BILLS DIGEST NO. 70, 2013–14              20 May 2014

Railway Agreement (Western Australia) Amendment Bill 2014

Rob Dossor
Economics Section  

Date introduced: 27 March 2014

House:  House of Representatives

Portfolio: Infrastructure and Regional Development

Commencement:  The Act commences on the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

The purpose of the Railway Agreement (Western Australia) Amendment Bill 2014 (the Bill) is to enable the Western Australian (WA) Government to pay the outstanding amount owed to the Commonwealth Government for its financial contribution to the construction of the standard gauge railway between Kalgoorlie and Kwinana as a lump sum.

Structure of the Bill

The Bill has one Schedule, which amends the Railway Agreement (Western Australia) Act 1961 (the Act).[1]

Background

Existing line and Royal Commission on Uniform Gauge for the Railways

In 1897 the 618 kilometre Fremantle to Kalgoorlie narrow gauge railway was completed.[2] Prior to Federation three types of gauge were used in Australia: narrow gauge in Western Australia and Queensland, standard gauge in New South Wales and broad gauge in Victoria. In 1921 a Royal Commission was established to recommend, among other things, which gauge should be adopted in Australia, and the order in which the work to convert the existing lines should be undertaken.[3] In the final report it was recommended that standard gauge be adopted and that all existing non-standard gauge rail lines be converted, including the Fremantle–Kalgoorlie line.[4]

Yampi Sound and the iron ore export ban

In 1938 the export of iron ore was banned by the Lyons Commonwealth Government. The reason given for this was the preserving of Australia’s endowment, which at the time was believed to be limited:

It is certain that if the known supplies of high grade iron ore are not conserved, Australia will, in little more than a generation, become an importer rather than a producer of iron ore.[5]

Despite the above rationale, it is argued that the iron ore export ban was also a response to foreign investment in Yampi Sound.[6] In the late 1930s the Nippon Mining Company brought some Japanese technicians to work at the Koolan island facilities, apparently to help increase iron ore exports to Japan.[7] Against the background of events leading to the formal extension of World War II into the Asia-Pacific, this is said to have concerned Australia and eventually resulted in the ban, which was, it is argued, in part designed to remove the Japanese technicians from close proximity to the Australian coastline, without creating a diplomatic incident.[8] This view is supported by a Memorandum requested by the Minister of External Affairs from the Department of External Affairs in December 1937, which states:

… this exploitation is part of the “Southward advance” policy of Japan, which manifests itself at the moment in economic penetration by the acquisition of leases and holdings in iron, tin, cotton ... Any foothold, therefore, in Australia by Japanese interests will give rise to future political difficulties with Japan.[9]

With exports of iron ore banned, during the 1940s and 1950s, a situation existed that discouraged the search for minerals and ‘also discouraged discovery’.[10] As a result, a vast number of iron ore deposits remained untouched.

WA Commonwealth railway agreement

One view is that the catalyst for the removal of the iron-ore export ban was Australia’s lack of overseas funds in the late 1950s.[11] In response, the Commonwealth began offering companies the opportunity to export iron ore from ‘second tier’ or newly discovered deposits. Newly incentivised companies made a rash of discoveries following the lowering of the barriers to iron-ore export, resulting in it being further lowered in 1963.[12]

Prior to this, the WA Government had provided limited incentive to prospect for iron ore, as it refused to grant companies (or prospectors) a title to explore for iron ore or provide any assurances that a discoverer of a deposit could keep what they found. Instead rights to a deposit were to be awarded ‘not to the finder, but to the company which promised to bring manufacturing industries to Western Australia’.[13] This policy stemmed from the desire of the WA Government to attract industry to the state.

To meet the requirements of the WA Government policy in force at the time, BHP Limited offered to establish a steel rolling mill in Kwinana in return for the rights to mine Cockatoo, Koolan and Irvine islands in the Yampi Sound. The agreement reached with the WA Government became known as the Broken Hill Proprietary Steel Industry Agreement Act 1952 (WA).[14]

In response to lowering of the iron ore export ban, BHP Limited sought permission from the WA Government to open additional iron ore mines, offering to establish a modern blast furnace in Kwinana if:

•       it was allowed to use iron ore mined from the newly discovered iron ore deposits at Koolyanobbing and Bungalbin (near Kalgoorlie) and

•       that the WA Government build a standard gauge railway from Kalgoorlie to Kwanina which BHP Limited could use to transport the ore to the proposed blast furnace.

The WA Government agreed to these terms and the agreement became the Broken Hill Proprietary Company’s Integrated Steel Works Agreement Act 1960 (WA).[15]

To finance the construction of this standard gauge railway between Kalgoorlie and Kwinana, financial assistance was sought from the Commonwealth. The Commonwealth agreed to fund 85 per cent of the construction and operational cost on the grounds that:

The standardization of the railway from Kalgoorlie to Kwinana, coupled with the Western Australian Government’s plans to exploit the iron ore deposits at Koolyanobbing will boost tremendously our export earnings as well as giving the Western Australian economy generally a much needed shot in the arm … We must make this exploitation and development possible by providing means of transport, social amenities, communication and, in fact, every possible and practicable incentive and assistance to the people who are willing to perform the vital job of developing the nation.[16]

The final agreement was legislated through the Act. In it the Commonwealth agreed to partially fund the construction of the standard gauge railway costs on an 85–15 Commonwealth–State basis. This originally amounted to £35,000,000 for the Commonwealth and £6,210,000 for WA.[17] In 1971 the Act was amended to increase the funds and allow them to be provided to WA over a longer period to fund the project to completion. In addition the amendment changed the currency, from the pound to Australian dollar, but continued the existing ratio.[18] This resulted in the Commonwealth providing a maximum of 85 per cent of $125 million, which equated to $106,250,000.[19]

