REPORT TO THE PORT HEDLAND INDUSTRIES COUNCIL AND PILBARA PORTS AUTHORITY JUNE 2020 THE ECONOMIC SIGNIFICANCE OF THE PORT OF PORT HEDLAND ACIL ALLEN CONSULTING PTY LTD ABN 68 102 652 148 LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T+61 3 8650 6000 F+61 3 9654 6363 LEVEL NINE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T+61 2 8272 5100 F+61 2 9247 2455 LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T+61 7 3009 8700 F+61 7 3009 8799 LEVEL SIX 54 MARCUS CLARKE STREET CANBERRA ACT 2601 AUSTRALIA T+61 2 6103 8200 F+61 2 6103 8233 LEVEL TWELVE, BGC CENTRE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T+61 8 9449 9600 F+61 8 9322 3955 167 FLINDERS STREET ADELAIDE SA 5000 AUSTRALIA T +61 8 8122 4965 ACILALLEN.COM.AU REPORT AUTHORS JOHN NICOLAOU RYAN BUCKLAND MICHAEL CLARK NICK MARSH EXECUTIVE DIRECTOR PRINCIPAL SENIOR CONSULTANT ANALYST [email protected] [email protected] [email protected] [email protected] +61 8 9449 9616 +61 8 9449 9621 +61 8 9449 9611 +61 8 9449 9618 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 THE REPORT MUST NOT BE PUBLISHED, QUOTED OR DISSEMINATED TO ANY OTHER PARTY WITHOUT ACIL ALLEN CONSULTING’S PRIOR WRITTEN CONSENT.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. ACIL ALLEN CONSULTING HAS RELIED UPON THE INFORMATION PROVIDED BY THE ADDRESSEE AND HAS NOT SOUGHT TO VERIFY THE ACCURACY OF THE INFORMATION SUPPLIED. 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 2019 CONTENTS EXECUTIVE SUMMARY I 1 INTRODUCTION AND CONTEXT 8 1.1 About this Engagement 8 1.2 Overview of Approach 8 1.3 Report Structure 11 1.4 Glossary of terms and abbreviations 12 2 ECONOMIC CONTEXT 15 2.2 Port Hedland Port Overview 20 2.3 Commodity Analysis 21 3 MODELLING METHODOLOGY AND ASSUMPTIONS 26 3.1 Methodology 26 3.2 Projected Production and Expenditure Profiles 29 4 ECONOMIC CONTRIBUTION OF PORT HEDLAND PORT AND THE TRADE THROUGH THE PORT, 2018-19 33 4.1 Port Hedland 33 4.2 Pilbara Region 34 4.3 Western Australia 35 4.4 Australia 36 4.5 Taxation and Royalties 37 4.6 Summary – Economic Contribution 39 5 ECONOMIC IMPACT OF PORT HEDLAND PORT AND THE TRADE THROUGH THE PORT, 2019- 20 TO 2028-29 40 5.1 Gross product 40 5.2 Real income 41 5.3 Employment 42 5.4 Taxes and royalties 42 5.5 Summary – Economic Impact 43 A INPUT OUTPUT MODELLING A–1 B TASMAN GLOBAL B–1 B.1 Tasman Global B–1 E X E C U T I V E SUMMARY Report Overview The Port of Port Hedland is one of Australia’s most significant pieces of economic infrastructure. Located in the resources-rich Pilbara region, the Port of Port Hedland is the crucial link in the supply chain for resource companies in moving their key communities to their markets around the world. In 2017, ACIL Allen Consulting (‘ACIL Allen’) completed a report, An Economic Study of the Port Hedland Port, for the Port Hedland Industries Council (‘PHIC’). In order to estimate the economic value of the Port, ACIL Allen has combined the income, expenditure and employment of the Port of Port Hedland and associated entities that utilise the Port for trade into a single group called the Port Hedland Port Supply Chain. This allowed ACIL Allen to present the results of this study as a single contribution/impact, and importantly protect the confidentiality of information provided by the Port and its users. The report found that the Port of Port Hedland and the trade that is facilitated through the Port contributed $30 billion in economic output to the Australian economy in 2015-16, or 1.9 per cent of GDP. This level of economic contribution supported a total of 86,240 FTE jobs, of which 86 per cent were the result of the flow on impacts of the activities of the Port Hedland Port Supply Chain across the Australian economy. Since the completion of the 2017 report, there has been a number of significant developments that have influenced activity in and around the Port, and the economic value that is generated through the Port, such as the development of new resources and higher commodity prices. The 2017 study