Standing Committee on Economics, Finance and Public
Administration
Submission No 1: Santos Ltd
Santos Ltd
ACN 007 550 923
Santos House Level 29
91 King William Street
Adelaide SA 5000
GPO Box 2455 Adelaide SA 5001
Telephone: 08 8218 5111
International: +61 8 8218 5111
Executive General Manager - Commercial
Facsimile: 08 8218 5623
4 November 1997
Mr David Hawker, MHR
Chairman
House of Representatives Standing Committee on
Financial Institution and Public Administration
Parliament House
CANBERRA ACT 2600
Dear Mr Hawker
1 am writing to you to outline a number of specific concern that Santos
Limited holds in relation to the manner in which the Australian Competition
and Consumer Commission (ACCC) conducts its functions.
It should be made clear from the outset that the comments of Santos
contained herein do not reflect a rejection of the concept of-the Trade
Practices Act or the agenda of the National Competition Policy. Santos
believes however, that the conduct of the ACCC can affect whether both
the Act and the Policy are implemented in a manner that is objective,
rational and not detrimental to the commercial interests of companies,
and Australia in general, or in a manner which is subjective and potentially
damaging.
As you are aware, Santos is Australia's major independent petroleum
exploration and production company. Santos is involved in a number of
joint ventures in the Cooper, Surat, Amadeus Basins which supply natural
gas to customers in New South Wales, Queensland, South Australia and the
Northern Territory. Santos and its Joint Venture Partners have made a
considerable investment in the development of production wells, in-field
gathering systems, raw gas pipelines and processing facilities which allow
the supply of natural gas.
Over time, these Joint Ventures have sought either the protection of
Section 51 exemptions from the effect of the Trade Practices Act or authorisation
by the Commission. In cases where the Joint Ventures have sought such
protections the basis for the protection was to underwrite the very large
capital investment required in field and plant development.
Santos has had a broad and sustained (in terms of time) involvement
in dealings with the ACCC and its predecessor, the Trades Practices Commission.
It has been during this period of more than a decade of continuous involvement
that Santos has developed the concerns that are set out in this letter.
These concerns arise from the TPC/ACCC's actions in relation to:
Parker & Parsley
Santos acquired a company, Parker and Parsley Petroleum Australia Ltd
(PPA), which was a US owned company with minor interests in the Cooper
Basin in South Australia. The ACCC opposed this acquisition and threatened
the US sellers with legal action making it difficult for Santos to consummate
the transaction Notwithstanding this opposition and treats, Santos made
the acquisition and the ACCC ultimately took no action.
The ACCC opposition was initially based on a poor grasp of industry
issues, incorrect information and hearsay, but changed its grounds when
the initial grounds proved invalid. It refused to disclose the identity
of the provider of the deliberately misleading information and as far
as Santos is aware, took no action against that party.
The fact that the ACCC ultimately advised that there 'was insufficient
evidence to support court proceedings' raises the question as to what
grounds it formed its views to oppose acquisition and threaten legal action
if not `evidence'.
SAGASCO Takeover
Santos attempted to acquire a company, SAGASCO Holdings Limited, which
was publicly listed but with the majority shareholder being the South
Australian Government. The ACCC initially gave a conditional clearance
on this acquisition and on that basis, Santos outlayed significant funds
on acquiring an initial stake to 19.9% prior to making a full bid. The
ACCC subsequently changed its mind and opposed the acquisition.Santos
believes this was after intense lobbying by the target company and the
ACCC effectively became part of the takeover defence, working closely
with the target company in legal action.
After twelve months of preliminsary skirmishes, the court action to
determine the matter had only just began when a substantially higher and
successful bid was made for SAGASCO Holdings by another company. This
terminated the Court action against Santos.
Santos believes that the process followed by the ACCC caused Santos
to lose the opportunity to acquire SAGASCO Holdings Ltd. The drawn out
process to get the court case to even start, let alone be determined,
is most inappropriate. It begs the question as to the basis on which the
ACCC opposed the acquisition if it took a year for the ACCC to be ready
for its opposition in court.
There may be similarities between the SAGASCO acquisition and the behaviour
of the ACCC and the ACCC's current actions in relation to the Australis
matter.
Delhi Petroleum Pty Ltd and Santos Ltd
(certain authorisations)
In 1988, when authorising certain transactions, the ACCC made a number
of comments on a range of matters including suggesting that Government
authorities should preclude Santos from further grants of exploration
licences. In other words, they proposed that it was better for resources
to go undiscovered rather than allow a successful Australian company to
discover them.
In the hearings relating to these matters there was no evidence given,
or discussion or material presented, which related to this or other broad
statements made by the ACCC about the industry structure. This example
of the ACCC trying to shape industry structure is, in Santos' opinion,
a misuse of the ACCC's powerful position.
