC understands that the success of LBP is driven by a genuine commitment by BHP (BMA and BMC) throughout the organisation: from those who make the decisions on contract strategy, to those who administer the tender process, and to end-users who are managing the contracts. It is recommended that the Federal Government consider the C-Res LBP model as the basis for developing a further refined central model for the mining sector to buy locally as part of the Inquiry.
ANGLO AMERICAN E-BUSINESS DIRECTORY/E-DIRECTORY In the AngloAmerican Moranbah SEAT Report 2015-2017, AngloAmerican identified the advantage of local procurement in stating that “sourcing locally can result in better service and maintenance, shorter delivery times and easier access to resupply”.9 In 2015, through the Mackay Traders Association, AngloAmerican funded the employment of a part time Growth and Resilience Officer who was tasked with the aim of launching an E-Business Directory as a tool
4 Local Buying Program 2018, About the Program, Accessed 3 August 2018, < https://c-res.com.au/where-we-operate/queensland/> 5 Local Buying Program 2018, Annual Summary Queensland 2017-2018, Accessed 10 August 2018,
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to highlight the potential capacity of local businesses.10 The E-Business Directory was set up as a platform for small businesses to showcase their services and capabilities across the supply chain. In the AngloAmerican 2015-2017 SEAT Report, AngloAmerican reported that the E-Business Directory would enable businesses such as AngloAmerican to access the directory to help their supply chain staff increase local procurement, citing that “sourcing locally can result in better service and maintenance, shorter delivery times and easier access to resupply. Anglo American is committed to supporting local suppliers to spread the benefits of mining across the community and keep local people employed”.11 Whilst IRC congratulates AngloAmerican for taking the initiative to fund and develop a tool that can be broadly accessed in the region across the mining sector, IRC is not aware of any significant ongoing engagement with local businesses through the E-Business Directory. The survey conducted by IRC indicated that only 28% of Isaac businesses surveyed who cited mining/manufacturing related to mining as their major source of income had heard of the E-Business Directory and none of those businesses identified that they had received any income directly from the E-Business Directory.
INAPPROPRIATE PAYMENT TERMS As identified in the Terms of Reference to the Inquiry, the appropriateness of payment terms offered to businesses by the mining sector is a factor which significantly hinders the ability of regional businesses to enter into long-term supply arrangements with the mining sector. Responses to the survey conducted by IRC indicate that payment terms can range from 30 to 120+ days. Of businesses who identified mining/manufacturing related to mining as their primary source of business: Over 70% identified that payment terms offered by mining companies were in excess of 45 days; and Over 40% identified that payment terms offered by mining companies were in excess of 80 days. IRC therefore considers that payment terms remain a significant barrier to regional businesses accessing opportunities to supply to the mining sector. IRC’s survey data is validated by data collected and collated by Lytton Advisory on behalf of the Resource Industry Network (RIN) in The Economic Analysis of the Impacts of Extended Payment Terms.12 The Analysis identified that 75% of suppliers were affected by extended payment terms. The practical ramification of inappropriate payment terms is that small regional businesses cannot carry large debts for such extensive periods of time but ultimately need the business of the mining sector to survive and grow. Inappropriate payment terms create a reliance on overdraft facilities and expenditure on the associated interest hinders small businesses from growing and employing more staff. As part of the survey, Council asked local businesses to summarise their views in relation to how the mining sector supports their regional business and one local business remarked that the mining sector is its major source of business and its “business is being choked by larger companies who don’t pay their bills”. The Economic Analysis of the Impacts of Extended Payment Terms commissioned by RIN, relevantly identified that extended payment terms resulted in: 75% of suppliers cutting back on new capital equipment and not hiring new employees to expand business;
10 Ibid. 11 Ibid. 12 Lytton Advisory 2018. Economic Analysis of Extended Payment Terms. Resource Industry Network, Mackay, Queensland.
