Money well spent ????

State could pay $70m if Oakajee fails

The State Government could be forced to pay more than $70 million to private developers if the planned Oakajee port and rail project falls over amid delays and fears of costs blow-outs.

The Parliamentary Public Accounts committee has also been warned by Department of State Development director general Anne Nolan that the cost of government-funded infrastructure under a State Development Agreement would increase from the previous estimate of $678 million.

The State Government last month gave project proponent Oakajee Port and Rail (OPR) a nine-month extension on making a commitment to the project, with costs feared to have blown out from an estimated $4.4 billion to more than $6 billion.

OPR must make a commitment by December 31 or face losing a State mandate for the iron ore export project.

Department of State Development deputy head Gail McGowan said the State would have an obligation to buy the intellectual property if the project fell over because of a default by the State Government.

Ms McGowan said there would be no obligation on the State Government if the project's failure was the fault of proponent Oakajee Port and Rail, a private company backed by sharemarket-listed iron ore company Murchison Metals and Japan's Mitsubishi conglomerate.

She disclosed the existence of the State obligation at Parliamentary Public Accounts Committee hearing, where her department head Anne Nolan was also quizzed about reports that the total cost of the project and reports that the cost of the government -funded component of Oakajee had blown to $930 million.

Ms Nolan said OPR had given her a range of figures, but $930 million was not one of them. "I would expect a revision upwards," she said.

She would not reveal an estimated figure and said her agency's analysis was currently focussing on technical aspects of the project and the scope of the State's obligations.

The Commonwealth has agreed to pay half of the $678 million but Ms Nolan would not answer questions about whether the Commonwealth's obligation was half of $678 million or half the final figure. "It would be premature to make comment on that," she said.

"The Premier has committed to pay only half of the $678 million."

She said a clause in the State Development Agreement said the costs of common user infrastructure would be met by the State of Federal Government except as otherwise might be agreed.

When Opposition Leader Eric Ripper asked Mr Barnett in State Parliament last month why the State Government had agreed to pay OPR $78 million, the Premier said the government had an option of buying Oakajee's intellectual property if the development fell over.

When asked later in Parliament whether that was the State's only obligation, Mr Barnett said: "We have an option of buying intellectual property."
He said that if the project reached a conclusion by year's end with all its financing and other arrangements, a State agreement would come to Parliament and the Opposition could have all the information.

[source] thewest.com.au
http://au.news.yahoo.com/thewest/a/-/newshome/9146371/state-could-pay-70m-if-oakajee-fails/

Not sure what money you are talking about but -

Yes - money well spent

It will have cost OPR around $200 million to get to the design position at end of Dec 2011.

If you read all of the above not just the underlined and highlighted section then it clearly says if OPR defaults then State Government gets option to buy that design position for $78 million.

They then have the option to sell that to somebody else or use the info to reduce the cost to another operator, giving somebody else an effective head start of $200M for a cost of $78 million.

If the mid-west exports say 100 million tonne of iron ore per year the return in state royaltese alone would be around $700 million per year (not including company taxes, income taxes, port taxes, other exports from the port and all the other benefits).

Thus even a $1 billion government investment would be returned in a relatively short period.

In perspective BHP is spending $6 billion on Pilbara iron ore expansions to go from 200 million to 300 million per year. If it is commercially viable for BHP to spend that it is commercially viable for the WA state government to spend $1 billion creating a whole new industry.

Now I bet everyone who read that thinks I am in favour of Oakajeee. Read again, not saying I am, just saying money well spent compared to say $43 billion for NBN.

Is Oakajee a good idea all up ? I don't know
Is a general query about the WA state government spending $500M to create a new iron ore export industry money well spent - history would suggest it is a very good spend.

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Carantoc said...


If you read all of the above not just the underlined and highlighted section

That would be the title as per the source document

Or spend all that money and some of the unnecessary NBN money on creating a smelting industry to turn the iron ore into steel?

So we don't have to send ore to the Chinese and then buy it back as steel which we use to make ships and stuff fitted out with imported Chinese electronics and plumbing to then sell a ship to the Chinese!

Then we can afford Govt owned ports to export our stuff - rather than having private industry funded by overseas interests building infrastructure in our country which they can later shut down when it suits them

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Mark _australia said...

Or spend all that money and some of the unnecessary NBN money on creating a smelting industry to turn the iron ore into steel?

Sort of like the BHP Blast Furnace in Port Kembla that I used to work at?

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nebbian said...

Mark _australia said...

Or spend all that money and some of the unnecessary NBN money on creating a smelting industry to turn the iron ore into steel?

Sort of like the BHP Blast Furnace in Port Kembla that I used to work at?

Yeah, its not that we don't (or at least didn't) have the smelting industry, it is just that it is cheaper to send it to China or Korea and get it back as steel. It seems like it has been that way for at least a few decades.

The steelworks (in the Illawarra) seem to have been shutting down sections at a time and 'offshoring' them.

I think they did the same with the copper industry as well. Unless you drop wages significantly you will not be able to viably manufacture here.

I think you have to change your thinking to industries where you might be able to compete. Something that needs more than basic labour.

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nebbian said...
Sort of like the BHP Blast Furnace in Port Kembla that I used to work at?

I believe that will be shut down once a carbon tax is introduced. In BHPs words a carbon tax will making steel in Australia a none viable industry.

RE World steel production by country here is an interesting piece on Wikipedia: en.wikipedia.org/wiki/Steel_production_by_country

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FormulaNova said...

nebbian said...

Mark _australia said...

Or spend all that money and some of the unnecessary NBN money on creating a smelting industry to turn the iron ore into steel?

Sort of like the BHP Blast Furnace in Port Kembla that I used to work at?

Yeah, its not that we don't (or at least didn't) have the smelting industry, it is just that it is cheaper to send it to China or Korea and get it back as steel. It seems like it has been that way for at least a few decades.

The steelworks (in the Illawarra) seem to have been shutting down sections at a time and 'offshoring' them.

I think they did the same with the copper industry as well. Unless you drop wages significantly you will not be able to viably manufacture here.

I think you have to change your thinking to industries where you might be able to compete. Something that needs more than basic labour.

ahhhhhh but not if the Chinese and Koreans can't get our iron ore....

Mark: We need to get together with the Canadians to make an OPEC for Iron Ore and Uranium (although maybe reconsider Uranium now).

But to back Mark's main arguement you need to take a long turn view (400 year) Economists will tell you if you do not add value to a product you will not thrieve. There are many examples of countries loosing their status. Like the Dutch and the Spanish.

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Mark _australia said...
ahhhhhh but not if the Chinese and Koreans can't get our iron ore....

Ever wondered why China is investing huge amounts of money into infrastructure in Africa? Anyone?

I wonder if the fact that a large number of African nations without functioning democracies have large un-mined iron ore or other resource deposits has anything to do with it?

Yup... that little resources boom of ours could be over before those clowns in Canberra wake up to smell the coffee. Let's hope they spend that hard earned resources tax money on better things than $900 flatscreen TV subsidies.

This is how we do business

So what are they fighting for? More money or to not have mining on their land at all?

YAY for the resources boom,,, c'mon andy ... don't be a hog, spread it around so i can get a new board

Whats your favourite spot worth? is it for sale? would you sell it to someone from another country speaking another language to trash, so they can up their GDP.
ozzy ozzy ozzy!