AGL Letter of Agreement Authorisation
The ACCC, in 1986, granted an authorisation for the AGL Letter of Agreement
(the contract for the supply of gas to NSW from the Cooper Basin). In
1996, the ACCC revoked this authorisation and the SA Cooper Basin Producers
appealed the matter to the Australian Competition Tribunal (ACT). The
ACT found in favour of the Producers, revoking the ACCC revocations, meaning
that the original authorisation stands.
The principal issue was one which CoAG had recognised and readily adopted,
namely, the sanctity of contract. While the ACCC recognised that considerable
public benefit arose from the contract in the form of the major investments
necessary to supply gas to NSW, it argued that once the investment was
made, it was 'sunk', and thus shouldn't be used in weighing the balance
of benefit versus detriment at a subsequent review. This stance is without
logic and morality and the ACT rejected it.
In this instance, the ACCC's arguments 'flew in the face of the CoAG
policy. In addition, after the decision was handed down, the ACCC chose
to issue a press release which barely mentioned the actual result but
rather looked at the decision through rose coloured glasses and drew (out
of context) on isolated comments to further its aims for industry restructuring.
Review of SA Cooper Basin (Ratification) Act
The ACCC made two formal submissions to a South Australian Government
sponsored Review of the SA Cooper Basin (Ratification) Act, which inter-alia
provides Trade Practices exemptions to Santos and its co-venturers. Much
of the submissions covered the same ground as the ACCC's revocation of
the AGL Letter of Agreement Authorisation.
The ACCC's views are given a high degree of credibility by the public,
media and authorities and notwithstanding they were found to be in error
by the ACT, they could have heavily influenced the Review which was completed
(but not made public) prior to the ACT decision.
The ACCC also used its submissions to the Review to canvass a range
of other matters which are unrelated to the Review but are part of the
ACCC's broader agenda for industry restructuring. Santos believes the
purpose was to pressure the SA Government to support these industry restructuring
objectives
As part of its 'lobbying' the ACCC made a number of speeches and press
releases. Included in these public pronouncements were a number of clearly
invalid or highly subjective statements. Because of its powerful statutory
position, the ACCC views are given much greater weight than would be attributed
to any other organisation. The ACCC thus has a responsibility to ensure
it carries out its roles and functions in an appropriate manner. It is
almost as if the ACCC operates on the basis that the end justifies means.
Application of Part IIIA and the National Access
Regime for the Natural Gas Industry
Among the ACCC's aims in industry restructuring is to have a legislated
access regime to Santos' Cooper Basin processing plant at Moomba. The
ACCC has urged this through the Gas Reform Task Force, the Ratification
Act Review and a number of public statements. However, CoAG was quite
deliberate in not endorsing such access to processing facilities. The
ACCC is not only trying to re-write Government Policy but also is attempting
to deny Santos the protections specifically provided in the Competition
Policy Reform Act. In the later stages of the debate on the National Pipeline
Code, the ACCC again demonstrated a willingness to adopt statements by
customers to adopt statements by customers (who obviously have a vested
interest) without any review or testing, including, in this instance,
no attempted to discuss with Santos the issues raised.
Santos believes that the powers and functions that the ACCC has, place
it in a powerful position to influence commercial activities and policy
development. This stems not just from their regulatory powers but also
from the functions of improving market conduct and the dissemination of
information, law reform and research.
In particular, the standing of the ACCC means that it can have a considerable
influence on the development of public policy and in shaping of public
debate. Because of the position that the ACCC holds, we believe that it
has a very strong responsibility to ensure that it acts in an objective
and balanced manner. Santos believes that the necessary levels of objectivity
and balance are currently missing.
In examples given above, I believe that there is clear evidence that
the ACCC has demonstrated:
- a willingness to act or draw conclusions on the basis of information
which is poorly researched or incomplete;
- a preparedness to act on the basis of media or hearsay reports which
may often come from parties who are participants in the transaction
and are seeking to use the ACCC for commercial advantage;
- a refusal to subject such hearsay to scrutiny either in terms of the
naming of informants or even the nature of the material;
- a propensity to change the grounds on which it acts against a company
or a transaction when information proves that the initial grounds were
incorrect;
- an unwillingness to admit that its actions, or information on which
it acted, was incorrect;
- a tendency to use its powerful statutory position to disseminate information
and views which lack objectivity and which may overstate or distort
official policy.
I believe these are matters which your Committee could usefully investigate
to ensure that the operations of the ACCC and the implementation of the
Trade Practices Act are conducted in an appropriate manner.
Regards
J W McArdle Executive General Manager - Commercial
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