SYDNEY, April 20 (Reuters) – Australia is the last place most investors would expect to find rising political risk.
But with major policies that may fundamentally change the rules of the game for key business sectors either yet to be unveiled or facing deadlock in parliament, a growing number of companies are complaining about policy risk — or policy inertia.
Many are voting with their feet, deciding that given the level of domestic uncertainty it makes more sense to invest in Asian and African countries commonly seen as far more risky.
"You are starting to see a number of CEOs comparing the sovereign risk in Australia with that of Laos," said Mitchell Hooke, chief executive of the Minerals Council of Australia.
It is a starkly different picture from the usual view of Australia as somewhere far from conflict zones and partly insulated from the pain of global economic shocks, and where a change of government rarely heralds a sea-change in policy.
Dun & Bradstreet’s latest Economic & Risk Outlook, released this week, is typical of the consensus. Australia, Canada, Norway and Switzerland are named the world’s safest for investment.
But many firms in the energy and mining sectors, backbone of Australia’s economy, would argue with that assessment.
Rudd’s failure to get carbon trading laws passed means nobody is certain what kind of scheme will eventually be adopted, and this is stifling investment. Mining firms are braced for looming taxation reform, which may see a 40 percent resource rent tax.
And investors have also been spooked by shifting Rudd government plans for a national broadband network and political wrangling over the proposals, wiping out 25 percent of the value of top telco Telstra Corp <TLS.AX> since Rudd’s election.
With individual states also having legislative powers, regional political risks can compound the national uncertainty.
Since Rudd came to power in 2007, policy risk rose in every state except one, the 2009/10 Fraser Institute global survey of risk in mining sector said (www.fraserinstitute.org).
Portfolio investors attracted by Australia and its apparently low levels of risk need to take policy uncertainty into account.
"It won’t affect our sovereign credit rating. It is not like a macro risk to the economy, but it is adding to the uncertainty and cost of doing business," said Shane Oliver, head of investment strategy at AMP Capital Investors.
Rudd will seek a second term in elections due late in 2010, and is leading in opinion polls despite a perception among voters that his government has not fully delivered.
"We have had policy pronouncements but not a lot of outcome," Hooke said. "We are now seeing a whole stack of policy proposals and ideas that are being floated which are adding to this uncertainty or lack of confidence about investing in Australia."
Click here for Australia political risk FACTBOX [ID:nRISKAU]
MINERS JOIN GOLD RUSH TO AFRICA
In the past three years Australian miners have invested more than A$3 billion overseas, with small and mid-tier companies in particular pushing into African nations with a far higher sovereign risk than Australia’s AAA rating.
Australia’s second-largest listed gold miner, Lihir Gold <LGL.AX>, closed one of its Australian mines in 2009 and directed more spending to the Ivory Coast. The third largest, Resolute Mining <RSG.AX>, is also digging deeper into Africa with a $186 million Mali project, citing scarcer fewer opportunities at home.
Some miners says regulatory and environmental hurdles in Australia mean it could take 10 years to get a new project off the ground, compared with five years in Africa.
The mining sector is most concerned about the lack of a national energy policy and the prospect of a new tax regime.
A rumoured 40 percent resource rent tax on miners including Rio Tinto <RIO.AX><RIO.L> and BHP Billiton <BHP.AX><BLT.L>, would potentially place them among the world’s most heavily taxed.
Click here for latest on tax reform [ID:nSGE63E0LU]
"My great concern is the sense that the Australian government is under the misapprehension that all sectors of the Australian mining industry are going well," Mark Cutifani, chief of AngloGold, the world’s third biggest gold miner, told Reuters.
"In South Africa the government deferred for a year the imposition of a royalty for fear it may damage the industry. In Australia we seem to be debating how many taxes can we lump on."
Oil firm Santos <STO.AX> said a tax hike may deter foreign partners like Malaysia’s Petronas [PETR.UL]. "The last thing we want is a change or any uncertainty in the fiscal environment. It could well threaten our investments," said chief David Knox.
Canada’s Fraser Institute survey of 670 executives found more policy risk investing in Australia’s two main resource states, Queensland and Western Australia, than Alaska, Utah and Chile. Only South Australia ranked in the top 10 for mining investment.
POWER INVESTMENT STALLED
The lack of a carbon price poses a problem for power firms, which have A$19 billion in debt refinancing due in two years.
