Commonwealth of Australia 1998 ISBN 0 646 33550 2 This work is copyright. Apart from any use ...

261 Pages·2002·1.02 MB·English

© Commonwealth of Australia 1998
ISBN 0 646 33550 2
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An appropriate citation for this paper is:
Industry Commission 1998, Micro Reform — Impacts on Firms: Aluminium
Case Study, Research Paper, AusInfo, Canberra, March.
FOREWORD
Over the last decade or so, Australian governments have introduced many
changes to our economy promoted as microeconomic reforms. While a
considerable amount of work has been done to highlight the expected economy-
wide gains from these reforms, little is known about their direct impacts on
many Australian industries and firms.
This report attempts to reduce this information gap by examining the impact of
microeconomic reform on the Australian aluminium industry. Earlier studies
have examined the impact of microeconomic reform on Australia’s agri-food
and automotive industries.
The aluminium industry was selected as a case study industry for several
reasons. First, it is a large user of a number of infrastructure services —
including electricity, natural gas and transport — most of which have been
subject to substantial reform in recent years. Second, firms in the industry are
subject to intense global competition and face the challenge of improving their
competitiveness. The industry’s competitiveness is affected by government
actions in areas such as industrial relations, taxation, environmental regulations
and the management of resource access. Third, as with other industries, there
has been considerable debate about the adequacy of the pace of reform in many
of these areas. It was also important that all key players in the industry were
prepared to participate in the study and provide the necessary data and other
information.
The main objectives of the study are to provide information on: factors within
the influence of government that are unnecessarily impeding the
competitiveness of the industry; factors that affect decisions to invest in
Australia or abroad; firms’ assessments of the impact and adequacy of the pace
of a selection of microeconomic reforms; and firms’ assessments of priority
areas for future reform.
Gary Banks
Acting Chairperson
iii
ACKNOWLEDGMENTS
This paper was researched and written by Rosalie McLachlan, Colin Clark and
Chris Harris. Roberta Wise provided administrative and production support.
The study was supervised by Ian Monday, Assistant Commissioner of the
Microeconomic Reform Assessment Branch within the Industry Commission.
The development of the paper was guided by Bill Scales, John Cosgrove and
Garth Pitkethly.
The Commission has benefited greatly from the participation of individuals
from a number of aluminium firms in the study and would like to thank the
following companies for their time and assistance: Capral Aluminium Limited
(Ian Edwards and Bob Grandidge); Comalco Limited (Alan Hustwick, Geoff
McGill, Clive Shepherd and Mark Meaney); Worsley Alumina (Gene Browder
and Dennis Courtney); Tomago Aluminium (Jacques Pinoir, Barry Goldstiver
and Warren Martin); Queensland Alumina Limited (Rennie Fritschy, Phil Booth
and Kevin Baillie); Alcoa of Australia Limited (Brian Wills-Johnson); and
Swiss Aluminium Australia Limited (Edward Notter and Ben Stevenson).
Comments provided by David Coutts, Executive Director of the Australian
Aluminium Council, are gratefully acknowledged.
The Commission also wishes to thank the Minerals and Energy Section of the
Australian Bureau of Agricultural and Resource Economics for providing
valuable assistance with the study.
Responsibility for all views expressed and any errors and omissions in this
paper lies with the Industry Commission.
