Dr Peter Phelps speaking in the NSW upper house on

Wednesday, February 14, 2018

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.

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