Passing the productivity buck

DOES anybody actually admit fault any more, or is that passé?
Passing the productivity buck Passing the productivity buck Passing the productivity buck Passing the productivity buck Passing the productivity buck


James McGrath

In the heat of an election campaign that has failed to spark, all parties in the middle of a productivity crisis have been blaming the other for their woes.

Labor, through Resources Minister Gary Gray, said the issue was one for the companies involved, denying that the cost crunch experienced by the sector had anything to do with government policy.

“I think we are on track for 100 million tonnes of LNG by 2020 and we’re on track to be the world’s biggest producer of LNG or the world’s second-biggest producer of LNG, but we need our companies to get better in managing their productivity issues,” he told The Australian Financial Review, with more than a sting in the tail.

He was responding to previous claims by Chevron Australia boss Roy Krzywosinski of a two-year window to “get the policy settings right” or risk further investment in the LNG sector.

“All the projects in our portfolio compete for capital,” he said.

“A steady hand on the helm here is hugely important for making sure that we all have confidence that we can model projects well, we understand what the fiscal arrangements are, we know we can get the projects approved because we understand the regulation.”

A lack of consistency on behalf of the government has long been a bug bear for the industry, whether it be fiscal or environmental.

The common catchcry was: “Set the bar high, just make sure it’s set once

At conference after conference, industry heads have used very measured tones to complain about “policy drifts” threatening the sector’s productivity.

But there have been a number of moves from industry that have compounded the problem caused by governments.

On the east coast, the decision to plonk three LNG plants at the same place to be built at roughly the same time has to be an example of what happens when proponents go off in their own direction without much forethought as to the result.

Theoretically, building at the same time while using the same main contractor, Bechtel, should really equate to economies of scale.

But during the skills shortage that has just not happened, with the three proponents competing for candidates, materials and just about everything that goes into a multi-billion dollar project.

To be fair, the industry is doing all sorts of things to try and manage their productivity issues.

However, the heads of companies very rarely give interviews on the subject that they may have stuffed up a bit in the first instance, and those issues are coming home to roost.

For Chevron, its decision to locate the Gorgon project on both an island and Class A nature reserve has undoubtedly contributed to the price tag on the project.

Advising against environmental approval of the project in 2003, the EPA said it opposed development on Barrow Island as a “matter of principle … particularly given the very high and unique conservation and environmental values of the island”

Chevron itself did not initially contemplate building an LNG plant on the island.

Its original development plan in the late 1990s for the Gorgon gas fields was to build the LNG plant on the Burrup Peninsula, the site of the mammoth North West Shelf gas plant.

When the project was revived a couple of years later, Burrup was out and Barrow Island was in.

Chevron said at the time it had compared Barrow Island to Burrup and other onshore/offshore options using a “suite of technical, commercial, social and environmental constraints and requirements”

Being on an island and a class A nature reserve means all equipment must be shrink-wrapped before arriving on the island.

That’s not to say Chevron hasn’t done a good job of it, but that process is relatively expensive. Then there’s the fact that all equipment bound for Gorgon has to go through the Henderson port.

That’s when the Maritime Union of Australia becomes involved.

The MUA have been targeted by the Liberal party in particular as part of a broader sweep against unionism.

“Chevron is being held hostage by unions who aren’t thinking long enough and hard enough about the impact of their actions on the long-term jobs of people who work in that industry,” said Opposition resources spokesman Ian MacFarlane.

The Coalition is planning to bring the Australian Building and Construction Commission back from the dead to help companies such as Chevron with their union problems.

Meanwhile, the repeated union line is that the costs on LNG projects are blowing out because of general incompetence by the companies involved.

“This is not about costs. They have already committed to long-term high costs because they have refused to reform their approach to bargaining,” national secretary of the MUA Paddy Crumlin was recently quoted as saying.

“The problem is bad governance, bad medium-to-long term planning and they refuse to enter into a direct relationship with unions and rather do it with their contractors, all of whom are trying to cut each other’s throats.”

“That is not a functional approach to productivity, it’s a dysfunctional approach.”

The MUA is pushing for the industry to enter multi-year framework agreements that would apply across the sector and use predictive models, such as those employed in the North Sea.

However, with bad blood between unions and companies – and the unions holding the upper hand in the current negotiating round – it is questionable whether an arrangement even remotely palatable to industry will be reached.

But look at the recent deal struck between Holden and the Australian Manufacturing Union’s South Australian arm last week.

The woes of the Australian car manufacturing sector have been written about ad nauseum, but suffice to say it’s up the creek without a V8 engine.

Even with taxpayer handouts, the industry has not been able to justify staying open for operation in Australia given the multitude of other options available to parent company GM.

Instead, the union representing 1700 Holden workers and the company came to a stunning arrangement: they decided on a wage freeze to save the company $15 million a year.

However, the deal will only go through if Holden agrees to invest a billion dollars in building new versions of its Cruise and Commodores.

According to media reports, the agreement was reached after key members of the workers at the plant, the union and Holden sat down and went through the sums.

So is there any chance of that happening in oil and gas land?

Just imagine if the fourth train of Gorgon were on the line.

Would it be possible for Chevron to show the MUA the cost structure involved in building the fourth train? Then compare that with projections concerning Kitimat?

After all, Chevron has previously said that Kitimat was looking more prospective as an investment possibility than Gorgon fourth train was. How about letting the MUA have a look at those projections?

If there’s simply not enough momentum to ensure more work and Chevron can demonstrate, with facts and figures, that it is viable if it is able to save money on wages then why can’t it simply sit down with unions and pitch that idea?

Would it then be too unreasonable to the unions to accept that Chevron had done everything possible to give more work to their members?

It’s an interesting bit of cud to chew on during an election campaign.

Until we have a definitive answer, everybody will keep blaming each other – and getting things done in that environment isn’t exactly a fait acompli.