PERTH (miningweekly.com) – The Australian Petroleum Production and Exploration Association (Appea) has again warned that Australia’s capacity to find and develop oil and gas resources could be at stake as the federal Treasury reviews the petroleum resource rent tax (PRRT).
The federal government in November 2016 announced a review of the design and operation of the PRRT, crude oil excise and associated Commonwealth royalties as revenues for oil exports declined.
The review was aimed at advising the government to what extent the current tax is working and to deal with the reasons for the rapid decline of PRRT revenues.
Appea CEO Dr Malcolm Roberts on Friday said a stable, competitive tax regime had been essential in attracting more than A$200-billion in new gas projects for Australia.
“There is intense global competition for capital. Australia is just one of 21 countries exporting liquefied natural gas (LNG).
“Australia is not the most attractive destination for global investors. Our reserves are costly to develop, our corporate tax rate is higher than many competitors and we have high cost structures. Australia’s costs of supplying LNG to Japan are 30% higher than those of countries such as Canada.
“Without the natural advantages of countries such as Qatar, Australia has relied on stable policy settings to attract investors. Policy stability is vital for high-risk, long-life LNG projects – Australian projects typically take more than ten years to recover upfront capital costs and begin to make a profit,” he pointed out.
Roberts noted that with such a delay before projects become profitable, investors must be confident that policy is stable and that, eventually, there will be adequate returns to justify their long-term commitment.
“Policy stability gives investors that confidence,” he said.
Roberts warned that retrospective policy changes can kill confidence and, with it, investment, jobs and exports.
“Since the 1980s, Australia has used a mix of taxes to obtain a fair return to the community without discouraging investment. Over the last decade, the industry has paid on average A$7.5-billion a year in taxes to governments – it is one of the most highly taxed industries in Australia.”
Once investors have recovered their costs and begin earning solid profits, the PRRT is triggered to ensure that most of that profit, up to 58c in the dollar, is collected by state governments.
“Australia’s emergence as a major LNG exporter is due, in part, to the design of our resource tax system. If Australia wants to capture the next wave of oil and gas developments, the PRRT must be retained,” Roberts said.
In its submission to the Treasury’s review, Appea pointed out that the industry’s economic contribution was large and growing, and that new and existing gas projects will deliver jobs, export income and government revenues for decades to come.
“Adopting the taxes used in lower-cost countries to Australia would simply kill new investment. Not only would this hit our gas exports, it could do significant harm to domestic energy markets.
“The attacks against the industry miss a simple point: you only pay a super-profits tax when you are making super profits,” Roberts said.
He pointed out that gas prices had in 2014/15 been at their lowest in more than a decade, with the industry as a whole making a A$600-million loss.
“When the price rebounds, so will PRRT revenue. The PRRT isn’t broken and doesn’t need fixing.”
Submissions for the review closed on February 3, and the Treasury was expected to report back to the government with its recommendations by April.