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70% of suppliers being unable to invest in pursuing new technology etc.; One third of suppliers have half their revenue or more on extended payment terms, only 4% of whom can always match extended payment terms with their suppliers; and Two thirds of suppliers found it difficult to get finance as a result of extended payment terms. The Analysis estimates that over the next 5 years, reverting to 30 day payment terms would add to the regional economy 380 jobs, $150 million in wages and $250 million in gross regional product taking into account flow-on impacts. IRC acknowledges that the cause of inappropriate payment terms includes internal inefficiencies within the mining sector, including processing delays and complex payment portal/systems. In order to address the imbalance in bargaining power, IRC recommends the amendment of Schedule 2, Chapter 2, Part 2-3 of the Australian Consumer Law to include a provision that for small business contracts with the mining sector, a term is unfair if the payment terms exceed 30 days. It is noted that the recommended amendment will only affect small businesses, namely businesses who employ fewer than 20 persons with an upfront payable price of less than $300,000.00 or for a contract that has a duration of more than 12 months, an upfront payable price of less than $1,000,000.00. IRC anticipates that there could be a risk that by virtue of the recommended amendment to the Australian Consumer Law, the mining sector may unfairly discriminate against small businesses in procurement processes. In order to circumvent the potential for discrimination against small businesses, it is recommended that simultaneously with the introduction of the amendment to the Australian Consumer Law, new Anti-Discrimination laws also need to be introduced which prevent the mining sector from discriminating against small business on the basis of the reduced payment terms.
BARRIERS TO GREATER USE OF REGIONAL BUSINESSES IN THE PROCUREMENT OF SERVICES BY THE MINING SECTOR IRC has identified a number of barriers to the use of regional businesses in the procurement of services by the mining sector, including the following:
BARRIERS IN PROCUREMENT PROCESSES
Lack of advertisement of procurement/purchasing opportunities and the need to monitor multiple procurement channels used by individual mining sector companies to keep abreast of tender opportunities The survey conducted by IRC found that 50% of businesses identified that lack of awareness/advertisement of procurement opportunities presented a major barrier to businesses in effectively participating in the procurement process. Many small businesses do not have the resources to monitor multiple tender sources for tender opportunities. It is clear that within the Isaac Region, programs such as C-Res LBP have been successful, however it is acknowledged that C-Res LBP is restricted to small businesses and as a BHP initiated program, C-Res LBP is limited to BHP, BMA and BMC tender/purchasing opportunities. IRC recommends that the Federal Government investigates the potential options to launch and fund a federally administered central portal for advertisement of mining procurement opportunities with functionality for: Mining sector companies to automatically cross upload links to tender opportunities as and when they are listed on each of the mining company’s individual procurement channels; Regional businesses to register and receive automatic updates of any tender opportunities; and
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Integration with models such as LBP/C-Res.
Lack of advance notification of tender/purchase order opportunities IRC has identified that if regional businesses were better able to forecast business opportunities they would be more competitive in tendering for mining sector supply contracts. IRC has identified that the difficulty for businesses in forward planning business growth is tied to the short turnaround times between the time of notification of an available procurement/tendering opportunity and the procurement close. After the recent mining downturn, IRC identified that many regional businesses within the Isaac Region adopted conservative business approaches due to the lack of certainty within the resources sector. As a result, businesses adopted skeleton staffing and low spend businesses strategies. Therefore, many regional businesses were insufficiently staffed and had insufficient equipment supply capabilities to tender for projects within the short turnaround times offered by the mining sector. Despite the current more optimistic resources sector economy, the survey conducted by IRC identified that 25% of businesses considered that short turnaround times between the date of notification of an available procurement/tendering opportunity and the date of procurement close presented a major difficulty with mining sector procurement processes. The survey also identified that 60% of businesses require 3 months’ notice of available opportunities in order to confidently participate in the procurement process and to forward plan required staffing and resourcing. IRC has identified that businesses could achieve an increased capacity to forward plan if advance notification of potential tenders was conditioned as part of the EIS/SIA process and if steps were taken to align Engineering Procurement Contract Management (EPCM) with such ideals. Advance notification would provide businesses with adequate time to recruit staff and equipment and be ‘shovel or supply chain ready’.
BARRIERS TO INNOVATION The significant quantum initial outlays required for regional businesses to effectively participate and to be ‘shovel ready’ in mining sector procurement processes are not always financially viable at a regional small business level. Whilst there is generally more optimism amongst regional businesses to expand, half of businesses surveyed by IRC identified that they were hesitant to expand due to the boom and bust nature of the mining economy indicating that there has been an increasing lean toward risk adversity since the mining downturn. In addition, after the recent mining downturn, small businesses have faced mounting challenges through traditional finance avenues to secure the capital needed to effectively compete with big business in mining sector procurement. In fact 40% of businesses surveyed by IRC identified that they had experienced difficulty in obtaining finance through banks/credit unions in order to expand. Whilst it is recognised that grants are available to businesses through the Australian Government Department of Industry, Innovation and Science’s Entrepreneurs’ Infrastructure Program and the Queensland Government’s Business Growth Fund Program, it is considered that navigating the web of federal and state grants and applying for such grants can be challenging for small businesses. IRC recommends that the Federal Government options for mining companies and/or the Federal Government to co-fund a Community Grants Advisor/Officer within mining regions to assist regional businesses to navigate and apply for grants. It is recommended that the Federal Government also consider the provision of targeted interest free loans to small business for the purchase of equipment, which could be secured through the Personal Property Securities Register.
