Chapter 3 The economic relationship: Business engagement—energy, resources
and agriculture
Introduction
3.1
As noted in chapter 1, this Committee last examined the trade
relationship between Australia and India in 1998. At that time, it was reported
that the Indian economy was growing and that economic reform begun in 1992 was
beginning to have an effect. The Indian middle class was on the rise, which
represented a potentially large consumer market.[1]
3.2
These trends continue today. India is the world’s second fastest growing
economy. Economic reform continues and the potential purchasing power of the burgeoning
Indian middle class is growing.[2] In its Supplementary
Submission, DFAT updated the trade and investment figures provided to the
Committee earlier:
Although the range of areas in which Australia and India engage is expanding steadily, trade and investment are at the
core of the relationship. Two-way trade in goods and services totalled $13.3
billion in 2007. In 2007, India was Australia’s 10th largest
merchandise trading partner. Australian merchandise exports to India reached $9.3 billion in 2007. Our sixth largest merchandise export market in 2007, India was also Australia’s fastest growing major export market for both goods and services
over the last five years. While merchandise exports predominate, the role of
services is significant. Australia exported $2.1 billion worth of services to India in 2007. [3]
3.3
Australia is one of India’s largest overseas investors, with Australian
companies spending around AUD$1 billion in joint ventures. Indian investment in
Australia is at roughly the same level and is focused on industries such as
mining, fertilizer and pharmaceutical and information and communications
technology.[4]
3.4
This chapter will focus primarily on Australia’s business relationship
with India in the energy, resources and agriculture sectors. Subsequent
chapters will cover Australia’s engagement in the services sectors and any
potential trade opportunities.
Energy and resources
3.5
Despite the growth in all avenues of trade with India, mineral exports still dominate Australia-India trade statistics. DITR advised the
Committee that “India is one of Australia’s fastest growing mineral export
markets accounting for eight percent of total mineral exports in 2005-06, up from
one percent in 1995-96.”[5]
3.6
For example, in the Committee’s previous report on India, Australian coal exports to India were valued at AUD$687 million.[6]
Figures gathered for this report (noted below) value Australian coal exports at
AUD$2, 396 million. In its Supplementary Submission of 2008, DFAT estimated
coal exports as $2.4 billion in 2007.
3.7
Principal mineral exports to India include:
n non-monetary
gold;
n coal/coking
coal; and
n copper
ores.
3.8
The chart below showing figures received in 2008 in a Submission from
the Department of Resources, Energy and Tourism outlines the values in dollars
of Australia’s top exports to India:
Top Australian exports to India - 2007
|
Item
|
Value (A$ m)
|
Non-monetary gold
|
4167
|
Coal
|
2396
|
Copper ores
|
1113
|
Wool
|
151
|
[7]
Coal, in particular, has been cited as one
of Australia’s most important exports to India. DFAT noted that:
Given the significant role Australian exports of coking coal
play in India’s large steel industry, the importance of coal as one of the
mainstays of our trading relationship is unlikely to diminish.[8]
3.9
Links between the Australian and Indian coal industries continue to
increase. A coal and mining forum was held between the two countries in
February 2006 (see details below) and Indian companies have begun to invest in
Australian coal mines—Gujarat NRE Coke’s investment in NSW coal mines being a
good example.[9]
3.10
In its 2008 Submission to the Committee, the Department of Resources,
Energy and Tourism summarised the increasing importance of India as an energy market for Australia:
India is the world’s fifth largest energy consumer with
energy needs increasingly in line with a growth rate of approximately 8 percent
per annum during the period 2000-2007.[10]
Liquefied Natural Gas (LNG)
3.11
