22 October 2014
Sustainability Report 2014
Message from our Managing Director
Energy is a topic which dominates public and political debate around the world, and attracts a breadth and diversity of opinion like few others. It is not hard to see why.
Energy underpins economic growth, and economic growth is fundamental to improving living standards. The United Nations estimates that today’s world population of approximately seven billion will grow by 27 per cent to reach more than 9.5 billion by 2050. Global demand for energy is increasing, driven particularly by emerging economies and developing countries as they pursue economic growth in order to lift standards of living.
In an energy abundant nation such as Australia, growing global energy demand presents many opportunities for Origin, as long as we can get the balance right. At Origin, we believe that energy needs to be provided reliably, at an affordable cost and in an environmentally responsible way. These are often competing objectives, therefore finding the right balance between them can be challenging.
The decisions Origin makes to balance these objectives affects a wide range of stakeholders and often in different ways. We commit to using forums like our Sustainability Report to explain our choices, to acknowledge their impact on different stakeholders, and disclose how we manage those impacts.
Improving our safety culture
Origin is committed to achieving our ultimate objective of a zero-harm workplace for all contractors and employees. Importantly, this year we achieved a 23 per cent improvement in our safety performance with our measure of safety, Total Recordable Injury Frequency Rate, down from 6.51 to 5.0.
Creating value for our stakeholders
One of the key principles which guides decision making at Origin is the value we create for distribution to stakeholders. This recognises not only the need to ensure the sustainability of our business but also its impact on the environment and the communities in which we operate.
In the 2014 financial year, Origin distributed $15.0 billion to its stakeholders, a 3 per cent decrease on the prior year. The largest component, $12.8 billion, represents our net expenses. We distributed $1.1 billion to our capital providers and $783 million to our employees through wages. Royalties and tax expense totaled $299 million, a significant increase of $167 million on the prior year. In addition, we distributed $6.7 million to communities in the form of investment programs, charitable donations, as well as grants provided by the Origin Foundation.
Meeting the needs of our customers
Following significant investment in our customer service systems, we are now better placed to improve customer satisfaction and encourage customers to stay with Origin.
As part of continuing to improve our customer service offering, in early 2014 Origin commissioned research to find out what energy consumers wanted and how we could improve.
We changed how and when we engage with existing and potential customers. For example, we removed exit fees from our residential plans, extended call centre hours, and stopped door knocking and cold calling by Origin for residential sales.
We have seen an improvement in customer retention on the back of these initiatives and an increased number of customers taking up new product offerings and payment options. We continue to monitor the satisfaction of our customers to learn how we can do better and act on their responses.
Helping customers use energy more efficiently
We know that the price of energy is a key concern for Australian households. In response, we have increased our efforts to explain to customers the structure of the energy industry, what drives costs and the reasons behind any price increases.
To assist those customers who may have issues paying their energy bills, we continue to work with them to make provisions and develop payment arrangements over the short term as well as helping them manage electricity costs over the longer term.
Better informing consumers has been a recent focus of Origin, and this year we continued this work. To help our customers better understand how their choices impact the cost and use of energy we developed a number of educational initiatives. In particular, our online information portal, Energy Explorer and the Energy for Schools program, contain a range of easy to understand information about the world of energy.
Minimising the impact on communities
We acknowledge that our developments can impact stakeholders, and this is an area where we are constantly listening to and learning from stakeholders so that we can minimise our impact. We understand our duty of care to those in the communities in which we operate. Embedded in every project we undertake is community engagement, where we listen to community concerns, respond to their needs and take action to help mitigate the impact of our operations.
Traffic has been a key concern in communities surrounding our CSG-to-LNG project, and while this is not a challenge we can easily solve alone, Australia Pacific LNG has invested in regional infrastructure upgrades. Australia Pacific LNG entered into road-upgrade agreements with state and local governments in major development areas with contributions to the value of approximately $90 million. Australia Pacific LNG also completed a $20 million upgrade of the Miles Aerodrome to provide regular flights for project employees, removing the need for a substantial amount of road travel.
Some forms of energy development, such as wind farms and CSG, also continue to generate public debate. We understand that it is incumbent on industry to prove the value and benefits of CSG, and to do this we must provide robust, scientific evidence about the key areas of concern.
To that end, we supported a CSG fugitive emissions study undertaken by Australia’s leading science research body, CSIRO. The results of this study were released on 31 July 2014 by the Department of the Environment.
