May 5th 2001

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Articles from this issue:

Cover Story: The facts behind the rural revolt

Editorial: Rescuing the airline industry

Canberra Observed: What a Beazley Government means

Agriculture: Dried fruit industry savaged by deregulation

Text: Straws in the Wind: Our new cultural assimiladoes

The Media: A tale of two murders

National Affairs: Behind Costello's veto of Woodside takeover

Defence: Labor's new Maginot Line

Letter: Defence priority

Comment: Why Australia needs a strong manufacturing base

Globalism: Are trade treaties a Bill of Rights for Big Business?

History: Death in Life

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National Affairs: Behind Costello's veto of Woodside takeover

by Peter Westmore

News Weekly, May 5, 2001
The decision by the Federal Treasurer, Peter Costello, to block the hostile $10 billion Shell takeover of Woodside Petroleum followed concerted pressure on the Treasurer by the Prime Minister, John Howard, WA Liberal MPs who saw that the takeover would decimate the party in the next Federal Election, and Woodside itself.

The Treasurer agonised over the proposal for months, and ultimately exercised his power to reject it on national interest grounds.

His body language showed that it was a decision made under duress. "It was one of the hardest decisions that you'll ever come across in public life - and the reason it's hard is that there are arguments both ways," he said.

Paradoxically, Mr Costello's decision keeps alive his prospects of leading the Liberal Party after the next election.

Mr Costello's decision came about five months after the Foreign Investment Review Board (FIRB) commenced consideration of the proposed takeover.

The FIRB, which operates within the Federal Treasury and is supported by Treasury staff, examines proposals by foreign interests to undertake direct investment in Australia and makes recommendations to the Government on whether to approve them.

The FIRB's functions are advisory only. Responsibility for the Government's foreign investment policy and for making decisions on proposals rests with the Treasurer. In the end, the FIRB was split over the takeover.

The Treasury line on this takeover - as with the Billiton takeover of BHP, the SingTel takeover of Optus, Air New Zealand's takeover of Ansett and others - was that there was no problem about Shell's $10 billion bid.

The importance of the Federal Treasurer's decision to stop the takeover is that he has sent a signal that while Australia welcomes foreign investment, it is not willing to allow the management of every major national project to fall into foreign hands.

This is particularly important in light of the fact that Woodside is the manager of, as well as an investor in, the North-West Shelf natural gas project, the largest development project currently under way in Australia, with major export implications for the country.

Mr Costello said that despite assurances, Shell had not been able to convince the Government that development of the project would proceed in line with Australia's national interest, rather than that of the global Shell group.

Another important consideration - which has been completely ignored by the economic commentators - is that the takeover would have had serious defence and foreign policy consequences for Australia, in a part of the world where the interests of Australia, Indonesia and the new country of East Timor potentially conflict.

If Shell had taken control of Woodside, the project would have been virtually entirely foreign-owned and run; and Australia's interests in the North West Shelf natural gas field would have become minimal.

Australia's role in relation to the development of the project would have virtually disappeared, except for the issue of royalties, which is emerging as a major problem between Australia, East Timor, and potentially, Indonesia.

There can be little doubt that what tilted the balance in relation to the proposed Shell takeover of Woodside were the political consequences for a government facing a general election later in the year.

This was a point made repeatedly by the former WA Premier, Richard Court, and WA Liberal MPs.

However, at the end of the day, it is better that the right decision was taken for the wrong reasons, than that this key national asset fall into foreign hands.

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