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BUILDING THE SKILLS AND EXPERTISE OF REGIONAL BUSINESSES TO LEVERAGE OPPORTUNITIES IN THE MINING SECTOR In IRC’s experience, small regional businesses are eager to supply goods and services to the mining sector however some do not have the appropriate training to enable them to meaningfully participate/engage in the mining sector procurement and purchasing process due to the perceived complexity of those processes. The survey conducted by IRC identified that over 40% of respondents considered that they would benefit from additional training regarding mining procurement processes. One respondent commented that “the process seems daunting to get a foot in the door.” IRC are aware that designated officers at C-Res LBP provide assistance and training support to small regional businesses to assist them to engage in the BHP/BMA/BMC tender process and there has been significant uptake of such training/support within the Isaac region. The popularity of C-Res’s training, together with the survey feedback, suggests that there is a continuing need for the provision of training to regional businesses. Accordingly, it is recommended that avenues to provide training to regional businesses specific to the mining sector tender process be investigated, with initial reference to the C-Res model.
HOW THE FEDERAL GOVERNMENT CAN ENSURE THAT BUSINESSES IN REGIONAL ECONOMIES BENEFIT FROM MINING DEVELOPMENT IRC welcomes recent legislative changes under the Strong & Sustainable Resource Communities Act 2017 (Qld) (SSRC Act) which received royal assent on 31 August 2017 and came into effect on 30 March 2018. The object of the Act is to ensure that residents of communities in the vicinity of large resource projects benefit from the operation of resource projects and requires proponents of resource projects to employ people from nearby regional communities (communities which are in a 125km radius of the mine’s entry as published by the Coordinator General or nearby regional communities deemed at the Coordinator General’s discretion). The main benefit of the Act to regional communities is that it underpins the importance of those regional communities in supporting the mining sector and prevents proponents from engaging 100% fly-in, fly out (FIFO) workforces. By extension, mine employees who reside locally inject their income back into the local economy which bolsters the sustainability, growth and longevity of regional businesses. IRC considers that regulation of the mining sector to prevent 100% FIFO workforces through instruments such as the SSRC Act are a step in the right direction, however IRC considers that attracting mine sector employees to live long-term in nearby regional communities will ultimately result in a more sustainable outcome for mine employee health and wellbeing, the community and by extension regional businesses. It is considered that liveability of the regions could be bolstered through federal support at a policy level of the following incentives: Housing security: Ensuring accessible housing (for example, ensuring that rent is not increased to an extent where housing becomes inaccessible); Family friendly roster options: Amending industrial laws to foster family friendly rostering options for mining sector employees and to introducing industrial laws which prohibit 100% FIFO in line with the amendments to the SSRC Act, and to address the loophole with that Act (outlined below); Taxation benefits: Introducing meaningful taxation zone allowances/offsets for residents residing in nearby regional communities. It is noted that taxation zone allowances have not been the subject of significant change since the 1950s; and Regional connectivity: Reducing the cost of air travel to/from resource communities, with suggestions for initial investigations in relation to the cost of airfares specific to Moranbah outlined below.
