ACIL used a series of its own assumptions including oil prices and a carbon price.

 

Without a carbon price, the Ichthys project may only pay PRRT towards the end of its life but ACIL had not run the numbers on that, Energy News was told.

 

ACIL executive director John Nicolaou told Energy News the inclusion of a carbon price was "not a political statement", merely a modelling measure it believes will happen sooner or later.

 

"Under the base case assumption, no PRRT is paid by the project to 2050, and that is purely a recognition of the fact that it is a significant project in terms of capital investment," he said.

 

"While the factoring in of a carbon price might affect the results overall, even under the base case scenario it still wouldn't pay any PRRT, which really reflects that at current oil prices the project is profitable, but not super-profitable.

 

"In the high case price scenario the project would not pay PRRT until the later years. We need to do some additional modelling assumptions around that because we've included a carbon price in the overall taxation environment."

 

For its report, ACIL used the US Energy Information Administration's Annual Energy Outlook 2015 oil price forecast starting at $US52/bbl. The high price scenario increases by 1.5% and the low price decreases at 1.5%.

 

 

The firm also made the assumption that a price in carbon will be in place in 2021 and estimates that a price of producing one ton of carbon is $23.27, increasing by 2.5% a year. 

 

The carbon price is an ACIL Allen assumption and is not one from Inpex. 

 

"We have a strong energy practice in the firm, and [the carbon price is] the assumption we use for all large projects that have a long life," Nicolaou told Energy News. 

 

"There's an assumption there that at some point, if we're to deliver on our commitments in terms of energy CO2 emissions, there would have to be a price on carbon at some point.

 

"That figures into government revenues.

 

"If you exclude the carbon tax there's a possibility [that the project would pay PRRT] but we haven't modelled it that way.

 

"A project of this size does have the effect of driving up the exchange rate, so it does have flow-on impacts. Those indirect benefits and costs are reflected in the overall results, through direct employment benefits and indirect benefits for everyday Australians, like healthcare."

 

Nicolaou said that, over the life of the project, ACIL estimates that about $5 billion would be generated in carbon price costs that would accrue to the Commonwealth out to 2050, which added was an "arbitrary" year the firm agreed with Inpex on which to do its modelling, and does not reflect the expected life of the project.

 

Nicolaou said interest payments on the $20 billion project financing - a record at the time which Inpex president director Australia Seiya Ito said had gained him the nickname "king of debt" by his colleagues - were included in ACIL's modelling. 

 

Energy News also asked about whether inter-company loans - such as those Chevron Corporation has used and questioned over in the Senate's review into corporate tax avoidance - were factored into the amount of tax the Ichthys project would pay.

 

"We don't know the intricacies of every joint venture partner so we've taken an assumption of the project overall and we've created a number of what we saw that was debt versus equity," Nicolaou said.

 

 

Some bodies consulted in the PRRT review by respected economist Mike Callaghan suggested the PRRT rate of 40% in place for 30 years was too low, though he said it was largely comparable to the rate in other jurisdictions, while a larger proportion of the economic rent associated with a project should be returned to the community.

 

The combined PRRT and company tax rate applying to annual PRRT profit is 58%.

 

The PRRT profitable resource projects, just like a cash flow tax, but does not provide cash rebates for tax losses, instead the losses are carried forward with an uplift to be offset against future positive cash flow from the project.

 

The uplift rate at which deductions are carried forward has a significant impact on if or when a project will pay PRRT.

 

When the PRRT came into effect in 1988, the uplift rate for both exploration and general project spend was the long-term bond rate plus 15 percentage points, and was lowered to LTBR plus 5% points in 1991 when the deductability of exploration spending was widened to a company basis.

 

A number of submissions to the senate claimed the uplift rate for exploration spend was "excessively generous", originally aimed at encouraging exploration, but that this should no longer be an objective.

 

Industry argued that the uplift rate reflected the high risks associated with exploration, yet exploration spending that occurs more than five years before a production license is issued, and is arguably more risky, is only uplifted at the GDP factor rate.

 

 

The Northern Territory appeared to be one of the biggest beneficiaries of the Ichthys project, which had helped its economy perform counter-cyclically compared to Western Australia, which has been badly hit by the broader downturn in commodity prices, mainly oil and iron ore.

 

Nicolaou said that since 2012 the NT's economy had grown by a quarter, while WA's contracted by 13%, while Australia's domestic economy grew mildly by around 7%.

 

"Clearly a project of this significance is having a major stimulus on the local economy, but it does reflect the short-term construction phase is not sustainable," Nicolaou said. 

 

"Business investment over that time has contributed 35-40% of the NT economy, which is ‘super-normal', and we'll see that scale back. But it's not something we should not be fearful of but be planning for.

 

"Similarly in labour markets the project has brought about significant benefits for local economy. Full-time employment, an important indicator of economic health, has continued to rise, and since the project has started the unemployment rate has progressively fallen to almost 3% up until this year."