"It is fair to say, without a doubt, that investment in the sector would be higher if there was clarification on what the future carbon policy is going to be," said Steve Durose, head of Fitch’s Asia-Pacific energy and utilities team.
The lack of a carbon policy will also discount bids in the A$6 billion power privatisation planned by the New South Wales (NSW) government in 2010, said Durose. "Frankly it’s a terrible time to be trying to be selling coal fired assets," he said.
Top operator of renewable energy assets AGL Energy Ltd. <AGK.AX> has shelved up to A$1 billion worth of investment in wind energy, citing uncertainty over climate change policies.
"Providers of capital and companies are saying…with carbon price uncertainty they are not committing to substantial future expansion in electricity generation," said Fitch’s Durose.
Rudd’s failure to get a hostile Senate to pass his carbon emissions trading laws, which would see a A$10 a tonne price on carbon in 2011, also threatens debt refinancing.
Heavily-geared power firms needing to upgrade infrastructure can’t calculate future profits without a carbon price. The most at risk are four brown-coal-fired plants in Victoria state.
According to Fitch, TRUenergy, owned by Hong Kong-based CLP Holdings <0002.HK>, operates the Yallourn power plant, and has A$950 million in corporate debt due by August 2011.
The Loy Yang A plant has A$455 million due November 2011, Loy Yang B has A$1.1 billion due June 2012 — both are owned by a consortium of AGL <AGK.AX>, Tokyo Electric Power Co <9501.T> and private investors. British-based International Power’s <IPR.L> Hazelwood power station has A$742 million due June 2012.
"These plants are very highly geared. Absent of carbon they produce quite a lot of cash because they are low cost. But when carbon gets priced in they … become uneconomic," Durose said..
The carbon legislation is due to again be voted on in May. Click here for details of biggest carbon emitters [ID:nSGE62007S]
STATES COMPOUND POLITICAL RISK
The recent collapse of three infrastructure projects, one a A$5 billion Sydney Metro transport plan, is also fuelling concerns over political risk, particularly in the nation’s biggest state economy NSW, worth A$370 billion annually.
Infrastructure Partnerships Australia (IPA) said the decision "shreds the credibility of the (NSW) government in delivering projects and will likely make it much harder to attract investment and skills to deliver new infrastructure".
Bidders including top Australian contracting group Leighton Holdings <LEI.AX> are seeking A$200 million in compensation.
Adding to concerns about political risk at a state level are two state elections, in NSW and Victoria, due within the year, and a deteriorating budget in the resource rich Queensland state, which is offloading some A$15 billion in assets.
So far, Australia’s shares have not been hit with a significant risk discount because of legislative risk. But analysts say that if Australia starts to get a name for policy paralysis, more portfolio investors will get nervous.
On the other hand, as with most risks in Australia, there are plenty of places where things are even worse. "America has been living with gridlock between the major parties…for decades," said AMP’s Oliver. "Investors have learned to live with it." (Reporting by Michael Perry; Editing by Andrew Marshall)
SYDNEY (Reuters) – President Barack Obama said he was confident Afghan President Hamid Karzai can stabilize his war-torn nation but that Washington would continue to press him to introduce essential reforms to improve living standards.
In an interview with Australian television, Obama also said Karzai was capable of being a strong partner with the United States in the fight against Al Qaeda.
SYDNEY, March 25 (Reuters) – Australia said on Thursday it
had been told by China that the verdict in the trial of four
Rio Tinto executives charged with bribery and stealing
commercial secrets will be handed down on Monday.
The case in Shanghai has raised tensions between Australia
and China, it’s biggest trading partner, and highlighted
Chinese sensitivities over its rich steel sector.
SYDNEY, March 25 (Reuters) – Australia and New Zealand
Banking Group <ANZ.AX> said it will invest $100 million in
Indonesia during 2010 to complete the acquisition of Royal Bank
of Scotland <RBS.L> businesses there.
“We are on track to complete the acquisition of the RBS
retail and commercial businesses in Indonesia in June 2010,
subject to regulatory approval,” ANZ Chief Executive Officer
Mike Smith said in a statement after a speech in Jakarta on
SYDNEY (Reuters) – Australia’s top scientists on Monday released a “State of the Climate” report at a time of growing scepticism over climate change as a result of revelations of errors in some global scientific reports.
The scientists said their monitoring and research of the world’s driest inhabited continent for 100 years “clearly demonstrate that climate change is real.”
