Commonwealth Bill to Ensure Fuel Security in Australia
Friday 11 June 2021 @ 10.59 a.m. | Legal Research
On 26 May 2021, the Fuel Security Bill 2021 (Cth) (‘the Principal Bill’) and the Fuel Security (Consequential and Transitional Provisions) Bill 2021 (Cth) (‘the Amending Bill’) were jointly introduced to the House of Representatives.
The Principal Bill seeks to implement two measures in the Australian Government’s Fuel Security Package announced in the 2020-21 and 2021-22 Budgets. The Amending Bill proposes amendments to support the changes to be made by the Principal Bill if passed.
Both Bills are yet to pass the lower house.
In his second reading speech, the Federal Minister for Energy and Emissions Reduction Angus Taylor (‘the Minister’) stated:
“This package will secure our fuel stocks, protect motorists from future high prices and value the fuel security services Australian refineries provide. It will be done through establishing a fuel security service payment to lock in our refineries and setting out the key parameters for the minimum stockholding obligation.”
Objects of Principal Bill
Section 3 of the Principal Bill states:
"(1) The objects of this Act are the following:
(a) to improve security and confidence in Australia’s fuel supplies;
(b) to support sovereign capability to maintain fuel supplies;
(c) to contribute to meeting Australia’s obligations under the International Energy Agreement (‘IEA’);
(d) to assist in preventing disruptions in fuel supplies.
(2) The objects are to be achieved by:
(a) requiring the holding of minimum quantities of stocks of certain fuels in Australia; and
(b) making payments for production of refined fuels to support the contribution made by refineries in Australia to the security of Australia’s fuel supplies."
Minimum Stockholding Obligation
If passed, the Principal Bill will impose a minimum stockholding obligation (‘MSO’) on any regulated entity that undertakes an activity related to an MSO product. Further, if the entity has an Australian controlling corporation, the Principal Bill would require the controlling corporation to ensure that the entity meets the MSO.
The Bill defines an MSO product as:
- kerosene; or
- a product prescribed by the rules as an MSO product.
An MSO activity is defined as the refining or importing of an MSO product, or an activity prescribed by the rules as an MSO activity.
An MSO is an obligation to hold a minimum quantity of stocks for an MSO product. In his second reading speech, the Minister stated:
“The obligation will see Australia's jet fuel, petrol and diesel stocks maintained at 2018-19 average consumption levels at the very least. The first stage commences on 1 July 2022. Diesel stocks will then be increased by 40 per cent from July 2024.”
An MSO would be triggered when an entity engages in an MSO activity in relation to an MSO product that exceeds a threshold prescribed by the rules. The obligations for different MSO products may differ in the prescribed quantity of minimum stockholding. The quantities are to be determined by the Secretary in accordance with the rules.
The Principal Bill seeks to also require entities to advise the Secretary in relation to their quantity and allow entities to apply to the Secretary for their quantity to be temporarily reduced. The Principal Bill also aims to provide the Secretary with a range of enforcement mechanisms including civil penalties and injunctions.
Fuel Security Services Payment
Secondly, the Principal Bill proposes the introduction of fuel security service payments ('FSSP's) to Australian refineries contingent on their commitment to refine until at least 30 June 2027. Any Australian refinery that refines FSSP fuels (gasoline, diesel or kerosene) would be able to apply for the payments.
FSSPs would be paid quarterly and the payment would be based on the quantity of FSSP fuels refined in the quarter. The Principal Bill's Explanatory Memorandum explains:
“The payment rate will be set as a function of refinery market conditions based on independent and verifiable markers. The FSSP will provide up to 1.8 cents per litre when refinery margins fall to the point where refineries are making losses.”
The Principal Bill's Explanatory Memorandum further explains that the FSSP is designed “to cover refineries’ downside risk”. Therefore, refineries would be precluded from receiving FSSPs when they are making profit.
The Principal Bill states that the precise rate is to be set in rules made in future by the Minister. Furthermore, the Principal Bill would require recipients of FSSPs to commit to repaying any amounts received, if refinery of FSSP fuels before the end of the recipient’s commitment period.
Eligible FSSP Recipients
Currently, the Ampol refinery in Lytton, Queensland, and the Viva Energy refinery in Geelong, Victoria, are the only two remaining fuel refineries in Australia eligible. This follows the announcements of the closure of the BP and ExxonMobil refineries in October 2020 and February 2021 respectively.
Referring to the purpose of FSSPs, the Minister in his second reading speech stated:
"For Viva and Ampol, to put it very simply, without the ongoing support guaranteed through this bill, it is likely those remaining refineries of Viva and Ampol would have closed within the next five years. This would mean Australia would be 100 percent dependent on overseas supply chains to meet our fuel needs. The retention of the refineries will also result in over 1,000 direct jobs being secured. (...) Locking in our refineries is a matter of national security, of Australia's sovereignty, our self-sufficiency at critical times and our resilience as a nation."
The Amending Bill intends to make amendments to existing legislation to support the establishment of MSOs and FSSPs. According to its Explanatory Memorandum:
- Part 1 of Schedule 1 will establish relevant authorities for various Government agencies to share relevant fuel information with the Department of Industry, Science, Energy and Resources to reduce the regulatory burden for regulated entities
- Part 2 of Schedule 1 will provide for consequential amendments to be made to accommodate proposed changes to laws
- Schedule 2 will establish transitional provisions to ensure MSOS does not take effect before 1 July 2022, and applications for FSSPS cannot be made until rules prescribing the application and assessment process have been made.
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Fuel Security Bill 2021 (Cth) and explanatory materials available on TimeBase's LawOne Service
Fuel Security (Consequential and Transitional Provisions) Bill 2021 (Cth) and explanatory materials available on TimeBase's LawOne Service