4A16e1f FLLa
PRIME MINISTER
FORMEDIA MONDAY, MARC /, Z4_
ADDRESS TO THE
AUSTRALIAN PETROLEUM EXPLORATION ASSOCIATION
In accepting the invitation to address you today, I am aware
of the essential contribution which your association and its
members can make to Australia's success in the decade ahead.
Your enterprise and your initiative: will be central to ensuring
that Australia's development in the 80s makes full use of our
resource capacity.
This is a potentially rewarding task.
It involves daunting challenges of course, but then higher
rewards always do.
Each decade brings with it challenge and change.
On top of high inflation and slower growth, the world is now
caught up in the problems created by unstable oil supplies and
the rapid rise in the real cost of liquid fuels.
In this environment, there is a tendency to forget that at the
beginning of the last decade, we were about to confront economic
difficulties which subsequently challenged the capacity and the
will of international leadership.
The post war period brought with it unprecendented economic growth.
It made possible a much wider availability of goods and services.
It was attended by appropriate community attitudes of responsibility
and restraint.
All these brought new meaning to the word civilisation.
But by the beginning of the last decade, ever-rising community
expectations, unaccompanied by any corresponding commitment to
productivity, were met by governmenis yielding to public spending
demands with little regard for economic responsibility.
At the same time, community attitudes were changing dramatically.
The contribution to be made to community life by excellence and
achievement gained only limited recognition.
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The dedication to economic growth, which is essential if community
demands are to be met, was itself under attack.
In these circumstances it is hardly surprising that inflation was with
US. Yet many nations and many leaders were slow to recognise the corroding
effects of inflation, though Maynard Keynes had said in 1920:
" There is no surer means of overturning the existing
basis of society than to debauch the currency, the
process engages all the hidden forces of economic
law on the side of destruction and does it in a
manner which no one man in a million is able to
diagnose."
Fortunately, time has enlarged our understanding of the diagnosis.
Uncontrolled spending by government, fed by high taxation, irresponsibl
wage increases and big deficits, was at the heart of the inflation
problem. In other words, in the mid 70s, many developed economies suffered
from weaknesses in management and from defects in policy.
As if that were not enough to test the international economic
will, the energy crisis of 1973 and 1974 brought another challenge
for management and for policies.
Oil consuming countries suffered from a trebling of price. s by oil
exporting states at a time when we might have reasonably hoped for
a progressive, less disruptive change in pricing policy.
For the world~ as a whole, the switch from low to high cost energy
overnight, helped transform a limited downturn in the world economy
into a fullscale recession, and greatly worsened the already serious
inflation position.
The boom years were well and truly at an end. The spectre of higher
unemployment faced many countries.
Few nations could escape the onset of lower growth rates with the
result that the confidence in and the capacity of our free society
was challenged again.
Of course, Australia was affected by these international events but
the response of the government of the day was, in itself, a
transparent crisis of management and policy.
Because in many ways Australia was in a more fortunate position
than most other countries.
Our natural resources, significantly developed at the end of the
our great endowments of energy; our long record of lower
inflation; these should have provided the foundation for a relative
improvement in Australia's position during these difficult years,
Yet, we lost ground.
Instead of the government working to counteract the effects of the
first energy crisis, government policies compounded it so severely
that all these years have been needed to recover the position we now
enjoy of strong and still rising international competitiveness.
Indeed, the importance of the first energy crisis was not
grasped by many countries.
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Some were slow to allow domestic fuel prices to reflect
international prices. Others did not set in train the necessary
action to reduce dependence on petroleum products. Too many
governments accepted an air of dangerous complacency.
The result was that many countries were not in a good position
to respond to the most recent energy crisis. Severe adjustments
have been required by countries in order to cope with the
continuing energy problem.
Had the lessons of 1973 and 1974 been properly absorbed,
these adjustments could have been more gradual and less
disruptive. The lesson of today is that we must avoid the
mistakes of the
There appears no reasonable prospect of maintaining long-term
balance between oil demand and supply at recent prices. Indeed,
as we move towards the end of the century, the prospect is one
of even higher real prices for oil.
During 1979, the average official price of O. P. E. C. crude oil
rose by more than 100 per cent. Projections for 1980 of lower
growth in industrialised countries may give some respite in
the early part of the decade from the acute demand pressures on
available supplies. However, undoubtedly, a challenge is at
hand. But all this only serves to remind us of the real
opportunities that exist in Australia, as a result of changes
in the world energy and economic order.
What we are facing is not catastrophe but opportunity. And it is
an opportunity which Australia is uniquely placed to meet.
Already we are one of the few net energy exporters among
O. E. C. D. countries. We possess substantial reserves of uranium
and black and brown coal. We have significant reserves of liquid
petroleum gas and natural gas. And the possibilities for
alternative sources of oil from shale and coal liquefaction
demonstrate that, in a world increasingly short of energy supplies,
Australia occupies a privileged position.
