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The Victorian gas crisis: have state and federal governments done sufficient to assist those affected?




Echo Issue Outline 1998 / 38 - 39: copyright © Echo Education Services
First published in The Echo news digest and newspaper sources index.
Issue outline by J M McInerney

What they said ...
`This is the worse crisis from a single source to ever hit the Australian economy, and our industry has never experienced anything like it'
Mr John McQueen, the executive director of the Dairy Farmers Federation

`I don't think the taxpayer of Victoria should necessarily be put to the expense on day six of committing to compensate people who have suffered loss. It's very important that governments don't leap in and interfere in commercial relationships'
The Victorian treasurer, Mr Alan Stockdale

There was a series of explosions and a major fire at the Esso gas processing plant at Longford, Victoria, on September 25, 1998. Two men were killed and a number of others were injured.
As a result of the accident the Esso plant ceased production and all domestic, commercial and industrial gas users were ordered to close off their supply at the meter so that gas could remain available for essential services such as hospitals.
Many industries and businesses had to stop operating and many workers were stood down until gas supplies were restored.
There have been two class actions launched against Esso and VENCorp by businesses and workers to try and recover their lost profits and wages. These actions have been criticised by the Victorian premier, Mr Jeff Kennett.
During the crisis there were also calls for emergency assistance from state or federal governments. The Victorian government claimed that such assistance was not appropriate.
The federal government made a $100m emergency fund available on October 2. The size of the fund and the conditions under which it can be accessed have been questioned.
It has also been suggested that changes made by the current Victorian Government to WorkCover will disadvantage those workers injured at the Longford plant and that WorkCover inspectors may not have adequately inspected the plant .

Background
More than 80 per cent of Victoria's natural gas is supplied from the Esso-BHP fields in Bass Strait. This gas is processed at Esso's Longford plant outside Sale in south eastern Victoria.
Esso is a private company with which the Victorian Government has a long-term contract for the supply of natural gas to the Victorian transmission and distribution network.
Victoria's gas was previously distributed by a government-controlled agency, the Gas and Fuel Corporation. VENcorp is a statutory corporation that was established in December 1997 to replace the old Gas and Fuel Corporation. VENcorp operates the gas transmission and distribution networks in Victoria. It is a quasi-government body.
The distribution network has been broken up into a number of separate subdivisions and there have been substantial staff reductions. Maintenance and installation work is performed by private contractors.
These steps have been a lead-up to the government's plans to sell the Victorian gas transmission and distribution network. These plans now appear to have been stalled in part because of the damage to the Longford plant and in part because it appears that the profit margin for interested companies may not be large enough.
The Victorian gas crisis has had large immediate consequences for many Australians, in Victoria and in other states.
Four thousand workers were stood down at the Ford automotive plant in Victoria; 2,600 workers were stood down at the Toyota plant; 2,000 workers were stood down from the Dunlop Pacific tyre plant. As Victorian-produced components began to become unavailable, the effects of the gas crisis spread interstate with some 10,000 car industry workers in South Australia and 7,000 in New South Wales being stood down.
It is estimated some 150,000 workers were stood down nationally.
Victorian bakeries, dairies, abattoirs, food-processing companies, textile manufacturers and transport companies were all affected.
Mr John McQueen, the executive director of the Dairy Farmers Federation, claimed, `This is the worse crisis from a single source to ever hit the Australian economy, and our industry has never experienced anything like it.'
Thousands of small businesses relying on gas, including restaurants and leisure centre swimming pools, were forced to either make alternative arrangements or close. The hospitality and take-away food industries were particularly hard hit.
It has been estimated that Victorian manufacturers lost more than $100 million of production a day for each of the 12 days the crisis lasted.
It has been claimed that the total loss to Victorian business alone could be $1.4 billion.
Some economists have suggested that the crisis is likely to result in negative growth in the December quarter.

There are a number of Internet sites which supply background information on this issue.

