Interview with Patricia Karvelas, ABC Radio National, Breakfast

Patricia Karvelas
Gas Mandatory Code; Energy Prices

PATRICIA KARVELAS: Now, you’ve seen this morning some of the concerns around an energy deal designed to make it more affordable to switch on the lights or turn on the heating over Winter next year. It is a complex problem the Government hopes it can mitigate, but it will have to pass it through Parliament first on Thursday. The Industry and Science Minister is Ed Husic and he’s our guest. Welcome back to Breakfast. 

ED HUSIC, MINISTER FOR INDUSTRY AND SCIENCE: Good morning, Patricia. How are you?

PATRICIA KARVELAS: Good. If we start with the possible compensation to coal companies that exceed the $125 per tonne cap, most if not all, companies aren’t expected to reach that limit. So, could the Government end up paying nothing to those companies? 

ED HUSIC: Well, what this week is about is we are particularly focused on the gas side. We’re working through the States in relation to matters regarding coal and how, in particular, we’ll work with generators so that we can ensure, ultimately, what we’re trying to do here is bring down energy prices and how that will work. And that’s obviously something that we need to absolutely work through with the States because there’s a lot more complexity in that. But our overall ambition, what we’re determined to see happen particularly as a result of this week, is to lower energy prices when it comes to the issue of gas.

PATRICIA KARVELAS: Okay. But I am going to ask again: if it’s set at that price for coal. I know you’re saying the States will have to deal with it, but the architecture is being designed by the States and the Federal Government at the National Cabinet. Does that mean that you may pay nothing to coal generators? 

ED HUSIC: I would make the point that it has been good to work with the States and Territories. They’ve had initial concerns, but we’ve been working through that collectively and cooperatively and mind you not doing it in a way that the Australian public has witnessed in the past where we have a whole lot of public brawling on this. We recognise there are complicated issues. We’ll work through it. And to your question, again, we are just working through that detail and, obviously, at a proper point we’ll go through all of that, but I can’t pull out one thread for you for the sake of this program when there’s a lot more complexity to it than just asking one straightforward question as you’ve put to me like that.

PATRICIA KARVELAS: There are concerns the price cap, which will only be enforced on domestic supply, will encourage gas companies to put more of their supply in the spot market, which is where the most expensive gas lies at the moment. Could that cause more harm? 

ED HUSIC: We’ll be watching those types of suggestions very closely and we’ll obviously be taking steps to prevent just that, but I think people should not be under any illusion here, and particularly the companies that are involved. The Australian Government is acting in the national economic interest. We’ve got to lower energy prices. It’s important for businesses and households and in extraordinary times we’ve acted in a common-sense, in a reasonable way around pricing. We totally get businesses need to make a profit, but it’s not just about gas companies needing to make a profit. There are broader Australian companies that need a fairer deal so they can make a profit, they can secure jobs, and again we’ll do what is right in the national economic interest and we would expect that others recognise that and act accordingly.

PATRICIA KARVELAS: Global energy company Shell has suspended its role in a landmark gas supply deal designed to prevent shortfalls in the east coast market next year because it says it’s assessing the impact of your Government’s plan to cap fossil fuel prices. Doesn’t that show that the impact is already having an impact on that supply path? 

ED HUSIC: This is the same Shell that had a third-quarter profit of nearly $7 billion, which was up from around $477 million loss the equivalent quarter the previous year. So, I think if you look at the performance of some of the players here, I think yesterday Woodside’s shares were up 2.7 per cent; Santos was up 0.7 per cent. All the predictions that the world would end haven’t occurred. A lot of these players have made extraordinary profits. And again, if I can go back to Woodside, their profit increased about 400 per cent, nearly US$2 billion. Santos, their half-year profits, up to nearly $2 billion, up 230 per cent. So when these firms are making claims as you’ve just recounted a few moments ago about the viability of projects, this is about them trying to maintain their profits in extraordinary times and we have got to act in the national economic interests.

PATRICIA KARVELAS: Okay. You say that, but there’s a clause in the heads of agreement which allows signatories so that includes obviously Shell to reopen negotiations if there’s been, and I quote, “a material change in circumstances”. Doesn’t what’s happened, this huge intervention into the market, actually isn’t that the very definition of “a material change in circumstances”? 

ED HUSIC: We’ve flagged for six months and I’ve spoken to your good self over the last few months about the impact that their pricing is having on the broader economy and community. We have said we need to get more reasonable pricing. We’ve also said we’ll introduce a mandatory code. We also said, and I made the point a number of times, we respect that companies need to make a profit, but we need to ensure in this case that the cost of production is recovered and there’s a reasonable rate of return. I’ve been saying that for ages. And so for them to claim that this is a shock or to threaten the nation, effectively, by saying they’ll walk away from a heads of agreement that they entered into I think they will need – 

PATRICIA KARVELAS: But they can according to the detail of the agreement. 

