Federal Budget invests in ports but not flow through shares

In its Federal Budget the Government has committed $8.5 billion to nationally significant infrastructure projects. Whilst the focus of this investment was on rail network and road priorities, there were two port infrastructure developments which will benefit the mining industry.
Among six Infrastructure Australia "pipeline" projects, Oakajee Port common user facilities will get a $339m equity injection and the Darwin Port expansion is to receive $50m.
Funding for these projects will be drawn from monies set aside for the purpose of nation building, including the Building Australia Fund.
And going forward, Infrastructure Australia will continue to play an important role in the provision of advice to inform Government and private sector decision making on infrastructure investment.
Western Australian premier Colin Barnett said the Federal funding was "now secure" and should mean the Oakajee project construction could start in 2011.
"There is still detailed design engineering work in progress as well as financial analysis, but I expect work to start on Oakajee towards the end of next year," Barnett said of the project which has been on the drawing board for the last 15 years.
The Federal Government’s support follows the March 20th signing of a State Development Agreement between the WA Government and Oakajee Port & Rail (OPR) that underpins the next stage of the project’s development.
Since the Agreement was executed, OPR has opened discussions with a wide range of Oakajee stakeholders, including mid-west miners and potential Chinese participants.
A project Bankable Feasibility Study (BFS) is scheduled for completion in March 2010. This is expected to be followed by financial close in late 2010, at which stage Federal and State Government funding will be required.
Murchison Metals and Mitsubishi Development each hold a 50 per cent economic interest in OPR.
Northern Territory treasurer Delia Lawrie said the Federal cash would join $100m in Territory funding for Darwin's port.
“This will allow a significant expansion of the port’s capacity – including new berthing and ship loading facilities,” Lawrie said.
The Government is committing $50 million towards the development of Darwin Port to accommodate large ships suited to the transportation of bulk resources and commodities, subject to further work and consideration of the project by Infrastructure Australia.
Going forward, the Government will seek to leverage this investment to secure private sector equity.
The investment is aiming to double the capacity of existing facilities at Darwin Port, and with construction expected to commence in 201011 the additional berths could be operational from 201213.
The Chamber of Minerals and Energy of Western Australia’s (CME) chief executive, Reg Howard-Smith said, “Building infrastructure now will prevent future bottlenecks and enable growth as the economy recovers.”
He said the Government’s planned investment in the redevelopment of the central city section of the Perth to Fremantle rail line and Wellington Street bus station will help position the city as a vibrant place to live and work and assist with attracting skilled workers to the State.
Howard-Smith also acknowledged the inclusion of a $4.5 billion Clean Energy Initiative including a $2 billion investment into carbon capture and storage and stated that CME has advocated for consideration of low emission technologies as part of a broad response to climate change.
Brendan Pearson of the Minerals Council of Australia said that the Budget takes an important step towards reversing the imbalance between expenditure on short-term measures to boost consumption over long term capacity-building investment.
“The budget papers make clear that Australia’s economic recovery, and its ability to pay off the Commonwealth $188 billion of debt, will be heavily dependent on the minerals industry and resources exports.
“Insufficient investment in Australia’s export infrastructure and both human and capital productivity would only serve to hinder the economic recovery as would new costs or taxes.”
However, like other mining industry bodies, the MCA expressed disappointment that the Government did not use the 2009 Budget to implement a Flow Through Shares Scheme (FTSS), which was promised by the Australian Labor Party prior to the 2007 Federal Election.
A new study shows that an FTSS could generate socio-economic benefits of up to 4,196 new jobs, $114.4m in additional Gross Domestic Product, $191.2m in additional real private consumption and $965.1m in additional real investment between 2009-10 and 2012-13.
These benefits would come at a cost of about $130 million per year to the Federal Budget, according to the MCA.
The national voice for the exploration and emerging mining sector, AMEC, said that the Budget missed an opportunity to “shore up investor confidence, secure jobs and stimulate economic activity in the regions” through a FTSS.
“Allowing companies that are not yet in profit to pass on their unused tax credits to investors will provide a much needed boost to investor confidence.
“As investment in the sector improves, companies will be willing to spend more of their cash reserves on new projects. That will, in turn, create immediate employment as well as generate a long term pipeline of royalties for the benefit of all Australians for generations to come.”
But there is another tax-related part of the Budget which may prove more troublesome for mining companies. According to Deloitte mining tax partner, Darren Lee, there is a “sting” in the Budget which will impact longstanding, widespread industry remuneration practices.
“The sting…relates to employee share schemes which will impact share plans already in operation for many resource companies. With immediate effect, shares and options issued at discount will now be taxed up front. This applies even to shares and options issued under existing employment contracts.
“This unexpected impost will create a huge headache for companies and employees in the current cash-strapped environment. At the very least it would be expected that employers will need to revisit the viability of existing share plans.”
By contrast, said Lee, the R&D concessions are now more attractive, with a new two tier tax credit regime. He said this will further stimulate the sector’s appetite for undertaking innovation and risk in new mining techniques and processes.
“For companies with turnover less than $20 million the credit will be tax refundable and effectively represents a 150 per cent tax concession. For companies with turnover above $20million, a non refundable tax credit of 40 per cent will be available and effectively represents a 133 per cent tax concession.”