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As part of the survey conducted by IRC, IRC asked business respondents to identify (other than above average pay conditions) what businesses considered was the best incentive to encouraging staff (mining/support services/local business staff) to reside in the Isaac region. The results were mixed however feedback from the business community indicated a real need to provide incentives to employees to reside in regional towns. The results from the survey are as follows:
17% 16%
17%
25%
25% Ensuring stable/accessible housing and accommodation supply (Accommodation security)
Providing more local recreation/activity/sporting/cultural options (Social)
Mining companies offering family friendly roster options (Roster options)
Reducing the cost of travel in/out of the region (Travel affordability)
Through a meaningful increase to taxation zone allowances that would provide local residents with a tax break to reside in the region (Taxation benefits)
IRC is keenly interested in participating in any focus group targeted at incentivising living in the regions which may arise as a result of this Inquiry. As noted above, IRC wishes to highlight that the following matters de-incentivise regional living and have a significant impact on regional businesses:
FLY-IN, FLY OUT (FIFO) WORKFORCES IRC considers that FIFO practices incentivise mine employees living away from nearby regional communities and reduce the local consumer population base that would otherwise support regional businesses. The Strong & Sustainable Resource Communities Act 2017 (Qld) has gone some way to preventing 100% FIFO mining workforces however there remains an underlying preference for FIFO employment arrangements within the mining sector, for example the FIFO hubs announcement by Adani. It is noted in any event that that compliance with the 100% FIFO prohibition under the SSRC Act is easily achievable through employment of one employee who lives locally. IRC made a detailed submission to the Queensland Co-ordinator General in relation to the Draft Social Impact Assessment Guidelines which highlighted this legislative loophole. For example, one survey respondent stated: “I hear people saying all of the time, that they would dearly like to move their family to Moranbah to live but due to the large Companies having FIFO policy … and as they are already employed, the company will not look at changing their position for existing employees..” IRC accepts that there is a necessity for some FIFO workforces to make up a proportion of mine employees, however recommends that:
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The mining sector support significantly higher targets for employment from nearby regional communities; and In order to compensate for its reliance on FIFO workforces to service a proportion of its needs, mining companies should: 1. Consider long term regional employment and skills development strategies such as apprenticeship and traineeship programs (based on a fixed % of their overall workforce); and 2. Offer regional relocation packages to support local communities.
REGIONAL CONNECTIVITY IRC considers that the prohibitive cost of airfares in and out of the Isaac region impedes regional businesses in two ways: Prohibitive airfares increase raw business expenses of regional businesses and make them less competitive when compared with businesses who operate in major towns and cities. For example, regional businesses often need to fly staff to capital cities to complete business transactions and to obtain training; and Prohibitive airfares divert local residents’ funds towards paying for air travel, when the $100 to $600 in additional expenses on airfares could have otherwise been injected back into the local community and into local businesses. Moranbah Airport is the major airport within the Isaac Region servicing the local resident population and the fly-in, fly-out mining workforce and is owned by BHP Billiton Mitsubishi Alliance (BMA). Moranbah Airport, like many other regional and remote airports is located at least two hours from any other regional airport or centre. An analysis conducted by IRC indicates that on a given day it can be more expensive to fly to Brisbane from Moranbah than to Brisbane from Paris. IRC do not have access to any financial figures that detail the landing fees that the Airport charges Qantas, who are the only operator that service the Moranbah Airport. It is recommended that the Federal Government further investigates such landing fees in order to determine whether the Airport charges are just and whether there could reasonably be an avenue to reduce costs for regional businesses to fly staff in/out of Moranbah Airport and to generally increase livability within the region. As a business operating in the Isaac region, IRC has experienced firsthand the impact of prohibitive regional airfares on regional growth. IRC has in the past provided a submission Senate Committee’s inquiry into the operation, regulation and funding of air route service delivery to rural, regional and remote communities which outlines the concern that the cost of airfares is stifling regional businesses. IRC recommends that the investigation into regional airfares continue and that the Federal government examine the potential for a Competition and Consumer Law investigation in relation to the cost of airfares to and from Moranbah Airport.
ANY OTHER RELATED MATTER
DIFFICULTY IN CONDITIONING OPERATIVE RESOURCE PROJECTS The main challenge in encouraging the mining sector to support businesses in regional economies is that as many resource projects (particularly within the Isaac region) are already operational and have final EIS and SIA conditions, the opportunity to adequately condition those projects has now passed. Accordingly, IRC considers that in the absence of a way to condition support of regional businesses and communities, it necessary that the Federal Government adopts policies which encourage mining companies to self-regulate in order to change company behaviour.
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WHAT’S IN A NAME: THE DEFINITIONS OF ‘LOCAL’, ‘REGIONAL’ AND ‘MINING SECTOR’
Limitations within the Queensland Resources Council Local Content Code of Practice The Queensland Resources Council Local Content Code of Practice (the Local Content Code of Practice) is a Code referred to in the EIS and SIA processes at a State level. In IRC’s experience, statements such as ‘as a minimum the Queensland Resources and Energy Sector code of Practice…must be implemented’ at the coal face do little to ‘encourage’ mining companies to support genuinely ‘local’ and regional businesses for the following reasons: The Local Content Code of Practice presently defines local industry as ‘either an Australian or New Zealand business’ and it states further ‘resource and energy companies may adopt a more regionally focused definition to align with local content strategies’; and It is currently voluntary to comply with the Local Content Code of Practice. In addition the Local Content Code of Practice is industry regulated. It is therefore often regarded as a ‘toothless tiger’. It is therefore recommended that: The definitions of ‘local’ and ‘regional’ under the Local Content Code of Practice are amended in order to target procurement at a genuinely local and regional level and to provide regional nuance to procurement, please see the commentary in relation to the Definition of Local/Regional Content below which identifies a potential solution; There is a need for mandatory and state enforced compliance to the Local Content Code of Practice; and There is a need for additional layer of Local Content legislation rather than an industry controlled ‘Code’.