The Government's role in response to this privilege is designed
to achieve three objectives: greater explorat~ ion and-development
of all our energy resources;. conservation of our scarce energy
resources; and greater use of alternatives to our present
oil supplies.
It is this total strategy which can only be properly served
by aggressive management and forward looking policies which were
markedly absent from the approach of the
The key element in the Government's strategy is our oil pari ty
pricing policy, which is the only responsible course to pursue
in the light of the current energy dilemma. There is no escaping
the reality that price must be used as a barometer of scarcity.
To adhere, for short term political purposes, to the principle
of cheaper petrol would be to adhere to a policy endorsing the
rapid reduction in scarce fuel reserves. / 4
-4
Such a policy makes neither economic nor energy sense.
It needs to be remembered that our super grade petrol price
of around 34 cents a litre still compares more than favourably
with New Zealand 43 cents; Germany 59 cents; Japan 62 cents;
Italy 73 cents and France 75 cents a litre.
Even the whose petrol prices in the past have been
below Australian prices, will now, as a result of the gasoline
conservation fee recently announced by President Carter, have
prices broadly comparable with ours.
One of the central challenges of the 80s is to recognise as
a nation, that we have no right to sell out our energy future.
As a nation, we do have a responsibility for the energy needs
of the next generation.
To irresponsibly dismantle parity pricing would be to entice
industry to postpone new technologies; defer conservation;
and delay replacement. It would mean that Australian liquid fuel
reserves would be squandered and Australia would become a
defenceless victim of the international oil market beggars
for fuel, not just at parity prices, but even spot prices; prices
which cash in on factors of limited supply and unlimited demand.
But above al-l, our import parity policy recognises that expertise
in energy development is international.. We have to compete for
capital, technology and management with rewards that are
internationally competitive. Without parity pricing this cannot
be achieved.
Pleasingly, realistic market prices for oil have now increased
our reserves, encouraged conservation and the search for
alternatives to expensive petroleum products. But when we might
have expected the Australian petroleum exploration industry
to be responding to the first energy crisis, it was, in fact,
in a state of regression. The level of investment in petroleum
exploration had fallen from $ 109 million in 1972 to $ 65 million
in 1975.
This was a direct consequence of the energy and economic policies
of the government of the day. They dismantled many of the special
incentives for the mining and petroleum industries provided
through the taxation system. The whole confidence of the
industry was shaken. The economic deterioration through which
Australia was passing made large scale investment an
unattractive commercial proposition.
The last four years have seen a welcome resurgence in investment
activity. Expenditure on exploration has gradually risen in
response to government incentives and improved economic health.
In 1979 it totalled $ 228 million and in the first half * of 1980
is estimated at $ 170 million.
Further, it is estimated that total expenditure on exploration
and development will exceed $ 500 million in 1980.
The recent announcement by Esso/ BHP that development expenditure
in the Bass Strait will exceed one billion dollars is a striking
illustration of the revived confidence in the industry.
It is the determination of this government that expenditure
in the search for oil, in and around Australia, should continue
its upward momentum.
We have modified our taxation system to assist this objective,
and we welcome the key role being played by major international
groups in providing much of the enormous capital resources
and fast developing technology-that is needed.
The Government encourages the partnership between overseas and
Australian companies and entrepreneurs in the exploration for,
and development of, oil and other energy reserves.
I congratulate the increasing number of Australian companies
who are diversifying their interests into these areas while at
the same time building up Australian expertise in energy based
projects. I am particularly pleased that there is still a role for smaller
businesses and companies in energy development, both at the
exploration stage and in providing service facilities for the
mining and exploration industry.
The impact of parity pricing on the Government's second objective,
oil conservation, is already evident.
Australians are looking to smaller, and more fuel efficient motor
vehicles and the increase in petrol consumption last year was
per cent below the average annual increase of the previous five
years. Even though it inevitably t akes time for policies to produce the
desired effect, these are heartening developments..
The third objective in the Government's energy strategy is the
promotion of greater use of alternatives to our present oil supplies.
In the pursuit of this objective, the Commonwealth has acted with
the States in a number of areas to ensure the development of
projects which help provide for the future energy needs of Australians
and reduce our dependence on oil.
The last two Loan Council Meetings approved special State borrowings
of: $ 1,358 million for electricity power generation;
$ 461 million for the Dampier-Perth pipeline and service facilities
associated with the North West Shelf natural gas programme;
$ 182 million for rail electrification; $ 53 million for conversion
away from oil fired power generation..
Of these monies totalling $ 2,165 million, $ 535 million will have
been drawn by the end of 1979-80.
It is clear that substantial progress is being made under this
historic borrowing programme.
