INSIGHT

A decade of State Agreements in Western Australia: trends and predictions

By Jodi Reinmuth, Mark McAleer, Eve Lynch, Tristan Iredell , Gerard Woods
Mining

In brief 7 min read

State Agreements have been described in Parliament as 'the cornerstone of [Western Australia's] resources sector, particularly the large sector'. Members of the WA Government in the past have asserted that Western Australia would not have projects like the extensive iron ore operations in the Pilbara, North West Shelf, Gorgon, Wheatstone and the DBNGP without State Agreements. However, the relevance and ongoing usefulness of State Agreements has been questioned in recent years, and new State Agreements are less common in the 21st century than they were in the 1960s and 1970s (in part reflecting that there has been less need for them to cover extensive new greenfield projects). Commentary in Hansard over the last decade about State Agreements gives some insight as to the patterns and trends we might expect to emerge for State Agreements in the years ahead.

Key takeaways

  • Broad bipartisan support for State Agreement amendments and creation over the last 10 years.
  • Not a rubber-stamp process.
  • Likely increased local content obligations.
  • Will remain a key part of the resources sector landscape for years to come.

Background to State Agreements

State Agreements, being contracts between the State and a company seeking to develop a major project which are typically then ratified in Parliament by a State Agreement Act, have been a prominent aspect of Western Australian industry for over 60 years. Historically, the certainty and benefits that State Agreements have offered to industry have played a significant role attracting high levels of investment for major projects.

Nonetheless, new State Agreements are significantly rarer today than they were during the 1960s and 1970s. A number of the more recent State Agreements have been entered into to authorise the construction of extensive railways – a necessary workaround given the Public Works Act 1902 (WA) which requires that a railway shall be made only under the authority of a special Act. which shall state as nearly as may be the line of the railway and the beginning and end point. The special Act does not necessarily need to be by way of a State Agreement, but this is the approach the WA Government has taken in practice.

A number of historical State Agreements either had a set end-date, or a set term for the mining leases issued under the State Agreement. Therefore, Parliament has had to consider extensions over recent years. Prominent industry commentators have recently cast doubt as to the continued usefulness and relevance of State Agreements for major projects in the 21st century. In the early 2000s, the 'Keating Review' of the Project Development Approvals System reported that industry had varied views on the State Agreement mechanism. Almost two decades later, debate and discussion in Parliament on bills amending or ratifying State Agreements offers some insight as to current views of State Agreements and the role they may play in the Western Australian resources sector in the future.

Over the last decade, 16 bills that concerned a State Agreement have passed Parliament. Of those:

  • 10 granted a significant extension of term for an agreement, or approved amendments to enable the efficient continuance of a project's operations;
  • three terminated the relevant agreement; and
  • only three ratified entirely new agreements.

Broad bipartisan support for State Agreements in general

Broadly speaking, over the last decade both sides of politics have been supportive of State Agreements and their extension. Each bill that has been considered by Parliament to amend, extend, terminate or ratify a State Agreement since 2010 has received bipartisan support. Those bills are typically noted by members of Parliament from both sides of politics as receiving 'furious support'. During debate on the termination of the Canning Basin Joint Venture Agreement, members from both sides of politics noted that they hoped they would rarely deal with legislation terminating a State Agreement.

This trend is perhaps not surprising, given that the projects State Agreements underpin can offer billions of dollars in investment and economic benefits for the State. Those benefits of jobs, royalties and investment in Western Australia are often cited as reasons why both sides of Parliament support these bills.

Members from both sides of the house have noted while in opposition that it is party policy to support State Agreements in general, as they represent an agreement negotiated and agreed between the WA Government of the day and the relevant company. The value that State Agreements give to Western Australia is frequently noted in Parliamentary debate, and is likely to continue.

Not just a rubber-stamp

Despite these notions of widespread support, the passage of bills relating to State Agreements over the last decade has not been a mere 'rubber-stamping exercise'. Amendments are typically developed and agreed with the State Agreement proponent before being introduced into Parliament. As a consequence, amendments to those agreed terms are rarely made to the Bills as introduced. However, increasingly over the last decade, the WA Government has taken the amendment of an agreement as an opportunity to 'modernise' and 'standardise' it, or impose additional obligations, again with agreement of the Proponent.

By way of example, when the Joint Venturers sought amendments to the North West Shelf Agreement to allow for an addition 86 million tonnes of LNG to be produced and marketed for export (in the North West Gas Development (Woodside) Agreement Amendment Act 2015 (WA)), the WA Government used the opportunity to grant the amendment but also require that the Joint Venturers comply with the Western Australian domestic gas reservation policy.

Modernising and standardising Agreements

The WA Government has also used opportunities to amend existing State Agreements to include improved local content obligations. Local content provisions have increasingly been included in new State Agreements and inserted into existing agreements since 2011, to ensure that local businesses are able to obtain the 'maximum benefit' from these significant projects.

The North West Shelf (Woodside) Agreement and the Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement are just two recent examples of agreements that have had local content obligations inserted. The most recent State Agreement to be amended by Parliament, the North West Gas Agreement, was 40 years old when it was amended in 2019. The primary purpose of that amendment was to extend the agreement's term, enabling operations to continue until 2071. However, the WA Government used that opportunity to place further obligations on the company, inserting clauses found in 'modern state agreements' that require community development plans and local participation plans to be implemented for the project.

We expect this trend to continue, particularly where State Agreements come up for extension or other amendment.

Environmental and other issues

Whilst State Agreements require proponents to comply with the prevailing environmental legislative framework (both State and Federal), environmental and other issues are of increased discussion in Parliament. Members of the Greens Party have noted in debate that they oppose State Agreements in principle, as they are 'by their nature anti-competitive'. Members of the Greens Party also commonly oppose State Agreements on environmental grounds. The most recently amended agreement (the North West Shelf Agreement) was strongly opposed by the members of the Greens, due to concerns about the environmental impacts and inflexibility of the extension of its term to 2071.

The Alumina Refinery (Mitchell Plateau) Agreement was terminated in 2015 with the consent of the proponent, in the face of recognition of the significant conservation and cultural values of the area subject to the agreement.

What does the future hold?

State Agreements are a well-known and well-entrenched part of the regulatory landscape in the WA resources sector. They were originally used where the laws of the land were not fit for purpose to facilitate the large-scale developments they underpinned. Although this is less of the case today for new projects (and perhaps the reason why new State Agreements are less common), they will continue to be relevant for years to come.

We note that this topic is of particular current interest with the introduction of the Iron Ore Processing (Mineralogy Pty. Ltd.) Agreement Amendment Bill 2020 to Parliament this week. Allens will continue to follow the development of this first-of-its-kind proposed legislation.