iv
CONTENTS
Foreword iii
Acknowledgments iv
Abbreviations x
Summary xiii
1 Introduction 1
1.1 Background 1
1.2 Why the aluminium industry? 2
1.3 Key objectives of the study 4
1.4 Study methodology 4
1.5 Structure of the paper 5
2 The Australian aluminium industry 7
2.1 The industry in a global context 7
2.1.1 World production 8
2.1.2 World consumption 9
2.1.3 Prices 12
2.2 The Australian industry — a broad profile 13
2.2.1 Industry concentration and market structure 16
2.2.2 Economic importance 18
2.2.3 Exports 19
2.2.4 Industry outlook 22
2.3 Industry cost structures 24
2.3.1 Alumina refining costs 24
2.3.2 Smelter costs 26
2.3.3 Influence of government on the cost to make and sell
aluminium 28
3 Performance of the Australian aluminium industry 31
3.1 International cost comparisons 31
3.1.1 Alumina refineries 32
3.1.2 Aluminium smelters 35
3.2 Productivity performance 38
3.2.1 Labour productivity 39
3.2.2 Capital productivity 40
3.2.3 Energy efficiency 41
v
MICRO REFORM — IMPACTS ON FIRMS: ALUMINIUM CASE STUDY
3.2.4 Overall productivity 43
3.3 Investment 45
3.3.1 Future investment 47
4 Government influence on firms’ performance — survey results 51
4.1 Government influence on future investment in the
Australian aluminium industry 51
4.2 Microeconomic reform — its influence on the
competitiveness of firms 57
4.2.1 Impacts of microeconomic reform — perceptions
at the firm level 58
4.2.2 The adequacy of the pace of reform — firms’ views 63
4.2.3 Key microeconomic reforms for future competitiveness 65
5 Infrastructure services 67
5.1 Electricity 68
5.2 Natural gas 74
5.3 Coastal and trans-Tasman shipping 83
5.4 Waterfront 87
5.5 Rail freight 92
5.6 Concluding comments 94
6 Labour market and workplace reforms 97
6.1 Key characteristics of the aluminium industry’s workforce 98
6.2 Labour — its impact on firms’ competitiveness 100
6.3 Industrial relations in the aluminium industry 102
6.3.1 Recent reform initiatives 103
6.3.2 Implementation of workplace changes in response
to reforms 105
6.4 Building more productive workplaces 115
6.4.1 Industrial relations, workplace reforms and
productivity changes 115
6.5 Factors inhibiting productivity improvements and
workplace flexibility 119
6.6 Labour on-costs 123
6.7 Concluding comments 126
vi
CONTENTS
7 Environmental regulations and resource access 129
7.1 The aluminium industry and the environment 130
7.1.1 Expenditure on environmental protection 134
7.1.2 Impact on industry investment 135
7.1.3 Reform of environmental regulations 136
7.2 Resource access and multiple land use 142
7.2.1 Resource access and land-use conflict
resolution processes 143
7.2.2 Native title 147
7.2.3 Sovereign risk 150
7.3 Greenhouse gas emissions 151
7.3.1 International developments 152
7.3.2 GHG emissions and the aluminium industry 153
7.3.3 Policy measures to reduce GHGs 154
7.3.4 Implications of the Kyoto outcomes 158
7.4 Concluding comments 162
8 Taxation arrangements 163
8.1 Benchmarks for assessing tax systems 163
8.2 Broad influences of taxes and charges on industry
competitiveness 164
8.3 Indirect taxation 167
8.4 Corporate taxation 172
8.5 Fringe benefits tax 176
8.6 R&D tax concession 179
8.7 Concluding comments 181
Appendices
A Industry input to the study 183
B Survey forms 185
References 219
Related publications and recent IC releases 230
Boxes
1 Aluminium case study — report at a glance xii
2 Distinctive features of Australia’s bauxite mining,
alumina and aluminium industry xiv
2.1 Stages of aluminium production 10
2.2 Some key facts about the Australian aluminium industry 14
vii
MICRO REFORM — IMPACTS ON FIRMS: ALUMINIUM CASE STUDY
4.1 Some views on factors influencing future investment
in the Australian aluminium industry 53
6.1 The impact of labour arrangements on Worsley’s decision
to expand its refining facilities 101
6.2 Recent changes to Australia’s industrial relations system 104
6.3 Firms’ different approaches to workplace reform 106
6.4 Twelve hour shifts — the way to go? 110
6.5 Bonus system — employees rewarded for improved plant
performance 112
7.1 Fluoride emissions and the Tomago smelter 132
7.2 Bauxite under the jarrah — multiple land use in WA 145
7.3 Key outcomes of the Kyoto climate change conference 158
7.4 Aluminium industry reaction to Kyoto outcomes 160
8.1 Management of the Diesel Fuel Rebate Scheme 170
Figures
1 Firms’ perceptions of the impact on their competitiveness of a
range of microeconomic reforms, 1990 to 1996 xvii
2 Firms’ perceptions of the adequacy or otherwise of the
pace of microeconomic reform xx
2.1 London Metal Exchange aluminium prices,
December 1987 to December 1997 13
2.2 Location of Australia’s bauxite mines, alumina refineries
and aluminium smelters 15
2.3 Australian alumina exports and domestic consumption,
1966 to 1996 20
