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Senate Estimates: Yancoal and Gloucester Coal merger deal

Estimates & Committees
Lee Rhiannon 7 Jun 2012

Economics Legislation Committee

Estimates hearings 30 May 2012

  • Ms Deidre Gerathy, General Manager, Foreign Investment and Trade Policy Division
  • Mr Jim Murphy, Executive Director

Full transcript available here

Senator RHIANNON: I would like to gain a better understanding of the Foreign Investment Review Board's role in the decision making surrounding the approval of a merger deal within the coal industry, like the one between Yancoal and Gloucester Coal. Did all or part of their projects require your approval?

Mr Murphy : I do not think it is appropriate to comment on a particular case. We can tell you the process that has gone through and that process would apply to all such proposals.

Senator RHIANNON: Could I just ask why it is not appropriate to explain the situation?

Mr Murphy : I can explain the situation in general terms. There would be a lot of commercial information provided to us. We would have a file on that; we do not provide that information normally in estimates, but we can quite happily go through the process about how that would have been applied. I will just comment on what Ms Gerathy has previously said. In that instance where there is a mining application or coal seam gas, all relevant stakeholders and, in particular in those instances, it would be not only the companies involved, but it would be the governments involved, whether it would be the Commonwealth or the New South Wales state government, would be consulted as to their views on the proposal.

Senator RHIANNON: Can I just clarify? Stakeholders in this case are other companies and federal and state governments?

Mr Murphy : They would be the companies involved and they would be, if there was a matter of policy, the governments involved.

Ms Gerathy : I was just going to add that we certainly would not be consulting with other companies, if that was part of your question—I was not quite sure—and the process that I described before, in relation to the processes that we follow when we get an application, also apply in relation to mining or the coal industry. What happens in relation to the Foreign Investment Review Board is that they are involved in providing advice to the Treasurer on those significant business cases.

Senator RHIANNON: Is that advice largely judged or completely judged on the public interest?

Mr Murphy : It has to be contrary to the public interest. The Foreign Investment Review Board is primarily made up of private sector people who have wide commercial experience. They will provide advice to the government in terms of what they feel the impact of that investment will be and whether it is contrary to the national interest. The national interest, although it is not defined in the legislation, has a certain number of criteria that are looked at.

Senator RHIANNON: I appreciate you cannot talk about Yancoal and Gloucester Coal, but maybe consider it in terms of a generic coal mining project. Just sticking with the public interest, is it served by boosting the fossil fuel industry on climate change grounds? Is that something you take into account when you consider the public interest?

Mr Murphy : As I said, FIRB would not be an expert on climate change or the coal industry. However, what they can do, being highly qualified commercial people, is take account of the stakeholder consultation that is undertaken in the forming of their advice. The final decision on such investments, as to whether it is contrary to the national interest, lies with the federal government. In terms of that, it is very usual for us to be consulting with various departments, whether it is climate change, environment or resources, on a matter such as coal industry or coal seam gas, and the state governments as well.

Senator RHIANNON: You mentioned that you involved commercial people. Would they be looking at the impact of these mergers when you are looking at generic coalmining projects in terms of damage to industries other than mining?

Mr Murphy : In terms of the national interest and competition issues, we take account of the viability of the industry and of the proposal. FIRB gets a lot of information, and the duty of the officers in Treasury is to synthesise that information and put it forward to the Foreign Investment Review Board so they can make an informed decision about what should be their recommendation. I must say that this is not a superficial process. This is quite a lengthy and in-depth process.

Senator RHIANNON: What approval criteria are applied to looking at a generic coalmining project?

Ms Gerathy : We take a case-by-case approach to each application that we get. In relation to Australia’s foreign investment policy, the national interest considerations that we take into account are national security; competition; other Australian government policies, including tax; the impact on the economy and the community, and the character of the investor.

