'Pick resources winners' to save economy THE federal and Queensland governments have been urged to discriminate in favour of the best resources projects if they are to combat the effects of slumping commodities prices and lower Chinese growth expectations, which are threatening more than $300 billion worth of potential resources investments.
As planned projects in Western Australia and Queensland are more robust than those in the other states and territories, a new report by ANZ Bank and consultants Port Jackson suggests those states are where the nation's resources project policy prioritisation and strategic infrastructure targeting should be focused.
The authors of the report, which was released exclusively to The Weekend Australian, also warned that Queensland's recent move to boost coal royalties could doom some projects.
Titled Quality Matters: A Progress Report on Australia's Natural Resources Export Opportunity, the report warns that even if only the least attractive third of 950 planned resources and infrastructure projects are shelved, capital spending between now and 2020 will drop from $759bn to about $450bn. Required labour will nearly halve from 310,000 to 160,000.
"Attention is needed to ensure that Australia's highest potential projects receive focus to maximise their chances of success," the report says.
"Capital, labour and time are in short supply - there is little point in allocating these where the projects involved have few genuine prospects."
One example of where policy could be directed would be to prioritise planning and infrastructure approvals set to serve export opportunities, such as bauxite and coal from expanded Queensland ports, ANZ said.
NSW, Victoria, South Australia, Tasmania and the Northern Territory had the most fragile project pipeline, the report said.
One of the authors, Port Jackson's Angus Taylor, said Western Australia had the only government in Australia that was being selective about projects.
"It (Western Australia) does take into account which projects it thinks are going to succeed and gives less priority to those it thinks are going to struggle," Mr Taylor said. "That's pretty unique across Australia. Having a sense of which projects are most likely to succeed and giving them priority is going to be critical for policymakers in the coming years. That attitude is not well internalised by our policymakers." Examples of the West Australian government's active role in backing projects include: its strong support of Woodside Petroleum's $30bn Browse LNG project slated for James Price Point, whose economics are looking shaky; and the to-date unsuccessful Oakajee port and rail development near Geraldton, designed to export iron ore from the state's midwest region. Successful projects the Barnett government has strongly backed and pushed through the approvals process include Rio Tinto's current $16bn iron ore expansion in the Pilbara region, which is generally agreed to be the one of the world's most profitable large-scale under way iron ore expansion.
Mr Taylor said Queensland's recent raising of coal royalties would hinder project approvals. "For thermal coal projects, which are much more marginal than coking coal, those royalty changes are starting to affect the economics to the point where they are making all the difference," Mr Taylor said. The report said that, despite a subdued growth outlook, the long-term global demand outlook was intact and the nation's highest quality projects had the potential to go ahead under all predictable circumstances.
If all the near-term projects in the pipeline went ahead, which is not what is being forecast, the nation's capital investment boom would peak in 2015 with $253bn of investment that year.
This is two years behind the revised 2013 peak scenario painted by the Reserve Bank on Tuesday on the back of slowing global growth and increased uncertainty.
While there does not appear to be any stopping the peak, the report's authors say it will be achievable to retain $100bn a year of spending on new projects if policymakers get a better grasp of what is needed.
The report also stressed policy improvements were needed in areas where the industry had previously called for them, such as productivity, controlling energy costs, competitive tax regimes, streamlining of commonwealth and state approvals and welcoming more overseas workers and pre-fabricated equipment.
A spokesman for Wayne Swan said the report expressly stated that Australia had made a good start in converting the resources boom into enduring capacity and higher export volumes.
"As the report highlights, the current alarmist claims about the resources boom ignore the fact that Asia's rise will underpin strong demand for our commodities for many years to come. This is a story about a long-term transformation in our region - a fundamental point that frequently gets ignored or overlooked."
The call for more focus on infrastructure spending will become more important as forecast income from the minerals resource rent tax slides with iron ore and coal prices.
In last year's federal budget, a $6 billion Regional Infrastructure Fund across the next 11 years was announced, designed to be funded completely from the proceeds of the mining tax. As reported in The Australian last month, the big miners that designed the tax, BHP Billiton, Rio Tinto and Xstrata, are now forecasting that recent price slumps mean they may be liable to pay nothing when the first payments are due this month.
