New ideas needed to solve skills and wages issues, say Allan Drake-Brockman and Philip Kirchlechner
Australia’s resources industry is nearing a tipping point. A chronic skills shortage and escalating wage rates with no tangible increases in productivity combine to pose a very real risk to the viability of major projects.
The biggest challenges facing resources projects are labour availability and cost.
There is an insatiable demand for skilled labour to service numerous resource projects around the nation from the North West Shelf through Darwin to Gladstone.
This skills shortage, coupled with the enhanced role of unions under the Fair Work Act 2009 has resulted in — or at least greatly contributed to — a wages blowout.
Spiraling industrial action and union militancy in the sector puts Australia’s reputation as a reliable supplier to the world’s energy and resources markets at serious risk.
Even more disturbing is the fact that projects are not achieving so-called productivity offsets through enterprise bargaining with unions.
The skills shortage in Australia remains predominately confined to the resources sector.
According to the WA Chamber of Commerce and Industry, as many as 488,500 additional workers will be required in this State by 2020.
Even if the additional workers required were only 200,000 — taking into account there is a concern that there could be a serious pause in the extent of economic activity even in the resources sector — this is still a phenomenal number.
We cannot ignore the warnings that Australia is losing the battle to be internationally competitive and has become a high cost, low productivity country which is complacent about what is needed to secure its prosperity.
The current system does not uniformly deliver productive industrial relations in which employers are on an even playing field with unions to negotiate for comparative “productivity offsets”.
The skills shortage and increased union rights have resulted in a wages blowout in which disproportionate wage increases have been delivered in a hostile industrial relations environment.
Alarmingly the flow-on effects of some of the initial offshore wage rates are now being sought by unions in onshore resource construction projects.
At a time when we are seeing maritime officers working on the North West Shelf earning annual salaries of over $250,000, a Dutch offshore dredging company has agreed to a 40 per cent pay increase for workers which will see some crew paid an annual rate of $356,000 for doing what are essentially “odd jobs”.
And the Maritime Union of Australia has trumpeted the Dutch deal as the benchmark for the industry.
A constant irritant for resources companies is Australia’s restrictive labour migration laws. The WA Skilled Migration Strategy seeks to deliver a more consistent, flexible and integrated planning approach to skilled migration.
However, some factors are inhibiting resource projects from meeting their skilled labour needs, including inconsistent and unpredictable visa processing times, varying advice from government departments about certain visa requirements and a lack of transparency about the progress of applications.
The Federal Government’s enterprise migration agreements go some way towards addressing industry’s concerns, but challenges remain.
The concern for offshore oil and gas projects is that, while they may meet the EMA capital expenditure criteria ($2 billion), the nature of the work undertaken on the project may not require a peak workforce of 1500 employees as is required under the scheme.
As a result, many projects are denied the opportunity of an EMA.
What is lost in the current debate is the EMAs are in fact Australian job creators. While EMAs offer major resources projects initial access to foreign employees to meet their chronic need for skilled labour, they also require companies to invest in Australian workers.
EMAs required significant undertakings and investment from project owners and contractors to train local people. However there is a lack of flexibility for short-term projects requiring highly specific and technical skills that Australian workers may not have.
What may be required is a targeted approach to provide concessions for foreign resources project owners and contractors to engage their skilled foreign workers on rates comparable with their country of origin.
The Federal Government should be commended for implementing the first EMA in relation to the Pilbara Roy Hill iron ore project, which provides many benefits including 2000 training positions.
What is of concern is that there are reports that the EMA has not been finally approved.
EMAs aside, there is an argument for States to have a greater say on labour migration issues, as they are closest to business activity and consequently are in the best position to create conditions for economic growth.
The stark reality is that now we need foreign investment more than ever and yet we see foreigners increasingly concerned about an unstable policy regime.
The spectre of renewed industrial action through the FWA is only one more item in a basket of risks that already includes the mining tax.
Recently one of China’s most successful entrepreneurs, Zong Qinghou, founder of the Wahaha Group, warned that Australia must work harder to compete with other regions for the investment dollar.
Speaking at a WA-Zhejiang sister state investment forum in Perth, Mr Zong said Australia’s government approval processes took too long and that a rising cost base was affecting our competitiveness.
No one can begrudge resources sector workers receiving handsome wages but the inflated wages now being paid in the resources sector are out of kilter with the rest of the world.
If this is caused by chronic skilled labour shortages, then consideration needs to be given to using a mix of foreign and local labour.
Major projects, and indeed the broader community, have a lot to gain from the contribution that foreign investors, workers and contractors make to bring our resources on line.
Allan Drake-Brockman is the Perth managing partner and national practice group leader of workplace relations, employment and safety for business law firm DLA Piper. Philip Kirchlechner is an adviser to the mining industry.