Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I thought the bill was going to go into committee but I didn't realise that there were no real surprises here. The bill proposes a ticket system to mandate or ensure our 90-day rule compliance. We had a discussion in the second reading debate about our vulnerability in terms of fuel.

My question is essentially about having ticket contracts. If we have a ticket contract with, say, Singapore, because that's where a lot of the fuel comes from, but in the event that a hostility breaks out—and I emphasise not with Singapore, which is a close friend and ally of Australia—or if there's anything that would interrupt the supply of fuel through a ticketing system, then has the government considered the legal principle of force majeure in the event of a conflict? In other words, in an event such as an outbreak of hostilities or an outbreak of war, force majeure would mean that the ticket contracts would be essentially unenforceable. One of the reasons this bill has come about is because we're not meeting our international commitments in terms of fuel reserves. I understand the intent of what the government is doing, but how does the government see the issue of ticket contracts operating—particularly if it's a ticket contract with fuel suppliers in Singapore, which seems to be the most likely place—if there's a conflict or an outbreak of hostilities? Surely force majeure, or some other legal principles, would apply and would render this ineffective in terms of Australia's fuel security?

Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

I'm advised that the commercial contract that we would put in place would provide that the host country needs to be able to identify the ticketed stock and its availability, throughout the contracted period. Terms in both the contract and the bilateral arrangement include how the entity needs to report the stock so that the stock cannot be double-counted by more than one country towards their IEA stockholdings. This is checked by the IEA to ensure accurate reporting. The IEA requires an overarching bilateral arrangement to be in place between the host and the buying countries. The IEA mandates that the arrangement include a clause that the host government agrees that it will not impede the release of stock in the event of a collective action. The commercial contract will also contain clauses relating to the release of stocks. If the host company refuses to release stocks, it may be violating the terms of the contract.

Australia would have two options under a ticket contract: the option to purchase and uplift the stock or the option to release the stock in-country. This, of course, would depend on the circumstances of different scenarios that play out, but the government believes that this measure in this legislation not only meets its IEA obligations but enhances fuel security arrangements.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I thank the minister for his answer. I have a few questions arising out of that. Firstly, where does the government envisage that the host countries will be? Obviously, depending on where the host countries are, the fuel might have to go through the Strait of Hormuz or the Strait of Malacca. Secondly, the host contract references an accountability mechanism about whether they can fulfil those contracts or whether they are robust. Is that something that will be made publicly available or is that something that we can establish, for instance, through the mechanisms of the estimates process or some other process? In other words, how can the public and industry be assured that these host contracts are robust? So that's the second question.

Thirdly, I go back to the issue of force majeure. Does the government concede that these contracts may not be enforceable in the event of the outbreak of a conflict, which I hope never occurs, but, given the geopolitical situation we see in our region, particularly on the Korean peninsula, we cannot assume that there will not be an outbreak of conflict at some time in the future?

Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

I emphasise that commercial contracts must be underpinned by government-to-government level arrangements and that there be a treaty or a MOU in those circumstances. It is an IEA requirement for bilateral requirements to be put in place to ensure that there can be no impediment to the release of ticketed stock.

Senator Xenophon, in terms of the types of risk profiles or scenarios that you ask about and extrapolate the possibilities of, I can advise that the government is in discussion with 11 potential host countries. Obviously, a multiplicity of arrangements or contracts being in place would provide for a variety of ways to mitigate the types of scenarios that you've suggested were they ever to eventuate.

The bill does also allow for the Australian government to purchase tickets to be held onshore by Australian entities. Whilst the ticket market is not yet established in Australia, if there were a financial incentive for Australian entities to do so and to invest more or earlier in storage through ticketing, there is a belief that entities may begin to hold surplus stock domestically as well.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I just have some further questions on this because this is important. If something goes wrong with our fuel supply—if there's a natural disaster or if some oil tankers can't make it to Australia for whatever reason—then that could have enormous consequences for our nation and enormous consequences for our economy, let alone the disruption it could cause to ordinary citizens and the impact it could have on our Defence Force. Are the 11 host countries—without necessarily naming them—in the Asia-Pacific region, in Europe, in Africa or in the Americas?

Secondly, the minister helpfully said that there's nothing to stop ticket contracts from being held here in Australia, but there is no market yet for them. Does that mean that we couldn't have our own supplies of fuel here in Australia, within our borders, because the market just isn't there or it would simply be too prohibitive in cost? I'm just concerned that we won't have much of a supply of fuel on the ground here in Australia in the event that we have a geopolitical event or a natural disaster that causes disruption to our fuel supplies.

Again I go back to the issue of force majeure. Is that something that the government has considered? In the event of an outbreak of conflict, does the government concede that a ticket contract of the type envisaged in this legislation cannot reasonably be enforceable by virtue of the principle of force majeure?

Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

I can advise Senator Xenophon that the types of geographical localities in which discussions are occurring are spread across Europe, North America and Asia. So the profile of potential contracts, in the sense of the 11 locations that are in discussions, is quite broad and would provide for geographical diversity in all likelihood.

The government is really working to see the ticket market, as such, expanded to ensure there are as many options as possible. That brings both cost and price benefits as well as geographical security benefits of sorts. At present, there are two main purchasers of tickets: the New Zealand government purchases tickets under an arrangement such as the one before the Senate at present, and companies operating in the EU also purchase tickets to manage separate stockholding obligations that some European countries have under national legislation requirements.

Obviously, Australia's entry into this approach would expand that market and create more opportunities, and opportunities to provide for, as I say, a range of scenarios in which contracts are held that do provide for the necessary security that Australia seeks to guarantee under its IEA obligations and out of our domestic interests.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

So I can go to the issue of: if there is a conflict, will the contracts be enforceable or not, given force majeure? I might get your guidance as to how I should pronounce that.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

I go with 'majeure'.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

Maybe that's why I haven't got an answer: I didn't say it right. I will check Google pronunciation or whatever. So thank you for your assistance, Mr Acting Chairman Sterle. I stuffed up the pronunciation, so no wonder the minister couldn't answer my question. I apologise to my colleagues, to the Senate and to the officials who are present. Thank you, again, Mr Acting Chairman, for your help.

In the event of a conflict—or indeed a natural disaster—where the country that we are supposed to have the ticketing arrangement with says, 'Sorry, buddy, we're in a conflict with whichever country' or 'We've got a natural disaster, and we need it for our domestic consumption,' wouldn't that be a case of force majeure? Again, I apologise for stuffing up the pronunciation.

Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

The government is in negotiations to establish a number of contracts. You expand about a hypothetical scenario, and that's reasonable in these circumstances and I will make a couple of points. The government will take every step in its contract negotiations to ensure that they are as secure as possible under whatever eventualities may occur. But of course you're talking about global conflict scenarios, and there are, no doubt, under any such scenarios, possibilities to create some degree of uncertainty. So, whilst contract negotiations will seek to provide as much certainty as possible into the future, the other aspect to that, as I've emphasised, is that the government seeks to mitigate—to spread its risk as such—by ensuring that contracts occur across geographically diverse locations and, indeed, hopes that there may be some enthusiasm for the establishment of a domestic ticketing market as well, which would ensure support there.

I also, again, emphasise that those contracts must, under the arrangements being put in place, be underpinned by bilateral agreements or arrangements with the host country as well. So there are a number of different safeguards that are put into the legislation and the operation of it in this regard.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

Has the government done any costing as to how much more expensive a domestic ticket market arrangement may be in relative terms? Has there been any analysis or modelling done as to whether a domestic ticket market would cost more? Going back to the earlier question on force majeure and the fact that it can't be answered, I think there are general legal principles that will probably say that it wouldn't be enforceable. But that's something that perhaps could be explored further. My final question relates to the question I asked earlier. Will the information about the robustness of arrangements and contracts be made publicly available? At the very least, is this something that can be asked and answered in the context of government estimates?

Simon Birmingham (SA, Liberal Party, Minister for Education and Training) Share this | Link to this | Hansard source

These are obviously commercial negotiations, and the government wants to extract best value for money. So, in that sense, we hope that the existence of Australia as a purchaser in the market and the opportunities that that provides will hopefully bring some domestic engagement to that market. As to the cost basis there, the government will also be guided by trying to secure the most competitive environment in the market. But we'll obviously be mindful of all the other factors that might be beneficial, should there be interest in the production of domestic tickets and development of a domestic ticket market. On the domestic front—

Senator Xenophon interjecting—

Not that I'm aware of, Senator Xenophon. In terms of exploration of the value for money and security around the contracts, the treaties or bilateral agreements with other countries would, in the normal course of events, be public documents; so that level of engagement will be clear. Other documents will absolutely be able to be questioned through normal Senate procedures—estimates and so forth. There may be some elements of them that are commercially sensitive, and that's a matter that will have to be explained and dealt with at the time. I think that addresses the questions you asked on that occasion.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I just wanted to thank the minister for his answers, even though I'm still concerned about force majeure. I do not oppose this bill, but I am concerned as to its efficacy. I'm concerned that, if Australia were caught up, directly or indirectly, in a regional conflict, these contracts may not be worth the paper they're written on and that, in the event that there's a conflict, the host countries could say, 'Our fuel needs are more important than any contract and we can break the contract as a result.' Even though there is a cost involved in having more fuel stockpiled here in Australia, I still believe that that is a good insurance policy against geopolitical instability and the outbreak of a conflict in the region that could affect our fuel supplies. It has happened here in Australia that sometimes we're only a couple of oil tankers away from fuel shortages in this country, and it is very finely balanced. So I welcome the intent of the legislation but I just query its efficacy.

Bill agreed to.

Bill reported without amendments; report adopted.