The Age has a special reports sub section of its site which deals with the Victorian gas crisis. Their gas crisis sub site gives access to most of the items published in The Age that have dealt with the gas crisis. These are listed separately for each day since the explosion at Longford occurred.
The site can be found at http://www.theage.com.au/special/gas/index.html
VENcorp has a home page which can be found at http://www.vencorp.com.au This gives information about the functions and responsibilities of VENcorp.
The Public Health and Development Division, Department of Human Services, Victoria, has a copy of the state's disaster plan. The introduction can be accessed at http://hna.ffh.vic.gov.au/phb/hce/displan/anrev97/page1.htm From this page a copy of the plan itself can be accessed. The plan was revised in 1997.
It is interesting to note that the plan does not anticipate the type of disaster represented by the gas crisis. The management plan deals with the public health consequences of fires, floods, hazardous material accidents, food borne infections and large crowd incidents.
The Victorian WorkCover Authority also has an Internet site. A subsection of this site deals with the role and responsibilities of WorkCover inspectors. This can be found at http://www.workcover.vic.gov.au/vwa/pubdocs.nsf/When+an+inspector+calls?openview Look in particular at the response to the question Why are inspections carried out? This refers, in part, to the targets that are set for the inspection of particular work sites.


Arguments suggesting the Victorian and federal governments offered appropriate assistance to those affected by the gas crisis
The Victorian Government has offered a two part defence against claims that it did not do sufficient to assist those adversely affected by the gas crisis.
Firstly, it has argued that it took all necessary action to contain and resolve the disaster..
Secondly, it has argued that financially supporting those harmed by the disaster is not a government responsibility.
On the first claim, that it took all necessary action, the Victorian Government has argued that its principal responsibility in the gas crisis was to ensure the safety of all Victorians and to secure an emergency gas supply for hospitals and other special users.
The Victorian Government has maintained that it met these responsibilities.
The government has suggested that its first task was to shut down the gas supply at the source both for safety reasons and to allow the fire to be fought and repairs to be made.
It then had to obtain emergency gas supplies for absolutely essential services and prevent general users drawing on this emergency supply.
An account of the steps taken by the government to meet its obligations has been published in The Age.
Immediately the explosion was reported crisis talks were held inside the Department of Premier and Cabinet.
Two ministers, including the treasurer, Mr Alan Stockdale, were sent to the state governor, Sir James Gobbo. The Governor's signature was needed to authorise the government to employ special emergency powers granted it under the Gas Safety Act.
These emergency powers allowed VENcorp to direct the gas companies to stop their operations. The same emergency powers enabled the state to instruct consumers to turn off their gas meters or be fined.
(The government also took action to prevent panic buying of LPG gas and of foodstuffs such as bread and milk.)
With regard to ensuring the continued operation of the state's hospitals, the government arranged for gas supplies from New South Wales (equal to 2 per cent of the state's normal output) to be pumped across the border for such emergency use.
The Department of Human Services apparently worked through the weekend after the explosion to help ensure the state's hospital system would be able to continue functioning under the changed circumstances.
The Victorian Government also asked the Federal Government for urgent assistance. In response, the Defence Department agreed to help hospitals by releasing 14 sterilisation units.
It has been claimed that these various measures were successful as the state's hospitals continued to run and only elective surgery had to be postponed.
The Victorian Government also had a management strategy in place for when the gas supply was restored. Large industries and then commercial users were able to reconnect before domestic users. The rational appeared to be that it was more important to have people back at work and reduce the impact on the economy than it was to relieve domestic users of the inconvenience of cold showers and no gas cooking or heating.
Allowance was made for the frail and elderly who were able to reconnect a day before other domestic users so that they could have the assured assistance of the plumbers and other specialists VENcorp supplied to attend those who needed help with restoring their gas supply and turning on their gas appliances.
On the question of providing financial relief for those affected, the Victorian Government has claimed that this is not its responsibility.
On Wednesday, September 30, the Victorian treasurer, Mr Alan Stockdale, announced, `I don't think the taxpayer of Victoria should necessarily be put to the expense on day six of committing to compensate people who have suffered loss. It's very important that governments don't leap in and interfere in commercial relationships.'
