If the WA Nationals’ proposed $5-a-tonne levy on the Pilbara’s big two ever passes through Parliament, its fate will be decided in the courts.
Brendon Grylls’ plan rests on an obscure clause buried in BHP Billiton and Rio Tinto’s State Agreements. The clause requires them to pay a 25¢-a-tonne production rental on iron ore exported after the first 15 years of operations.
The clause is so old the levy was first listed as being worth two shillings and sixpence a tonne.
Suggesting the levy be increased to $5 a tonne is a neat bit of politics for Grylls.
It captures the vast majority of Rio and BHP’s Pilbara operations. Even new mines such as BHP’s Jimblebar would pay the levy because they sit in State Agreement areas where other iron ore mines have operated for the requisite period.
Of the pair’s current operations, only the Rio-run Hope Downs joint venture with Gina Rinehart’s Hancock Prospecting, which began operating in 2007, would be exempt.
That’s a bonus for Grylls, because he avoids picking a fight with Rinehart, a political powerhouse and a big Nationals party donor to boot.
Other iron ore State Agreements, including those for Fortescue Metal Group and Rinehart’s Roy Hill, don’t contain that provision but refer to a similar clause in the Mining Act regulations. Rio’s Yandi operation, its single- biggest mine, also falls under that Act.
This creates a road bump for the Grylls plan, however.
Messing with State Agreements is a tricky thing. They are both Acts of Parliament and contracts between companies and the State Government.
The WA Parliament has the power to unilaterally change the State Agreements and increase the production rental charge.
Whether Parliament can do so without breaching the contract between the State Government and the companies involved is a separate issue. This could potentially expose the State Government to damages claims.
Making BHP and Rio the explicit targets will be the core issue in any legal challenge, given their State Agreements also contain clauses preventing the State Government from imposing “discriminatory taxes, rates or charges of any nature whatsoever” on their operations.
The Parliament could also move to remove or modify those clauses. But reneging on such long-standing obligations, and at the same time removing protections preventing further cash raids, would be an extraordinary step.
The cries of “sovereign risk” from miners would not, for once, be overblown. A way around the risk of breaching the clauses banning discriminatory charges would be to make similar changes to the Mining Act regulations, increasing the 25¢ levy Fortescue is due to begin paying in about 2023, to $5. That would also be necessary to capture payments from Rio’s Yandi operation.