Union Privilege v. Workers' Rights
Coal Reform: The Hunter Valley No. 1 Story
Ladies and gentlemen,
Coal reform started over 200 years ago and in another 200 years
will still be occurring. It is no different to any other industry---to
be profitable and to provide secure jobs coal mines have to be
low cost, productive and efficient.
Coal reform in recent times has been all about removing impediments
to improved productivity and profitability.
An important chapter in the reform process took place in the
last 4 years at the Hunter Valley No 1 mine. It was here, in the
heart of the Hunter Valley and the heartland of the CFMEU (the
main coal mining union), that the pace of reform was accelerated.
The Hunter Valley No 1 story is about the best deposit of coal
in the Hunter Valley and a mine that was unproductive, inefficient
and in grave danger of becoming unprofitable. My role in this
story was General Manager of the mine located on site from January
1996 until August 2000.
What I would like to do today is to examine three questions:
- What was it like in 1996 when I arrived at HV1 and what had
- How were changes made at Hunter Valley No 1 to make the mine
productive and profitable?
- What does the future have in store for coal and continuing
I will confine my comments and use data that is relevant to
early 2000. Last year the mine was merged with the nearby Howick
mine into one operation called Hunter Valley Operations and that
has made disaggregation of recent data quite difficult.
Firstly some background on the mine. Hunter Valley No 1 is
located between Singleton and Muswellbrook in the Hunter Valley
of New South Wales. The mine commenced operation in 1979 and is
a large truck and shovel mine. In 1999, it produced 5.6 Mt of
export coking and steaming coal---all of which was exported through
the port of Newcastle mainly to customers in Japan, Korea and
Taiwan. At the beginning of 2000, it employed 260 people, compared
with 585 three years earlier.
Hunter Valley No 1 is also located in a very intensely mined
area as you can see on the map.
What Was it Like at Hunter
Valley No 1 Four Years Ago?
On the ground it was like this:
- In 1996, the mine produced approx 5 Mt with around 585 people
who enjoyed an average annual income of over $70,000.
- The size of this workforce equated to a labour productivity
of around 8,500 saleable tonnes/employee/year or approximately
110,000 tonnes of total movement (overburden and coal) /employee/year.
- In 1996 the mine made $1 per tonne profit and then coal prices
fell $3 per tonne in 1997
- Demarcation existed between staff and workers (staff were
not allowed to operate or maintain the 'workers' equipment which
included trucks, loaders, shovels, the coal preparation plant
and the rail loading point)
- The union co-managed the operation and were the main communicators
with the workforce. The union delegates were regarded as the
prime source of information
- Unproductive tolerance time or shower time of 15 minutes
per shift was provided to everyone irrespective of whether a
shower was required.
- Discipline was ad hoc and inconsistent
- Shift patterns were fixed and shift lengths were 8.5 hours.
For this a hot seat change on all equipment was supposed to occur
but did not. All overtime was paid at double time including the
last 1.5 hours of every shift. A worker was paid for a week a
total of 50 hours pay for 41.25 hours at work.
- Allocation of an employee to another shift, for overtime
or to another roster was done by seniority. In a downturn, selection
for retrenchment was based on seniority.
- A plethora of restrictive practices occurred on each shift
depending on how influential the shift delegates were.
- An outdated production bonus system existed based on coal
tonnes mined instead of a more equitable and fair system say
based on costs and productivity
- No formal assessment of performance occurred
- Restrictive arrangements were imposed by the union with hiring
- Whenever it was necessary to initiate change the union would
veto the change unless the company paid the workforce more.
To summarise, management did not manage and the union ran the
operation. This was encapsulated in a comment I made to a group
of journalists in 1997 when I said---'if we want to hire, fire,
promote or reward and allocate overtime we first need to ask permission
of the union.'
As an exporting business, Hunter Valley No 1 is subject to
international trends in price and exchange rates whilst incurring
all costs in A$. Coal exports are generally sold in US$. I would
like to illustrate the basis of the problems in the coal industry
and at Hunter Valley No. 1 with two graphs.
The first one relates to coal prices. The graph shows since
1983 contract coal prices for soft coking coal and thermal coal
in MOTD terms. These coals are the predominant coals exported
from the Hunter Valley through Newcastle. You will note that prices
for thermal coal have remained around A$45/t FOB for more than
the last 15 years. For each tonne of thermal coal sold, the revenue
per tonne in A$, has stayed much the same. Of course recent falls
in exchange rate have improved A$ prices though for how long we
are not so sure.
