Tax compromise possible for Qld projects

THE door has been left ajar to offer tax concessions to Queensland’s budding coal seam gas-to-LNG industry to offset the impact of the federal government’s controversial resource super profits tax.

Such a move would outrage those companies not eligible for concessions, such as Western Australia’s miners and conventional LNG producers competing for project funding and customers.

It could also dent industry’s united opposition to the tax, and drive a wedge between the pro-industry WA and Queensland governments, further isolating WA Premier Colin Barnett, the nation’s staunchest critic of Mr Rudd’s taxation and health reform plans.

The government’s tax plans dominated all discussion at this week’s Australian Petroleum Production and Exploration Association conference in Brisbane, the industry’s biggest annual gathering.

The 40 per cent tax on profits would kick in at less than half the rate applying to offshore projects under the existing Petroleum Resources Rent Tax, and would enable proponents to recover less of their investment before paying the tax.

The super profits tax is, therefore, seen as particularly damaging for the capital-intensive CSG-based LNG industry.

With at least five CSG-to-LNG projects worth more than $40 billion on the drawing board in Queensland, the tax is seen as a big threat to already wavering support for Prime Minister Kevin Rudd in his home state.

Urging companies to take up the government’s “genuine” offer to consult them about implementation of the tax, Resources Minister Martin Ferguson said the government was fully supportive of the emerging CSG and floating LNG industry.

“We are committed to putting in place a stable fiscal regime, competitively neutral with the rest of the industry, that will get coal seam methane and floating LNG off the ground,” he said.

MR Ferguson also commended the CSG companies for being “the first people in the door” when the tax was announced.

Speaking to reporters later, Mr Ferguson said he did not favour “carve-outs” for specific activities, but said the government recognised that the CSG and floating LNG industries were still in their infancy.

“I don’t approach these issues on the basis of particular carve-outs, you’ve got to have some consistency with respect to the investment regime you’ve put in place,” he said.

“Clearly, in developing that industry, we need to nail down the appropriate tax regime for the purpose of certainty of final investment decisions. I’m not saying there is any special consideration, but I give the coal seam methane proponents full marks for being the first in the door following the government’s announcement.”

Earlier, Queensland Resources Minister Stephen Robertson said his government was consulting with Canberra and was eager to secure amendments to soften the impact of the tax on the CSG sector.

In particular, it wanted the threshold for the tax to be doubled to the same level as the current PPRT.

While APPEA has welcomed the government’s offer of direct consultation over the detail of the tax, association chairman Eric Streitberg said major changes were vital and must be applied universally across the sector.

“I think in general we always like to see things applied universally to get the settings right, then you are not trying to pick and choose between projects,” he said.

Furthermore, Mr Streitberg said the uncertainty caused by the government’s tax plans had been “highly destabilising” for companies planning to invest billions of dollars in new projects.

Shell Australia’s new upstream chief, Ann Pickard, agreed such sudden changes of fiscal frameworks were the biggest worry for industry and that the resulting uncertainty would inevitably delay project investment decisions.

“We all tend to stop when there is above-surface uncertainty,” she said.

That suggests a long dry spell for new project approvals, given that legislation for the RSPT was unlikely to be finalised before late 2011.