At the same conference, the Commonwealth proposed the electrification
of the Melbourne-Sydney rail link. / 6
-6
In co-operation with Victoria and New South Wales preliminary
investigations and planning work are under way.
In addition, agreement was reached that a separate joint study be
undertaken on the practicability of electrifying significant parts
of the Government railway systems of Australia.
At the same conference, agreement was also reached between the
Commonwealth, Queensland and New South Wales Governments-that a
s tudy be undertaken to determine the requirements which will assist
in expanding our exports of steaming coal.
These exports are expected to rise from 6 million tonnes a year
to approximately 100 million tonnes by the turn of the century
and infrastructure will obviously be needed so that orders can
be met.
There is no doubt that such initiatives advance significantly
the move towards increased oil substitution.
Many of them ensure the role that electricity will continue to
play as a prime source of energy for Australia's development in
the decade ahead.
In fact the -energy crisis has brought our abundant raw materials
and energy reserves closer together primarily through the ready
availability of electrity generation based on our abundant coal
reserves.
Particularly is this so in relation to bauxite, alumina and
aluminium where $ 4.5 billion of investment in refineries And
smelters is either committed or at the final decision stage.
What is more, of the $ 17 billion of mining and manufacturing
investment projects about to go in Australia, $ 12 billion relate
either to investment for energy exports; or investment in energy
projects which will provide alternatives to oil use; or investment
in industries in which non-oil energy input is a large proportion
of total cost.
Yet such figures, if anything, understate the likely exploration
and development expenditure in Bass Strait and the North West
Shelf and do not include the giant Rundle shale oil project.
This project could involve a total cost of many billions of
dollars and has the potential to greatly reduce Australia's
dependence on scarce and costly supplies of imported crude oil.
It would have no chance of proceeding without the Government's
import parity pricing policy.
It has been deliberate policy of this Government to provide
incentives for exploration and development.
Furthermore, the Government has adopted a wide range of initiatives
designed to encourage the conversion from oil fired industrial
equipment to other energy sources; or, where possible, the
replacement of industrial equipment by units using other energy
sources. .7
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The Government has also acted to encourage the use of alternative
fuels for motor vehicles by removing the road tax on LPG and by
removing the sales tax from kits which convert vehicles to LPG
or compressed natural gas.
These incentives, designed to reduce our dependence on oil, have
been complemented by the significant improvement in Australia's
economy which is our greatest incentive to investment.
This improvement has been broad based and has had far reaching
effects. It is the result of deliberate Government policies and concentrated
efforts by the Government to provide an economic environment to
which private sector forces would respond.
Now, the demand for Australian products overseas, and the
increasing interest being shown in Australian investment,
indicate a new respect for, and confidence in, the Australian
economy. The most significant factor contributing towards this respect
has been the success achieved in absolute and relative terms in
the fight against inflation.
It must remalin a continuing and unyielding commitment.
At the core of the fight against inflation is the need to continue
resisting intervention by Government in the operation of the
economy. In Australia in recent years while the size of the economy has
grown in real terms, the share of the total economy taken by
Commonwealth budget outlays has fallen.
Such a trend improves economic performance in Australia while
enhancing the individual freedom of all Australians.
Tn the years ahead, the securing of economic growth will very much
depend on our success in recognising the proper limits of
Government economic power.
Governments should not seek to do what private enterprise can do
much better.
Such a view recognises that there are limits to Govern ment influence;
that Government intrusion, direct or indirect, into private
decision making, will generally not advance the well being of the
community.
This belief needs to be increasingly reinforced.
Whatever reasons are used to justify increasifig the size of
government especially in areas outside its proper function, for
practical reasons, and on well-documented evidence, such economic
behaviour is doomed to fail.
Governments must acknowledge that if they wish to expand their
involvement in the economic affairs of the nation, they will
damage the private sector which is the engine of growth and
progress.
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This view is not shared by our political opponents.
Their promise to establish an Australian hydrocarbon corporation
for development by the Government of oil and gas resources has
an air of threatening deja vu about it.
It represents a recycling of past failures.
The last Australian Labor Party Government had similar grandiose
plans unsupported by rational economic analysis.
They brought Australia to an unprecedented level of investment
fatigue.
Those companies which had made discoveries and did have viable
development plans were stopped in their tracks.
overseas investors withdrew.
Government intervention of this kind would produce the same
effects. It is doomed to fail because the Government sees its reputation
depending on the reputation of its own allegedly commercial
corporation. Its failure would be seen as the Government's failure, to avoid
this, the Government would be prompted to give its enterprise
preferential treatment; to take decisions that are not based on
proper commercial considerations.
In such a sensitive and economically powerful area as energy
development, this could lead to preferences for licences or
leases secured by an almost unlimited access to taxpayers money.
