Yes, we watch as coal trains go out and know that the wealth is going down to the major areas and certainly not to Gunnedah shire.
The mining industry has made a significant contribution to regional Australia throughout Australia’s history. A number of regional economies were established as a result of mining investment, including Mount Isa, Kalgoorlie, Broken Hill, Gympie, Ballarat and many others.
This chapter looks at how much of the wealth generated by resource extraction in regional areas stays in, or comes back to, these regions. Quantifying the true returns for the regions is a near impossible task. There are numerous data sources, gaps in the data, no consistent way of presenting the figures, and no single place where the returns from mining are quantified, town-by-town, or region-by-region.
In the absence of an integrated set of data that quantifies the returns to the regions from mining, it can be difficult to determine if mining towns and regions are getting their fair share.
Kalgoorlie resident, and long term proponent of regional development planning, Mr Robert Hicks summed up the problem:
The point here is that there is no common accepted way in which these sums are presented, and therefore it is not possible to carry out any accurate comparisons. … we are of the view that the mining companies are making significant contributions, but how do we really know? What is the measure? What is the benchmark?
This chapter gives voice to some of the concerns raised by community leaders and business people in regions the Committee visited. Community members in towns from Kalgoorlie to Tamworth, from Rockhampton to Singleton, were broadly supportive of the mining sector and acknowledged the contribution made by mining to their regions. However, many of them felt that opportunities were being missed and some felt their towns were failing to thrive.
It is not possible in this report to look into every mining region and quantify the returns from mining. However, the Committee presents a case study in this chapter which compares the revenue from, and investment back into, the Pilbara.
What’s in it for the regions?
Pilbara case study
The town’s been through a lot over the last three to four years. It has these cycles, which are very, very destructive. We have house prices up and down. We have businesses going up and down. People leave town. … It’s up or down, boom or bust. That’s the way it runs. Port Hedland has been like that for many, many years.
The Western Australian resources sector produced approximately $115 billion worth of output in 2017-18, which is just over half of the Australian total. The state collected royalties of $5.8 billion in 2017-18.
According to Western Australian Department of Mines, Industry Regulation and Safety, the Pilbara region produced approximately $62.4 billion worth of minerals and petroleum in 2017-18. The figure in 2015-16 was $53.9 billion, and $53.6 billion in 2014-15. This is over half of the state’s total resources production value and over a quarter of the national figure.
Reliable, current and objective information on the exact contributions to the region by resource sector companies is not readily-available. However, the Chamber of Minerals and Energy of Western Australia provides a breakdown of the industry’s contributions to the regions in the 2015-16 financial year on its website.
The Chamber lists the following direct contributions from mining to the Pilbara region in 2015-16:
13,140 direct employees living in the region;
$2.7 billion paid in wages and salaries;
$743 million in business purchases, community contributions and local government payments; and
395 local businesses supported.
According to the Minerals Council of Australia, mining represented 88 per cent of the Pilbara’s economic activity in 2015-16 and accounted for 46,697 full-time jobs in the region and 47,142 indirect jobs. However a majority of the jobs included in these figures are filled through fly-in/fly-out (FIFO) employment practices.
Rio Tinto stated that it invested over $700 million into community development in the Pilbara over the last 10 years. Investments included housing, child-care facilities, recreation facilities, infrastructure and amenities. Rio Tinto said it not only builds facilities, but also covers operating costs for ‘an extended period’.
Recent Rio Tinto investments included:
$8.5 million for construction and five years’ operating costs for the Paraburdoo Community Hub;
Contributions to events and festivals in Pannawonica, Paraburdoo and Tom Price;
$8 million towards the Wickham Community Hub;
Contribution to the Dampier Community Hub;
Town beautification projects including the Point Samson foreshore upgrade and public amenities in Dampier; and
Contribution to Cossack Art Awards, Red Earth Arts Festival, Australia Day, NAIDOC, and other community projects.
The Western Australian government has also made investments into the Pilbara region through payments from royalties. Between 2008 and 2014, $5.6 billion was invested in total through the Royalties for Regions program. The share of Royalties for Regions funding to the Pilbara has been approximately 32 per cent.