In relation to agriculture, as Mr Murphy mentioned before, the government put out a statement earlier this year and the additional factors that we take into account are the quality and availability of the agricultural resources; land access and use; agricultural production and productivity; Australia’s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners; biodiversity; employment and prosperity in the local and regional communities. It is a range of factors. We do not have a checklist. We do not say, ‘If people meet these five.’ It is looking at the particular proposal, taking all of those factors into account and then a judgment is formed at the end of the day and we provide advice on that basis.

Senator RHIANNON: In that response you talked about looking at the character of the investor. What do you do when you judge the character of the investor?

Mr Murphy : As you do in prudential requirements, you would probably be looking at a fit and proper person. You want to make sure the investment vehicle is an investment company that operates in a commercial way. If it is a public company listed on a well-known stock exchange, is there any bad information about that company? We would look very carefully at companies from certain countries in the world because we could see that—

Senator RHIANNON: Which parts of the world?

Mr Murphy : We would be very concerned to see if there was a company who was attempting to money launder or transfer funds. That is the type of thing. We would look in the company at the directors. You would want them to be in Australia and be fit and proper persons.

Senator RHIANNON: I understand at times you require there to be cooperation or communication with regulators in the foreign country?

Mr Murphy : Yes, if that was required, if there was any question mark or we were informed of any information that we wanted to find out more about.

Senator RHIANNON: If a regulator in another country becomes involved, does that mean that there is a question mark over whether it is appropriate?

Mr Murphy : It could. We would not be going direct to regulators. We would possibly be going through ASIC, APRA or whoever to find out if there was a black list and if someone was a named company. That is why none of these things are taken on face value. If a proposal comes forward, there is some significant digging by the group to find out who the people are and what they are doing.

Ms Reinhardt : We certainly work very closely with our agencies, particularly in a case like your hypothetical case that you are proposing; ASIC would be very heavily involved. We would work with them where they thought that mitigating steps needed to be taken to ensure there were no concerns over a particular company. They would work with us in communicating with overseas jurisdictions where that was appropriate as well.

Senator RHIANNON: Who are the Chinese regulators that you deal with when you have to turn to that country to get advice? What are the names of the regulators?

Mr Murphy : We would go through the regulators. There is the banking commission there. I cannot tell you off the top of my head.

Senator RHIANNON: Could you take that on notice to give us the names of the regulators?

Mr Murphy : Yes. In certain instances, we would be realistically going through the Australian regulators and not directly to the overseas regulator.

Senator RHIANNON: The question on notice was just who the Chinese regulators are.

Mr Murphy : Yes.

Senator RHIANNON: Considering this information is in the public domain, I would like to ask whether you could expand on it: the Treasurer, Mr Swan, said on 8 March that the percentage of the holding in Yancoal needed to be 70 per cent, yet the announcement from the company stated that they are at 78 per cent. Considering that is higher than the 70 per cent, obviously, how do you manage that development to ensure that it is in keeping with the way you are trying to manage this merger?

Mr Murphy : Often with these mergers there are conditions imposed, as a statement by the Treasurer did on the Yancoal one. We can talk to you about that.

Ms Gerathy : In this particular one, it is actually a staged reduction. I have the Deputy Prime Minister and Treasurer’s press release in front of me, which states that they have until the end of 2014 to reduce the ownership in two of the companies and to the end of 2013 in relation to another aspect. It is a staged approach. You will also notice from that press release that the companies are required to report to the Foreign Investment Review Board on their compliance with those conditions.

Senator RHIANNON: Is that information made publicly available?

Ms Gerathy : No, not by us.

Mr Murphy : The conditions are public. When the decision comes down, that is put out for press release by the Treasurer. We would find that people comply with the conditions. Why? Because they wish to do business with Australia again.

Ms Gerathy : We have very good response rates on compliance with conditions. In this particular case, it has been made public what the conditions are and it would be very easy to determine what their current holdings were. In a way there is an ability for the public to be aware of whether they are meeting them or not.

Senator RHIANNON: So, are there any concerns that the deal is not meeting the foreign ownership rules?

Mr Murphy : No, not at this stage. They are complying.

Senator RHIANNON: Thank you.

Full transcript available here

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