According to this line of argument, the government is not responsible for the consequences of a commercial disaster.
Those who hold this view argue that businesses should either have insurance cover to compensate them for the losses incurred or could take legal action against Esso.
The premier, Mr Kennett, has argued that if there is any blame to be apportioned it rests with the private company, Esso, with whom the state government has a long-term contract for the supply of natural gas.
Mr Kennett has suggested that people seek compensation through the courts or financial assistance from their banks.
In response to the allegation that his government proposed to introduce a Bill in the next session of parliament which would prevent legal action being taken against Gascorp (the branch of VENcorp responsible for gas supply), the premier has claimed that the bill would not have this effect.
In one report, Mr Kennett is said to have claimed that if VENcorp were found to have been negligent the new legislation would not prevent it being sued.
Mr Kennett has also claimed that to promise assistance would be inappropriate as the government would never be able to recompense all those people who were financially disadvantaged by the disaster.
The premier has argued that it would be improper to raise people's expectations of receiving government compensation `because in this environment where so many are affected, you're simply not going to be able to meet them.'
It has been noted, however, that even though the Victorian Government did not believe that it was obliged to financially assist those affected it approached banks and other financial institutions, asking them temporarily to relax their demands on those who have been disadvantaged by the gas failure.
It has been reported that on the Monday afternoon, three days after the explosion at Longford, Mr Kennett telephoned the chief executives of the major banks, requesting they help customers hit by industry stand-downs.
It has also been reported that on the Tuesday, Westpac, the ANZ and the Commonwealth Bank announced a series of measures to assist their customers affected by the crisis, including deferring or extending loan repayments. It would appear that the Victorian premier's request may have influenced the banks in this decision.
Further, in regard to the compensation injured Longford workers can expect under WorkCover provisions as altered by the current government, WorkCover's director of public affairs has said that the new provisions mean that injured workers will receive a payment even if negligence on Esso's part cannot be proven. It has also been claimed that the workers will receive their payments more quickly because they will not be delayed by a court case.
On the question of what assistance should have been offered by the federal government, the Howard Government has argued that it has done all it reasonably could.
The federal government has maintained that it was limited in what assistance it could offer because the disaster occurred through an election period.
Mr Howard explained that in the lead-up to an election the sitting government technically held office in a care-taker capacity. This meant it had to maintain the business of government but should not initiate or implement new policies.
Mr Howard apparently initially considered that his government's care-taker role reduced his capacity to offer assistance to those affected by the Victorian gas crisis.
However, after Mr Beazley, the Labor Opposition leader, announced that if elected he would declare a state of emergency and offer direct assistance to those affected by the gas crisis, the Howard government set up a $100 million emergency relief fund.
The $100 million was intended to assist workers stood down due to the gas crisis and ineligible for Social Security payments. These people were to be given cash grants equivalent to the Newstart Allowance.
Small businesses forced to shut down or convert to other energy sources might be eligible for the Newstart Allowance and would also be given a cash payment equal to the tax deductibility of the cost of converting from gas.
Community groups, such as the Salvation Army, helping the sick and elderly would also receive federal government assistance.
The Prime Minister has defended his relief fund against accusations that it was designed only to attract votes on the eve of the federal elections.
Both the Prime Minister, Mr Howard, and the Victorian premier, Mr Kennett, have maintained that they have tried to keep the gas crisis a non-political issue.
Finally, it has been suggested that the gas crisis was in large measure a community crisis which relied on individual citizens demonstrating goodwill, resourcefulness and a willingness to assist each other. According to this line of argument, there was only a limited, administrative role for government in helping people get through this crisis.
In keeping with this view, the premier, Mr Kennett, suggested that for many householders, the so-called `gas crisis' was no more than an inconvenience and regretted that Victoria had become `a whole society where our underbelly is so soft'.

Arguments suggesting the Victorian and federal governments did not offer appropriate assistance to those affected by the gas crisis
The Victorian government and, to a lesser extent, the federal government have been criticised for the level of assistance they offered those adversely affected by the gas crisis.
There have been three types of criticism directed at the Victorian government.
Firstly it has been suggested that the Victorian government underplayed its obligation to assist community members in times of general crisis, especially when the crisis involves essential services.
Commentator for The Age, Kenneth Davidson, has argued, `Infrastructure services such as water, sewerage, gas, electricity, telephones, roads, public transport and airports are essential public services. Governments may delegate the provision of these services to privatised or corporate entities, but governments ultimately bear the risks and the responsibilities associated with their operation.'
According to this line of argument, any service on which the whole community relies is ultimately the responsibility of government as, should the service fail, the cost is borne by the whole society, irrespective of who `owns' the infrastructure.
Those who hold this view maintain that government should be actively involved in reducing the social and economic damage caused by an event such as the gas crisis, rather than allowing the matter to be resolved through the courts or the operation of banks and insurance companies.
Comparisons have been drawn with the way in which the Cain government used a temporary tax levy charged on all Victorians to assist those who lost their savings in the failed Pyramid building society.
It is suggested that it may be in society's overall interest to use the resources of government to reduce the harm caused by a general misfortune.
This view has been put by Kenneth Davidson who has argued, `The cost of a legal free-for-all may prove to be far higher for all Victorians than an orderly settlement through a compensation fund financed out of a gas levy.'
(Interestingly, despite Mr Kennett at one point suggesting Victorians should apply for compensation through the courts, at least one news report has the premier favouring a negotiated settlement that bypassed litigation.)
The same general point has been made by columnist Terry Lane, writing in The Age.
Mr Lane rejects the Victorian government's claim that it should not interfere in what are commercial transactions.
Terry Lane argues that governments are fundamentally responsible for essential services. He argues that people form together in societies and elect governments because `we can have things that we cannot easily acquire as a collection of uncoordinated individuals ... essential services.'
He further argues that governments only exist as `caretakers of the common interest' and that the Victorian Government therefore has the responsibility to ensure that the common interest is protected through the gas crisis.
Secondly, it has been suggested the failure of the gas supply may be indirectly attributable to actions and policies of the state government. According to this line of argument, if the government helped to bring about the crisis it may be legally liable to compensate those affected.
It has been noted, for example, that as a prelude to privatising Victoria's gas supply network the former Gas and Fuel Corporation has been broken up into three supply networks, Multinet, Stratus and Westar. More than 1000 of the workers formerly employed by the Gas and Fuel Corporation have been retrenched and maintenance work has been contracted out to private companies.
Some critics have suggested that reduced maintenance standards may have played a part if not in the gas explosion, than at least in reducing the ease with which it was possible to restore the state's gas supply from the two remaining processing plants at Longford.
It has also been suggested that changes the Victoria government has brought about in the safety inspection procedures followed by WorkCover may have had a part to play in the disaster.
According to this line of argument, the state government has reduced the role of WorkCover inspectors, relying to a greater extent on in-house inspections performed by the companies concerned.
It has been suggested by some that in-house inspections may compromise safety.
This accusation has been made by the Victorian Opposition spokesperson on WorkCover, Mr Theo Theophanous, who has claimed that changes the government introduced to work safety regulations in 1995 shifted safety inspection responsibility from WorkCover to employers.
Mr Theophanous has claimed that the last full inspection by WorkCover at Longford was in April 1996 and has further suggested that inspections since then may have been inadequate.
Mr Theophanous has also claimed that a report on the functioning of the Longford plant had been suppressed. The report followed an investigation into the ice plug gas pipeline blockage at Longford which recently disrupted Victoria's gas supplies.
Mr Theophanous has stated, `We believe this report is being covered up with the complicity of the Kennett Government.'
It has also been claimed that not only may the current inspection targets of WorkCover be inadequate, but that these targets are not being met.
Minutes of a recent WorkCover inspectors and senior managers meeting apparently show one manager claiming, `At present we are running at only 65 per cent of our site target time. This is not acceptable.'
The overall imputation is that changes in Government policy regarding the employment of maintenance personnel and the nature and frequency of WorkCover inspections may have resulted in less effective maintenance and inspections. If it could be established that such policy changes contributed to the gas crisis, then the Victorian Government, through WorkCover or VENcorp, would presumably be liable to pay substantial compensation to those adversely affected.
Thirdly, it has been claimed, the Victorian government has put laws in place which reduce the compensation available to those injured in the Esso explosion and further that the government is about to introduce legislation that would prevent workers and businesses taking legal action against VENcorp.
It has been argued that the changes to WorkCover legislation brought in by the Victorian government last year will reduce the amount of compensation to which the eight workers injured in the Longford explosion are entitled.
Mr Ross Ingliss, head of the WorkCover section at the law firm Ryan Carlisle Thomas, has claimed that the maximum compensation to which these workers were now entitled had fallen from a possible $1,050,450 to $300,000.
Mr Ingliss has further suggested that the new injuries schedule specifying the degree of impairment that had to be suffered before a particular payment could be made probably meant that `the injured workers would be looking at receiving $5000 to $175,000.'
It has also been claimed that in response to the gas pipeline blockage that occurred in June, the Victorian government has drafted a Bill which will protect Gascorp, the section of VENcorp dealing with gas supply, from liability.
This Bill is due to be introduced in the spring session of parliament and is expected to be retrospective at least to June of this year.
Critics have argued that if the Bill has the effect that is anticipated it could prevent Victorians seeking compensation from VENcorp, even if a royal commission found it was implicated in the gas crisis.
Critics have also rejected the hostility that the premier, Mr Kennett, displayed toward those law firms which indicated that they were mounting class actions on behalf of stood-down workers, businesses and householders adversely affected by the gas crisis.
Mr Nick Styant-Browne, a partner in one of the law firms involved, has claimed, `It's breath-taking that in this disaster and tragedy, the Government wants to limit liability and deprive people of their rights.'
The adequacy of the federal government's assistance has also been questioned.
The Australian Workers Union (AWU) has claimed that the usual waiting period for federal government funded unemployment benefits was not always reduced for workers who were stood down through the gas crisis. The AWU also complained that many workers were judged ineligible for unemployment benefits because they had some family savings.
The union also complained that workers were not eligible for benefits if their employer were able to give them their holiday pay while they were stood down. The union has argued that workers in industries which typically shut down over the Christmas period would not now have their holiday pay to carry them over this period.
Finally, it has been argued that the $100 million relief fund established by the federal government is not sufficient and that the terms under which help can be accessed are too narrow. There are those who have claimed that the timing of the relief offer, on the eve of the federal elections, suggests it was only a vote-catching gesture.

