DEVELOPING THE
STATE: The Management of State
Agreement Acts
Report No 5 -
June 2004
What the examination is about.
State Agreements (Agreements)
are powerful contractual and
regulatory arrangements. An Agreement
is a contract between the State
and a proponent, which is ratified
by an Act of Parliament. Ratification means that Agreement provisions
may override the existing statutory
laws of the State.
Agreements have been used for
over 50 years to facilitate private
sector development of the State's
natural resources. The natural
resource sector is now the major
driver of the State's economy,
generating sales of $28 billion
in 2002-03. The Department of
Industry and Resources (the Department)
administers these Agreements,
of which there are currently
64.
This examination reviewed:
- the extent to which Agreements
have achieved their main objectives
- the effectiveness of their
administration.
What the examination found...
Agreements have delivered major
projects however their success
in delivering supplementary downstream
processing is less clear. Agreement
management has focused on facilitation
and there is scope to use more
robust management practices:
- Nearly 90 per cent of current
Agreements have delivered projects.
- These provide the State with
annual royalties of $1 billion.
- A 1995 government policy
to remove iron ore royalty
concessions, currently valued
in excess of $40 million per
annum, has not yet been achieved.
- The State has had some success
in using Agreements to develop
further processing industries.
However, notwithstanding efforts,
benefi ts such as steel mills,
pulp mills, aluminium smelters
and petrochemical industries,
have not yet been realised.
- The Department has not methodically
monitored how well companies
discharge Agreement obligations
to maximise the use of local
labour, services and materials.
In consequence, it is now diffi
cult to demonstrate how effective
Agreements have been in encouraging
companies to achieve this aim.
- The Department sees its role
as primarily facilitative.
While Agreements impose no
explicit requirement for Agreement
management, there is a need
to:
- follow a structured process
to evaluate how well Agreements
are achieving their objectives
and what lessons can be
learned
- improve reporting to
Parliament on Agreement
status and performance.
- It is unclear why some resource
projects are established and
operated under Agreements and
others under existing statutory
laws. It is therefore timely
to develop criteria in order
to better ensure consistency,
equity and transparency.
- The Department's procedural
guidelines and management information
systems, which support Agreement
administration, are underdeveloped.
What the examination recommended...
The Department should:
- develop a strategy, in consultation
with industry, to implement
the policy to phase out royalty
concessions
- adopt a structured approach
to evaluating Agreement performance,
including how companies discharge
their obligations to maximise
the use of local content
- develop the reporting of
Agreement status and performance
to Parliament
- develop criteria to better
guide the use of Agreements
in a mature natural resource
economy
- improve the procedural guidelines
and management information
systems that support Agreement
management.
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