The following speech was given The Hon. Dr Peter Phelps in the Legislative Council of Parliament on 14 February 2018.
The Hon. Dr PETER PHELPS (16:58): I congratulate the Treasurer and Premier for the excellent budget. However, I have concerns that, while appearing to be somewhat circuitous, potentially have hundreds of millions of dollars worth of implications for the bottom line of Treasury. Once again, I return to the Independent Commission Against Corruption [ICAC] and its inspector. Last night, I said that the inspector should have additional resources to meet the investigative needs to properly look into Operation Acacia and Operation Jasper and the consequences that flow from that. The small amount of money that would be spent on the investigation could save this State hundreds of millions of dollars. To explain the situation, I will go back to the Doyles Creek incident and Operation Acacia. NuCoal, the company at the heart of the matter, suffered massive financial and reputational damage following the expropriation of mining licences by Premier O’Farrell.
The expropriation was predicated on some sort of corruption being at the heart of the awarding of the original exploratory licence [EL] by Ian Macdonald for a training mine at Doyles Creek. The claim of corruption is made on the basis of four points: Firstly, that Minister Macdonald knew that there were substantial resources in the EL; secondly, that he conspired with Construction, Forestry, Mining and Energy Union [CFMEU] boss John Maitland to obtain the EL without tender; thirdly, that Macdonald sought to cover his nefarious activities by seeking third-party endorsements for the training mine and; fourthly, that the awarding of the tender should have been a Cabinet decision. All four of these points are false, but were nevertheless used as the basis of the legislative expropriation without compensation that later took place.
In response to the claim that Macdonald knew that there were substantial resources in the EL, I refer to an article written by independent geologist Julian Malnic. Malnic noted that when the EL was granted there were only four drill holes in the 28 square kilometres of the gently rolling country of Jerrys Plains in the central Hunter. Drilled in the 1980s and 1990s, these holes did hit coal, but it was shot with intrusions that rendered them commercially worthless. The area had not been applied for by anyone for years, even though it was adjoined by major mines such as the Peabody’s Wambo Underground Mine and Anglo American’s Drayton mine. Even if the four holes had been good, their spacing was so sparse that it was impossible to join the dots and reasonably correlate which coal was running where hundreds of metres below the surface.
An independent geologist who put his report in the NuCoal prospectus, Guy Palese, had an adventurous theory that the intrusions were less to the south and that in that area the district’s champion seam, the Whyborn Seam, might not be speared and burned out. It was based on four holes and it was a long-shot theory. When they drilled it, the second NuCoal hole was close to smack in the middle of the exploratory licence. That hole showed what was ahead of them. The underlying Whynot Seam—I love whoever makes up the names of these coal seams; they obviously have a very interesting sense of humour—had become 70 per cent thicker and there was a significant amount at 3½ metres thick. Suddenly, there was serious potential in a previously unknown seam. Removing the geo-speak behind this, an unexpected discovery had taken place when the original target seam did not drill out but one of the other sundry seams below it suddenly presented thick, high-grade coal that was so clean it could have been exported for steel making. It was not thermal coal; it was 100 per cent coking coal.
This was the first evidence of commercially valuable coal deposits, but remember this: it was found after Macdonald granted the licence. Macdonald could not have had any knowledge that those coal seam deposits in the Whynot Seam existed before he granted the licence. The four original holes showed nothing and the commercially valuable deposits were only discovered by chance after the licence was granted. It is also worth noting that NuCoal purchased the Doyles Creek project 14 months after the licence was granted. The second part of the ICAC claim is that there was collusion. The simple fact is that Maitland had left the CFMEU by the time the new drill holes went down. Maitland was not part of the project at that stage. In fact, he was barely part of the project work at all.
The original Doyles Creek Mining company was headed by Andrew Poole and Craig Ransley. They were the driving force behind it. Maitland was brought in as chairman because, quite frankly, when dealing with miners it is useful to have someone from the CFMEU on the board. But more than that, Maitland was known for his relatively high degree of diplomacy, although I am not sure how that correlates with being part of the CFMEU. Apparently he was quite a diplomatic member with a long interest in worker’s safety. It is therefore unsurprising that Maitland was appointed chairman of an organisation that was then planning on creating a training mine. Why? Because Maitland himself always said that training mines make better miners. Anyone who does not believe that should take their next flight in an aircraft being flown by a pilot learning on the job. Training mines make better miners, and that was Maitland’s interest in the matter
I move now to the third and fourth points, which were that Macdonald sought to cover his activities by seeking third‑party endorsements and that the awarding of the tender should have been done by a Cabinet decision. This is where we enter the murky world of politics. In his public testimony to ICAC, which came six months after his private testimony, Nathan Rees was questioned by Peter Braham, SC:
BRAHAM: Do you remember when you first became aware of the Doyles Creek allocation?