The study confirmed that the emissions range is consistent with the current emission estimates for general equipment leaks and that equipment leaks comprise only a very small proportion of greenhouse gas emissions from CSG production.
Currently, CSG provides more than 90 per cent of Queensland’s natural gas needs and 15 per cent of the state’s electricity generation. It is also accepted that gas typically releases less than half the carbon emissions of coal when used in a power plant to generate baseload electricity.
Continuing to focus on achieving beneficial outcomes
We understand that the way we conduct ourselves in the communities in which we operate is fundamental to our business success. As we undertake large, capital intensive projects such as the Australia Pacifi c LNG project, we create substantial economic and social benefits, and we aim to share these with our local communities.
At 30 June 2014, expenditure on Australia Pacific LNG project had reached $21.0 billion. A significant proportion of Australia Pacific LNG's expenditure has been incurred on goods and services in Australia, including local communities and infrastructure.
Delivering the best outcomes to those impacted by our operations often involves listening to and working closely with them to understand their needs. An example of this is the introduction of the Water to Landholders program in April 2014, which has been designed in a way that profits landowners. The Fairymeadow Road Irrigation project commenced delivering treated water to 13 properties across an estimated 4,000 hectares of land.
In FY 2014, we continued to embed Life Saving Rules as mandatory behaviour for our entire workforce, including contractors. The rules are now clearly entrenched in Origin’s health, safety and environment systems and processes and are taught in day-one inductions for all new employees.
Increasing gender diversity is an ongoing priority
We are committed to providing equality of opportunity and creating a rewarding workplace for all employees. Increasing female representation, especially in senior roles, is an ongoing priority. As at 30 June 2014, 40 per cent of Origin’s employees were female. Eleven per cent of the Executive Management Team and 27 per cent of senior roles were filled by women. The addition of Maxine Brenner to our Board in November 2013 lifted female representation on our Board to 33 per cent.
Origin is developing work practices to accommodate a diverse workforce such as flexible work and we are pleased to see these are being adopted by men as well as women.
Overall, we are pleased with the improvements in the operational performance of our existing businesses and the progress made on Australia Pacific LNG during the year.
We believe that the 2015-16 financial years will be a transitional period for Origin with the commencement of LNG production by Australia Pacific LNG in mid-2015.
The LNG project will deliver a step change in Origin’s earnings and cash flow from the 2016 financial year when the project begins to deliver Australia Pacific LNG projects under its existing long-term contracts.
The first full year of earnings and cash flow from two LNG trains at Australia Pacific LNG is expected in the 2017 financial year, with distributable cash flow2 of around US$1 billion (Origin’s 37.5 per cent share) on average per year thereafter. The step change in cash flow will allow Origin to increase shareholder distributions, maintain an investment grade credit rating and reinvest cash in growing businesses.
Climate change policy
Public policy is an important area for our business. Continued change and uncertainty in policy can be very challenging when making large, long-term investments for the future.
One of the key policy responses of particular importance to energy companies is that of climate change, which is widely recognised as a global challenge.
Origin maintains its long-term support of measures to progressively reduce carbon emissions. With the recent change in Australia’s key climate change policies, our business has needed to adjust accordingly.
The Australian Government’s carbon price repeal in July 2014 provided the energy industry with policy certainty on carbon pricing, and we are passing on the savings to our customers as quickly as possible. In line with the legislation, we will backdate the carbon-free portion of customers’ bills to 1 July 2014.
During the past year, the Australian Government also commenced a review of the Renewable Energy Target. Throughout the debate our position has been clear – Origin supports renewable energy. We have consistently stated that a true 20 per cent target, one that takes into account reduced energy demand, strikes the right balance between encouraging the development of renewables with recognizing the cost on households and businesses.
As we look ahead to another year, we can be sure it will bring more change for the energy industry and an equally challenging set of choices for Origin. As always, we do not shy away from these challenges. We will stay focused on balancing the economic, social and environmental aspects of our business, which we believe will help us move towards a more reliable, affordable and sustainable energy future.
Detail on our performance using the GRI G4 Guidelines is now available for download using the links below.
- Revised from 6.7 previously reported due to retrospective data updates.
- Distributable cash flow after Australia Pacific LNG revenues, operational expenditure, ongoing capital expenditure, project finance interest and repayments, and taxation. Based on current market conditions.