The case for a Royal Commission into coal seam gas


When the NSW Coalition government was elected to office in March 2011, it put all new coal seam gas (CSG) exploration licences on hold pending an internal inquiry.

Sixteen months later, in September 2012, the government announced that the results of this “thorough investigation” found all was in order and the industry could proceed apace.

The NSW government has now announced that all new CSG licence applications would again be frozen, this time for six months. The government said this was necessary to implement a "new regime" for allocating future licences.

What had previously been impossible to achieve in 16 months can now apparently be satisfactorily completed in just six months.

So, what’s changed? For one, there has been a torrent of applications for CSG licences in NSW by hugely undercapitalised companies. There are 33 exploration licence permits before the NSW government. One aspiring applicant has $1 in equity; another $2 in equity.

The present regulatory environment allows for licence holders to continue to explore when their licences have expired, provided that they apply for an extension before the expiry date. Nineteen licences remain active and the government is yet to make a decision on them.

One of the licence holders is a $10 company called Drequilin, which holds the CSG exploration rights over about 5000 square kilometres of land near Armidale. Its sole directors are Travers Duncan and Brian Flannery.

Duncan and Flannery were called before the Independent Commission Against Corruption inquiry, which found that former Labor ministers Ian Macdonald and Eddie Obeid had engaged in corrupt conduct in the granting of coal exploration leases.

They were part of a group whose conduct was described by counsel assisting the inquiry, Geoffrey Watson, SC, as “corruption on a scale probably unexceeded since the days of the Rum Corps."

The pair had earlier been the beneficiary of an extraordinary piece of legislation introduced into the NSW parliament by Macdonald in 2008.

Duncan and Flannery owned the Moolarben coalmine near Mudgee that the NSW Court of Appeal had ruled they could not exploit because the lease encroached on a lease held by mining company Xstrata.

The Court of Appeal’s decision was overturned by legislation Macdonald introduced with the prior approval of the entire state Labor cabinet. It was supported by the then-opposition Liberal and National parties.

Fewer than 12 months after the law was passed, Duncan and Flannery sold the mine as part of their company, Felix Resources, to the Chinese mining company Yanzhou Coal. They received $530 million each from the deal.

During the course of the previous Labor government in NSW, 39 CSG exploration licences were approved, including 30 by Obeid and Macdonald.

Former Liberal resource minister Chris Hartcher resigned last December and has been ordered to appear before the ICAC investigation into dealings associated with Obeid.

The O’Farrell government’s strategy with CSG exploration licences is to blame Labor for allowing minnow companies into the industry. They claim this has now been rectified by increasing the licence application fee from $1000 to $50,000.

The other aspect of its strategy is the agreement signed between AGL and Santos and NSW Farmers, Cotton Australia and the NSW Irrigators Council, which is said to respect the right of landholders to say no to CSG drilling operations.

What is likely to follow is the carrot of inducement by way of a financial interest in CSG production by giving landholders a percentage of the profits, as happens in some US states.

But it is really smoke and mirrors rather than strategy. At least three quarters of CSG exploration licences seem to be tainted with corruption that comes from the granting of these licences by two politicians found to be corrupt.

To its credit, ICAC will keep chipping away at this web of corruption within the limit of its remit. But only a Royal Commission can untangle it. This is what the NSW Greens, the only big party in NSW untainted by corruption, is calling for; we should all get behind it.