Cobbora sale may prove difficult

THE NSW government intends selling the Cobbora coal mine to help fund its $30 billion infrastructure program, despite it being locked into uneconomic supply contracts and needing more than $1.3 billion to develop.
Cobbora sale may prove difficult Cobbora sale may prove difficult Cobbora sale may prove difficult Cobbora sale may prove difficult Cobbora sale may prove difficult

Cobbora project location.

Lou Caruana

The government, which has indicated it also wants to sell the power-generation assets, will need to convince potential buyers the mine has long-term viability, despite the need for infrastructure linking its location near Mudgee to the coal supply chain in the Hunter Valley.

Budget papers reveal a $124 million investment in the mine – which it classifies as a public trading enterprise – would be needed this financial year. This would increase to $337m in 2013-14, $609m in 2014-15, and $106m in 2015-16.

“The development has an expected negative value based on non-commercial coal supply contracts put in place by the previous government,” according to the budget papers.

“However, the transaction process will seek to optimise the financial outcome for the state by divesting it of ongoing liabilities and de-risking its balance sheet.

“Cobbora has a number of contracts to supply coal with an estimated net present value to the state remaining unchanged from the previous budget at approximately negative $300 million.”

Earlier attempts by the Labor government to sell Cobbora to Whitehaven Coal proved futile because of the low fixed contracts to the power stations.

In December 2010, the Labor government sold some generator development sites and the retail operations of the state’s three distributors, along with rights to the generation output of Eraring Energy and Delta through “Gentrader agreements.

After the March 2011 election, the Liberal government established a special commission of inquiry into the electricity transactions, including advice on options for future action.

In November 2011, the government announced its intention to implement the recommendations of the inquiry, including the sale of generation assets, the remaining generation development sites and the sale or lease of the Cobbora coal mine.

Legislation to enable the sale of the generation assets was passed by the NSW Parliament in May 2012.

Restart NSW was established last year to fund critical economic and social infrastructure projects across NSW, with 30% of funding reserved for projects in regional areas.

NSW Treasurer Mike Baird said: “The process for the long-term lease of Port Botany and Port Kembla, and the sale of remaining electricity generators is also underway, which will see additional funds flow into Restart NSW in 2013 and 2014.

“Preliminary estimates indicate the gross proceeds for these transactions will range from $5 billion to $6 billion.”