The Western Australian Department of Regional Development talked about the government’s investments in the Pilbara in the Royalties for Regions Progress Report 2015-16. The report highlighted the Pilbara Cities initiative, which works to ‘transform the region into a vibrant network of communities that are not only economically successful but also socially sustainable’.
The Pilbara Development Commission’s ‘vision’, according to the Department’s report, was to build the populations of Karratha and Port Hedland into cities of 50,000 people, and Newman to 15,000 people by 2035. More than 100 projects had been delivered by 2016.
The report also highlighted the $207.15 million Karratha Health Campus investment, which was ‘the single biggest investment in a public hospital ever undertaken in regional Western Australia’.
Despite the significant investments in housing and community services during this period, including in Port Hedland, populations of many mining regions have not experienced sustained growth. Councillor Camilo Blanco, Mayor of Port Hedland, told the Committee that the population of Port Hedland grew from 14,000/15,000 to nearly 29,000 during the mining boom. In 2016, it had reverted to around 16,000.
Mayor Blanco said that a lack of sustained government investment creates an attitude in the general population that Port Hedland is place to come to temporarily, to ‘make some money and then move away, instead of making it home’. This means local small businesses are unable to plan and grow sustainably to be able take advantage of opportunities.
The Mayor also said that roads and other infrastructure have been damaged by influxes of people coming through the town for work. The council receives no rates from these temporary residents, but its costs increase significantly putting the council in a difficult position financially. The Mayor said:
… currently, the town has billion-dollar industries and trillion-dollar industries positioned right next it, and yet we are unsustainable in our finance.
Councillor Peter Long, Mayor of Karratha, also spoke about negative impacts from the mining sector on that town. He said the end of the construction boom and subsequent drop in commodity prices saw companies trying to reduce their costs ‘very suddenly’, which made things difficult for local businesses across the Pilbara.
Mayor Long said Rio Tinto and Woodside brought in ‘cheap’ contract labour through French company, Sodexo, to reduce costs, adding:
In so doing, they reduced the hourly rates paid to a lot of local businesses and caused some of those businesses to actually go bust, because they just could not work for that price.
The West Australian Government continues to invest in the Pilbara region, including through Royalties for Regions funding. In 2018-19, the WA State Budget includes the following investments in the Pilbara:
$49.4 million to complete work on the Karratha Health Campus
$112 million in funding towards the Port Hedland Waterfront Revitalisation project
$14.8 million towards the Step Up, Step Down mental health facility in Karratha
$46.4 million to redevelop the Newman Health Service
$5 million towards the redevelopment of the Tom Price Hospital
$12.8 million to continue the Northwest Drug and Alcohol Support Program
$50 million construction of the next stage of the Karratha to Tom Price Road
$54.5 million towards the upgrade of the Marble Bar Road through Coongan Gorge
$5.5 million for the Transforming Agriculture in the Pilbara initiative
$4.7 million towards enhancing educational outcomes in the Pilbara
$19.8 million towards the Pilbara Aboriginal Town Based Reserves projects
$3 million towards the expansion of School and Childcare facilities in the Shire of Ashburton
The Government also states that it is investing ‘$808.2 million for job-creating infrastructure in the Pilbara’. This figure includes many of the initiatives listed above. It is also important to note that this expenditure is budgeted to be spent over a number of years, not all in 2018-19.
The cap on spending through Royalties for Regions for the 2017-18 year was $941.7 million. It is not possible to determine the precise percentage spent in the Pilbara, because the analysis of expenditure by region included in all previous reports was not included in the 2017-18 report.
Despite investments from the West Australian government, Mayor Blanco said that the Council is struggling to maintain Port Hedland’s road network and drainage network and has not got the funds to create ‘pleasing social amenity’, which he argued would help to retain the current population.
The Mayor added that the schools, policing, social services buildings and infrastructure are at their ‘end of life’, and the education system needs significant investment. He reported that attempts to lobby the state government for investment in these areas have been ineffective.
Mayor Blanco said that what he really wanted from state and federal governments was help to diversify the town’s economy. One way to do this would be to capitalise on the biggest deposit of lithium in the world by developing a downstream lithium ore processing industry in the region. This suggestion is discussed further in Chapter 5.
Box 2.1: Quantifying the returns – Pilbara Case study
Returns from mining companies
$53.9 billion worth of minerals and resources were extracted from the Pilbara; and
mining companies invested around $3.4 billion directly into the region:
$2.7 billion paid in wages and salaries;
$743 million in business purchases, community contributions and local government payments.
So, in 2015-16 mining companies reinvested approximately 6.3 per cent of revenue extracted from the Pilbara back into the Pilbara, mostly in wages.
Returns through Royalties for Regions
$4.6 billion was paid in royalties to the Western Australian Government from the state’s mineral and petroleum producers, with 55 per cent of this – or around $2.5 billion – coming from the Pilbara;
$230 million was spent in the Pilbara through Royalties for Regions (around 33 per cent of the total expenditure).
So, in 2015-16 the Western Australian government returned to the Pilbara region about 9 per cent of the royalties it collected from mining projects located in the Pilbara.
The Goldfields-Esperance region is located in the south eastern corner of Western Australia, and comprises the local government areas of Coolgardie, Kambalda, Dundas, Esperance, Kalgoorlie-Boulder, Laverton, Leonora, Menzies, Ngaanyatjarraku and Ravensthorpe.
Mining revenue produced in the region in 2017-18 was approximately
Mr John Walker, CEO of the City of Kalgoorlie-Boulder, said that mining companies were making significant contributions to the community, and gave some examples. He reported that:
Kalgoorlie Consolidated Gold Mine (KCGM) makes donations for community projects and supports the tourism industry;
KCGM donated $1 million towards a recreation facility;
Northern Star Resources and Evolution Mining provide community support, as well as engaging their staff in youth, social or arts and culture orientated projects.
The Mayor of Kalgoorlie-Boulder, Mr John Bowler described the community as ‘a pro-mining community’ but said the long term social consequences of mining and FIFO practices and need to be addressed.
Local business owner, Mr Ryan Hough felt that governments treated the region as ‘a cash cow’ and did not provide enough support for the region to grow and thrive. He said:
… that’s frustrating. We’ve got [a] world-class golf course here. We’ve got facilities here. The council are trying their hardest to promote the area, but I don’t feel the state and federal governments are pulling their weight.
Kalgoorlie resident, and regional development expert, Mr Graham Thomson is credited with developing the idea that became the Royalties for Regions program, which set aside 25 per cent of royalties from mining for programs and projects in regional Western Australia.
Between 2008 and 2014, $5.6 billion was invested through the Royalties for Regions program. During that time, only 7 per cent of the funding was spent on projects in the Goldfields-Esperance region.
Mr Thomson argued that, compared with when the program started, governments have increasingly begun to ‘mainstream’ the funding. He explained:
The idea of Royalties for Regions was and remains that it doesn’t replace what should be done anyway by government. However, if you drive from here to Perth, you’ll see that Royalties for Regions funding was spent on a road which is the responsibility of the federal government.
One way to prevent this, Mr Thomson argued, is for the royalties to be provided to locally-based regional development commissions, who could then allocate the funds. Mr Thompson suggested this is how it was originally done: ‘It was locally controlled and locally managed and so it worked very well’.
The biggest revenue producing shire in the Goldfields-Esperance region is Coolgardie, which produced $3.1 billion worth of mining revenue in 2017-18 despite its small population of approximately 850 people.
Mr James Trail, CEO of the Shire of Coolgardie, reported that his shire is working hard to develop ‘more advantageous agreements’ with mining companies and has successfully arranged a meeting with seven CEOs of mining companies. The Shire has developed a community chest fund and is asking mining companies to contribute. The fund will allow mining company contributions to be used for community projects.
Mackay/Isaac/Whitsundays and Central Queensland
The Mackay/Isaac/Whitsunday Region is located on Queensland’s tropical east coast and borders Central Queensland, which takes in the Capricorn Coast, the Central Highlands and Emerald, the Mackay region and Gladstone.
In 2016, mining and energy resources contributed $20.56 billion or 7.3 per cent of Queensland’s gross state product. Mining represented 59 per cent of all State exports, worth over $27.6 billion. Queensland accounts for almost 15 per cent of internationally traded thermal coal.
The Minerals Council of Australia reported that in Queensland in 2016-17 the resources sector contributed $55.1 billion to the state’s economy, including $16.4 billion in purchases from more than 16,400 Queensland businesses.
The Queensland Resources Council reported that:
royalties paid to the Queensland government in 2016-17 were
the sector spent $11.2 billion in the Brisbane region, $3.7 billion in the Mackay region, and $3.0 billion in the Fitzroy region;
the sector employed 8,661 full time employees in Mackay, 42 employees in the Central West and 9,858 employees in the Fitzroy region; and
the sector spent $2.5 billion with local businesses in Mackay, $10 million in the Central West and $1.8 billion with local businesses in the Fitzroy region.
Rockhampton Regional Council told the Committee that mining companies spend $143 million dollars in wages, $322 million annually on goods and services sourced from the Rockhampton local government area, directly employs 1,280 local residents and supports a further 4,351 full-time equivalent jobs in the council area.
Mayor of Mackay, Councillor Greg Williamson, stated that the resources sector ‘underpins’ the region’s economy and is the single largest regional employer. He said that, of the $3.8 billion worth of royalties received by the Queensland government, more than $2.2 billion came from Mackay’s ports.
BHP reported investing significantly in the region including spending
$1 billion with more than 700 local vendors, 80 per cent in the Central Highlands, the Isaac region and Mackay local government areas.
ConocoPhillips reported it has spent $21 million dollars since 2011 on education, business capacity building, Indigenous community development and cultural programs in the Gladstone area in Queensland.
Mayor Anne Baker, from the Isaac Regional Council said mining accounts for approximately 78 per cent of the region’s total gross regional product, which equates to $5.9 billion per annum.
Despite the significant size of the mining industry in these regions, many witnesses felt the towns were not getting their fair share. Mr Kieran Moran from the Gladstone Engineering Alliance, argued that support from the mining houses to regional communities is ‘marginal’. He pointed out problems including infrastructure degradation, transport and social unrest, and not enough coming back from the royalties paid to government.
Mayor Williams agreed that the built and social infrastructure of the regions needed to be improved ‘to increase liveability in the area’. He cited problems with inadequate medical services, government services, port infrastructure, road infrastructural and rail infrastructure, saying these things would ‘help the region to grow’. The Mayor proposed federal and state governments need to focus more on investing in the region’s infrastructure.
Dr Kim Houghton from the Regional Australia Institute explained that Queensland does not have anything like a Royalties for Regions program because it did not previously have the level of ‘capital to work with’ that Western Australia has had, and so the structures are not in place to distribute royalties to regional areas.
The Queensland Government did run a Royalties for Regions program from 2012 to 2016. This program closed in 2016 and was replaced by a regional infrastructure funding program called ‘Building our Regions’, which includes $375 million worth of infrastructure initiatives:
the Regional Capital Fund;
the Royalties for Resource Producing Communities Fund;
the Remote Communities Infrastructure Fund; and
the Transport and Infrastructure Development Scheme.
Projects funded under this program are listed on the website by local council area. It includes three projects in the Whitsunday Council area; three in Issac; two in the Central Highlands Regional Council area; one in Gladstone; four in Mackay; and one in Rockhampton. Most of the projects relate to roads and bridges or sewerage and waste.
New South Wales
In New South Wales, royalties for 2016-17 were $1.6 billion and direct employment in mining was 27,600 people, with a further 108,000 in indirect jobs.
The primary mining sector in New South Wales is the coal mining sector and the biggest coal producing regions are the Hunter, the Central West, the Illawarra, and New England. The New South Wales Minerals council provided the following figures on the coal amount of coal extracted in the 2016-17 financial year:
Table 2.1: Coal extracted in NSW regions 2016-17 Financial Year (tonnes)
Source: NSW Minerals Council Supplementary Submission 45.1, p. 6.
The New South Wales Minerals Council stated that its mining member companies spent around $10.4 billion in New South Wales, with around 80 per cent of that spend in regional New South Wales. This figure incorporates:
wages for over 20,000 directly employed full-time employees and contractors; and
payments to over 4000 regional New South Wales businesses.