Further implications
There are a number of investigations underway into the `accident' that resulted in the Victorian gas crisis. As two men died as a result of the Longford explosion, there will automatically be a coronial inquiry. As happens after any major fire, the arson squad will also conduct an investigation.
The Victorian government also initially announced that it would stage two inquiries, one into the causes of the accident, the other to investigate the state's overall energy and water supply situation, with a view to securing future supply of these essential services.
These two government inquiries now appear to have been superseded by a royal commission. There have been some complaints that the terms of reference of the royal commission are not wide enough. These complaints have been countered by the assurance that the commission is able to expand its terms of reference as appropriate.
It is certain that the royal commission will have to cover at least the territory foreshadowed for the two previously flagged inquiries which it replaces. Victorians appear to want to know who was responsible for the accident and to be assured that their future energy supplies are secure.
Once whatever blame can be apportioned has been it is then likely that the two class actions being mounted on behalf of industry, business and stood down employees will be pursued with greater purpose.
One law firm involved has suggested that only once the cause of the accident had been established can appropriate legal action be taken.
If either VENcorp or Esso rush to offer compensation to those affected it may suggest that they are apprehensive about what a royal commission might reveal.
If the royal commission does not exonerate all government agencies or corporatised government departments involved then there is likely to be a strong electoral backlash against the Kennett government.
In order to avoid being punished at the polls the Victorian government is also going to have to demonstrate that it has secured for Victoria a sufficient and reliable gas supply. If, as has been suggested, Victoria goes into next winter with restrictions on gas home heating, this could have damaging political consequences for the government.
It already seems likely that the Longford disaster may have helped to put on hold the government's plans to privatise Victoria's gas supply bodies.
Finally, if, as seems probable, the gas crisis depresses economic growth within Victoria this too may have electoral consequences for the state government.
The adequacy of both state and federal governments' response to the gas crisis is likely to be judged in terms of the outcome of the royal commission and how fully and rapidly the community as a whole recovers from the crisis.

