Keating weak on Rio Tinto deal: Costello

Former Treasurer Peter Costello believes the Keating government was ''hoodwinked'' into believing Australian interests would be preserved under the 1995 agreement that created the modern Rio Tinto, as the miner's former boss Leigh Clifford called for the next chief executive to have an active voice in national affairs.

Rio's relationship with Australia has been in the spotlight since Friday's ousting of French-born chief executive Jean-Sebastien Jacques and chairman Simon Thompson's admission that Rio needed to boost its engagement with Australian investors.

Modern Rio was formed in 1995 when Australia's CRA and London's RTZ sought to make their close relationship (RTZ owned 49 per cent of CRA) more efficient and more appropriate for a globalised world.

Inspired by the dual-listed structure that allowed oil giant Royal Dutch Shell to have a foot in both the Netherlands and the UK, a dual-listed company structure between the Australian and British mining companies was negotiated.

Ralph Willis, Treasurer in the Keating Labor government of the day, approved the deal subject to some loose conditions in December 1995.

''The theory was it would be dual listed. We would see a Rio head office in London, a CRA head office in Collins Street, nothing was going to change but it would help CRA by giving it access to the London capital markets and big institutions would have to hold their shares," recalled Mr Costello, who was shadow Treasurer in 1995.

''I think the government was hoodwinked in 1995, they were told that nothing would change, and I think probably the CRA management were hoodwinked too, but as time went on, the gravity of the City of London just gradually took over," said Mr Costello on Monday.

"As time went on I noticed that the headquarters of CRA started to get smaller and smaller and more and more people moved to London. Eventually I realised they didn't have a head office at all in Australia. Even when Australians were CEOs like Leigh Clifford they operated from the London head office.''

Mr Costello was Treasurer in the Howard government in 2001 when Australia's BHP and London's Billiton asked permission to combine under a similar dual-listed structure.

Wary of London's grip on what used to be CRA, Mr Costello approved the BHP Billiton deal in June 2001 on the grounds that the headquarters be located in Australia, the chief executive and chief financial officers have their principal places of residence in Australia, and the majority of board meetings occur in Australia.

"If I had placed the same conditions on the BHP and Billiton merger as were applied to CRA and RIO, BHP would now be a British company, that was the ultimate plan, for the City of London to get control of BHP just like they got control of Rio," said Mr Costello, who is chairman of Nine Entertainment Co, publisher of The Australian Financial Review.

''I was not going to allow to happen to BHP what had happened to CRA."

Attempts to reach Mr Willis and the Labor Prime Minister of the day, Paul Keating, were unsuccessful on Monday.

The Labor Treasurer's first attempt at imposing conditions on the deal had been a misfire.

Marketing of the deal had promoted each company's strengths in different hemispheres, and perhaps taking that rhetoric too literally, Mr Willis made a land grab for Australia by suggesting that CRA's half of the globe must include "Latin America'', where the British company was dominant.

Mr Willis' ruling was criticised at the time for showing a misunderstanding of the deal, which gave CRA shareholders a 23 per cent interest in the combined group, regardless of which assets fell within which company.

Within a week, Mr Willis had backed down from the Latin America grab.

''The proposed geographical split of the exploration and development activities of RTZ and CRA was indicative only,'' he said in a press release issued on December 20, 1995.

Mr Willis duly waved through the deal, adding some new conditions that were insignificant in the context of a dual-listed company structure; he demanded that RTZ refrain from buying any further shares in CRA, and he ordered RTZ to gradually reduce its shareholding in CRA over a ten year period.

''The agreement will ensure that CRA remains Australian and achieves its full potential as a world class mining house,'' said Mr Willis in the 1995 statement.

Later that day, 98.8 per cent of CRA shareholders voted in favour of establishing the deal, and by December 21, the new entity was born under the name RTZ-CRA.

The two companies changed their names to Rio Tinto PLC and Rio Tinto Limited in 1997.

Rio's earnings are 90pc Australian

The rise of China, and its thirst for Australian iron ore, has dramatically increased Australia's contribution to the combined Rio group, with Australia set to deliver about 90 per cent of earnings this year.

Mr Costello said the modern prominence of the iron ore division was important context for anyone reflecting on decisions made decades ago.

"You have to remember that when all this was going on iron ore was not the bonanza it is now, so it was not nearly as big a part of the whole operation. You would not have been able to see it as clearly as you could now," he said.

“It is now apparent that very little in terms of assets and profit is brought to the DLC by the old Rio business. In my view it is worth a total re-evaluation to see whether the DLC should continue and whether it is in the interests of all Shareholders and all Stakeholders”.

While Rio wants to improve its engagement with Australian investors, Mr Jacques has rejected the perception that the London headquarters flourished during his time as chief executive.

''Since becoming chief executive in 2016, numbers in the London office have declined by 64 per cent while, over the same period, numbers at the Perth and Brisbane offices have increased by 40 per cent and 24 per cent respectively, an increase of over 1200 people,'' he told a parliamentary inquiry into Juukan Gorge earlier this month.

Mr Jacques' own family relocated to Sydney in 2017.

Perhaps of greater focus for parochial Australians should be the rise of Rio's Singapore office, which catered for 212 Rio employees on December 31, 2015.

That number had more than doubled to 430 by December 31, 2019.

Rio shed 2930 employees in Australia and New Zealand over the same period and the number of Rio employees in Britain declined from 542 to 190 in the same time.

Leigh Clifford was Rio chief executive between 2000 and 2007 and said it was not essential for the next boss to be an Australian citizen, but the next boss must be active and visible in Australian life.

"The important thing is that the person Rio Tinto appoints is very alert about Australia and is engaging in the debates in Australia," he said.

Mr Clifford said it was conceivable that Rio headquarters could one day shift to Australia, but he cautioned against perceptions that Rio was a purely Australian company.

"They have got to get a CEO who is capable of running this global company because we have got to remember it is a global company," he said.