The Council surveyed its members in 2016-17 and reported that the industry is estimated to have contributed 19.1 per cent of Gross Regional Product (GRP) in the Hunter, 8.5 per cent of GRP in the Central West, 7.2 per cent in the Illawarra, 6.0 per cent in the North West region and 3.8 per cent in the Northern region of NSW.
The NSW Minerals Council survey found that direct mining spending contributed the following in 2016-17:
In Gunnedah, $60.2 million in wages to 506 full-time employees and $46.1 million in purchases with 164 local businesses.
In Tamworth, $17 million in wages to 146 full-time employees and $11.5 million in purchases with 88 local businesses.
In Narrabri, $29.3 million in wages to 232 full-time employees and over $20 million in purchases with 87 local businesses.
Western New South Wales
From Tamworth to Narrabri, Whitehaven Coal is the largest private sector employer of locals, with 75 per cent of its employees living in the regions.
Whitehaven reported that it invests in child care and family support services in Gunnedah and in Narrabri, the Girls Academy at Gunnedah High School, and has made $445,000 in donations to a wide variety of community groups in the 2017-18.
Councillor Gae Swain from Gunnedah Shire Council confirmed the contribution to community projects and local road maintenance over several years, and said the community was pleased to have 337 of the company’s workers living in the Shire.
However, Councillor Swain explained that while there is only one mine in the Gunnedah Shire, workers from mines outside the Shire also live in Gunnedah, which has to ‘bear the brunt’ of social and infrastructure costs without specific support from those mining companies.
Mr Greg Lamont from the Association of Mining and Energy Related Councils proposed that the town of Boggabri has been most affected by mining, because of its close proximity to the mines and the presence of a mining camp in the town. He said:
They’re pushing families out, one could argue. Rather than staying in the mining camp, which is quite expensive for them, four miners can occupy a four-bedroom house or a two-bedroom house or whatever they do. They can hotbed them or however they want to go about it, and they push those rents up from $200 to $400 a week.
Councillor Andrew Hope, Mayor of the Liverpool Plains, said he would like to see more money spent addressing ‘infrastructure pinch points’ created by the coal going through the region. He identified the Werris Creek rail overpass, which would cost around $14 million, as a key priority for his council, saying:
If you have a train going through there every 27 or 30 minutes— That’s one of the major ones that cuts off our emergency services. It breaks the town in half, and if you’re sitting in an ambulance you’re stuck—you’re there and you can’t get past. It’s about a 40 kay round trip out to the highway to get around it. That’s a major issue for us.
Other areas for investment included Gap Road, which the Mayor claimed ‘needs a major upgrade’, and infrastructure around rail crossings in the town of Quirindi, where the coal trains go ‘down the main street’.
Newcastle and the Hunter
Councils in the Newcastle and Hunter regions were also concerned about infrastructure, including roads and train lines.
The Mayor of Cessnock, Councillor Bob Pynsent said that one of the legacies from mining is the impact on local roads from the ‘vast number of miners’ travelling to and from work across the local government area. The Mayor acknowledged that the Hunter Expressway, opened in 2014, had vastly improved the situation, but his rate payers still bear the cost of wear and tear on local roads.
Mining company Glencore reported that it was spending money on infrastructure in the Singleton region, with more than $50 million spent on road upgrades, bridges, overpasses and maintenance since 2012.
Singleton Mayor, Councillor Sue Moore, also commented that train lines are tied up with mining trains:
We only have two trains in and out of a morning, and the same at night. One of the ones that comes in the morning gets here at 4.30. I’m not sure who’s going to be getting a train to Singleton at 4.30 in the morning. We’re told that’s directly related because of the line capacity, and the take-up has been from the mining community. We understand that. But we’re saying it detracts and limits our ability as a town and as a region to really promote ourselves, develop a stronger economy and develop a stronger community.
Cessnock City Council provided figures around the returns for its region from mining, submitting that:
mining output from the Cessnock LGA is approximately $474 million;
the sector contributes approximately $195 million in ‘value add’;
local expenditure by the mining sector is estimated to be around $123 million, including 557 jobs located in the area; and
the number of persons living in the Cessnock LGA who work in the mining industry is estimated to be 2,065.
Witnesses were frustrated with the New South Government’s Resources for Regions program. Mr Tony Chadwick from Singleton Council said that despite contributing about $400 million a year for the state government, Singleton has to apply on merit for every grant and receives ‘no favours’ for its contribution as a mining town. He said that as a small town Singleton struggles to compete on a level playing field: ‘It’d be nice to get some sort of allocated resource from those mining royalties.’
Cessnock City Council criticised the Resources for Regions program, saying:
There appears to be a major discrepancy in the amount of funding provided by the NSW Government for significant mining impacted communities, for example in 2015/2016 a nominal amount of only $32 million was available in the Resources for Regions Funding, which equates to only 0.118% of the output of the mining sector NSW.
The Hunter Business Chamber argued that, while the Resources for Regions program is good ‘in theory’, it has inconsistent criteria and an over-reliance on local government area. The Chamber questioned whether local government area is the best method of allocating funding, because the impacts of mining ‘flow across council boundaries’, suggesting a regional focus instead. It added:
A royalties allocation scheme should not necessarily be compensatory but also be purposed for building resilience and economic diversity in mining areas.
The NSW Minerals Council stated that funding through the Resources for Regions program is currently too low and inconsistent, and should be at least $60 million per year.
The Council has a formal position that:
… a proper royalties for regions program should be investigated for New South Wales that would involve a percentage of existing royalties that are collected going to the local government areas where the mining occurs.
Cessnock City Council recommended the Resources for Regions funding should be allocated specifically for the purpose of critical infrastructure to support economic growth in mining-affected regions, and that it needs to be high enough to offset negative post-mining legacies.
The New South Wales ‘Resources for Regions’ program was established in 2012. From 2013 up to 30 June 2016, the New South Wales Government allocated $231 million to 40 projects across four funding rounds. Initially funding was limited to a selection of specific local government areas, but in the final round it was opened up to any council that could demonstrate it is significantly impacted by mining.
The inquiry did not receive any submissions from the Northern Territory. However, the Committee held a public hearing in Darwin.
Mr Drew Wagner from the Northern Territory Division of the Minerals Council of Australia reported that there are nine operational mines in the Northern Territory. Mining represents around 14 per cent of gross state product, and the sector is the second largest direct permanent employer in the Northern Territory. Mining contributed over $350 million in royalties in 2017.
Mr Brian O’Gallagher from the Northern Territory Chamber of Commerce said that the mining sector provides an opportunity to reduce dependence on federal government grants and offers ‘an important source of economic development for our Indigenous population’.
Around 60 per cent of mining projects in Australia are located near Indigenous communities. The relationship between mining and Indigenous communities was not a core term of reference for this inquiry and is too complex to properly analyse in this report. However, the Committee did receive some evidence around the returns to Aboriginal and Torres Strait Islander communities from mining, and that evidence is included here.
The Department of Industry, Innovation, Science and Resources submitted that the co-location of mining and Indigenous communities means that mining companies are ‘well placed to support the development and sustainability’ of Indigenous communities.
The Department cited research that found Indigenous employment in the mining industry has more than doubled from 2006 to 2011, with more than 7,000 employed in that year, including Indigenous women. The study also found Indigenous employment rates were higher in mining areas than in non-mining areas.
Whitehaven made note of its contribution to local Indigenous communities, which included employment through its Maules Creek Indigenous employment program, and a variety of education programs focussed on Indigenous advancement.
The Minerals Council of Australia talked about the Gulkula bauxite mine, which is its partnership with Australia’s first Indigenous-owned mining company, the Gumatj Corporation in the North East Arnhem region. The Northern Land Council assisted with the development of the agreement between Rio Tinto and the traditional owners and the first shipment of bauxite shipped to China in May 2018.
The Gumatj Corporation has established a Regional Training Centre, supported by funding from Rio Tinto and the Australian and Northern Territory governments, to provide training to local Indigenous people to ‘build careers’ in mining and related industries.