Sources
The Age
27/9/98 page 7 news item by Suzanne Brown & Sally Finlay, `Counting the cost as the gas runs out'
28/9/98 page 2 news item by Jooanne Painter et al, `Lawsuit may cost millions'
29/9/98 page 16 news item by Caroline Milburn & Ewin Hannan, `Kennett, lawyers clash on push for compo'
30/9/98 page 10 news item by Gareth Boreham, `First shots fired in action for damages'
30/9/98 page 10 news item by Sandra McKay, `Ministers meet bosses as 100,000 stood down'
30/9/98 page 10 news item by Clare Kermond, `Banks say they'll do their bit to help those in trouble'
1/1/98 page 1 news item by Ewin Hannan & Sandra McKay, `Emergency aid rejected'
1/10/98 page 8 news item by Nicole Brady & Sandr McKay, `Union asks for social security help'
2/10/98 page 8 news item by Brendan Nicholson & Ewin Hannan, `Beazley pledges action'
3/10/98 page 6 news item by Sandra McKay, `Gas injured barred from class action'
3/9/98 page 1 news item by Ewin Hannan, `Gas may flow again on Monday: Kennett'
3/9/98 page 7 background analysis by Ewin Hannan, `Emergency powers set in motion'
3/9/98 page 9 editorial, `The state of cold comfort'
4/10/98 page 26 comment by Terry Lane, `Government freezes non-essential serfs'
5/10/98 page 7 news item by Nicole Brady, `Charities pushed to the limit to help out'
6/10/98 page 2 news item by Clare Kermond, `Fund skimps on charities'
7/10/98 page 1 news item by Leonie Wood, `Business burnt by $1 billion crisis bill'
7/10/98 page 9 news item by Jane Schulze, `Experts praise gas crisis leadership'
8/10/98 page 12 news item by Sushi Das, `Safety checks short of target, says MP'
8/10/98 page 21 comment by Kenneth Davidson, `Selling off gas - one way or another we all foot the bill'
9/10/98 page 1 news item by Ewin Hannan & Rachel Gibson, `Heating ban on as gas falls short'
9/10/98 page 10 comment by Ewin Hannan, `Now for the aftermath ...'

The Australian
29/9/98 page 8 news item by Michael Magazanik, `Kennett attacks rush for compensation'
30/9/98 page 5 news item by Tim Boreham, `Banks offer help on loan payments'
2/10/98 page 4 news item by Kimina Lyall & Rachel Hawes, `Labor to call national emergency'
3/10/98 page 4 comment by Michael Magazanik, `Kennett adds insult to inconvenience at PM's peril'
9/10/98 page 6 news item by Rachel Hawes & Michael Magazanik, `Cold comfort as gas flows again'
9/10/98 page 14 editorial, `Obvious failings mar gas supply system'

The Herald Sun
28/9/98 page 7 news item by Genevieve Lally, `Fear on right to sue'
29/9/98 page 5 analysis by Wendy Busfield, `Call to help each other'
29/9/98 page 9 news item by Genevieve Lally, `Law suit aims at suppliers'
1/10/98 page 2 news item, `Victorians soft, says Kennett'
1/1/98 page 3 analysis by Michelle Coffey & Michelle Edmunds, `Losses to hit $50m'
3/10/98 page 3 news item by Clinton Porteous et al, `$100m gas relief'
3/10/98 page 4 news item by Michelle Edmunds & Michelle Coffey, `Long wait for compo'
4/10/98 page 31 news item by Felicity Dargan, `Injured worse off, claims lawyer'
9/10/98 page 20 letter, `No soft side to hardship'