The second chart shows what has happened to costs---this graph
is of average NSW coal industry earnings in A$ MOTD. As you can
see, average weekly earnings have increased from about $600/week
in 1983 to over $1,600/week in 1999---an increase of over 250%.
Average weekly earnings translate to labour costs with the addition
of payroll tax/ superannuation levies etc. Labour costs make up
about 40% of the cash costs of a mine. Other costs of running
a coal mine have also increased considerably over the last 15
years---everyone wants their slice of the cake.
The only way to ensure a profit in these circumstances is to
increase productivity. This can be done by increasing total production
of coal with only a marginal increase in costs or producing the
same amount of coal with significantly reduced costs that invariably
means fewer pieces of equipment and consequently fewer employees.
At Hunter Valley No 1, the crossover point when costs were
going to become greater than revenue was in 1997. We had to do
something to ensure the mine remained viable. That 'something'
was to improve productivity and that meant eliminating unproductive
work practices. And that's how accelerated coal reform in the
Hunter Valley commenced.
I took the second option because the coal market was oversupplied---the
aim was to reduce absolute costs and focus on improving labour
and machine productivity. This meant reducing the number of pieces
of equipment by over 30 from 80 including 22 out of 43 large trucks
and making the remaining equipment work harder. An obvious consequence
was that employee numbers had to reduce and that happened. In
October 1998, mine employment was restructured to 260, down from
585 in early 1997. In that restructure the best people were retained
rather than retrenching based on seniority that was the traditional
coal industry practice.
The next chart shows how productivity increased over a three
year period from the start of 1997 to the end of 1999---but
this is from a very, very low base. After the restructuring
in October 1998, productivity took a significant leap, it doubled
since the beginning of 1997.
There had to be dramatic changes at Hunter Valley No. 1 to
improve productivity and reduce costs so that the mine could remain
viable and made competitive with other operations in NSW and with
overseas producers of coal.
Now My Second Point: How
Were the Changes Made?
How were the changes made that had to happen to improve labour
productivity at Hunter Valley No. 1. They fell into 3 main areas:
Firstly, management support, secondly, changes to the approach
to making change and finally changes to the legal environment
for making change.
- Strong, clear leadership from very senior management was
critical and when it occurred it was unique to the coal industry.
This leadership and unwavering support gave Hunter Valley management
the confidence to be bold and innovative when mediocrity and
incrementalism would have been an easier course.
- The message heard by Hunter Valley management from the new
CEO of Rio Tinto Energy in mid-1997 was that dramatic change
was required, that incrementalism was not enough and that change
which was good by Hunter Valley standards would be inadequate.
This message was given constantly by the CEO during the period
from 1997 to 1999.
- The most impressive displays of support occurred when Rio
Tinto did not waiver during lengthy industrial action at HV1
during 1997 and when the ICEM and CFMEU campaigned against Rio
Tinto and sought to make agreements with it. I would say however,
that this approach seems to have changed in recent times with
Rio Tinto now accommodating union wishes after a successful corporate
campaign waged by the unions last year.
- The visibility and credibility of leadership support was
also important on site. A critical example was in early 1997
with the support on site we offered employees who took up Australian
Workplace Agreements in circumstances when we could have backtracked
on the promise of an easier route to a collective agreement.
This was seen as a sign of changed management behaviour, increasing
the credibility of site management and ensuring it could call
upon support from line managers and other staff in periods when
intense effort was required.
- Not surprisingly, when senior site management developed a
clear view of the future and knew how it was going to get there,
line management on site was very supportive. Without supervisory
line management support, major change is impossible to implement
on the ground.
Approach to change
The second major change was the ability to make changes without
having to first ask permission from the union. When management
embarks on major change supported by strong leadership, it will
inevitably make decisions that will not please the union. Union
opposition and the company's response can be summarised in a number
- If the changes are large, a militant union will undertake
a public and political campaign to pressure local, business unit
and corporate management to compromise. Management has no choice
but to respond to the union campaign. If it does not respond
skilfully it will suffer major disadvantage in the media, before
the AIRC and on site. While implementing change in a low key,
low profile manner is undoubtedly preferable, it is the union
which will determine whether that is possible. Publicity is a
key part of any union campaign to resist change and at Hunter
Valley No 1 the union used this technique widely.
- In response, the company must present a clear and credible
business case built around explaining the need to remove outdated
and inefficient work practices. If a company has decided it must
make change it should clearly be for business not ideological
reasons. The nature of the employment arrangements are irrelevant.
