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Australia - Foreign Investment Update
18 May 2011
Green light for foreign investors in South Australia

In brief
The Australian Government has released the Hawke Report, a report on land use and access in the Woomera Prohibited Area (WPA).
The Government proposes to adopt a time share or coexistence model for the WPA.
Three zones: red, amber and green, will be established to determine levels of permitted use across the WPA. There will be a statutory permitting system to control access.
FIRB will continue to examine whether a proposed foreign investment in the WPA is in the national interest. However, importantly national security issues will be dealt with by Defence through the access conditions it imposes. This still leaves open the possibility of different treatment of foreign acquirers.
Existing mining operations are to be grandfathered and will operate under this existing access regime until they wish voluntarily to adopt the new model.

In 2010 the Commonwealth Government commenced the "Review of the Woomera Prohibited Area" (Hawke Report), a report looking at land use in the Woomera Prohibited Area (WPA). The final report was made public on 3 May 2011.

The Hawke Report proposes a raft of regulatory and policy changes to allow Defence and non-defence users to coexist on the WPA. It has made 65 recommendations. Most fundamentally it recommends implementing a time-share (traffic-light) model dividing the WPA into red, amber and green zones and introducing a statutory permitting system to control access. The key recommendations of the Hawke Report are summarised below.

The Woomera Prohibited Area

The WPA is a 127,000km2 area of Crown land located in South Australia operated by the Department of Defence (Defence). It is a world class defence testing range due to its large size, remote location, low population and quiet electromagnetic environment. It is also highly prospective for minerals with about 62% of Australia's copper, 78% of Australia's uranium and large amounts of gold, silver and iron ore.

The WPA was first declared a prohibited area in 1947. As a prohibited area, any person wishing to access the WPA must first arrange access with the Defence, usually in the form of a Deed of Access. In the past, access to the WPA has been managed on an ad-hoc basis by the Woomera Test Facility under the auspices of the Defence Instruction (DI(G)) ADMIN 38-1.

The recommendations of the Hawke Report seek to overhaul the provisions of the Defence Instruction and provide greater transparency and certainty for those seeking access to the WPA.

Relevance for foreign investors

Increasingly South Australia has been seen as an attractive place for foreign investment in resources projects. However, national security concerns have in some cases resulted in the Foreign Investment Review Board (FIRB) refusing approval to foreign investors where Defence has expressed concerns about coexistence on the WPA.

This has seen some high profile proposed foreign investments being refused FIRB approval including:

China Minmetals' proposed acquisition of OZ Minerals' Prominent Hill copper and gold mine; and
Wuhan Iron and Steel Group's proposed joint venture with Western Plains Resources Ltd for the Hawks Nest iron ore project.

The Hawke Report found that foreign investment in resources is a national interest issue and considered how FIRB and Defence should manage foreign investment in the context of the WPA.

In handing down one of its recommendations, the Hawke Report stated that "preconditions on the nature and scope of potential foreign investment in the WPA should be dealt with by FIRB". Any security concerns about foreign investment in the WPA should be managed by Defence through the conditions imposed on access arrangements entered into with the foreign user.

This represents a significant departure from the approach previously taken by FIRB and Defence, which involved FIRB taking advice from Defence about foreign access and security concerns in relation to the WPA. This approach has led to FIRB rejecting investments outright on national security grounds.

If the Hawke Report recommendations are implemented, security risks will instead be mitigated by access conditions.

The coexistence model for managing the WPA

A key recommendation of the Hawke Report is that the WPA should be managed under a time-share model which prioritises Defence's position as the main user of the area while facilitating other uses of the area.

The traffic light model for access in the WPA

Under the current access model, non-defence users' access to the WPA is subject to Defence's right to require them to evacuate land in the WPA with very little notice. This is to allow Defence use of the area.

The proposed coexistence model divides the WPA into three zones: red, amber and green. It creates clear limits on the number of days per year Defence can require non-defence users to evacuate land. The proposed zones are marked on the map below. They are based on the areas of highest priority for Defence use.

The boundaries of the zones are to be finalised based on consultation between Defence and the South Australian Department of Primary Industries and Resources (PIRSA).


Permit system

The current regime of negotiated access deeds will be replaced with a permit scheme to be implemented by new Commonwealth legislation. The new permit scheme will allow standard conditions to be developed covering users in each zone.

Unlike the current access arrangements, the terms and conditions attached to permits and details of the application process and selection criteria will be publically available. This will likely streamline the process to obtain access and reduce risk and uncertainty for project proponents.

Managing security concerns related to foreign investment via the permit system

A key aspect of the proposed permit system is the creation of a standard set of conditions that will be publically available to parties seeking access to the WPA. It is envisaged these conditions will deal with issues including:

restrictions on structures, people and electromagnetic emissions;
providing Defence with powers of inspection; and
enabling Defence to confiscate equipment and remove people from the WPA for safety and security reasons.

These conditions would be drafted to manage any security concerns created by foreign investment on the WPA. Importantly, the Hawke Report recommends there be no requirement on people accessing the WPA to obtain Defence security clearance. Instead, restrictions would be based "exclusively on Defence requirements for the part of the WPA the non-defence user is seeking to access".

Future developments

The Hawke Report provides solid recommendations on how to manage access to the WPA, but there is not yet certainty on how these recommendations will be implemented. A six month moratorium is in place on access applications to the WPA while the Australian Government puts in place frameworks to implement the new system.

As a result, project proponents in the WPA will need to stay abreast of developments over the next 6 ? 18 months as legislation is put before Federal Parliament and the system of conditions and penalties is developed. However, the recommendations in the Hawke Report signal a better balance for foreign investors.