Definition of ‘local’ and ‘regional’ content IRC is aware that issues also exist with the definition of ‘local content’ at a Federal level. It is suggested that the Federal Government may be able to take some guidance from the Queensland Government’s 2017 procurement strategy, ‘Backing Queensland Jobs’ which acknowledges the need for more genuinely local/regional nuance in their procurement. The strategy divides the definition of ‘local content’ into five subsets, from within 125km in the local zone through to zone 5 which is all of Australia and New Zealand:
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It is recommended that a similar definition be adopted at a Federal level to ensure that regional communities benefit from the mining projects within the vicinity of their communities.
Definition of ‘mining sector’ At the very heart of the inquiry, clarification is required in relation to the definition of the term ‘mining sector’. IRC recommends that the definition of a ‘mining sector’ company under any new legislative instrument of amendment to any legislative instrument should include the following: Owners of ‘resource projects’ as defined in Schedule 1 of the Strong & Sustainable Resource Communities Act 2017 (Qld); and ‘Agents’ of owners or a related body corporate of an owner as defined in Schedule 1 of the Strong & Sustainable Resource Communities Act 2017 (Qld). It is further considered that it is necessary to include ‘major contractors’ of resource projects as part of the definition of a ‘mining sector’ company, with the definition of a major contractor to be investigated by the federal government in consultation with local government and other interested industry stakeholders. It is suggested that such definition should include Tier 1 and 2 EPCM companies as a minimum.
INTERNAL MINING SECTOR PROCESSES
Need for change to the ‘set & forget’ mentality As stated above, mining proponents often make a commitment to local content as part of the EIS/SIA process however due to limitations with the Local Content Code of Practice (referred to above) and also to a lack of trickle down commitment within mining companies, IRC has identified that there is a ‘set and forget’ mentality. The successful implementation of programs like C-Res LBP shows how a genuine commitment from mining companies can trickle down to real benefit to regional businesses through enforcement of local procurement programs. IRC has identified that mining companies have a role in enforcing local procurement through mechanisms such as the following: The introduction of genuine local content KPIs for managers; and The implementation of programs within the company to train grassroots staff in relation to local content.
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The need for a change to the ‘set and forget’ mentality is particularly pertinent in light of a response from one business to IRC’s business survey, who stated that “supervisors on [one mining Company’s] mine sites have been told by their superiors not to use [a regional procurement service] for supplying labour in their workshops” (emphasis added) and further that “superintendents and maintenance managers have put a stop to using little local companies for labour hire or any direct maintenance... and they will only use the bigger labour companies from Mackay”. If the comment is factual then it is of significant concern to IRC and reinforces the need for external monitoring of the procurement practices of resource companies at the local level. IRC considers that any solution that relies solely on self-regulation will not achieve real reform.
Ensuring alignment of larger contractors (including EPCM Models) In IRC’s experience, there is a significant risk that some larger contractors do not appreciate the social licence associated with local procurement. Larger contractors are engaged by mining proponents to provide engineering, procurement, construction and workforce accommodation services. The Good Practice Guide to Local SME Procurement identified the following issues associated with this contracting arrangement: “From the perspective of local enterprises and SME network organisations, such arrangements can increase the barriers to participation since they reduce the level of operator engagement at the local level. The project owner and large contractors are seen by local SMEs to take the lowest-risk path, preferring to work with people they have worked with before. Moreover, lump sum payments can encourage managers to give preference to contractors with whom they have an existing working relationship. At issue is the strength of alignment between owner level commitments to supporting local businesses and the design of EPCM and EPC contracts. Unless evaluation and contracting arrangements include the right incentives, the contracting firm is unlikely to source actively from local firms. In the absence of incentives, a requirement for local community content is likely to be seen as driving up contractor costs, time consuming to implement and difficult to supervise and control. Incentives can take the form of pre-qualification evaluation criteria, threshold requirements in invitations to tender, KPI-driven budgets, conditions of contract, and post-contract award monitoring.”13 Feedback from local businesses confers with the identification of issues highlighted in the Good Practice Guide to Local SME Procurement with one business owner stating as follows: “Another major issue is competitors coming into the region and undercutting prices to the point where we have almost had to close our operations. So far these competitors have not lasted due to their unrealistic low rates. The mines will always go to the lowest price regardless of loyalty and/or the service [we] provide. There needs to be incentives for the mines to support local businesses that have longevity, not fly-by- nighters.” It is recommended that EIS and SIA processes take into account the following incentives outlined in the Good Practice Guide to Local SME Procurement14 in order to address some issues with the EPCM contracting arrangement:
INCENTIVE DETAIL OF PROCESS
PRE-QUALIFICATION EVALUALTION CRITERIA Prior to bidding, a questionnaire can be used to require interested bidders to provide evidence of:
