Labor powerbrokers removed then prime minister Kevin Rudd just 24 hours before he was to make a significant policy shift on the resource super profits tax, mining magnate Andrew Forrest says.

Forrest says that he had finalised a deal which was less favourable than that struck with BHP Billiton and Rio Tinto. This, of course, gives the lie to claims that Rudd had been unwilling to genuinely negotiate.

Forrest now wants the government to return to negotiating with the industry as a whole. He also says that any resolution, which must come by Friday, must be more favourable than the concessions Kevin Rudd had offered.

In yesterday’s Crikey, Bernard Keane revealed the text of a letter sent to new PM Julia Gillard from the Minerals Council of Australia. Keane characterises its gist as ‘Cave in or else’. With permission, I’ve reproduced his article beneath the fold.

The Minerals Council of Australia has welcomed Julia Gillard to the Prime Ministership with a demand that she gut the RSPT completely if there is to be any end to the mining industry’s campaign against Labor.

Minerals Council chairman Ian Smith wrote to the new Prime Minister on Friday demanding an urgent meeting with Gillard or Wayne Swan and Martin Ferguson early this week to enable a backdown on the tax.

In the letter, addressed to Prime Minister Gillard, with Deputy Leader Wayne Swan and Resources Minister Martin Ferguson cced in, Smith opens by congratulating Gillard on her Prime Ministership.

Smith then flags the mining industry’s willingness to suspend their advertising on the proposed tax as a “sign of goodwill.”

But Crikey understands from a senior mining industry source that the Minerals Council wants an offer from the Government before the end of this week, or it will resume its campaign against Labor.

Prior to being wrong-footed by Gillard’s suspension of the Government’s advertising campaign for the RSPT, the Minerals Council had been planning a mailout to 50,000 households in up to 20 marginal electorates aimed at defeating Labor candidates.

Smith tells Gillard that there are five issues that the Government must back down on:
the 40 per cent rate;
the RSPT “should not be applied retrospectively to existing projects”;
the RSPT must be “differentiated by commodity”
the tax must be “resource-based –- it should not tax infrastructure or secondary processing; and
efficiency — “changes must not compromise the principle of competitive neutrality and minimise deadweight losses to the economy. The absence of complete agreement with the States on the treatment of royalties will prevent real reform.”

Smith writes:
“…unless all these elements are addressed in a comprehensive way the minerals resources super tax will remain fundamentally flawed. It will continue to damage Australia’s reputation as a low sovereign risk destination for foreign direct investment.”

Smith also attacks the possibility of a shift to a PRRT-based model:
“Any suggestion that the Petroleum Resource Rent Tax (PRRT) model is suitable for the minerals industry reflects a fundamental misunderstanding of the differences between the petroleum industry and the minerals industry.”

The mining industry has been deeply concerned that an offer by the Government to shift to a PRRT-based model would leave it looking obstinate and unwilling to engage in genuine compromise, which would undermine its successful advertising campaign against the tax.

Last week, the Minerals Council rushed out hastily-commissioned modelling by KPMG purporting to show little improvement for the industry if a higher uplift rate was applied — even as high as 15%, from the currently-proposed 6% — and transferability and deductibility of losses was abandoned, as part of a plan to avoid being portrayed as stubborn holdouts.

Smith warns Gillard “given the global nature of our industry and the Australian economy, every day the uncertainty over the proposed minerals resources tax is allowed to continue greater damage occurs to Australia’s national economic interest.”

Contrary to Smith’s claims, however, since the announcement of the tax, metals and mining stocks have outperformed the ASX 200, while foreign competitors like Vale and Anglo-American, who RSPT critics claim stand to reap a bonanza from havoc wreaked on the Australian mining industry, are trading well below their early May prices on overseas markets.

A big factor in the decision was the size of Rio’s debt, which blew out to about $US42 billion ($65.8 billion) after the ill-timed acquisition of Canadian aluminium group Alcan last year. BHP carries only $US6 billion in debt. “It is just not the right time to be taking on the debt that is on Rio’s balance sheet,” Mr Kloppers said.

Chinese steel mills, which were concerned that a BHP-Rio combination would be able to control prices for iron ore and other raw materials, were also pleased the offer was dead.

If you’re a BHP or Rio Tinto shareholder (and if you have superannuation, you are, as am I), in the short term it’s good news for BHP shares and bad news for Rio Tinto shares, according to what’s happened on the British markets overnight. For the long-term sake of one’s super, however, we may well all be better off that the merger didn’t go ahead, regardless of the horrible shape of the financial market that were the immediate reasons for this deal to fall apart.

Why? Because most corporate merges fail; the merged company ends up being worth less than what the original parts were. No matter how well two companies would seem to fit together, the process of putting them together tends to be beyond the capabilities of most management.

Given every ambitious young suit-wearer with an MBA knows this, the question arises why there are so many corporate mergers. One explanation is that it gives CEO’s something to do; another is that there are (or, more to the point, were until a couple of months ago) large fleets of merchant bankers whose livelihood depends on convincing CEOs that mergers are a good idea.

In any case, the organizational behaviours that cause corporate mergers to fail undoubtedly operate throughout the government sector as well. But politicians seem to like reorganizing departments even more than corporate management do, and there are arguments that the costs are similar. Crikey recently had a piece about the New South Wales health system making a similar argument:

If you think the health system is a bird, a complex system with a mind of its own, it needs to be fed, nurtured, and developed. So which are you, and what signs does your favourite policymaker, minister or bureaucrat exhibit for preferring one or the other? Assuming you have a favourite, of course.

The evidence that restructuring does any good, by the way, just to confirm everyone’s actual experience, is plain and simple — it doesn’t. Studies have shown that if you keep on restructuring complex organizations like teaching hospitals they become less not more efficient and reorganizing area health boundaries (NHS Trusts in England) put people back about eighteen months.

I work in higher education, an area in which we are promised “revolution” by the Rudd government at some point. I wonder how much unnecessary reorganization that revolution will involve.