Evidence supplied to the Committee by DITR in 2006, noted that the
Australian Bureau of Agriculture and Resource Economics expects “that LNG
exports to India will increase to 8.1 million tonnes per annum by 2010,” and
that there has been strong Indian interest in Australia as a source for LNG.”[11]
A submission from the Western Australian Government also noted the potential
for a long-term LNG supply partnership with India given the state’s vast
reserves of LNG.[12]
3.12
An Indian company, Petronet LNG, signed a A$12.5 billion contract with ExxonMobil
Corp for procuring liquefied natural gas (LNG) from its Gorgon project in Western
Australia. Under the deal, Exxon’s subsidiaries, Mobil Australia, Mobil
Australia Resources Company and Mobil Exploration and Producing Australia will
annually supply 1.5 million metric tons of LNG to Petronet’s Kochi terminal in
Kerala.[13]
3.13
The 2008 Submission from the Department of Resources, Energy and Tourism
provided a summary of the present state of the Indian LNG market:
India has been importing LNG since 2004 and in 2007 imported
8.42 million tons of LNG. To date, this LNG trade has consisted of several spot
cargoes. ABARE expects that Indian LNG imports will increase to 12.6 million
tonnes per annum (mtpa) by 2015 and 21.1 mtpa by 2020. This will involve an
expansion at the existing import terminals and /or new LNG terminal projects.[14]
3.14
The Submission forecasts strong potential for growth but, as with other
sectors, growth is dependent on continuing economic adjustment in India as well as expansion in Australia’s production capacity:
India represents an important long-term market for Australian
LNG, but realising the potential will depend on Indian Government reforms and
the availability and competitiveness of LNG compared with other fuel sources. Australia has considerable potential to expand its LNG production and companies such as
Woodside, BHP Billiton, Chevron, Shell and ExxonMobil retain an interest in
supplying India in the future. The outlook for Australian LNG exports to India
has improved significantly, with Shell signing a memorandum of understanding
(MOU) with India’s Gujarat State Petroleum Corporation to supply up to 0.5
million tonnes of LNG, which could be sourced from the proposed Gorgon project.
Australia’s current LNG supply capacity is around 15.6 million
tonnes, with a further 9.6 million tonnes under construction. Planned new LNG
projects could add more than 50 million tonnes to that total.[15]
Government - industry collaboration
3.15
The Australian Government is actively engaging Indian companies and
government over issues in the energy and minerals sector through a number of
collaborative and strategic forums. For example, in 2000 the India-Australia
Joint Working Group on Energy and Minerals (JWG) was established.
3.16
DITR advised the Committee that the purpose of the JWG is to “address
trade and investment issues in the energy and minerals sector, to exchange
information on policy developments and to identify possible commercial
opportunities.”[16] It noted that a key
outcome of the JWG has been the Australia-India Coal and Mining Forum, held in New Delhi in early 2006.[17]
3.17
Key issues discussed at the Forum included:
n impediments
to trade and investment;
n market
access;
n regulatory
frameworks on mining;
n opportunities
for collaboration on education, skills and training;
n prospects
for mining technology services and equipment; and
n clean
coal technologies, coal washeries and coal bed methane.[18]
3.18
Issues discussed at this Forum are now being considered by DITR through
the development of an India-Australia resources strategy. It is expected that
this strategy will progress issues identified at the JWG meetings and forum as
well as provide a “road map for the long-term resources relationship between India and Australia.”[19]
3.19
The 2008 Submission from the Department of Resources, Energy and Tourism
updated the previous information on government to government resource strategy
talks:
The Australia-India Resources Strategy proposal was endorsed
by Trade Ministers at the February 2007 Joint Ministerial Commission Meeting.