13 Above n1, pg 46-47. 14 Above n1, pg 47-48.
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corporate policy promoting local enterprise participation practices for community procurement and community relations that align with policy qualified staff in community procurement management, community engagement and local business support roles experience in other communities with similar levels of capacity and vulnerability to those in the project area, and a history of positive community relations experience in sourcing from local enterprises and developing their capacity and/or commitment to establishing a permanent presence in the local community the contractor having identified aspects of the contract that offer opportunities for participation and capacity-development in affected communities.
COMPLIANCE STANDARDS AND The proponent can set compliance standards for PERFORMANCE-BASED KPIS IN INVITATION TO local procurement and supplier development, which TENDER are thresholds the bidder is required to meet before being allowed to submit a tender. KPIs can be used to encourage the contractor to venture beyond compliance and to innovate. This may be done by allocating a budget for local economic development and requiring potential bidders to specify how they would draw on the budget to exceed compliance thresholds.
WORKING WITH PREFERRED BIDDERS After the pre-qualification stage, the proponent can work with preferred bidders so that they can develop a local procurement strategy jointly and encourage bidders to suggest adjustments to the contract to enhance local economic benefits. Suggestions for collaborative activities include: reviewing the agreed social impact management and local economic development requirements for the project and agree how risk, costs and management responsibilities are to be allocated between the operator and contractor; conducting a survey to identify the skills gaps between project sourcing requirements and community skills and capacities; establishing partnerships with government, local business associations or development agencies jointly agreeing regular performance milestones and a reporting and monitoring process.
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Variations to Contract are recommended, to allow for the complexities associated with compliance with local procurement objectives, and so as not to penalise contractors where these have been significantly underestimated.
A number of financial incentives can be built into conditions of contract, such as: payments for local procurement and/or enterprise development against performance milestones; rewards for over-performance up to a certain limit; penalising underperformance in circumstances that exceed Variations to Contract conditions; and sharing costs in the event of cost overruns in meeting KPIs.
POTENTIAL FOR UNIQUE TREATMENT OF THE SUPPLY OF GOODS AND SERVICES TO WORKFORCE CAMPS (CAMP ACCOMODATION) IRC has identified significant scope for regional businesses to exclusively supply camp accommodation, with 30% of businesses surveyed identifying workforce and camp accommodation as the branch of the mining sector that they would most likely supply. IRC recommends that the Federal and State governments adopt best practice guidelines in the approval of major projects providing local and regional suppliers (in that order) with first right of supply of goods and services, with such guidelines to also bind Tier 1 and 2 EPCM contractors. IRC anticipates that this one change will significantly increase economic development opportunities within the Regions.
ROYALTIES FOR REGIONS IRC acknowledges that a Royalties for Regions grant scheme, namely “Building our Regions” currently exists in Queensland at a State level. However, it is IRC’s experience that due to restrictive eligibility criteria, IRC has been ineligible to obtain funding for many projects that are required within the Isaac region as a direct result of the increased impacts of the mining sector. The Inquiry can consult the Queensland State Development website for a direct excerpt of the eligibility criteria under the most recent Building our Regions Round 4 funding expressions of interest which relevantly listed ineligible projects as follows: Road and bridge projects (including causeways and floodways); Water treatment plants for general community needs; Water reservoirs for general community needs; Sewage/wastewater treatment plants for general community needs; Landfill facilities for general community needs; and Water pumping stations and pipelines for general community needs. IRC has identified that the ineligible projects listed above appear to be understandable on their face, however often facilities that deal with mining waste, sewerage and water supply also deal with waste, sewerage and water supply infrastructure that services genuine community needs and accordingly, there is a risk to local governments that such funding applications will be ineligible by virtue of their ‘genuine community need’ component. To exacerbate this issue, the Royalties for regions guidelines preclude local
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governments from applying for funding for projects that are directly associated with non-resident (FIFO) workforce populations as such populations can fall under the banner of “general community needs”. IRC seeks a commitment from the Federal Government for the apportionment of federal income from royalties received to support economic development, which will in turn bolster regional business growth in the Isaac region.