Fortescue Metals Group reported that it has awarded $2.1 billion in contracting value to Aboriginal businesses through its Billion Opportunities Program. Further, Indigenous people comprise around 14 per cent of Fortescue’s 8,000 employees, ‘and most of them are based in the regions’.
In financial year 2017-18, Fortescue spent approximately $230 million with 52 Aboriginal businesses, mostly based in the Pilbara region. Fortescue also awarded or extended 34 contracts and subcontracts with Aboriginal businesses, to a value of more than $143 million. Over half of these contracts were with Aboriginal business with Aboriginal ownership of greater than 50 per cent.
BHP submitted that it is aiming to achieve total Aboriginal and Torres Strait Islander employment of 5.8 per cent of the workforce by 2020, and its Indigenous procurement practices are discussed in Chapter 3.
Origin reported on its support for Many Rivers, a not-for-profit organisation that supports the development of regional and Indigenous micro-enterprises:
Since the establishment of two field offices in Toowoomba and Roma in July 2015, Many Rivers has supported the establishment or expansion of 74 small businesses, 35% of which are Indigenous.
Glencore reported on investments in Indigenous community programs, including $1.3 million for the Queensland Indigenous Youth Leadership Program.
Royalties for Regions
The Western Australian Royalties for Regions program is the most significant program in Australia aimed at reinvesting mining royalties into regional areas, but it has come under significant criticism.
The Program is governed by the Royalties for Regions Act 2009 (WA) which established the Royalties for Regions Fund and a Western Australian Regional Development Trust. The Act provides that 25 per cent of Western Australia’s forecast annual mining royalties would be set aside and used to improved infrastructure and services, develop the economic base, and maximise job creation and career opportunities in regional Western Australia.
The Department of Regional Development published a report in 2014, Understanding the Impact of Royalties for Regions, which summarised the investments made between 2008 and 2014. The reports described Royalties for Regions in this way:
Monies allocated from this Fund are over and above existing or planned normal expenditure by Government agencies and are used to ensure basic Government services and infrastructure are provided in regional areas.
Between 2008 and 2014, $5.6 billion was invested through the Royalties for Regions program. The biggest areas of expenditure were housing (19 per cent), health services (12 per cent) and community projects (13 per cent). Projects were focussed on investments with a long-term benefit to the communities. The report states:
Royalties for Regions would have failed in its objective if monies were simply spent on projects that were short-lived or which only benefit the people living in the regions right now. The long term viability of regional towns rests on their remaining relevant to their own current and future populations and to others thinking about migrating into the region.
Royalties for Regions has a legislated spending cap of $1 billion a year, and the Western Australian Government imposed a lower cap in 2016-17 of $876.0 million. The approved spending cap in 2017-18 was $941.7 million.
The Western Australian Department of Regional Development stated in its latest Royalties for Regions Progress Report that:
In the past eight years, the Royalties for Regions program has built a strong platform for regional investment. Since the program began in 2008, Royalties for Regions has invested more than $6.9 billion through more than 3,700 projects that directly build the economic strength and capability of our regions.
In June 2016, the Minister for Regional Development, the Hon Terry Redman MLA, released the Regional Development Strategy 2016-2025, which set a strategic direction for regional development in Western Australia into the next decade, and was intended to guide future Royalties for Regions funding allocation.
In 2018, the Western Australian Government commissioned a special inquiry into, among other things, the Royalties for Regions program. The inquiry found that, although a lot of good had been done through the program, the program needed to be reformed.
The inquiry found the fact that program funds are ‘hypothecated’, meaning they cannot be used for other purposes, reduces financial flexibility. When iron ore prices fell, the government was unable to use the funds for any other purpose. This was one of the factors cited by Credit Ratings Agencies as relevant to the state losing its AAA credit rating.
The inquiry found that nine out of the 50 Royalties for Regions projects it examined had no business case and others were poorly defined. It also found that many did not achieve positive social or economic outcomes.
The inquiry made several recommendations, it proposed:
improvements to the approvals process;
better strategic planning, with a clearly stated purpose, five and 10 year plans and measurable indicators of success;
reconsideration of the $1 billion annual cap, which creates a rush to spend the money every financial year;
expanding the role for the Department of Treasury in the decision making process;
reviewing the Regional Development Commission structure;
working with the Australian Bureau of Statistics or Federal Treasury to develop a good base of social and economic data by which to measure future success or failures; and
developing a formalised program evaluation process.