ED HUSIC: – I think they will need to consider their steps very carefully. What we are trying to do in the national economic interest is moderate the pricing. These companies have made big profits when gas prices were way lower, and they can continue to make profits and we understand that, but we have a responsibility as a Government for the broader community as well.

PATRICIA KARVELAS: Okay. I spoke to Ted O’Brien before. He’s the shadow Energy Minister, as you know, but just to remind your listeners, and he says this is not just a one-year intervention. He talks about the reasonable price provision written into that consultation paper, which would be a longer-term solution. Now, that is a longer-term threat, isn’t it? It’s not just a one-year threat? 

ED HUSIC: The Coalition really needs to decide where they stand on this issue, and the spokesperson you just referred to seems to have a problem. And just to make it clear for all the listeners, the Coalition has a problem with reasonable pricing of Australian resources, and that’s what he’s focused on. Now, the Coalition only ever tend to see the world in black and white, so let’s break it down for them. The Australian Government is for lower prices. The Coalition is not. The Australian Government is for shielding pensioners and the vulnerable from the worst excesses. The Coalition opposes that – 

PATRICIA KARVELAS: These are great talking points and you’re distilling it, but I’m asking you a substantial question about whether it is a long term intervention beyond a year. That’s my question. 

ED HUSIC: The substantive point is that we believe Australian resources, like the Australian public does, believe that Australian resources should be available at Australian prices and the Coalition appears to not believe in that. And what we’ve also said in terms of the construction that I’ve put to you previously about costs of production and reasonable rate of return; this happens across a number of different sectors. And the other thing is too, the Coalition has previously intervened when they’ve believed that market distortions are impacting on industry and they did it, for example, in the last Government around the News Media Bargaining Code, and they stepped in and they undertook fairly strong interventions which they seem to have forgotten now and seem to think that for the sake of protecting businesses, manufacturers, households, that is a step too far.

PATRICIA KARVELAS: Okay, but what’s your position? Do you think it should go beyond the year? 

ED HUSIC: What we’re saying with the mandatory code is that this will be an important way of reforming the bargaining framework and injecting a bit of common-sense into the way the producers and the consumers negotiate contracts. That is really important. It is not something that doesn’t happen in other sectors and what we want to be able to see is them reach the prices on their own, but, at some point, there may be a need for arbitration and those arbitrators need to have some sort of guidance. Now these things, like for example, reasonable price, they’ll all be subject to consultation. So industry, all forms of industry, gas manufacturers, others, will all be able to have an input into this. But just bear in mind, and I’ll just end on this point: a lot of the manufacturers – despite the extreme and dramatic responses that we’ve seen out of gas companies, a lot of manufacturers have welcomed this because they’ve realised it will take the pressure off them.

PATRICIA KARVELAS: They have, but the companies haven’t and the Opposition is raising the alarm in terms of ongoing investment and investment drying up as a consequence of this if it’s a permanent feature, and you’re saying it should be a permanent feature. 

ED HUSIC: I’m saying that what it should be is a situation where producers and consumers have a much fairer and much more effective way of negotiating contracts that can bring around or bring about better pricing. When you have the ACCC, for instance, in its July report point out some of the behaviours – take or leave on the first offer, take or leave offers put on the table by gas companies, some gas companies pricing in a way they would never do in the international market simply to scare away local buyers and hive that off to the export market. And when you see a situation, Patricia, where there are about three companies that control roughly 90 per cent of the market - Governments cannot sit by and let that distort the way that impacts on business. And as I said earlier, we’ve got a responsibility to bring balance as a Government.

PATRICIA KARVELAS: But even the experts, I mean, Tony Wood from the Grattan Institute, who has welcomed a broad intervention into the market says having this feature permanently built-in is potentially dangerous but you’re saying it should be and it’s just about reasonable prices and it will be negotiated, but if it’s built-in, aren’t you taking a risk? 

ED HUSIC: Sorry, for most people in the public who have seen their gas prices go up, and we’ve heard reports of people avoiding using energy because they’re worried about the impact, and we’ve seen manufacturers concerned about whether or not they can keep the doors open and the jobs to be available - the argument that reasonable pricing is dangerous. I think there are some people that just need to potentially check their language a bit. And what we are saying is that the mandatory code itself – we do need to reform the market, improve the way that the market works for fairer outcomes and people will get a say over the coming months and particularly people within industry will have a say about how this works, but again there are a lot of features that are here that are operating elsewhere. And where you’ve got monopoly-like behaviour and you’ve got controls on markets in ways that really go beyond what the general public would say is fair or right, Governments have got a responsibility to listen to that and respond.

PATRICIA KARVELAS: Ed Husic, thank you so much for joining us this morning. 

ED HUSIC: Thank you.