PROVISION OF SEED MONEY TO REGIONAL BUSINESSES TO INCREASE MACHINERY CAPACITY Currently, the Isaac region has no machinery capacity (the capacity to machine/fabricate parts and equipment in situ). As a result, machinery, parts and equipment are required to be transported from coastal centres in excess of 200km from the mine site. The need to transport such machinery causes a significant impact on State and local road networks and also increased costs at a Federal level (for example, bridges), in addition to safety risks. As stated above, whilst it is recognised that grants are available to businesses through the Australian Government Department of Industry, Innovation and Science’s Entrepreneurs’ Infrastructure Program and the Queensland Government’s Business Growth Fund Program and Business Development Fund Program, it is considered that navigating the web of federal and state grants can be challenging for small businesses. IRC recommends that the Federal Government investigate options for mining companies or the federal government to co-fund a Community Grants Advisor/Officer to assist regional businesses to navigate and apply for grants.
RESOURCES 2030 TASKFORCE IRC is aware that the Resources 2030 Taskforce has also been appointed by the Minister for Resources and Northern Australia, Senator Matt Canavan with a focus on how the resource sector can contribute to regional economic progress. IRC notes that the Resources 2030 Taskforce is due to present its findings to the Minister by the end of August 2018 and those findings will be used as a basis for the National Resources Statement. IRC recommends that the release of the Taskforce’s findings be delayed to allow for the Taskforce to take into account the content of the submissions to the Inquiry.
DATA IRC has identified that there is a dearth of adequate data, particularly with respect to local content. IRC considers that in order to assess local buying patterns, methods to require mining companies to mandatorily report on the number of contracts/purchase orders awarded in addition to the value of those contracts at each of the local zone levels should be investigated and implemented.
SUMMARY OF RECOMMENDATIONS The recommendations made by IRC in this submission are broadly outlined as follows:
RELEVANCE TO THE INQUIRY RECOMMENDATION THAT:
GENERAL PRINCIPLES The Federal Government adopts policies which encourage mining companies to self- regulate in order to change company behaviour. The Federal Government investigates options for external monitoring of the procurement practices of resource companies at a local level.
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PAYMENT TERMS The Federal Government introduces a Bill amending Schedule 2, Chapter 2, Part 2-3 of the Australian Consumer Law to include a provision that for small business contracts with the mining sector, a term is unfair if the payment terms exceed 30 days. Simultaneous with the introduction of the Australian Consumer Law Bill, the Federal Government introduces a Bill for the introduction of new Anti-Discrimination laws to prevent the mining sector from discriminating against small business on the basis of the reduced payment terms.
BASE MODEL FOR REFERENCE BY THE The Federal Government considers the C- INQUIRY Res LBP model as the basis for developing a further refined central model for the mining sector to buy locally as part of the Inquiry.
BARRIERS TO REGIONAL BUSINESSES Barriers in procurement processes The State Government conditions advance notification of potential tenders/purchase order opportunities as part of the EIS/SIA process. The mining sector takes steps to align Engineering Procurement Contract Management (EPCM) to ensure advance notification of tenders and a preference for local content. The Federal Government investigates the potential options to launch and fund a federally administered central portal for advertisement of mining procurement opportunities with functionality for: o Mining sector companies to automatically cross upload links to tender opportunities as and when they are listed on each of the mining company’s individual procurement channels; o Regional businesses to register and receive automatic updates of any tender opportunities; and o Integration with models such as LBP/C-Res. Barriers to innovation The Federal Government investigates options for mining companies and/or the Federal Government to co-fund a Community Grants Advisor/Officer within mining regions to assist regional businesses to navigate and apply for grants.
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The Federal Government considers the provision of targeted interest free loans to small businesses for the purchase of equipment, which could be secured through the Personal Property Securities Register.