2.4 Australian aluminium exports and domestic consumption,
1966 to 1996 21
2.5 Top five markets for Australia’s aluminium exports, 1996 22
2.6 Alumina refining production costs, Australia 1996 25
2.7 Aluminium smelting production costs, Australia 1996 27
3.1 Major world bauxite deposits sorted on available alumina
content and reactive silica content 33
3.2 Aluminium smelting operating costs, 1997 35
3.3 Tonnes of alumina per employee, Australian plants,
1990, 1993 and 1996 39
3.4 Tonnes of aluminium per employee, Australian plants,
1990, 1993 and 1996 40
3.5 Electricity consumption per tonne of aluminium produced,
by region, 1996 43
viii
CONTENTS
3.6 Factors contributing to productivity increases over the period
1990 to 1996 44
3.7 Major domestic investment expenditure by investment categories,
1990 to 1996 46
4.1 Key government-related factors affecting investment decisions
over the next 3-5 years 52
4.2 Firms reporting positive impacts on their competitiveness from
microeconomic reforms, 1990 to 1996 60
4.3 Firms reporting negative impacts on their competitiveness from
microeconomic reforms, 1990 to 1996 62
4.4 Firms’ views on the adequacy of the pace of microeconomic
reform 64
6.1 Aluminium industry implementation rates for recent
workplace reforms 108
6.2 Impact of workplace reforms and changes to management
practices on work-related factors, 1990 to 1996 117
7.1 Tomago aluminium smelter emission control system 133
7.2 Expenditure on environmental protection by the alumina refining
and aluminium smelting industries, 1992-93 134
7.3 Importance of environmental factors in determining whether
investment plans of Australia’s aluminium companies proceed 136
7.4 Aluminium industry’s views on the adequacy of the pace of
change to environmental regulations, 1990 to 1996 142
8.1 Impact on competitiveness of changes to business taxes
and charges, 1990 to 1996 165
Tables
2.1 World bauxite, alumina and aluminium production, 1996 9
2.2 Importance of aluminium to economic activity, 1995-96 19
2.3 Australian aluminium, alumina and bauxite exports,
1995-96 to 1997-98 20
3.1 Estimated average operating costs of smelters, 1990, 1993,
1996 and 1997 37
4.1 Firms’ rankings of key government-related factors affecting
their investment decisions over the next 3-5 years 54
6.1 Labour usage in the Australian aluminium industry 99
6.2 Selected labour on-costs in the Australian aluminium industry
(percentage of total labour costs) 123
ix
MICRO REFORM — IMPACTS ON FIRMS: ALUMINIUM CASE STUDY
ABBREVIATIONS
AAC Australian Aluminium Council
ABARE Australian Bureau of Agricultural and Resource Economics
ABS Australian Bureau of Statistics
ACS Australian Customs Service
ADCA Aluminium Development Council of Australia
AGA Australian Gas Association
AGL Australian Gas Light Company
AIRC Australian Industrial Relations Commission
ALCAN Aluminium Company of Canada
AMWU Australian Manufacturers’ Workers’ Union
ATO Australian Taxation Office
AWA Australian Workplace Agreement
AWU Australian Workers’ Union
BBCT Broad-based consumption tax
BCA Business Council of Australia
BIE Bureau of Industry Economics
CA Certified Agreement
CEPU Communications, Electrical, Electronic, Energy, Information,
Postal, Plumbing and Allied Services Union of Australia
CIS Commonwealth of Independent States
COAG Council of Australian Governments
CSOs Community service obligations
DFAT Department of Foreign Affairs and Trade
DFRS Diesel fuel rebate scheme
DOT Department of Transport
EFA Enterprise Flexibility Agreement
EIA Environmental Impact Assessment
EPA Environmental Protection Authority
EPAC Economic Planning Advisory Commission
ESD Ecologically sustainable development
ESAA Electricity Supply Association of Australia
FBT Fringe benefits tax
FCCC Framework Convention on Climate Change
FDI Foreign direct investment
GDP Gross domestic product
GHG Greenhouse gas
GST Goods and services tax
IC Industry Commission
x
ABBREVIATIONS
IGAE Intergovernmental Agreement on the Environment
IPAI International Primary Aluminium Institute
IPART Independent Pricing and Regulatory Tribunal of NSW
Kt Kilotonne
LME London Metal Exchange
MNEs Multinational enterprises
MOU Memorandum of Understanding
Mt Megatonne
NEM National electricity market
NEPC National Environment Protection Council
NTA Native Title Act 1993
OECD Organisation for Economic Co-operation and Development
OH&S Occupational health and safety
ORR Office of Regulation Review
PET Polyethylene terephthalate
PFC’s Perfluorinated carbon compounds
QAL Queensland Alumina Limited
QR Queensland Rail
R&D Research and development
SCNPMGTE Steering Committee for National Performance Monitoring of
Government Trading Enterprises
SRG Shipping Reform Group
WIRA Waterfront Industry Reform Authority
WMC Western Mining Corporation
xi