Removing unnecessary regulatory burdens
Recognising Australia's declining share of international
energy and resources exploration investment, the Australian
Government has commissioned its independent research and advisory
body, the Productivity Commission, to evaluate non-financial
barriers to exploration investment. This inquiry is underway,
providing an opportunity for interested stakeholders (including
those in the regulated industry and finance communities) to weigh
in with comments and input to the Commission.
The Productivity Commission released an Issues Paper in December 2012 (Issues Paper), a copy of which is available here. The Issues Paper notes a number of factors contributing to the decline in exploration investment (for example, the perception that Australia is a mature exploration destination which provides fewer opportunities for discovery, the intense international competition for exploration investment, and the high costs of exploration given high currency and labour costs), but is focused on one reason in particular: the impact of unnecessary regulatory burdens.
The Issues Paper notes such burdens not only impose administration and operational costs but also fundamentally change the way explorers operate and take advantage of opportunities.
Specifically, the Issues Paper has raised the following regulatory issues for public consultation:
- Increasing coverage and complexity of the permit and approvals system as a result of incremental responses to various demands rather than as part of an overall plan.
- Longer and significant delays as a result of such increased regulatory coverage. The Issues Paper notes that the approval process can in some cases take up to 12 months before tenure to explore is granted.
- Unnecessary costs involved where applications for resource exploration are also required to be submitted for a range of land access, environmental and heritage requirements. Some reports note that total administration and compliance costs account for up to 60 cents in every $1 of exploration capital raised.
- Inefficiencies due to overlap and duplication between different regulatory regimes, such as complying with the environmental or heritage requirements of the Australian national, state and territory governments. For example, the preparation of environmental impact assessments under both Commonwealth and state/ territory environmental legislation can result in duplication and uncertainty.
- Access to land issues, including the merits of the current regime that excludes exploration activities from particular land, or whether the processes and conditions placed on exploration activities are unnecessarily onerous.
- Whether there is an appropriate balance between heritage preservation and resource exploration.
It is worth noting that the Australian Government specifically excluded taxation and fiscal policy from the inquiry. However, the Issues Paper does note that tax deductions relating to exploration activities are important. Many commentators have also suggested that the recently introduced Mineral Resources Rent Tax and carbon tax have likely had a significant effect on investors' appetite for committing exploration expenditure in Australia.
Other issues impacting on the performance and efficiency
of resource exploration in Australia
In addition to the current regulatory arrangements, the
Productivity Commission is also examining other non-financial
barriers to resource exploration, including: the skills shortage in
the resource sector (a particular issue for Western Australia and
Queensland); the adequacy of pre-competitive geoscience information
in order to assess productivity and reduce risks involved in
exploration area selection; access to infrastructure, such as
roads, rail, water and ports; the effect of differing occupational
health and safety regimes across various Australian jurisdictions;
and the ability (particularly of junior explorers) to raise
capital.
The Issues Paper notes that the wider Australian resources sector is presently experiencing a moderation in resource prices and a higher Australian dollar. In response to these pressures, there are growing calls for governments to adjust policy settings in order to reduce the cost base in the sector to ensure that Australia remains internationally competitive.
Submissions must be sent to the Commission by 15 March 2013. We are happy to assist you with any submissions you may wish to raise in response to the Issues Paper.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