- The company case should be well argued in the media by the
senior management and internally by making maximum use of supervisors
as the key point of communication with operational employees.
- The company should capture the language and symbols necessary
to reinforce the case for change and the process of it. For example,
in the first strike in 1997 we awarded staff trophies for producing
coal while the rest of the workforce was on strike. That presentation
which was publicised by inviting print and TV media to attend
still riles the union.
- Companies have wins and losses in the AIRC but if you have
a strong well argued business case for each proposed change and
your actions are fair and legal, you will survive.
And finally, like any major change program, faster is better
than slower. Managers should be encouraged to go faster than they
think is possible.
By using the above approach and obtaining the best possible
legal advice and ensuring the changes were demonstrably fair,
we were able to remove the archaic and unproductive work practices
I found when I arrived at HV1.
Changed legal environment
The fact that HV1 was in dire straights when the Workplace
Relations Act was introduced was just a coincidence. However,
had the legislation not changed, our ability to make change quickly,
more lasting and with lower costs would have been a lot more difficult.
The WPA helped us by providing more choice for the Company and
employees in several ways. Firstly, it has provided the facility,
if an employer or employee wishes, for access to a variety of
employment options. Secondly, access to changed employment conditions
is available and finally the Act has redefined the process of
reaching agreements on employment options and conditions.
At HV1 this meant that employment arrangements changed over
the last 4 years. Now, by having available a range of employment
options, employees were able to exercise choice as to how they
were employed and whether or not they were in a union. There are
about 10% of production employees who signed AWAs. The remaining
90% are now employed under a Collective Agreement reached in October
2000. Management, from supervisors to managers, were employed
mainly on individual contracts. This changed from three years
earlier when all staff employees other than senior site management
were employed on the various coal mining awards.
Employment conditions have also undergone major change in the
- removal of non allowable matters
- simplification of remaining 20 allowable matters
- removal of LOFO
- removal of custom and practice
To be able to utilise these legislative changes and implement
lasting changes on the ground, it is necessary to have alternative
systems available to replace the old archaic systems.
A good example is the removal of LOFO. In the past there was
no difficulty in determining who should go in a downturn if the
rules were governed by LOFO. If there were 200 employees in your
company and 50 had to go and you were number 151 on the seniority
list, you knew you had to start looking for another job even if
you were the best worker. In the past at Hunter Valley No 1 you
probably didn't have to worry too much about another job because
the union ran a closed shop which meant that if a vacancy arose
at another mine you would be put back on in turn. However, if
an employer choses to keep the best, a selection process without
LOFO must be established to determine who are the best workers.
Retention of the best workers at HV1 in late 1998 was the first
time a merit based selection process had been implemented for
retrenchment in the NSW Coal Industry.
You have seen the productivity difference achieved at HV1 since
October 1998. Despite it being blindingly obvious that the best
workers were selected to stay and work the mine, the union ran
108 unfair dismissal cases in the AIRC after the restructure.
There were 55 days of hearings over almost 18 months and there
still has been no decision, 2_ years after the restructuring at
HV1. To be successful, employers must have a long-term view and
a lot of determination and persistence to take on changes like
this against such opposition by the union.
Changes to the agreement making process have also occurred.
Now it is no longer the case that parties will end up going straight
to the AIRC for arbitration if an impasse occurs with negotiations.
Protected action in the form of strikes and bans by the workers
can occur and the company can lockout. If a company cannot afford
to reach agreement on the union's terms, it does not have to,
providing it can generate enough leverage to resist the union's
demands. At HV1 continuing to operate the mine during strikes
so that the workers traditional weapon the 'strike' became the
company's weapon was a very important initiative. The unions did
not like this and tried unsuccessfully to prevent us from working
during strikes by encouraging the Mines Department inspectors
to stop us over alleged safety breaches and undertaking a concentrated
media and political campaign.
However, in October 1997 the unions had to yield and changed
their approach by seeking termination of the bargaining period
in the AIRC. All along, my intention was to reach a collective
agreement on suitable terms. The issue was not whether an employee
was employed under an individual contract or a collective agreement
or was in a union or not in a union, it was how people worked.
Yes, it is true that I opposed arbitration in 1997 and 1998, not
because I preferred the law of the jungle, but because I believed
the AIRC couldn't hand down a result that would satisfy everyone.