REES: Not precisely, no,
BRAHAM: Do you remember the circumstances in which you became aware of it?
REES: Um, I recall there was a press release that went out in late December, um, it—I think the decision around it was made some, some time prior to that of ’08 but I couldn’t, I couldn’t recall precisely how, how it was put to me or when it was put to me.
REES: My impression at the time, my understanding at the time or my office as it relayed to me was that it was a training and safety mine, a training and safety mine that had limited geological significance and was of a niche value in the, in the scheme of training.
BRAHAM: Now, if that public benefit or possible public benefit was part of the proposal that also involved the award of an Exploration Licence by direct allocation which could otherwise have led to millions of dollars of revenue being generated in a public tender ought that in your view have been brought to the budget committee of Cabinet in the, in that the second half of 2008?
REES: In my view, yes. The proposition behind it may be well-intentioned or sound but you do need to test such things as projections for workforce shortages and skills analyses, those sorts of things, so yes, you would bring that to a Cabinet or a budget committee.
That is not what Nathan Rees said in his private testimony six months earlier. This is where the role of Geoffrey Watson comes in. Watson and Braham could not have been unaware of Rees’ earlier private testimony because Rees was interviewed by Watson the first time around:
WATSON: That what happened was that Macdonald awarded the Exploration Licensed to a small private company called Doyles Creek Pty Limited. And instead of taking money upfront from Doyles Creek Pty Limited, not one cent was obtained for Treasury purposes. Before that would occur would you normally think that a responsible Minister would raise that and have it discussed in Cabinet?
REES: Not necessarily because if it’s, if it’s the, if it’s the Doyles Creek concept as we’d previously discussed, it’s a training mine and you wouldn’t expect significant royalties to be flowing from it.
REES: Matters come to Cabinet largely for two reasons, either they’re a, they’re a request for additional funds from consolidated fund or a significant change of or introduction of policy. It is arguable that that training mine, and I think I see where you’re going with this, that that training mine fell into neither category. So on that basis it is arguable that it, it didn’t, it didn’t require formal Cabinet consideration.
Six months earlier, Nathan Rees said it did not require Cabinet consideration but in his public testimony six months later he said it should have come to Cabinet, although it was a training mine. I turn to what happened when Nathan Rees was asked about the earlier allocation of the licence:
WATSON: Do you remember the explosion that occurred when it got out that the Doyles Creek Exploration Licence had been allocated?
REES: I don’t recall an explosion at the time, I recall, I recall some of the events surrounding that announcement.
REES: I’m pretty certain it came to my and my office’s attention, either I raised with my staff with or they raised with me listen this has been done without a tender which immediately sparks a okay well there’s probably a reason for that let’s find that out before we go any further, and I may have had a discussion with Macdonald directly about this, I don’t recall that, it may have been done on my behalf by my staff but the, the essence of what came back when they would ask well why was there, why was there no tender process or what, what is it, this process seems atypical. The reply that came back was look this is a niche, this is a niche exercise, it’s a, it’s a safety and training mine for safety and training purposes,…mine safety is a big issue, there’s been any number of deaths in the mining industry and it was on that basis that either myself or my office would have suggested well that stacks up, that’s publicly defensible or defensible but why don’t you get—see—if Macdonald and his people can get some third-party endorsements of this approach just in order to demonstrate it’s bone fide should this emerge as an issue.
…in terms of political management are pretty, pretty much a garden variety approach of how you would deal with something that may not be immediately obvious as to why you done it.
One thing that ICAC uses against Macdonald is that he sought third-party endorsements. This was used as an example of how he tried to cover up his corrupt activity. But the private testimony of Nathan Rees states that Rees directed Macdonald to get third-party endorsements to validate the project. I will say that this approach is utterly valid. Many of us seek third-party endorsement for projects taking place in the community. For Premier Rees to tell his Minister to get third-party endorsements so that they knew the community wanted it was an utterly reasonable and normal thing to do. The fact that ICAC took the reasonable directive of then Premier Rees to then Minister Macdonald as an example of how Macdonald tried to cover up the process is an example of how ICAC’s blind, wilful and horrendous scalp-hunting completely overtook its view of this matter.
