Tasmania: Fuel Prices

I recently received a briefing from one of Tasmania's most respected and senior businessmen, Wayne Bould, of the Tasmanian Minerals and Energy Council, who has warned me about a looming crisis in natural gas prices for our residential and business customers. Mr Bould indicated to me that, if the Liberal state government of Tasmania, assisted by this federal government, does not take steps to purchase or take control of the privately owned pipeline which delivers gas from mainland Australia to Tasmania, from the company Palisade, increases of up to 40 per cent, perhaps even more, could occur for all commercial users of gas.

This would mean that Tasmanian pensioners, families, small business, the unemployed, single parents, schools, hospitals, bakers, supermarkets, retirement villages, mineral value-adding operations and our heavy manufacturing all would be looking at significant rises in their gas bills, perhaps up to 40 per cent, toward the end of 2017.

Mr Bould explained to me the reason for the gas price increase:

At the moment there is a contract between Hydro Tasmania and Palisades — this is a private company which owns the gas pipeline — where around about 50 per cent of the pipeline transmission cost is paid by Hydro to Palisades, on the basis that it was going to feed the Bell Bay power station. Obviously this is a gas powered station.

He continued:

Now because we have a surplus of electricity, to the extent we can actually sell it through Bass Link - Bell Bay power station is no longer a viable option. It isn't an income generator - and isn't required strategically because there is enough electricity generated in the system and there is enough water in the dams to the extent it's no longer required. So their contract as we understand it ends somewhere around 2017. At which time their subsidy (Bell Bay Power Station) effectively, of the transmission pipeline, ends at that time.

And that means, Palisades, in order get its recovery of the return it wants on the pipeline will need effectively to double its transmission costs that it charges to all the users of the pipeline. So that means everyone in the system is going to receive an increase in the cost of the transmission cost. The transmission cost isn't the ultimate cost, it could be 10 per cent or 20 per cent of the total cost of gas. And that is some of the numbers. I am asking people to provide me with — that — at the moment.

But let's say it's 20 per cent the cost of gas - then what we will see is Hydro dropping out with its subsidy and that will give a 10 per cent or better increase of cost to users. I think the transmission cost is much higher than the numbers I have used, because people are talking 30 to 40 per cent increases at a commercial level. That will flow through to the mum and dads. You have got to recover your costs.

It is clear from Mr Bould's warnings that a gas price crisis for Tasmania will occur if measures are not put in place by both the state and federal Liberal governments to prevent the private company Palisade, which owns Tasmanian's gas pipeline, from passing on the full costs of gas transmission once the gas fired power station at Bell Bay is decommissioned. I understand that one of the reasons that Palisade are forced to seek a very high return in their gas pipeline transmission charges is that they are looking for a return on a $200 million investment.

Now, some in the Tasmanian business community are suggesting that the price of $200 million was inflated and that it should have been between $100 million and $150 million. I have also been reliably informed that the Liberal Party, both state and federal, have known about this looming gas price crisis for a number of years, and it appears they are up to their old tricks of putting this in the too-hard basket when it comes to Tasmania. Regretfully, I am disappointed that, once again—just like the Bass Strait freight cost crisis and the RET crisis and the coastal shipping cost crisis,

which threaten to shut down some of our major businesses—it will take an Independent Tasmanian senator to force the major parties to fix problems which have strangled economic growth and job creation opportunities for decades in Tasmania.

Wayne Bould strongly suggests that the best way to avoid this gas price crisis is for the federal government to put some money, approximately $40 million, into a joint fund with the Tasmanian state government with a view to purchasing our gas pipeline. That way the government takes control of the situation and can guarantee the delivery of competitively priced gas to all Tasmanians for the foreseeable future. Unlike the majority of politicians in this parliament whose focus is on clean energy at any cost, Mr Bould and Tasmanian captains of industry understand that, in order for Tasmania—indeed, Australia—to thrive, prosper and protect workers when competing on unfair overseas markets, we must be able to deliver and guarantee cheap energy to our communities.

When compared to our overseas competitors in America, our industries are paying approximately three times the cost of energy. That means that, for a business to compete, they must cut wages and conditions of Australian workers or just go broke. We do not want either, so we must guarantee our businesses cheaper energy.

In describing his solution to the gas price crisis, Mr Bould said:

Federal government can subsidise the transmission costs, but the other thing I put to you guys the other day is that when you look at the large pledges of money ... that normally occurs when you move to election mode in this crazy three-year cycle ... people start to wave their arms around and say we will put $20 million for this and $30 million for that; it's going to generate some jobs. The first rule for dealing with politics is the jobs never arrive, the money gets spent and predominantly gets wasted.

So if you look at sensibly applying money to infrastructure in Tasmania, and one of the big issues Tasmania has right now is replacement of infrastructure, then you would be better off saying to the government:

'Put some money towards a loan for us to buy out Palisades so that the Tasmanian government could own the pipeline forever and a day.'

There are several ways to do it. One example would be the government stumps up $40 million and, between the state government's AAA borrowing rating and the federal government's AAA rating, we go to an investment bank or an investor of the toll road scenario and say to them: 'You fund the rest of it and you get a return on it for the next four or five years.' But at the end of the four or five years or ten years, the loan is repaid and the Tasmanian government then owns the pipeline. Or alternatively you have a toll on the pipeline for that period of time, but it resumes to the Tasmanian government and that way, ultimately, we get to own it.

The trick is not so much in looking after what comes down the pipeline now but in using it strategically. If we want to build on the north-west and north-east coast or in the midlands and Oatlands then we want to build downstream processing or value-adding processing for niche businesses that take our resources and add value to them, either from the forest or from minerals, or even from agriculture.

Just about every downstream processing plant requires energy and one of the best forms of energy, one of the most efficient forms of energy, the least polluting energy is gas. So if you want to take a hardwood woodchip that is currently being exported to Japan and make it into pellets that can be used for power generation or house frames, or technologically advanced things such as they are making in Scandinavia, you can do that. They are not big businesses but you can have a lot of small businesses. They are all energy dependent so the conversion process from woodchip to whatever your end result output is will always be dependent on energy.

The energy that comes from that gas pipeline can be redeployed to add benefit that will ultimately add downstream jobs and downstream processing. I call on the government, both state and federal, to listen and respect business people like Mr Bould and the Tasmanian economic council, and to act to protect us from this looming Tasmanian gas price crisis.