Distribution, Gas, LNG, Markets, Projects, Technology

Workplace productivity reform essential to secure next wave of LNG projects

To that end, the Australian Petroleum Production and Exploration Association (APPEA) recently released a blueprint for workplace relations reform which aims to drive much-needed productivity growth and improve the industry’s global competitiveness.

The LNG industry is one of Australia’s economic success stories. Companies are currently investing $200 billion on new projects that have created more than 100,000 jobs across the Australian economy, and will pay close to $13 billion in annual taxes by the end of this decade.

But this success is being seriously challenged by rising costs at home and growing competition abroad.

Reform is urgently needed, or our country risks losing the next wave of LNG investment that could create a further 150,000 jobs over the next 20 years.

APPEA’s blueprint for change – Improving Labour Productivity: A Regulatory Reform Agenda – highlights a range of sector-specific problems with Australia’s Fair Work Act 2009, and makes a number of important recommendations.

In its current form, the Fair Work Act 2009 encourages high labour costs and low productivity on major resource project construction. It facilitates the continued ratcheting-up of wages and allowances to the extent that project owners cannot be confident about the cost of labour over the full life-span of construction.

This is undermining Australia’s ability to capitalise on growing global demand for LNG.

Problems on major projects relate to both how terms and conditions are set at the outset of the agreement (greenfield agreement provisions), and risks to project performance and competitiveness despite one or more agreements being in place.

These problems include the risk of protected industrial action during renegotiation, the broad scope of permitted matters over which bargaining can take place, misuse of right of entry provisions, and the impact of unprotected action.

While APPEA welcomes recently announced changes to the Fair Work Act 2009, the oil and gas industry believes the Federal Government should go further by adopting a new form of enterprise agreement that would specifically apply to major capital projects, such as multi-billion dollar LNG plants.

These Major Project Agreements (MPAs) would reflect both the scale of these projects, and the timeframe required to develop them by limiting the time available to negotiate, and by applying for the entire period of project construction, as opposed to being renegotiated every four years.

Importantly, MPAs would also prevent the most recent deal struck automatically becoming the minimum benchmark for the next by requiring negotiations to be specific to individual major projects’ circumstances.

APPEA is also urging the Federal Government to consider further reforms to protect major capital investments once an MPA has been put in place, including:

  • Changing Right of Entry provisions, applying them only to those unions with which agreements have been made and subjecting permit applications to greater scrutiny;
  • Bigger fines for unlawful industrial action;
  • Raising the threshold for protected industrial action;
  • Anti-picketing laws that deliver faster determinations regarding lawfulness; and,
  • Re-introducing a well-resourced Australian Building and Construction Commission.

APPEA’s reform plan also highlights capacity constraints imposed on major projects by recent changes to local content and temporary skilled migration laws. It recommends abolishing the additional regulatory requirements introduced as part of the Australian Jobs Act 2013 and removing new labour market-testing requirements introduced under the subclass 457 visa program.

The reforms proposed by APPEA are not only sensible, responsible, and achievable within the Government’s current term of office, they are also critical if the sector is to increase investment and deliver more jobs.

In a rapidly changing global LNG landscape, future investment in Australia’s LNG industry cannot be taken for granted. Companies operating in Canada, the US, Mozambique and Tanzania are advancing plans for LNG projects targeting our markets.

Within a few years, Australia will overtake Qatar as the world’s leading LNG exporter. If we fail to address our productivity challenges, the celebrations may be short-lived.

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