Super royalty in harsh times

IT HAS been a year and a half since the Queensland government introduced changes to the coal royalty base, labelled the “super” coal royalty by the industry, and costing the state’s coal producers an additional $62 million in 2002.

Angie Tomlinson

At the time of introduction, the proposal was met by strong opposition from the Queensland coal industry but was pushed through by the Queensland government despite this resistance.

 

Negotiating through the Queensland Mining Council, the industry did however broker some changes to the original Beattie government proposal, where only exchange gains/losses, coal research levy and long service leave levy would have been deductible from the price on which royalty was levied.

 

The QMC negotiated compromise allowed port-related costs to be deducted from the sale price of coal before the royalty of 7% was calculated.

 

Allowing port related and demurrage costs to continue be deducted amounted to some $20 million worth of concessions, which the government said it agreed to after industry consultation.

 

Energy Economics' Clyde Henderson was concerned of the affect the “super” royalty was having on Queensland’s coal producers.

 

"The whole point of having a royalty based on a percentage of the value of the product is that producers pay more when prices are high, when they can afford it,” Henderson said.

 

“Conversely, when prices are low the revenue stream to the government is reduced but the scale of workforce reductions in the industry is reduced and mine closures are less likely than under a flat rate royalty regime.

 

“But last year, when prices were high, the government couldn't resist skimming more off the top by changing the basis of the seven percent royalty from the FOR value to the FOB value.

 

“The change to the royalty regime may come back to bite the government this year as producers scale back mine development plans to reflect the higher value of the US dollar.

 

“Royalties are the last thing the industry up there needs at the moment, it could be the straw that breaks the camels back.”

 

QMC industry policy adviser Keith Barker said the council had not yet pushed the government to revisit the royalty scheme.

 

“What we will see at this point in time, because of the increase in the Australian dollar and declining coal prices, is overall royalties will come down from 2002 levels because it is 7% of the price. However the “super” royalty, being effectively a royalty on the rail charge, will not fall,” Barker said.

 

Barker also made mention of the discrepancies existing between New South Wales royalty system and the Queensland system. Queensland producers pay higher royalties, even those selling the lowest priced coals, putting Queensland producers at an export disadvantage.

 

“Obviously companies would prefer to pay less than more, but then it is equally important revenue for the government with its current budgetary constraints. The concern is that long term growth in the Queenlsland coal industry was expected to be based on thermal coal from mines with longer rail distances – the ones hardest hit by the “super” royalty,” he said.

 

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