By Jane Bardon
The Australian Tax Office is investigating the Chinese-Singapore-owned company building the Northern Gas Pipeline from the Northern Territory to Queensland over how the project is being financed.
In its latest financial report, released last month, Jemena’s parent company SGSP Assets Pty Ltd revealed: “The Australian Tax Office is currently conducting a transfer pricing audit in relation to the company’s convertible instruments”.
The green legal group Environmental Justice Australia (EJA) had asked the Tax Office to investigate the financing arrangements Jemena is using to pay for the 622-kilometre pipeline, running from Tennant Creek to Mount Isa.
“We understand the tax office’s investigation into Jemena for transfer pricing likely relates to a 2015 restructure that could potentially see the company avoid paying up to half a billion dollars worth of taxes, leaving the Australian taxpayer out of pocket,” said EJA’s principal lawyer David Barnden.
EJA released a new report into Jemena’s financing arrangements, titled Fracking the Northern Territory.
“An offshore component of the group effectively loaned the Australian companies $800 million at 10.25 per cent return per year, in an agreement that would shift more than $80 million per year overseas until 2050,” the report stated.
“Instead of paying market interest rates, which could be below 5 per cent, the guaranteed high return would artificially reduce Jemena’s yearly taxable income in Australia.”
Jemena has told the ABC that it has cooperated fully with the ATO.
“Jemena engages with the Australian Taxation Office and all other Revenue Authorities in an open and transparent manner,” it said in a statement.
“We have also voluntarily made public a Tax Transparency Report.
“We are confident we have consistently upheld all relevant tax obligations in accordance with the relevant rules and regulations.”
The ATO has recently increased scrutiny of the overseas financing being used by resources companies, Mr Barnden said.
“There have been a few high-profile cases against companies for transfer pricing; the latest one was against Chevron,” he said.
The ATO declined to comment on its Jemena audit.
ICAC call over pipeline pricing exemption
EJA said it would ask the NT’s Independent Commission Against Corruption (ICAC) — once it is established later this year — to investigate whether Jemena exercised undue influence on the NT Government to gain an exemption from the new national gas rules.
The rules govern how disputes over how much gas companies have to pay to use pipeline infrastructure are resolved.
“Management successfully worked with the Northern Territory Government to secure a derogation from the [National Gas] Rules for the Northern Gas Pipeline,” Jemena’s report stated.
The exemption could potentially increase the cost of piping gas from the NT’s planned new fracking industry, Mr Barnden said.
“The exemption gives Jemena essentially a licence to print money for gas going through the Northern Gas Pipeline, and it means Jemena is not under the oversight of the Australian energy regulator when it comes to pricing for accessing its pipeline,” he said.
“We would like Jemena to explain how it achieved the exemption.
“We’re concerned that Jemena may have had undue influence over the NT Government, and we think the matter should be referred to the new ICAC in the Territory.”
‘Wealth transfer’ from NT to Singapore and China: analyst
Jemena has told the ABC it gained the exemption because the prices it agreed upon with NT Government that it will charge were competitive.
“Jemena took part in an 18-month competitive tender process run by the Northern Territory Government to win the right to build, own, and operate the Northern Gas Pipeline,” the company said.
“This process also set the access terms including price for use of the pipeline.
“As a result of this process, users of the pipeline can be certain the pipeline’s tariffs are competitive.”
Investment analyst Bruce Robertson from the Institute for Energy Economics and Financial Analysis said he didn’t expect that would remain the case.
“A gas pipeline is a natural monopoly,” he said.
“To be given carte blanche like they have to charge high prices to transport gas from the NT, effectively it will be a wealth transfer that’s occurring from the people of the NT to Jemena’s owners, the governments of Singapore and China.”
The lobby group representing gas companies, the Australian Petroleum Exploration and Production Association (APPEA), said its gas company members don’t believe Jemena’s exemption will drive up the price of transporting gas.
APPEA supported the exemption because it felt a company making a major investment in pipeline infrastructure should be able to make sure it could recoup its investment.
“APPEA supports maintaining the 15-year exemption option for greenfield pipelines,” said spokesman Matt Doman.
“As evident in the process for the Northern Gas Pipeline, there is effective competition for new market opportunities, with multiple pipeline consortia bidding to invest in greenfield capacity.
“This competition for the market is leading to more efficient outcomes than competition in the market.”
Published by ABC News Online on 25 May 2018