This strategy will provide a framework for long term collaboration on key
resources issues identified by the Australia-India Joint Working Group on
Minerals and Energy.[20]
India’s energy security
3.20
India’s rapid population and economic growth is placing significant
pressure on its already strained energy supply systems. Energy shortages in India are a result of low investment in energy resource exploration and infrastructure
development. As a result, India is pursuing a domestic and international energy
strategy focused on domestic reforms and infrastructure investment coupled with
international “energy diplomacy.”[21]
3.21
As DFAT’s 2008 Supplementary Submission notes, Australia’s potential role in India’s energy security is a complimentary one:
Australia is well-positioned to partner India in this area, through exports of minerals (including gold, iron ore, bauxite, copper)
and fuels, energy investment opportunities in Australia and collaboration in
areas of common interest such as new mining technologies.[22]
Nuclear energy
3.22
Part of India’s energy strategy is focused on the development of nuclear
energy. India has plans for a major expansion of nuclear energy generation,
with seven reactors currently under construction and plans for 19 more. India expects to supply 25 percent of its electricity through nuclear power generation by
2020.[23]
3.23
A Submission to the inquiry from M V Ramana (No 46) challenged India’s
ability to meet these targets claiming they are extremely ambitious:
It is true that India does have plans for a major expansion
of nuclear energy generation. And if even all the reactors being constructed
currently are completed, nuclear generation capacity in the country will grow
substantially. At the same time, it must be remembered that Indian planners
have a history of projecting rapid growth for nuclear power in India. In 1962,
the Indian Department of Atomic Energy (DAE) predicted that, by 1987, India
would have 20-25 GWe of installed heavy-water and breeder-reactor capacity
[Hart, 1983, p. 61]. This was subsequently updated to 43 GWe of nuclear
capacity by 2000 [Sethna, 1972}. None of this came true. At the end of 2008,
India’s nuclear capacity amounted to just 4.12 GWe, about 3 per cent of the
country’s total electricity generation capacity.[24]
3.24
DITR noted that India’s uranium production capacity is unable to meet
the demand of an expanded nuclear generating capacity.[25]
Geoscience Australia advises that “India’s prospectivity for major uranium
deposits is low.”[26] India has increased uranium exploration in hopes of finding 100,000 t U over the next four
years but it has reportedly been forced to obtain enriched uranium from Russia to fuel two of its reactors.[27]
Committee comment
3.25
Australia is well situated to capitalise on India’s growing energy and
resources needs. A steady growth in mineral export numbers since the
Committee’s previous report represents a gradual realisation of the potential
in the Australia-India resource trade which has been regularly cited.
3.26
The Committee supports continued Australia-India collaboration in forums
such as the JWG and suspects that greater dialogue will assist in growing the
India-Australia energy and resources trade.
3.27
The Committee notes present Government policy with respect to uranium
sales to India:
The Australian Government's policy remains that Australia will supply uranium only to those countries that are parties to the Treaty
on the Non-Proliferation of Nuclear Weapons (NPT), and with which Australia has a bilateral safeguards agreement. Nor will Australia supply nuclear-related
dual-use items to non-NPT parties for use in civil nuclear programs. India is not a party to the NPT. The Australian Government supported both India's recently concluded safeguards agreement with the International Atomic Energy Agency
(IAEA) and a consensus decision by the Nuclear Suppliers Group (NSG) to adopt a
statement on civil nuclear cooperation with India, enabling civil nuclear
supply to India by those NSG Participating Governments that choose to do so. In
forming Australia’s position, the Government took into account non-proliferation
considerations and the strategic importance of the issue for India and the United States.[28]
Agriculture
3.28
Australia’s agriculture trade with India is considerably more limited
than its energy and minerals trade. For example, Western Australia’s agrifood
exports to India have remained static over the last five years, totalling AUD$61
million.[29] This may be due, in
part, to India’s own increasing level of agriculture exports. The Committee was
advised that, in recent years, Indian agriculture exports have grown at a rate
of 16 per cent and that the Indian government is “very enthusiastic” about the
prospect for further growth.[30]
3.29
Another possible explanation for the limited level of agriculture trade
between India and Australia may be found in India’s response to the Doha round of WTO negotiations. Professor Jha from the Australian National University, told the Committee that poor rural farmers in India, with no access to credit,
would be particularly vulnerable to a more liberalised agriculture trading
regime:
… any sharp changes in the terms of trade of agriculture
would mean a drastic increase in the vulnerability of poor households [in India]. No democratic government—and you know India is a democracy—would be willing to
countenance that.[31]
3.30
Despite the relatively limited level of agricultural trade between the
two countries, Australia continues to export a range of agricultural products
to India, which include:
n grains;
n field
peas;
n canola;
n oilseeds;
n fresh
fruits and vegetables;
n processed
food; and
n wool.[32]
3.31
Furthermore, the Committee received evidence noting a variety of
opportunities for Australian agriculture exports to India, which will be dealt
with separately in Chapter 5.