What’s next for Fair Work

In October 2015 the Federal Government passed long-overdue improvements to the greenfields provisions in the Fair Work Act. But the amendments are only the tip of a much larger iceberg of changes needed for the oil and gas industry to function more efficiently.

The Fair Work Amendment Bill allowed the Fair Work Commission to approve agreements covering wages and conditions when agreement cannot be reached between employers and employees.

It also limits the ability of unions to take strike action before genuine bargaining has begun.

The Bill’s passage in the Senate comes three years after a review of the Fair Work Act warned of “a significant risk that some bargaining practices and outcomes associated with greenfields agreements potentially threaten future investment in major projects in Australia”.

Australian Petroleum Production and Exploration (APPEA) Chief Executive Malcolm Roberts said the changes were “long overdue” and that effective greenfields agreements were essential to attracting further international investment in major projects in Australia.

“The Fair Work Act, as it stands, has made it difficult to deliver major projects in Australia on time and on budget,” Dr Roberts said in October.

“The improvements passed by the Senate…mean investors will have greater certainty about construction costs before they commit to a project.

“This is a crucial if we want to attract investment in major projects. Investors have other options than Australia and we must improve our competitiveness to attract footloose capital.”

However, the industry’s peak body expressed frustration over the Senate’s decision to reject an amendment to the act that would have required agreements to take into account individual project’s circumstances rather than meet or exceed prevailing industry standards when setting pay and conditions.

APPEA has long lobbied the government for an entirely new form of greenfields agreement, which could cover the entire construction stage of very large projects.

“The current law does not allow for agreements longer than four years, leaving employers vulnerable to industrial action at the critical final stages of construction,” Dr Roberts said.

But it’s not just the industry association that is fed up. Oil and gas owner/operators have had a “gutful” of unions exploiting the terms of their contracts.

These were the words of former Federal Resources Minister and now Chairman of the APPEA’s advisory committee, Martin Ferguson AM.

Regular strikes, unwarranted changes to contracts and conditions and significant delays to oil and gas projects are damaging Australia’s reputation as an investment destination and discouraging repeat business, Mr Ferguson, also a former head of the ACTU, told Gas Today.

“APPEA members are rightly concerned about the current industrial relations act in terms of the huge knock to investments from anything from AU$10 to AU$30 billion, and then extended the already long lead time in construction for these projects,” he said.

“What investors want is certainty in terms of when you go to [final investment decision], you want to know that the industrial relations framework is set. And then you can properly plan the project based on those costs parameters.”

Mr Ferguson says there is a major weakness in the existing industrial relations framework in that the enterprise agreements are often limited to three or four years at most.

“This effectively means that at very sensitive times of construction [enterprise agreements] are open to be milked by some elements of the union movement. We have seen this in the last 12 to 15 months both at Gladstone and recently at the Gorgon [LNG Project]. It not only creates industrial disputes and disruption, but it also means another cost to the overall project.

“Companies want a new approach which effectively means the Fair Work Act allows for them to negotiate construction agreements for the full term of construction for the project. That way they have got certainty with regard to the conditions of the framework, and therefore it makes it very important for the board to make those final investment decisions.

“Unless this is resolved I actually think there is going to be another additional hurdle for investment in Australia in bringing in new projects.”

Industrial relations and the resources downgrade

Mr Ferguson’s comments come after the Federal Government’s latest Resources and Energy Quarterly revealed that the forecast value of Australia’s exports for 2016–19 were revised down by AU$113 billion, some 14 per cent lower than the value forecast just 12 months ago.

KPMG research commissioned by AMMA found that it can often take two years to secure a greenfields agreement that will only run for four years. However, shortening the delay to negotiations by just two months would increase an average resource project’s net present value by AU$4.6 million.

At the centre of this downscale is Australia’s poor industrial relations framework and the resulting lack of investor confidence, says Australian Mines and Metals Association (AMMA) Executive Director Scott Barklamb.

“Lowered export earnings forecasts underscore the need for our policy makers to take urgent action to improve Australia’s attractiveness as a destination for global resources investment,” says Mr Barklamb.

“One key way to help increase investor confidence is to improve the laws governing employment agreements for new (greenfields) projects, which currently require employers to accede to union demands before a single person can be hired, or a sod turned on a new project.

“The ‘veto power’ our existing laws give unions contributes to delays and high costs that are dragging down Australia’s reputation to deliver complex, multi-billion dollar resource projects on time and on budget.

“International investors are marking Australia down as a place to do business because they cannot rely on our industrial relations system to deliver reliable, timely and cost-effective employment arrangements.

“Consensus for urgent reform in this area is growing. The Opposition should not continue to filibuster and block reform as evidence mounts that Australia needs to attract more resource investment to help grow our long-term export capacity, drive our national economy and create jobs,” Mr Barklamb says.

KPMG research commissioned by AMMA found that it can often take two years to secure a greenfields agreement that will only run for four years. However, shortening the delay to negotiations by just two months would increase an average resource project’s net present value by AU$4.6 million.

Fostering new developments

Mr Ferguson says that if there was to be another project at the scale of Chevron Australia’s mammoth 15.6 MMt/a Gorgon LNG project, or even a brownfields development of a single train at an existing LNG site, owner/operators cannot be expected to put up with “the way the Fair Work Australia Act is operating and is leaving them exposed, to put it bluntly, industrial buggery”.

This is why, Mr Ferguson says, APPEA has proposed an amendment to the Act that ensures owner/operators can negotiate an agreement upfront.

“Now, these companies don’t mind negotiating the agreement for contractors, but they want the contractors to be able to say to them, “this is it”. Then we can plan for that and we just have to manage construction,” says Mr Ferguson.

Unless this impasse is resolved, and the recent industrial experiences of Gladstone and the Gorgon LNG Project have sent a huge message internationally, Mr Ferguson says, “no one will be interested in investing here”.

“It really upsets me because I can think back from December 2007 onwards and all those terrific investments that amounted to AU$200 billion. I remember at the launch of Gorgon [LNG Project], the Chevron Chair said there is no better place for the company to invest than here in Australia.

“I could not get those same companies to utter similar words today. There is no way. The [owner/operators] have had a gutful of our performance on industrial relations and it is now an additional barrier side-by-side with duplication of environmental [regulation]. They are not prepared to expose themselves any longer to the antics of the Maritime Union of Australia.

“People need to understand that we either fix these things or we are not going to get the investment in the future. Period.”

Politics and the future path

Mr Ferguson explains that having been present in the planning and approvals processes for a raft of LNG projects soon to come online in Australia, he simply doesn’t believe that a lot of people understand just how difficult it is to streamline various approvals processes and get investments lined up.

“My own party, the Labor Party, opposed streamlining environmental approvals to make it into a one-stop shop.

“I was a member of Cabinet when Prime Minister Gillard determined that was the most important policy she wanted to deliver in terms of trying to make Australia attractive to investment. And when she gave up on that objective in the lead up to the COAG meeting, we as a party lost the business community and lost respect of the Business Council of Australia. “

While Mr Ferguson acknowledges that the industry is facing numerous other challenges in addition to the industrial relations framework, he argues that further amendments to the Fair Work Act must be addressed as a matter of urgency.

“The market has got to be able to adjust to the cost of doing business [in Australia]. And an agreement negotiated four years ago on Gorgon [LNG Project] should be different to negotiating an agreement today for another project. Yet the starting point should be the start and the last contract.

“Having negotiated these agreements so many times, I know where there is a will, there is always a way. But the Act has got to facilitate it.”

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