The agreement also required WA to repay the Commonwealth a total of 59 per cent of the total cost (ten-seventeenths) plus interest through two separate payment streams. One payment required WA to pay the Commonwealth 18 per cent (three-seventeenths) of the total, in 50 annual payments made before 30 June each year, including the interest on the outstanding amount.[20] The other required WA to pay the Commonwealth 41 per cent (seven-seventeenths) of the total, in 40 semi-annual payments made at six month intervals including interest on the outstanding amounts.[21]

While the Act does not specify when the last payment would be received, the Department of Infrastructure and Regional Development advised that Commonwealth payments to WA continued into the early 1990s and so repayments could continue until 2041.[22]

Committee consideration

Senate Standing Committee for the Scrutiny of Bills

The Standing Committee for the Scrutiny of Bills had no comment on the Bill.[23]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bill does not appear to raise human rights concerns.[24]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible as it does not raise any human rights issues.[25]

Financial implications

The Bill allows the WA government to repay the outstanding amount owed to the Commonwealth as part of the original construction of the Kwinana Kalgoorlie railway. The Explanatory Memorandum of the Bill states this is $1.6 million.[26] If WA were to pay off this $1.6 million before 2040–41, the Commonwealth would forgo interest revenue of up to $300,000.[27]

Key issues and provisions

Proposed subsection 5(1) of the Act allows WA to pay the Commonwealth, in a single lump sum, the total outstanding amount owed under clause 12 of the Agreement.[28] Proposed subsection 5(2) provides that if this payment is made, WA has no further liability to the Commonwealth under the Agreement.

Proposed subsection 6(1) provides that 28 days after the payment allowed by proposed subsection 5(1) is made, the Act will be repealed. Proposed subsection 6(2) requires that the Minister must announce, before the Act is repealed, by notice in the Gazette, the day the Act will be repealed.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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[1].              Railway Agreement (Western Australia) Act 1961 (Cth), accessed 28 March 2014.

[2].              Engineers Australia, Submission to Engineering Heritage Recognition Program, Nomination of Western Australian Standard Gauge Railway for a Engineering Heritage Australia Heritage Recognition Award, September 2011, p. 7, accessed 6 May 2014.

[3].              Report of Royal Commissioners on Uniform Gauge for the Railways, Royal Commission report, Commonwealth of Australia, 1921.

[4].              Ibid., p. 5.

[5].              J Lyons, ‘Speech: Embargo on export of iron ore’, House of Representatives, Debates, 29 June 1938, pp. 1–2, accessed 6 May 2014.

[6].              G Blainey, The rush that never ended, fourth edn, Melbourne University Press, Melbourne, 1977, pp. 345–346.

[7].              Ibid.

[8].              Ibid.

[9].              WR Hodgson (Secretary of Department of External Affairs), ‘Yampi Sound-Development of Iron Ore Deposits’, Memorandum to Minister for External Affairs Mr Hughes, Department of Foreign Affairs and Trade website, 13 December 1937, accessed 23 April 2014.

[10].              G Blainey, The rush that never ended, op. cit., p. 348.

[11].              Ibid., p. 349.

[12].              Ibid.

[13].              Ibid., p. 348.

[14].              Broken Hill Proprietary Steel Industry Agreement Act 1952 (WA), accessed 23 April 2014.

[15].              Broken Hill Proprietary Company’s Integrated Steel Works Agreement Act 1960 (WA), accessed 31 March 2014.

[16].              P Browne, ‘Speech: Address-in-reply’, House of Representatives, Debates, 22 March 1961, p. 1, accessed 6 May 2014.

[17].              Clause 10 of the First Schedule to the Act states that the Commonwealth will provide funds required to meet seventeen-twentieths of expenditure by WA. WA will pay the remaining three-twentieths. Seventeen-twentieths equates to 85 per cent: Railway Agreement (Western Australia) Act 1961.

[18].              In 1970 the Metric Conversion Act 1970 (accessed 1 April 2014) was passed and subsequently all values were measured in dollars.

[19].              P Nixon, ‘Second reading speech: Railway Agreement (Western Australia) Bill 1971’, House of Representatives, Debates, 26 August 1971, p. 1, accessed 6 May 2014.

[20].              Railway Agreement (Western Australia) Act 1961 (Cth), First Schedule, clause 12(1)(a), 12(4): the interest rate is set at the long term loan rate last raised by the Commonwealth.

[21].              Railway Agreement (Western Australia) Act 1961 (Cth), First Schedule, clause 12(1)(b).

[22].              Advice provided to the Parliamentary Library from the Department of Infrastructure and Regional Affairs.

[23].              Senate Standing Committee for the Scrutiny of Bills, Alert Digest No. 5 of 2014, The Senate, Canberra, 14 May 2014, p. 29, accessed 15 May 2014.

[24].              Parliamentary Joint Committee on Human Rights, Sixth report of the 44th Parliament, The Senate, Canberra, 14 May 2014, p. 27, accessed 15 May 2014.

[25].              The Statement of Compatibility with Human Rights can be found at page 2 of the Explanatory Memorandum to the Bill.

[26].              Explanatory Memorandum, Railway Agreement (Western Australia) Amendment Bill 2014, p. 1, accessed 6 May 2014.

[27].              Ibid.

[28].              Railway Agreement (Western Australia) Act 1961 (Cth), First Schedule, clause 12.