BiFab and the Neart na Gaoithe Offshore Wind Farm
Lest it be thought that the awarding of a construction contract to a yard in Indonesia is being decided by market forces in a free and fair competition, it is important to consider whether the Scottish yards such as BiFab are facing a level playing field. A review of the economics and record of the locations in Indonesia are needed to explore how it appears to be cheaper to undertake work associated with the NNG offshore windfarm half-way across the world. Evaluations by international experts and academic studies have identified major concerns over the economic and environmental impacts and the labour practices underpinning the operations in Indonesian and these should be raising leading questions as to the awarding of the fabrication contracts to Saipem.
The suggested bidder, Saipem, is ultimately owned by ENI, the Italian conglomerate and one of the world’s very largest manufacturing companies and the 10th biggest oil and gas company. Saipem operates in an export processing zone which, like enterprise zones, free trade zones and other special economic zones, offers a number of incentives to attract businesses, and often in the form of foreign direct investment, into the economy. These zones are based on offering tax and regulation exemptions and infrastructure incentives. The fiscal elements include exemption from export taxes, import taxes on inputs, profit and property taxes, and other indirect taxes and VAT. These exemptions allow greater surplus to be made and that may be shared between workers (higher wages) and capital owners (higher profits); however analyses of practices in Indonesia do not show labour gaining from these arrangements. Sometimes there are derogations on certain labour laws etc., while infrastructure incentives can include subsidised utility prices. So at least the suspicion of unfair practices and tax avoidance by multinational companies.
Generally, evaluations confirm tax exemptions are critical to the improvements to ‘competitiveness’ of enterprises locating in these economic zones or firms need to be ‘heavily subsidised’ to invest in the Pacific island zones. It is also concluded that in aggregate these zones divert labour from other locations within each country’s economy and so do not attract new work overall. Typically, although many countries have adopted an approach of offering tax incentives, their effectiveness is often limited and ‘well below those of other pull factors’. Evidence specific to the Indonesian context is consistent with the wider literature on the effectiveness of fiscal incentives for the attraction of FDI: with over-emphases on their real effects, given the complexity of taxation. Tax exemptions, subsidies, and other incentive packages may simply translate to higher profits.
European Commission analyses on variations in taxes and regulations, worker protections, and other features between countries and locations confirm that the specifics of any particular location need to be assessed and they conclude that the Indonesian special economic zones depend on tax exemptions and lower wages along with poorer working conditions and weaker enforcement of labour laws. Although ENI is covered by a Global Framework Agreement signed by IndustriALL and Italian trade unions, their own documents do not suggest that workers in Indonesian are included. The RAND corporation argued that businesses in such zones paid lower taxes, but ‘these tax reductions neither encouraged greater firm entry, increased migration, nor raised local measures of output or welfare’.
The research and evaluations therefore point to unfair competition in the fabrication of turbine jackets by European multinationals offshoring construction to zones where they can benefit from exemptions from taxes and regulations, and other subsidies. Indonesia has also been accused of being duplicitous in its support for renewable energies, supporting fossil fuels over wind and other sources.
In summary, BiFab is competitive but faces an unfair regime of tax avoidance and subsidies that should not be acceptable to EDF, Ministers and the workforce.