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Phelps Speech

The Hon. Dr PETER PHELPS ( 16:58 ): I congratulate the Treasurer and Premier on the excellent
budget. However, I have concerns that, while appearing to be somewhat circuitous, there are
potentially 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 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 the 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 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 License 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 a 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 me and my office's attention, either I raised with my staff, or
they raised with me, listen this has been done without a tender which immediately sparks an,
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 its 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 the 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 the 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
the 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 the 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 the ICAC? The answer is no, he was not even interviewed by the 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 several things.
If members want a clear example of malfeasance—I will not use the word misfeasance; it was
malfeasance—by 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 the ICAC at its core. It is an example of not merely one mistake but a systemic
problem which has occurred in the 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 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 ICAC inquiry that led to the expropriation 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 prison terms, and in the case of the latter a 10-year term 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 Acacia but also Operation Jasper 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 the 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.

Debate adjourned.

https://www.parliament.nsw.gov.au/Hansard/Pages/HansardResult.aspx#/docid/HANSARD-
1820781676-75400/link/89