also focussed on the iron ore industry, reflecting the requirements of the PHIC at the time. In 2019, the PHIC, in conjunction with the Pilbara Ports Authority (PPA) engaged ACIL Allen to provide an updated assessment of the economic significance of the Port of Port Hedland and the trade that is facilitated through the Port to the local, State and National economies. In order to build a more comprehensive assessment of the economic significance of the Port of Port Hedland, the PHIC enlisted the support of its key members — the Pilbara Ports Authority, BHP, FMG, and Roy Hill — and port users Atlas Iron, Rio Tinto (Dampier Salt), Sandfire Resources, Pilbara Minerals, and Mineral Resources. In order to protect commercially sensitive information relating to the operations of each stakeholder, the results of this study are presented in aggregate as the Port Hedland Port Supply Chain. In order to estimate the economic contribution of the Port of Port Hedland and the economic activity facilitated through the Port, ACIL Allen has adopted the same methodology as was used for the 2017 study, using up-to-date information from a broader range of companies. Using ACIL Allen’s Input-Output models of the town of Port Hedland, the Pilbara Region, Western Australia, and Australia, the economic value of the Port Hedland Port Supply Chain was determined in i THE ECONOMIC SIGNIFICANCE OF THE PORT OF PORT HEDLAND each region on the basis of its contribution to output (Gross Domestic Product, Gross State Product, Gross Regional/Town Product), welfare (wages and salaries earned), employment (Full Time Equivalent (FTE) basis) and taxation and royalty payments made by the Port Hedland Port Supply Chain to the Commonwealth, the WA Government and the Town of Port Hedland. To project the future activity through the Port, ACIL Allen will use forward guidance from participating PHIC member companies to estimate the economic impact of the increased production and trade through the Port over the 10 years to 2029-30 using ACIL Allen’s in-house computable general equilibrium model, Tasman Global. The results of the economic impact assessment will be presented in terms of the direct and indirect impacts of the Port Hedland Port Supply Chain in terms of output, income, employment and taxation payments. to the town of Port Hedland, the Pilbara Region, Western Australia, and Australian economies over the 10 years to 2029-30. Economic Contribution of Port Hedland Port and the Trade through the Port, 2018-19 The economic contribution that the Port of Port Hedland and the trade through the Port made to the town of Port Hedland, the Pilbara Region and the Western Australian and Australian economies in 2018-19 has been estimated using ACIL Allen’s Input-Output modelling framework. The economic contribution has been measured in terms of the direct and indirect contribution to output (Gross Product), incomes (wages and salaries earned), employment (FTE basis) and taxation and royalty payments made to the Commonwealth, the WA Government and the Town of Porth Hedland (by key heads of taxation). The economic contribution of the Port of Port Hedland and the trade that is facilitated through the Port is significant, generating tens of billions of dollars to the national, state and local economies each year, supporting thousands of jobs both directly and indirectly throughout all sectors of the economy, and providing billions of dollars each year to the Commonwealth, WA Government and Town of Port Hedland in the form of tax and royalty payments. For the town of Port Hedland and its residents, ACIL Allen estimated that the Port Hedland Port Supply Chain helped inject $1.1 billion to the Town’s economy in 2018-19, which helped support almost 3,600 full time jobs, and almost half a billion in wages and salaries to resident workers. Across the Pilbara Region, it is estimated that the Port Hedland Port Supply Chain generated $42.8 billion to GRP in 2018-19, accounting for 47 per cent of the Region’s economy.