Australian taxpayers face big bills for flawed Northern Territory industrial development plan

The Northern Territory’s industrial development plan rests on overly optimistic assumptions about the future of existing and new industries that could bolster the area, according to a new Institute for Energy Economics and Financial Analysis (IEEFA) report, Middle Arm Gas and Petrochemicals Hub: Combination of problems makes it unprofitable for business and a red flag for the public. The promises of thriving businesses, job opportunities and substantial infrastructure investment are unlikely to be realized.

The fatal flaw of the Northern Territory development plan is its dependence on fossil fuels. A cornerstone to Australia’s economy, the fossil fuel industry  now faces unprecedented competition. The IEEFA report estimates that planned revenues and profits will be insufficient to cover the substantial social and physical infrastructure needs of the area.

The plan is ambitious to the point of being prohibitively speculative. The risks will fall on the shoulders of the affected communities and Australia’s taxpayers, who will likely have to pay the bill for the development of new roads, schools, ports, power plants, housing, water systems and community facilities. The plan is likely to create fiscal imbalances between the states and territories, as well as budget pressures within the Northern Territory.

The Middle Arm plan proposes a network of economic activity that includes new investments in existing businesses and new companies in hydrogen, carbon capture and sequestration, ethylene, methanol, ammonia, urea, minerals processing and advanced manufacturing. But the business model underlying the plan also is not viable. It relies heavily on hydraulic fracturing, which has not been the economic boom investors predicted. The plan also runs counter to Australia’s climate strategies by adding a new natural gas field that would not curb carbon and methane emissions.

“This report looks at the financial risks of the industrial development plan. It is an ambitious plan designed to bolster the economy of the Northern Territory,” said Tom Sanzillo, IEEFA director of financial analysis and co-author of the report. “Taken alone, any one of these risks are substantial but could be manageable. Cumulatively, these risks create a daunting set of problems that lower the potential for companies and investors to profit and constitute a series of red flags to Australia’s leadership.”

This report provides an introductory overview that will be supplemented in the months ahead by more specific analytical treatment of critical issues and discussion of new information that emerges. The risks that IEEFA has identified are based on market, fiscal, governmental and health safety factors, viewed through a financial lens. The discussion of the risks is organized around two basic findings: The plan is flawed and the business model is not viable.