Tuesday, 2 February 2010
Foreign Acquisitions and Takeovers Amendment Bill 2009
I rise today in support of the Foreign Acquisitions and Takeovers Amendment Bill 2009. It is very important, with things such as the Foreign Investment Review Board and foreign acquisitions and takeovers, that we consider wanting not only our nation to be a vessel for the wealth of other nations but our involvement in our nation’s wealth to remain paramount among our concerns. We only have one country to live in and we have a responsibility not only to those who are part of Australia now but to those who will be part of Australia into the future—our children and grandchildren. We have a responsibility to hand over to them a legacy of wealth that they can use to support the desires and requirements of their lives. It is extremely important that we are prudent and have good oversight into exactly how the wealth of this nation is invested in by other countries.
The bill updates the Foreign Acquisitions and Takeovers Act 1975, the legislation which provides the basis for the Treasurer to rule on investments in Australian businesses and assets by foreign companies to ensure that they are in our national interest. Importantly, the bill explicitly requires foreign investors to notify the government when the types of acquisitions, investments or arrangements could deliver influence or control over an Australian company. The most significant aspect is that this requirement applies both now and in the future. This is mainly due to the fact that since the act came into force there have been a number of changes in financial structures, making them considerably more complex.
The current act does not adequately cover all modern investment arrangements. Lately, we have seen the more opaque way that investment has been carried out in our nation. We need more clarity in how we deal with this. By way of explanation, I will take a moment to outline how the foreign investment process works. Submissions are made by potential investments to the Foreign Investment Review Board, a non-statutory body which was established in 1976—it must have been by the coalition government—to advise the Treasurer on the government’s foreign investment policy and its administration. Its role is to examine the proposals and then make recommendations to the Treasurer. To the best of my knowledge, in the past generally the recommendation the Treasurer gets is one to approve. It might be to approve with conditions, but generally it is one to approve—and that is a debate for another day.
I thought it would be useful to provide some statistics from the Foreign Investment Review Board—FIRB, as it is known—to outline the significance of this growing investment sector. In its most recent annual report, which details activities in 2007-08, FIRB received and considered more than 8,500 requests—an increase of 22 per cent on the previous year. Nearly 8,000 investment proposals worth nearly $200 billion were approved in 2007-08. Of these, nearly 80 per cent were subject to conditions in one form or another, major or minor. The majority of these considerations were real estate projects rather than mining or other major propositions. Of those approved, most were in the mineral exploration and development sector. The value of these approvals was $64.3 billion—double the value of approvals in 2006-07, which is a sure sign of the strong desires by foreign investors to invest in our mining sector as they see it as having a great capacity for future wealth. The real estate sector ranked second, with a value of $45.5 billion—more than double the value of approvals in 2006-07. Services was the next most valuable, at $35.7 billion—an increase of one-fifth. Manufacturing approvals had a value of $31.3 billion—again, double that of the previous year.
The final decision on the fate of each proposal ultimately lies with the Treasurer. An important point I wish to make in supporting this bill is that it does not alter the role of the Treasurer in this regard. If the Treasurer decides the deal is going forward, the deal is going forward; if the Treasurer decides the deal is to stop, the deal is to stop. Another important point is that this bill contains no changes to the national interest test. While neither the act nor this bill defines this concept, the Foreign Investment Review Board understands it to mean that the government determines that it is contrary to the national interest by having regard to widely held community concerns of Australians. We have seen those concerns clearly ventilated in recent times. This allows for interpretation by the government of the day as it deems appropriate. It is important for us to acknowledge once more—and this has been elucidated in statements by people such as Peter Costello—that the Foreign Investment Review Board is almost exclusively in favour, maybe in favour with conditions, but in favour, of approvals.
The most recent example of the Treasurer exercising his right to amend an application was the case of China Minmetals Nonferrous Metals Company, known as Minmetals. This application was to purchase 100 per cent of OZ Minerals. But the section of OZ Minerals pertaining to Prominent Hill, which is in South Australia near Woomera, was prohibited. However, this did not stop Minmetals being allowed to purchase other significant mineral assets, the major one being what was formerly Century Zinc and now the second-largest open-cut zinc mine in the world. That is now owned by Minmetals, and of course we have to recognise that Minmetals is a wholly-owned subsidiary of the Chinese government. That in itself raises concerns among the public and those concerns should be acknowledged in this chamber.