The recommendations of the Special Inquiry were ‘broadly endorsed’ by the Western Australian Government, with the exception that Royalties for Regions funding is set to remain a hypothecated account, and the $1 billion expenditure cap per year will be retained. Many of recommendations made have been implemented early in 2018 and others are in progress.
The Committee believes that many regional communities impacted by mining are not getting their fair share of the wealth generated by the resources that are extracted from their regions. However, it is very difficult to quantify returns for the regions from mining using the data and resources that are currently available.
State resources departments collect and publish data about mining production and revenue by location, but these are measured and presented in different ways, making comparisons difficult.
Total investment by mining companies in regional communities by location is harder to determine. The only source of data tends to be the resources sector itself, and it rarely explains exactly how the figures are calculated.
Mining-related investment by governments is even harder to quantify, because in many states and territories there is no specific fund dedicated to distributing royalties to regional communities. Separating mining-related expenditure from general expenditure is also extremely difficult.
The Committee believes there is scope for research bodies and governments to work together to collate data on the wealth extracted from Australia’s regions and the investments made in those regions by the mining industry and governments.
Through its travels to mining communities across Australia, the Committee observed a great variation in how mining towns and communities are faring, with some reporting they are receiving less revenue than they need to offset the costs associated with mining; such as damage to roads, clogging up of transport infrastructure, noise pollution and social problems.
The Committee appreciates investments made by mining companies into social programs and community infrastructure, and these investments need to continue. It is right that mining companies pay for repairs or upgrades to community infrastructure that is degraded by their workers or the passage of their freight. A requirement to do this should be included in the licensing agreements mining companies have with state and local governments.
In addition to compensating communities for the negative impacts of mines, mining companies should support mining regions by reinvesting a reasonable percentage of the wealth they generate back into the regions where mines are located.
State and territory governments also have a responsibility to ensure mining royalties are used in part to support and develop regions affected by mining. Governments should reinvest a proportion of royalty receipts in regional communities, especially those heavily impacted by – and dependent on – mining. At the moment, only Western Australia has a legislated obligation to make such investments.
The Committee acknowledges the criticisms of the Royalties for Regions program in the recent Special Inquiry report, and notes that steps have been taken to improve the operation of the program and its strategic focus.
The Committee believes Royalties for Regions has made worthwhile investments in regional Western Australia, and continues to be the only program in Australia that returns a significant proportion of royalties to mining-affected communities.
The Committee encourages the Western Australian Government to continue to implement robust planning and evaluation mechanisms for the Royalties for Regions program to ensure it achieves its aim of creating sustainable economic development in the regions.
Further, the Committee would like to see the Western Australian Government return to reporting on Royalties for Regions funding expenditure by region. Mining towns and regions should be strongly considered for receiving a significant proportion of the funding, and reporting should be transparent.
Communities should have a say in the programs that are funded, and a certain proportion of funding should be used to resolve problems caused by the presence of mines and their workforces (local or FIFO) in mining towns and regions.
The Western Australian Royalties for Regions program should be maintained and similar programs should be adopted in Australia’s second and third biggest mining states, Queensland and New South Wales. Other states and territories with smaller sectors may want to consider adopting similar programs, especially if their mining sectors grow substantially in the future.
The Committee recommends the Federal Government partner with state and territory governments and relevant research bodies to collate data on the wealth extracted from Australia’s regions and the investments made in those regions by the mining and resources industries and governments, and make this data available in a simple and accessible format.
The Committee recommends the Federal Government advocate through the Council of Australian Governments for states and territories with significant mining and resources sectors to adopt ‘Royalties for Regions’-type programs, which guarantee a share of royalties from resource extraction are reinvested in regional areas, especially those directly impacted by mining.
A certain proportion of the royalties allocated through the program should be set aside to create an Infrastructure Impacts Fund, which would be made available to councils in mining-affected regions to fund initiatives addressing impacts on infrastructure caused by the activities of the resources sector. This funding should not be used for general or routine maintenance.