28 December 2013
As the mining boom slows, Western Australia’s ‘City of the North’ looks to the future.
The town of Karratha, at the centre of Australia’s iron ore and natural gas boom, is facing a pivotal moment, as a rush of money from royalties floods in just as the mining boom starts to recede.
But the impact of the slowdown on the town is being challenged by officials tasked with its revitalisation.
”We’re not going to pack up stumps tomorrow,” Chris Adams, chief executive of Western Australia’s Shire of Roebourne says. ”Things are still kicking along.” The town is being forced to consider its future beyond the resources boom. At stake is billions of dollars in private investment and government funds that have been channelled into the town to create a ”City of the North” of 50,000 people.
But there are signs that life is blossoming in the shadow of the town’s heavy industry. On a recent weekend, hundreds of residents gathered to celebrate the opening of a new main street and a second luxury apartment building.
Despite servicing the iron ore industry for more than four decades, Karratha, with a population of 25,000, has never had a main thoroughfare.
Now it is becoming a normal town, with coffee shops, tapas bars and even traffic lights.
”It’s not a hick outback town any more,” says Adams.
The development boom has lagged behind the resources boom. Several large iron ore and gas projects in the Pilbara have reached their completion over the past six months, including Woodside’s North Rankin B project in the North-West Shelf development, a major employer of both fly-in, fly-out and local workers in the Dampier and Karratha region. The shift is an adjustment for a town that has been at the coalface of the nation’s biggest resources boom since the gold rush.
The Bureau of Resources and Energy Economics warned last month that fewer major projects were being planned for investment, and that several projects publicly announced were decreasing nationally by almost 20 per cent, or $12 billion, since April. It also warned that some iron ore projects were at risk of not progressing beyond the planning stage, and some being delayed, including Aquila and AMCI’s $7.4 billion West Pilbara project.
”While iron ore prices currently support investment, access to export infrastructure remains a challenge for emerging developers of iron ore projects,” it said.
But the slowdown is out of step with Karratha’s sudden rise. About $1.2 billion has been pumped into the town as part of the state government’s Royalties for Regions scheme, which enables 25 per cent of mining royalties to go to regions outside of Perth.
“We’ve substantially changed what’s on offer,” says Brendon Grylls, Pilbara state MP and creator of the Royalties for Regions scheme.
“What we found four years ago was a town working hard for the national economy with not much to show for it. We’re now ready to go to the next stage,” Grylls says.
Local government bodies have been keen to show off how far the town has come. A recent media tour took journalists through new development precincts.
About $400 million has been committed to the development of the town centre – the same as is being spent on Perth’s Elizabeth Bay redevelopment.
In an effort to retain young families, it had opened an aquatic centre and schools and plans to open a health campus.
Grylls says Rio Tinto’s recent announcement to increase production of iron ore from 290 million tonnes a year to 350 million tonnes by 2017 is evidence that the boom is not over.
“If what’s happening in Karratha is a downturn, then I think everyone in the world would like to have a downturn,” he says.
Efforts are being made to diversify the local economy away from a monotown to one that has a more flexible workforce.
The state government has freed up hundreds of hectares of Crown land to make way for new industries, including an industrial estate at Gap Ridge.
Landcorp general manager Mike Moloney says creating diversity in the local economy was key to attracting a more permanent population. He says the town had been successful in luring companies to set up logistic hubs in Karratha instead of Perth.
“Karratha has virtually become the logistics centre of the Pilbara,” he says. “We’ve had significant take-up by some of the major transport companies. There’ s a lot of expansion of existing businesses and the creation of new businesses.” Housing remains the biggest hurdle, however. The state government is working with developers such as Mirvac to build houses and to bring prices down to more affordable levels.
This has worked almost too well. Housing prices have fallen 30 per cent since their peak in 2011. The slump has prompted Commonwealth Bank and ANZ to curb riskier lending in resource-reliant cities.
Developers are trying to offload properties. Perth-based developer Finbar is selling one-bedroom units at its luxury Pelago East apartment building for $440,000. Two years ago, it sold the same apartment at its Pelago West development for $600,000.
“I don’t think we’ve had any cliff faces here,” Grylls says.
“The government has been committed for four years to normalising the market, and normalising the market means that some of those unsustainable house prices and house rents were always going to come back.” A 2011 report by the Grattan Institute highlighted significant risks associated with the Royalties for Regions scheme, mainly that large infrastructure projects in the Pilbara were expensive and historically unlikely to accelerate population growth.
Grylls insists the Pilbara Cities investment is boosting growth in the region, and that the growth is sustainable. ”Rental yields are still 8-10 per cent, compared to Perth’s 3-4 per cent,” he says. ”We’ve been experiencing double-digit yields and double-digit capital growth for the last five or six years.
”You’re not getting the capital growth currently but you’re still getting fantastic revenue.” The Bureau of Resources and Energy Economics says investment in the resources and energy sectors is likely to decline over the medium term. But it says there remains an opportunity to sustain higher levels of investment, ”should projects at earlier stages of development proceed through the pipeline”.
While rental prices have come down off their peak, housing and living costs still remain extremely high, and stand in the way of any meaningful transition to a serviced-based economy.
Many in the town see the sudden investment in property as too little too late.
”There has already been a 30 per cent decline in the value of properties,” one local says. ”As with most things up here, it has come too late.” Bank of America Merrill Lynch chief Australian economist Saul Eslake says falling demand in Western Australia shows that the mining investment boom has come to an end. ”That’s really striking, because Western Australia was the epicentre of the resources boom,” he says.
The annual growth in WA’s exports of goods has also slipped from 5.9 per cent year-on-year to 4.4 per cent. ”We now have the position where for the first time in a long time, NSW is in front of the average in terms of driving growth,” Eslake says.
Adams says he is confident the downturn has been overstated, and that existing projects will command a workforce for years to come.
“The iron ore industry – Rio Tinto, BHP, Fortescue – is talking 80 and 100 years’ worth of ore of known reserves,” he says. “This isn’t something that’s going to disappear in five minutes.”
Courtesy of the Age