In order to help further safeguard our national interest this bill broadens the definition of what has to be reported to the government by potential foreign investors. It amends four definitions in the act: ‘aggregate substantial interest’, ‘potential voting power’, ‘substantial interest’ and ‘voting power’. The current meaning of ‘aggregate substantial interest’ is 40 per cent or more of the voting power of the issued shares. The bill redefines it as two or more persons taken together holding at least 40 per cent of the voting power, potential voting power, issued shares or rights to issued shares. This potential voting power refers to the number of votes that could be cast if it is assumed that a future right is exercised. ‘Substantial interest’ is currently defined as 15 per cent or more of the voting power of the issued shares. The bill changes this definition to holding at least 15 per cent or more, or one or more of the potential voting power, issued shares or rights to issued shares. ‘Voting power’ is currently defined as the maximum number of votes that can be cast at a general meeting. It has been clarified to explicitly include potential voting power. So the concept of assessment has been broadened.
The coalition believes that foreign investment in Australia is in Australia’s national interest. It provides the capital that is needed for a range of projects; it generates local wealth and creates jobs. We acknowledge that there has been a large involvement of foreign investment in the development of our nation. Our history and the wealth of this nation have been developed by foreign investment. In order to illustrate this point I will share with you a few examples of foreign investment by Japanese investors. We know that the development of the coalfields in Central Queensland was greatly assisted by investment from Japanese companies. Kestrel mine, for instance, 40 kilometres north-east of Emerald in Central Queensland, is an underground project which supplies world markets with up to 4.2 million tonnes of coking and thermal coal each year. Japanese trading house Mitsui holds a 20 per cent share in this mine. Blair Athol mine, 20 kilometres north-west of Claremont in Central Queensland, supplies Asia and Europe with 12 million tonnes of thermal coal each year. J-Power Australia Pty Ltd holds eight per cent and Japan Coal Development in Australia holds 3.4 per cent.
But we must acknowledge that at the start of this investment, especially by the Japanese, they were in joint ownership agreements, with Australian investors owning the majority. Those requirements have changed and there are concerns now, especially in what state owned enterprises might do with 100 per cent ownership of mines. This is a concern that is held and it is a concern no doubt the Foreign Investment Review Board looks at when considering investments. Hail Creek mine is located 90 kilometres south-west of Mackay in Central Queensland and supplies Asia and Europe with eight million tonnes of hard coking coal each year. Nippon Steel Australia Pty Ltd holds eight per cent, Marubeni Coal Pty Ltd holds 6.67 per cent and Sumisho Coal Development holds 3.33 per cent.
The mining leases that these coalmines are part of are paid substantially to state governments, especially to the governments of Queensland, New South Wales and Western Australia. The royalty income that flows from them goes a long way to propping up the finances of some of these state governments. We have to acknowledge, though, that sometimes there is a clash of interests when we see the mining interests and the interests that are held below the ground and the interests of those who hold the land above. That is evident in such places as the Liverpool Plains, especially around Breeza, at the moment. We are seeing it once more in areas such as around Toowoomba. These are the sorts of interests we also expect the Foreign Investment Review Board to have a mind to—the interests of the Australian people as represented by Australian farmers and Australian food producers. We want to make sure that those people are not unduly compromised by the development that is brought on board by foreign interests—or, in some instances, by domestic interests.
We have a problem at the moment because the finances of the state governments are so parlous that they have an insatiable desire to sell mining leases. They cannot manage the books and they are doing everything they possibly can to bring in money from wherever they can find it. Their idea, which we are seeing more and more among Labor governments at a state level, is that, if it is not nailed down, they are going to sell it because they have basically run out of money. In Queensland we are seeing a peculiar juxtaposition of lauded environmental credentials with commercial considerations, as the Queensland government so earnestly tells people what they can do above the ground while having no hesitation about selling anything below the ground. The reason for that is they make hundreds of millions of dollars from selling what is below the ground, and this is a situation that is leading to some of the concerns. For instance, there is their overnight moratorium on any further drilling for water in North Queensland for the rural sector. However, they have no problem with selling mining rights up there, they have no problem with selling anything that is under the ground and they have got no problem with going around Toowoomba and selling every mining lease they can find.
These are concerns which I hope that, in a true, open and frank discussion in the future, the Foreign Investment Review Board may look at. This legislation is certainly heading in the right direction, but there are certainly issues that need to be clarified, resolved and improved, and, with that purpose in mind, the coalition will be supporting this legislation.