What did Nathan Rees do when he found out about this? He asked for it to be investigated, not unreasonably. In his private testimony, which ICAC, Watson and, presumably, Braham knew about but did not use in public hearings because the testimony provides exculpatory evidence to Macdonald, Rees said:
Now I don’t recall the precise timeline but it wasn’t long after it had been granted that it was sold or there was an interest divested for a considerable amount of money that benefited another, the player. My alarm bells went off at that point and I did ask my department to quietly get hold of and examine any files they could from the department involved just to satisfy ourselves that there hadn’t been any chicanery. Now, we certainly initiated the process and the, the outcome of it was thin and there was no smoking gun as it were.
WATSON: At one stage there was a moment when you told us, there were two occasions, that MacDonald had made decisions and you went to the particular agencies to try and acquire any files that you could and you spoke in the first instance about Doyles Creek getting some very thin documents and no smoking gun and in the second instance relating to Obeid’s property and the Exploration Licence being rebuffed. Can you, can you remember the names of any of the people at the agencies who were being approached?
REES: Yeah, no, and no, I wouldn’t have done that directly. The, the person to speak to on that would be John Lee who was my head of department at the time. I wouldn’t have made those approaches directly.
Was John Lee called by ICAC? The answer is no, he was not even interviewed by ICAC investigators. He was the person who was appointed to look into this matter and, as then Premier Rees said, there was no smoking gun.
What does all this mean? It means one of several things. If members want a clear example of malfeasance—I will not use the word misfeasance; it was malfeasance—by Geoffrey Watson and the ICAC, then look no further than this. They knew that there was exculpatory evidence dealing with the ministerial decisions of Macdonald in this case, and even though they knew it, they did not seek to raise it. More importantly, they did not seek to call any witnesses who could have corroborated the exculpatory evidence. Even worse, knowing what Nathan Rees had said in his private testimony, they let him do a complete 180-degree turn in relation to Cabinet in his public testimony. That is an outrage and a disgrace, and that is symptomatic of the rottenness of ICAC at its core. It is an example of not merely one mistake but a systemic problem which has occurred in ICAC over many years.
Where does this leave us? Following the ICAC report being presented as some sort of evidentiary proof of corruption at Doyles Creek, NuCoal had its licence expropriated without compensation. Members may ask: How much could that possibly be worth? It is known and can be quantified. At the time of the expropriation NuCoal had a capitalised value of about $400 million. That was made up of big institutional investors from the United States, Japan, New Zealand, and mum and dad investors, such as the Lantrys, whom I spoke about last night in this place. That capitalised value of $400 million at the time of the expropriation having taken place was reduced to $20 million. In other words, it was a 95 per cent cut in the capital value of that company because Barry O’Farrell introduced legislation under the false claim that he was giving effect to the findings of corruption, which we now know in this instance at least, to have been substantially false, or at least highly compromised by the activities of the ICAC itself.
He introduced legislation—and I will not talk about what happened in the party room—and members were brought back for one day in the summer break to get this legislation through to make a political point, to get some political scalps, to have a go at “Macca” and to have a go at Obeid. In the process we stripped the assets of innocent people. We have to remember that NuCoal bought the licence off Doyles Creek and we stole it—there is no other word for it—for a base political reason. In the process John Maitland and Ian Macdonald, whatever their faults, are now serving 10-year terms in prison. That demands an immediate correction, either by an investigation requested by the Premier to the Committee on the Independent Commission Against Corruption, or some other committee. That will enable these people to get their stories out and the exculpatory evidence can finally be adduced about not only Operation Jasper but also Operation Acacia and a range of other instances, such as the Murray Kear affair and the relations which the ICAC has had with certain unsavoury individuals.
This includes the Mount Penny arrangement, where one of the chief people relied on by the ICAC admitted he was a liar and a fraudster. His testimony was treated as sacrosanct, despite the fact that in the private inquiries that Geoffrey Watson had undertaken of this person he had admitted to his lying and fraudulent claims. He was treated as some sort of expert star witness. This is one of the most egregious examples of injustice, and we as members of Parliament who passed those two bills in January, and the subsequent bill under the Baird Government to retrospectively validate the findings of ICAC, have done a grave injustice. I will not stop, I will not be silent until these people get justice and we remove this stain not only from the future budget bottom line but also from the justice system of New South Wales.