SYDNEY (Reuters) – Australia circa 2050, population 35 million, climate change induced rising sea levels have flooded the Gold Coast resort region, apartment blocks are now used to grow food and people commute in monorail pods above the sea.
In another city, Australians live on floating island pods with apartments both below and above sea level, the population has shifted from land to the sea because of the sky-rocketing value of disappearing arable land.
SYDNEY, Feb 19 (Reuters) – Australian Prime Minister Kevin Rudd on Friday hinted he may call an early election over the populist issue of health, as media reported a new health plan to be released in March would be his centrepiece at 2010 elections.
Political analysts had believed Rudd’s embattled climate policy, twice rejected by a hostile Senate, could be the focus of his re-election campaign, but with voter support waning, health may now be a more attractive issue.
The government holds a commanding lead in opinion polls, but Rudd’s personal rating is the lowest since he was elected in 2007 and he needs a circuit breaker to stop a resurgent opposition before a national election due by the end of the year.
The Sydney Morning Herald reported the government had made its reforms of private health insurance, which will raise some A$1.9 billion in revenue over three years, a priority over its embattled carbon emissions trading scheme legislation.
"Climate change has slid down the order of election priorities with the government to dedicate next week in parliament to gaining a double dissolution (election) trigger on health," the Herald said.
A double dissolution election sees both houses of parliament dissolved for re-election, and if the government wins the poll it would then stage a joint sitting of both houses to pass the legislation which sparked the election.
Asked on television on Friday to rule out an early election on health, Rudd refused, saying "let’s just see what they (the Senate) do", adding his health reforms were a huge budgetary measure.
"I would much rather have that (money) to invest in the public hospital needs of our country," said Rudd, who has promised voters he will fix the country’s hospitals which are struggling to cope with patient demand from an ageing population.
HEALTH OVERTAKES CLIMATE
Rudd will unveil a wider public health reform plan, which will be "an election centrepiece", next month, said the Herald.
It would be easier for Rudd to campaign on health reforms which hit high income earners with a means test on a government rebate for private health insurance, rather than climate policy which many voters now oppose.
This could affect health firms like NIB <NHF.AX> and private hospital operators like Ramsay Health Care Ltd <RHC.AX> and Healthscope <HSP.AX>.
The opposition has vowed to defeat the health legislation in the Senate a second time.
Rudd has also promised a federal takeover of state-administered hospitals, but few political watchers expect him to carry it out, given its likely A$3-5 billion cost.
The government already has an election trigger over climate policy, which has been rejected twice in the Senate. A revised climate policy is also set for defeat in Senate.
Rudd has repeatedly said governments should go full term, but a new opposition leader Tony Abbott has rallied his conservative party and gained traction with voters.
In an attempt to win back voters, analysts say Rudd may also be forced to abandon plans for comprehensive reform of the A$278 billion taxation system that threatens to lift the tax impost, or reverse plans for a tough May 11 budget.
The government has already committed itself to an austere budget that locks in savings and promises a faster return to surplus, as well as a 2 percent cap on spending increases, as the economy recovers from the global financial crisis. (Editing by Jeremy Laurence)
SYDNEY, Feb 16 (Reuters) – Australia and China will resume
stalled free trade talks this month despite tensions over the
trial of an Australian mining executive in China, but
agriculture remains a stumbling block, Australia’s trade
“The political will in my judgement is there,” Simon Crean
said on Tuesday in announcing the resumption of Free Trade
Agreement (FTA) talks in Canberra after a break of more than a
SYDNEY (Reuters) – Five Australian Muslims found with weapons and chemicals to make bombs and convicted of plotting a terror attack in Australia were jailed on Monday for terms ranging from 23 to 28 years.
The men were found guilty in October 2009 of conspiring to commit an attack between July 2004 and November 2005 in retaliation for Australia’s involvement in the wars in Iraq and Afghanistan.
SYDNEY (Reuters) – Australia urged China to deal transparently with the trials of four Rio Tinto staff accused of bribery and stealing commercial secrets, as the firm’s CEO said the Asian country remained a key part of its long-term plans.
Against a backdrop of investor concern over dealings with Beijing, China on Wednesday indicted the four China-based employees of Anglo-Australian Rio Tinto <RIO.AX>, the world’s second-largest iron ore producer. They include Australian Stern Hu, its top negotiator at the time of his arrest last year.