Sep 01, 2018

Extended payment pain to prompt government action

Extended payment pain to prompt government action

Community concerns about extended payment terms from major mining houses have hit home with a committee looking into the resources sector and regional business.

“Both sides of politics are listening and we are going to be making some recommendations that the government will have to act on,” committee member and Member for Dawson George Christensen said.

“I would say that their concerns have been listened to and they have a great deal of sympathy from us on the committee.”

The Innovation, Industry, Science and Resources Committee visited Mackay and Rockhampton this week for public hearings on mining and regional business.

Mr Christensen said payment terms stretching beyond 30 days to 60, 90 and even 120-day delays had emerged as the most vexing issue for businesses supplying the mining sector.

“The evidence we received indicated this was putting immense stress on local and regional businesses, including their cash-flow situation and ability to pay other suppliers or the tax office,” he said.

He believed delaying payments to suppliers enhanced the ‘books’ for mining houses, and there may be financial incentives for a company or individual to do this.

“Some are still making payments within 30 days – Glencore is one and that is to be acknowledged and commended, but for a lot of others they are really pushing it out,” Mr Christensen said.

“This is the key problem. What is acceptable and when does it start going beyond a joke and it needs government intervention? I believe now.

“If suppliers are begrudgingly having to accept 90-day payments or 120-day payments what’s going to stop 150-day or 180-day or 365 days?

“When is a government going to blow a whistle and say ‘enough is enough, you can’t do this to people’?”

Power imbalance

Mr Christensen said the mining companies had immense market power in the regions in which they operated.

“There is a distinct imbalance in the situation between suppliers and the mining companies and the mining companies know it,” he said

Resource Industry Network general manager Adrienne Rourke said the organisation had appreciated the opportunity to discuss the issues, answer some of the committee’s questions and submit its own submission and those of members.

Resource Industry Network general manager Adrienne Rourke.

“Clarifying some points about the impact of extended payment terms in our region was the majority of what our discussion was about, but also barriers to procurement for regional businesses and what can be done differently to hopefully improve,” she said.

RIN, based in Mackay, has released a report on the impact of extended payment terms on regional industry. (Full report here)

“You can see how it is linked to things like ability for regional businesses to do R&D, to innovate, to put more staff on for growth opportunities,” Ms Rourke said.

“Capital is such a critical part of their business and being able to grow. It’s a missed opportunity for our region.”

She said mining houses began to stretch payment terms during the downturn around 2014 and there had been a flow-on effect.

“It has been an increasing problem because some businesses tried to not pass it on and do the right thing, but they’ve got to a point now where they have had to and it has started to flow on more through the sector – through the Tier 1 and 2s and 3s and then on to individual contractors,” she said.

“…Now that there is more work around it is escalating. You have bigger invoices, more invoices, waiting longer and paying more fees in financing to manage that debt.

“It’s a bit of a misconception that you can actually build this into your pricing, because it’s still very competitive and very low margin.

“While we don’t generally support more regulation in our industry, we are to the point where we are reluctantly asking for the government to legislate for 30-day payment terms across the board for all businesses.”

Mr Christensen said there were further public hearings scheduled before the committee moved on to report writing

He expected the report would be delivered before the end of the year and said the committee would be pushing for a quick response from government.

Interested parties can read the terms of reference and make a submission on the committee’s website.

 

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