The result of the union's action was that after appeal and
counter appeal, arbitration under s170MX of the WPA was conducted
in 1999. It is history now that in October 1999 the company won
a stunning victory in the 'all's fair in love and war' case and
the workers and the union were not satisfied with the result.
The union initially appealed the decision to the High Court and
the workers still had to wait for a pay rise despite my making
five offers to them in three years.
As the result of changes to legislation, a weapon which companies
and unions have used more and more is litigation in the courts
outside of the AIRC. I don't think this is necessarily good in
all circumstances but one thing I do know is that it is awfully
expensive. Companies planning major industrial change in this
millennium have to be prepared for these legal contests because
the unions surely are.
There have been numerous AIRC, Federal Court and Supreme and
High Court actions associated with change at HV1, which I will
- Numerous applications by unions to AIRC under s99 of the
- Numerous s127 applications to AIRC by company and union.
- Company and union application to AIRC to terminate bargaining
- Appeals to AIRC, Federal Court and High Court by company
and unions resulting from AIRC or Federal Court decisions
- s170 MX arbitration in the AIRC
- Union application to AIRC alleging 108 unfair dismissals
- Several Federal Court actions by union over alleged breaches
of Award or Act
- Supreme Court injunctions by company under common law or
s166 of WPA
- High Court appeal by the company in relation to the original
decision by Justice Boulton to terminate the bargaining period.
All this activity kept the lawyers busy and of course was able
to divert considerable management attention away from the business
of mining and processing coal. In the process however, leadership
of line management improved because there is nothing more harrowing
and character building than giving evidence and being cross examined
in front of a hostile bench and gallery.
The Future for Coal Reform
Reform in coal will continue and it will be successful provided:
- There is a demonstrable business case
- Change and restructuring is carried out within the legal
- There is corporate capacity and will to see the changes through
to a conclusion.
I would like to examine each of those points briefly.
The case for change must be argued for good business reasons,
not ideologically. A focus on work practices, inefficiencies and
rorts will get the support of management, genuine employees and
However, in a market that is subjected to strong demand and
rising prices, the business case becomes more difficult to explain
if the focus of the change is just cost reduction. History shows
that for commodity markets strong demand, price rises and low
exchange rates tend to be cyclical in nature. A weak market will
return and businesses must be capable of withstanding those circumstances
when they occur. The issue is achieving low costs and high productivity
whatever the market.
In the last four years there has been a lot of opportunity
to reform businesses due to the changes in the legal environment.
Award simplification, introduction of AWAs, removal of excessive
union power through abolition of closed shops etc has meant employers
have had greater flexibility to determine how they run their businesses.
This in turn has resulted in improvements to productivity, reduced
costs and increased profits.
Capability and Will
With a sound business case and a supportive legal environment,
the potential for reform and change is very high. However, it
will not happen unless companies demonstrate they have the will
to make it happen.
Management must be capable of understanding the business, deciding
on the right approach for change and then seeing it through. Another
way of expressing this is to say management must be capable of
demonstrating exemplary leadership.
Very few companies and executives have the right combination
of will and capability to plan and execute major change. Both
qualities are necessary to succeed because it is very hard to
change and reform the huge inertia of the 'status quo'.
So, looking back at my 3 points:
Firstly, what had to change at Hunter Valley No 1 in 1996?
The answer to that question was 'management had to change---management
had to manage to remove outdated work practices to enable the
mine to remain viable'. There was a simple business case for the
need for change. And change will continue to rush at us. Hunter
Valley No. 1 just happened to be the first in the firing line
because it did not have an agreement that prevented us
from making major changes quickly to meet the requirements of
Secondly, the Workplace Relations Act has assisted tremendously
in facilitating change. Nevertheless, a sympathetic Act is no
substitute for senior management support and actually confronting
the issues and taking control on the ground. We made change at
that mine for explicit business reasons---not as our opponents
would have it for ideological reasons. I say this again---it makes
no difference to me if an employee is employed under a Collective
Agreement or an AWA, whether they are a union member or non-union,
as long as they are committed to working to the best of their
abilities and with a clear understanding that a profitable mine
will be profitable for them. Any employment arrangement in this
age has to provide the basis for major improvements in productivity
and reduction in costs. Currently, this approach runs counter
to the union's philosophy.
And finally, will coal reform continue in the future? Yes I
believe it will. The issue is, at what pace? The answer to that
question will depend on the robustness of the business case, the
support that can be derived from the legal environment and finally
the capability and will of the people involved to make it happen.