BUILDING THE SKILLS AND EXPERTISE OF The Federal Government investigates BUSINESSES TO LEVERAGE OPPORTUNITIES avenues to provide training to regional IN THE MINING SECTOR businesses specific to the mining sector tender process, with initial reference to the C- Res model.
ENSURING BUSINESSES IN REGIONAL Increasing the liveability of the Regions ECONOMIES BENEFIT FROM MINING The Federal Government supports the following incentives to live locally: o Housing security: Ensuring accessible housing (for example, ensuring that rent is not increased to an extent where housing becomes inaccessible); o Family friendly roster options: Amending industrial laws to foster family friendly rostering options for mining sector employees and to introduce industrial laws prohibiting 100% FIFO in line with the amendments to the SSRC Act, and to address the loophole with that Act (outlined below); o Taxation benefits: Introducing meaningful taxation zone allowances/offsets for residents residing in nearby regional communities. It is noted that taxation zone allowances have not been the subject of significant change since the 1950s; and o Regional connectivity: Reducing the cost of air travel to/from resource communities, with suggestions for initial investigations in relation to the cost of airfares specific to Moranbah outlined below. The mining sector supports significantly higher targets for employment from nearby regional communities. In order to compensate for its reliance on FIFO workforces, mining companies: o Consider long term regional employment and skills development strategies such as apprenticeship and traineeship programs (based on a
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fixed % of their overall workforce); and o Regional relocation packages to support local communities. The Federal Government commits to apportion federal income from royalties received to support economic development in mining communities. Air connectivity The Federal Government investigates landing fees in order to determine whether the Airport charges are just and whether there could reasonably be an avenue to reduce costs for regional businesses to fly staff in/out of Moranbah Airport. The Federal Government continues its investigation into regional airfares and examines the potential for a Competition and Consumer Law investigation in relation to the cost of airfares to/from Moranbah Airport. Regulating for local content The State Government ensures that EIS and SIA processes take into account incentives outlined in the Good Practice Guide to Local SME Procurement in order to address some issues with the EPCM contracting arrangement. The Federal and State Governments adopt best practice guidelines in the approval of major projects providing local and regional suppliers (in that order) with first right of supply of goods and services.
ANY OTHER MATTER: DEFINITIONS OF Definitions of ‘local’ and ‘regional’ ‘LOCAL’, ‘REGIONAL’ AND ‘MINING SECTOR’ The Federal Government is guided by the 5 subset definition under the Queensland Government’s 2017 Procurement Strategy. Definition of ‘mining sector’ The Federal Government considers the definition of a ‘mining sector’ company under any new legislative instrument or amendment to any legislative instrument to include the following: o Owners of ‘resource projects’ as defined in Schedule 1 of the Strong & Sustainable Resource Communities Act 2017 (Qld); o ‘Agents’ of owners or a related body corporate of an owner as defined in Schedule 1 of the Strong &
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Sustainable Resource Communities Act 2017 (Qld); and o ‘Major contractors’ of resource projects, with the definition of a major contractor to be investigated by the federal government in consultation with local government and other interested industry stakeholders and to include at a minimum Tier 1 and 2 EPCM companies. Improving the Queensland Local Content Code of Practice The State Government amends the definitions of ‘local’ and ‘regional’ under the Local Content Code of Practice in order to target procurement at a genuinely local and regional level and to provide regional nuance to procurement, in line with the 5 subset definition under the Queensland Government’s Procurement Strategy ‘Backing Queensland Jobs’. The State Government introduces measures for mandatory and state enforced compliance to the Local Content Code of Practice. The State Government introduces an additional layer of Local Content legislation rather than an industry controlled ‘Code’.
ANY OTHER MATTER: INTERNAL PROCESSES Mining companies enforce local procurement OF MINING COMPANIES through mechanisms such as the following: o The introduction of genuine local content KPIs for managers; and o The implementation of programs within the company to train grassroots staff in relation to local content.
ANY OTHER RELATED MATTER: RESOURCES The Federal Government delays the release 2030 TASKFORCE of the Resources 2030 Taskforce’s findings to allow for the Taskforce to take into account the content of the submissions to the Inquiry.
ANY OTHER RELATED MATTER: DATA The Federal Government investigates measures to require mining companies to mandatorily report on the number of contracts/purchase orders awarded in addition to the value of those contracts at each of the local zone subset levels and implements such measures.
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CONCLUSION IRC appreciates the opportunity to provide a submission to the Inquiry and would welcome the opportunity to provide further assistance to the House Standing Committee on Industry, Innovation, Science and Resources in relation to this Inquiry.
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