Ethanol could well be the most subsidised and protected commodity

Ethanol could well be the most subsidised and protected commodity ever manufactured in Australia

Let's start by getting the language right.

"Big Oil" is three companies - the correct term is "Oligarchy". A "Monopoly" is when a single company controls supply. In the current debate over ethanol in petrol, that's Manildra.

Don't get me wrong, if a Monopoly called Manildra is giving an Oligarchy called "Big Oil" a hard time, I couldn't care less. Go Manildra. But this is not what this issue is about.

"Big Oil" and Manildra are both manipulating public opinion to suit their commercial interests and maximise profits. The challenge for the O'Farrell government is to ensure the public interest is not damaged.

Manildra is a flour milling empire. Ethanol is an unwanted by-product of flour milling, and its use as a biofuel started out as a means of re-using waste.

Over the past decade Manildra has secured so much assistance that ethanol could well be the most subsidised and protected commodity ever manufactured in Australia. The regulatory structures supporting ethanol are so generous, it's becoming more valuable than the flour itself.

Manildra began by successfully lobbying for a 100 per cent fuel tax rebate for ethanol.

The rebate is worth 38 cents per litre. Because the rebate is uncapped, Manildra can make as much ethanol as they like and it all keeps getting subsidised. Manildra is upping production to 300 million litres. Do the maths - at 38 cents per litre it's a $115 million taxpayer subsidy per year.

Manildra's ethanol has been protected from competition with cheaper ethanol. In 2002 the federal government decided imported ethanol should pay the 38 cent fuel levy. One hapless Australian importer with a shipment of ethanol in transit from Brazil lost $400,000 as a result.

It was this decision, confirmed again last year by the Gillard government that gave Manildra near monopoly supply in Australia.

Having knocked out the foreign competition and secured an uncapped public subsidy of 38 cents for every litre they can pour, Manildra naturally wants to make as much ethanol as it possibly can. But there is an iron law of economics that limits production - "demand". The company has to sell increasingly large quantities of ethanol. It is too expensive for export, so Manildra turned to State governments to force

"Big Oil" to buy more and more of their ethanol. This was done by mandating E10 petrol.

So Manildra now has a near monopoly supplying a subsidised ethanol to "Big Oil" companies who are being forced by state governments to buy it.

They should have sat on these amazing wins but instead went a step too far by insisting unleaded petrol be banned altogether.

Eliminating the only alternative fuel supply (unleaded petrol) would mean every step of the production, sale and retail process had been locked into Manildra by government regulation and public subsidies. It is simply breathtaking in its audacity and a lesson in how far a private business will take things if you let them. Why is Manildra a near-monopoly? You would think an uncapped public subsidy for domestic producers would see new ethanol plants springing up.

It's because the Gillard government's fuel rebate scheme for ethanol expires in 2020. Uncertainty about the future of the rebate means no business can invest in a large scale plant for ethanol.

Manildra's push to ban unleaded petrol has three snags for government. The first is insurmountable for Liberals. It is not the role of government to dictate to consumers what fuel they are allowed to use in cars, boats and other machinery. We are the only Party of free choice in Australia and heaven help our economy if we vacate that space.

Secondly the price impacts for motorists are unacceptable. Third are the consequences for private property if unleaded petrol is banned - and it is this prospect that should send every Liberal and National MP rushing to the bathroom.

We are talking hundreds of thousands of tonnes of perfectly good farm, gardening, boating and camping equipment that would be rendered useless by a ban on unleaded petrol.

I can only applaud Premier O'Farrell for hearing the debate and stepping back from a ban on unleaded petrol.

E10 is a carefully balanced blend of 10 per cent ethanol and 90 per cent unleaded. We need to take the same care in balancing Manildra's interests with those of taxpayers and consumers.

This week Barry O'Farrell took an important step forward to achieving exactly that.

Catherine Cusack is a Liberal Party member of the NSW Legislative Council

source: dailytelegraph