There is a dangerous tendency for Socialists lo be so bemused by
ideology that they are unable to understand that there are
individuals and businesses capable of operating more profitably
and with better regard for the community interest than can be
achieved by creatures of Government.
The establishment of such a corporation would give to the Government
economic power equal to that provided by the resources it seeks
to control. / 9
9-
The grave limitations of this would be reflected in two
ways. In the first place the government would regulate
and control the industry in marked contrast to our determination
to allow price and the commercial market to determine the
industry's future. ' But ' worse, the hydro-carbon corporation would
lock capital and labour into a perpetuation of the inefficiencies
that such schemes inevitably bting.
The private sector, on the other hand, must always maintain
a close relationship between its borrowing, its costs and
the viability of its venture. In other words, it must be
commercial to survive.
Such disciplines and restraints do not attend large socialist
enterprises. On the contrary the kind of enterprises proposed
by the Labor Party abuse government power, in particular its
capital raising power, and in so doing reduce the funds, the
resources and the scope for development of private business
initiatives. And when this happens, more often than not,
efficiency, accountability, innovation, flexibility, and market
adjustment are also sacrificed.
We cannot afford this or any other impediment to the gathering
momentum in energy exploration and development.
Yet other attitudes of the Labor Party, to which all Party
members are committed, are as bizarre as they are dangerous.
In a somewhat uncharacteristic gesture the Party pledges
itself " to regenerate Australian industry". It is the formula
for this which is interesting. For amongst its commitments
is one to: monitor trans national corporations in
Australia obtaining information such as their investment,
marketing and trading policies Why, you may ask.
To: " Supply ( this information) to the relevant trade unions
as well as all relevant international organisations such as
the U. N. Centre of Trans National Corporations, the I. L. O. and
U. N. C. T. A. D. and appropriate international trade union
organisations..." I said that Labor policies in the 70s producea investment fatigue.
This would produce investment rigor mortis.
One serious problem which is casting long shadows over Autai's
continuing economic growth is industrial disputes. Unchecked
union power poses a grave threat to our standard of living and
places in jeopardy our hard won reputation as a reliable trading
partner. All members of the Australian community, including Government,
increasingly feel that union power is excessive and too often
exercised selfishly and irresponsibly. Union leadership is
increasingly seen as out of step with the aspirations of union
membership. Responsible union leadership must strive to insist on
increased productivity if it desires increased benifits, because
unearned gains by any members of the community can only be achieved
to the eventual detriment of the welfare of all Australians.
This has happened too often in recent times and leads me to a point
of fundamental concern the role of trade unions and the
role of the law.
10
There are those who say that industrial matters must be solved
by reconciliation, negotiation, or conciliation; that the law
has no part in it. In the ideal world this would be true. But
we do not live in an ideal world. People are not always
reasonable. When organisations have power, as trade unions
do, all experience shows that this power must be exercised
within the framework of the law. The community must know
that justice and the law can, and will be, upheld.
Some unions have incomes of millions of dollars a year; they
have enormous power; in some circumstances more power than any
corporation in this nation. Yet nobody suggests that corporations
should be allowed to operate outside the law, however much some
companies might like it. Penalties for failing to operate
in a fair and reasonable manner do exist and they are high.
Why then, when we come to industrial relations which damages
the interests of infinitely more people than any company ever
could, do some people suggest that there should be no law.
That laws only provoke; that we should always negotiate. That
is not a credible position for any government, for any people.
We have to have law to establish the framework within which
trade unions operate; also we have to have law that can and
will be upheld. It is not helpful for some people to say
( especially politicans) that there should be no law; that
its just a question of reasonableness. What is reasonable to
one person is often unreasonable to another.
The community should not be left to expect that what unions
regard as reasonable should be the final arbiter of the way
the country is to be run. At the moment, there is an unhealthy
balance between some people and groups possessing indisputable
political, economic and union power and the bulk of Australians
to whom these are denied.
If we are to live up to our proud record as a genuinely free
society, balance must be restored. In that process of restoration,
all Australians, I am sure, would want the spirit of co-operation
to prevail rather than the application-of law, But if
co-operation and reason fail, it is only the rule of law that
can protect Australians.
It is essential that this should be so if the great promise of
the 80s is to be matched by performance. We have got a lot
going for us as a nation. In a difficult world, we are better
placed than most. The advantages we enjoy over many of our
trading partners point to a decade of opportunity for Australia.
Because of our international competitiveness, investment possibilities
have dramatically increased. In this investment climate, we are
uniquely placed with raw materials and energy reserves the world needs.
It is appropriate that the theme of your conference highlights
the challenges ahead. But let us not forget the opportunities
and rewards. As individuals, as business, as government, working
alone or in opposition to one another we cannot properly utilise
the nations human and physical resources. Working together, in
partnership, our prospects as a nation are unlimited.
I welcome your continuing role in this partnership and wish your
association and its members success in the years ahead.
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