Every year The Australian’s John Durie asks some of the biggest names in Australian business five key questions about what’s coming in the year ahead.

How is your company affected by low-interest rates and what is needed to boost the economy?

Low-interest rates are delivering more attractive valuations for real estate assets, which is a positive for our proposed property IPO. Low long-term bond yields also drive a lower cost of capital which impacts discussions about hurdle rates for growth projects. We believe there is only so much heavy lifting monetary policy can do without being counter-productive in affecting confidence. Consideration of fiscal stimulus must be an important part of the equation, in addition to further policy certainty in areas like energy and climate change. We also believe more can be done to support businesses which are transforming, looking to innovate or push into the growth industries of the future. One opportunity is to lift the cap on tax incentives for research and development and to encourage more collaboration across the private sector, government and higher education.

What is the impact of government regulations on your company, including those applying to the financial sector?

Regulation of the financial sector impacts the flow of credit across the whole economy. While the regulatory environment for the fuels industry is mature and stable, it is important that we constantly look at opportunities to reduce red tape to increase productivity and efficiency.

Supply security is one current area of focus in our sector. Caltex and the fuel industry have a longstanding reputation for reliably and safely meeting Australian fuel demand. Safe and reliable supply underpins our success and commercial relationships, and we are confident our infrastructure, supply chains and commercial stockholdings are strong enough to manage potential supply disruptions. There have been no widespread or sustained fuel shortages for several decades, including during major environmental, economic and geopolitical disruptions. Reliable and safe supply will remain a priority for the fuels industry.

What percentage of company revenues are spent on research and development, and how is your company using technology to improve performance?

We are looking at how technology can be used to reduce overall emissions intensity in our manufacturing activities. Cogeneration, hydrogen and solar projects at our Lytton refinery are some examples. Caltex is also working with a range of potential partners to evaluate opportunities to convert waste streams into viable energy sources, such as biofuels. We believe that this is an important and exciting opportunity to address growing waste disposal issues and upgrade undervalued waste streams in Australia while producing lower carbon transport fuels for customers. We are at an early stage in our work but believe this will be an interesting space for further investment.

Technology also underpins our operational efficiency, and we have made sound investments in big data, cloud computing, robotic process automation, cybersecurity as well as labour efficiency and stock management in our Convenience Retail business. A simple example of using technology is our FuelPay app, which provides a secure, easy and frictionless way of purchasing fuel at the bowser using a smartphone. We have also rolled out self-checkouts at some of our sites to streamline the checkout process. These initiatives bolster our convenience offering and are the backbone of our strategy to deliver more convenience to our customers. We note that the proposed changes to R&D tax incentives are likely to impact innovation negatively. Businesses like Caltex, which are high turnover, low margin, will be worse off under the proposed new regime.

What are the three major policy issues facing the country and what should be done about them?

● Climate change and energy, productivity and skills. Caltex understands the importance of climate change and energy policy and is committed to playing a role in the transition to a low carbon future. We support a bipartisan policy position that guides long-term investment to help meet this challenge. Such an approach would not just bring investment certainty to the energy sector but provide more stability to the Australian economy and drive down energy prices. We are currently investigating a range of new projects in alternative transport fuels, energy storage and renewable energy. This includes energy generation projects that will support the transition to renewable energy through firming capacity. Most other energy markets have an element of capacity payments for firming generation to support the underlying economics of renewable energy projects. Caltex believes this needs to occur in the Australian market and we are well placed to provide it. One example is distributed battery storage projects which could support the integration of residential solar within distribution networks to absorb excess distributed solar. Caltex has a strong base of retail and fuels assets that are strategically located to deliver mid- to large-size storage batteries.

● Productivity: Wage growth is reliant on both investment and productivity growth which has been stagnant. Productivity will increasingly be driven by technology, and this is where incentives and support are important to ensure economic growth and, in turn,

growth in wages.

● Skills: we believe demand for jobs with a focus on technology, data and analytics will continue to be strong, with government and the education sector responding well over the last few years to help meet this demand. However, more work needs to be done to encourage more female graduates in STEM, given the difficulty of attracting and retaining female talent in operational leadership roles.

What are the major impediments to long-term growth facing your company and what can or is being done about them?

Further policy work on alternative forms of transport energy will enable Caltex to play a more prominent role in their development. We recognise the work the government is doing, including the National Electric Vehicle Strategy and the National Hydrogen Strategy, but believe the hard work is still to come and that there is too much uncertainty to make significant investments. The government needs to put the framework in place to incentivise the uptake of the right technologies for the Australian market. We also see more opportunities for collaboration between government, higher education and the private sector to drive the best technologies forward.

Extracted from The Australian

SHARE THIS ARTICLE: