what happened on monday, page-18

sometimes you as why has the seller just placed a big order on at.... why did not sell smaller parcels.

IMO looks like someone has this time.


Barnett bid to set rules on ore deal

AFTER a week firing warning shots at mining giants BHP Billiton and Rio Tinto, Colin Barnett is digging in for the fight of his political life.

On one hand, the West Australian Premier will be trying to force the pair to pay hundreds of millions of dollars in stamp duty if they merge their Pilbara iron ore operations.

At the same time, he is trying to mend fences with China, the state's major iron ore customer, which was left bruised and upset when it was turfed out of the contentious Chinalco plan to buy a major stake in Rio.

A key tactic will be pushing the prospect of China becoming a "leading player" in the lucrative LNG industry when Barnett visits China next month.

He tells The Weekend Australian a major LNG stake could help smooth any sense of rejection or feeling that China's investment was not welcome, while also reaping huge benefits for both China and Australia.

As the audacious plan by BHP and Rio to merge their Pilbara iron ore operations continues to make waves across the globe, where it has been labelled anti-competitive, Barnett says there are still plenty of hurdles the companies have to jump. But if it goes ahead, he says they will ignore him at their peril.

"It's our iron ore. We have a say."

Barnett shows no sign of being daunted by the task at hand. He says he's seen the two mining goliaths in action too many times before. He was a minister in 1999 when they attempted a failed asset merge, an opposition MP in 2007 when a takeover was tried, and now Premier for the latest twist, which is being called a production merger.

"This is a third attempt, the third different method," he says, smiling.

But it didn't stop the Premier drawing his sword as soon as the plan was unveiled. He openly accuses the companies of structuring the new merger in a way that deliberately tries to avoid stamp duty worth hundreds of millions of dollars to Western Australia. He says it is inappropriate, unacceptable and, if necessary, he will take them to court.

"This deal is described as a production joint venture but it seems to me that if there is no change of ownership, no reassignment of assets, then why is BHP proposing to pay Rio $US5.8 billion ($7.1bn)? "I think it is a transaction. The fact that BHP is paying $US5.8bn to make the asset 50-50 implies to me that there is a consideration, there is a transaction."

Barnett will meet BHP chief Marius Kloppers in Perth on Wednesday to thrash out his concerns, including the potential for thousands of jobs to be lost.

"If the companies are talking about $US10bn of savings, that implies to me that while probably most of that is reduced capital expenditure on expansion projects, it also implies significant job losses," he says.

"That's the No1 concern and to this point the companies haven't identified how many jobs they're talking about. I'm entitled to know.

"The second issue is about one company having such a dominant position in the Pilbara iron ore industry."

But that issue, he admits, is out of his hands. "If BHP and Rio want to merge their iron ore assets, I might not like it but legally if they can get international regulatory approval, which they probably will, then they can do it. It's their company, their shareholders.

"But what I'm saying is don't assume there isn't a third person at the table. It's our iron ore. The colonial period I thought was over. The idea of people sitting around boardrooms in London determining the future of Western Australia's iron ore industry (is not on)."

But he denies it will be a bloody confrontation next week. "This is not me versus Marius Kloppers. The nature of the relationship is not like that. Marius Kloppers and I get on very well," he says. "If people think I will be thumping the table, that is not going to happen."

But he adds Kloppers should have no doubt about his intentions. "We own the iron ore; you operate basically under a licence to us," he says.

Equally worrying is the negative fallout in China, and Barnett wants Kevin Rudd to take a more active role managing the relationship.

"Probably Australia's single greatest asset in China is having a Mandarin-fluent Prime Minister and we need to use that," he says. "A visit by the Prime Minister would be terrific.

"While the commonwealth government is engaged in diplomacy they've perhaps been a little slow to recognise that this is all about natural resources, and natural resources are Western Australia.

"I think China probably wants to know what they can invest in and where they are welcome."

Barnett says the relationship needs substantial work along the same lines as the effort put into building ties with Japan, which led to it playing such a critical role helping develop the state's resources sector. "We need to develop a long-term mature relationship with China," he says. "It's come at a rush, but I don't think this is as hard as Japan would have been in the 60s. I'm a product of the 1950s; I grew up in an environment where my father and my uncle were veterans. Dad was a Rat of Tobruk, my uncle was on the Burma railway. That history as a very young child was around our house.

"Yet in the late 50s, early 60s, David Brand as premier and Charlie Court as the minister were discussing and negotiating with Japan to play a major role in our economy. Can you imagine how my parents' generation reacted? They'd just seen atrocities 10 years ago, horrible atrocities. It was an enormous achievement of Brand and Court and the federal government at the time to convince people that it was a good thing to do, that our future lay with Japan.

"I can remember my father questioning it. There was a great deal of debate. But there was a lot of thought politically, from an economic development point of view, at the state and national level about endorsing that approach.

"They had to get the iron ore embargo lifted in an environment where people blamed (Robert) Menzies for selling scrap iron to Japan which came back as bullets. All that sentiment was prevalent. I was conscious of it as a little kid.

"Australia thought through very carefully the relationship with Japan in a post-war environment and it succeeded because that thought went in."

Barnett says people need to get over their phobias and make China feel welcome.

"They are a communist state, a one-party state, all the major industries are government-owned, all the major financial groups are government-owned. We have to accept the reality of that, recognise that China is not Japan, it's a different type of country, and have a modern, sophisticated approach to it. That has been lacking," he says.

"We want to keep them as a customer. We don't have the only iron ore in the world. There are fabulous iron ore resources in Africa that have never been developed, very high-grade.

"China wants to buy quality assets. It wants to have access to good resources, good projects and be a foundation investor, a foundation customer, and have the status that it sees Japan enjoy."

But he concedes the discontent in China over the broken Chinalco deal is not Rio's fault alone. He says China made a mistake by aiming too high.

"To get up to nearly 20 per cent of Rio was a big issue, it made them the major shareholder, gave them seats at the board. It was at the upper level of where they could be and it would have been better had they stayed at a lesser level."

He says 10 to 12 per cent would have avoided much of the drama that has since played out.
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