News from the ABC and the AFR this morning that BP, Shell and perhaps even Chevron are looking to sell down their stakes in the Australian Petroleum Industry with the BP and Shell, “considering the sale of refineries and petrol stations in order to free up cash for their core energy production businesses.”
The AFR says that Shell is in talks with Macquarie Bank and a private equity firm over the sale of up to $3 billion of assets, including its Geelong refinery and 900 petrol stations.
Coming on the same day that the Australian reports Alcoa may be shutting its Geelong smelter and hot on the heels of Holden’s decision to shutter production in Australia, it is worth asking why some of the globe’s biggest companies are abandoning the world’s 12th biggest economy.
Already Australia’s petrol price is set off the Singapore Tapis benchmark to encourage the oil giants to be active in Australia, but their potential exit along with the many other exits we are seeing from the manufacturing space simply highlights the new global imperative – absolute return on capital.
It used to be the case that only banks and financial firms had the option of easily deploying capital from one nation to another in a search for the best return on capital for the home-based shareholders. A trader loses her job in Sydney – even though she makes a few million dollars a year – because a trader in Tokyo makes a few million more and the capital goes to him.
But increasingly in a globalised world, multinational companies of all types can exercise the right to exit a market and redeploy capital to the best interests of home shareholders.
It’s why General Motors don’t want to make cars in Australia any more but will still sell “Holdens” here and it’s why BP and Shell might be exiting as well. They either need the capital or can make more on it elsewhere.
For a country such as Australia with a long-term current account deficit, this could be a challenge. We need foreign capital to balance the national accounts.
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