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‘Much weaker outlook’ for coal slashed expected NSW mining royalties

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“Demand for thermal coal as an energy source has been weakening, driven by competition from other sources, the widespread substitution away from coal-fired electricity generation into technologies fuelled by increasingly competitive liquid natural gas and renewable energy.”

The slump would have been deeper if not for an improved outlook for both prices and production of gold and copper, which “provide a minor offset”, the papers said.

Mining royalties would recover slightly to reach $4.6 billion over three years to 2023-24, or a little over $1.5 billion a year on average.

The projection for weaker revenues come days after the Berejiklian government announced it would redirect royalties into the NSW Generations Fund, the state’s sovereign wealth asset.

“Mining continues to be an important source of revenue for NSW, and it will continue to have a vital role to play in our economy, but we also recognise that as technology advances we need to adapt,” Treasurer Dominic Perrottet said. “Directing royalties into the NGF sovereign wealth fund will ensure that non-renewable resources benefit NSW long into the future that includes creating new industries and jobs.”

More mines are shedding workers in the Hunter as price falls turn profits into losses.

More mines are shedding workers in the Hunter as price falls turn profits into losses.Credit:Rob Homer

Tim Buckley, an analyst with the Institute for Energy Economics and Financial Analysis, said the drop was the result of prices as there had been no major reduction in volumes so far.

NSW was the most exposed of Australia’s states to weak thermal coal prices, with the commodity accounting for about 70 per cent of total coal revenue compared with about 15 per cent in Queensland. Coking coal used in steel production makes up the difference.

The Treasury’s recognition of a long-term reduction in coal demand was prudent, Mr Buckley said, noting that NSW’s three biggest coal customers – Japan, China and South Korea – all have net-zero carbon emissions targets.

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Stephen Galilee, the chief executive of the NSW Minerals Council, said coal exports hit record levels in 2019 and had a strong start to 2020 before COVID-19.

“The recovery in demand for NSW export coal will depend on the global economic recovery, but the NSW Government’s Coal Strategy released earlier this year outlined a strong role for NSW coal exports in the Asia-Pacific region,” Mr Galilee said, noting annual royalty revenue fell to $1.4 billion during the last downturn, then rose to $2.1 billion at the peak of the last cycle.

Paul Scully, Labor’s resources spokesman, said the royalties drop made it more important the government backs the ALP’s amendments to the new Electricity Infrastructure Investment Bill that is likely to be voted on this week in Parliament. These include creating a jobs advocate to boost employment in mining areas.

“We need to make sure we have opportunities for those communities long into the future,” Mr Scully said.

Justin Field, an independent NSW MP, said royalties had dropped from 2 per cent of the total budget in 2018-19 to 1.7 per cent.

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“The significant reduction in royalties between this budget and the last highlights the urgent need for the NSW government to support coal mining communities to transition and for the state to plan for even further reduced coal royalties in the future,” he said.

Separately, Australia’s largest electricity generator, AGL said NSW’s interventionist energy policy had forced it to rethink plans to build batteries which were to help replace supply when the Liddell coal-fired power plant in the Hunter Valley shuts in 2023.

AGL chief financial officer Damien Nicks told the UBS Australasia conference it would delay plans to build a battery at Liddell “until we understand the detail that sits behind the announcement and the legislation that is before the government”.

The NSW Energy Roadmap will see the state government take a role in infrastructure planning that had previously been left to the market.

AGL has previously said it would fast-track its final investment decision on its Liddell battery by April 1 next year to meet a deadline for new dispatchable generation set by the federal government.

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