As part of the privatisation deal secured by the previous NSW government to ensure the sale of its generator assets, Cobbora has fixed contracts to supply discounted coal to generators at just $31.16 per tonne.

This price is significantly less than the $55/t offered by Whitehaven Coal when the government was earlier seeking to renegotiate supply agreements to power stations.

Coal contracts with its existing supplier Centennial Coal are due to expire in the next few years.

The Tamberlin’s Inquiry’s adviser Donald Challen and an independent report produced by Ernst & Young found that the price per tonne offered to the purchasers of the generator assets – TRUenergy and Origin – did not cover the cost of production.

“The preliminary conclusion in considering the benefits and costs of the Cobbora development is therefore that a business case, had one existed, would have shown that the benefits of the development did not exceed the costs,” Challen said.

Ernst & Young said Cobbora’s “unavoidable costs of meeting each coal supply agreement exceeded the revenues."

If the NSW government had accepted Whitehaven Coal’s tender of $55/t for 10Mtpa when it was offered, it would be $4 billion better off over the 17-year life of the proposed contract.

Cobbora will require $1.5 billion investment to produce about 30 million tonnes of thermal coal a year and provide all of NSW’s coal-fired power stations by 2020.

Assuming that current thermal coal prices remain in the vicinity of $120/t and Cobbora produces its maximum of 30Mtpa of thermal coal, the government will forgo export revenue of about $2.7 billion a year.

Developing Cobbora would expose the government to considerable risk and its supply of subsidised coal to newly privatised electricity generators would mean the state would only receive about $700 million from the $5.3 billion headline price, according to a state parliamentary investigation released in February.

The NSW Upper House committee in its review of the sale found that the state government was effectively guaranteeing the electricity generators coal at $31/t, well below the government supply contract rate, and the sale should be reversed.