Around one quarter of Queensland’s (Australia) coal production is in the red according to the latest industry data provided to Treasurer Tim Nicholls in the lead-up to the June state budget. The bleak outlook headlines a ‘Strong Choices’ submission from the Queensland Resources Council compiled with the assistance of independent economic consultants, Wood MacKenzie and Lawrence Consulting. “Despite vigorous cost cutting, 25% of the coal currently produced in Queensland is being done so at a loss, including half of all thermal coal production,” QRC Chief Executive Michael Roche said last week.
“Some of these mines are only staying open because production is a more palatable option than closing operations locked into transport costs levied on a take or pay basis. However, with one out of every 10 t of coal currently produced in Queensland in the red to the tune of more than A$14, some mines are at extreme risk of shutdown. If that happens, Queensland could lose up to A$1.8 billion in spending with more than 22,000 jobs in the line of fire.”
The QRC submission says that from a public interest perspective, increasing state-based taxes such as royalties is the least desirable option for the state government to return its budget to surplus and retire debt.
“Queensland’s metals, bauxite and gas producers are also at the wrong end of their respective global cost curves and in no shape to absorb a further royalty hit,” Roche said.
“Given the government’s need for significant and prompt revenue flows to stabilise debt levels and lower state borrowing costs, the QRC supports the government’s proposal for selected sale or leasing of assets, subject to appropriate regulatory and commercial safeguards being discussed with industry and implemented prior to divestment. To achieve structural improvements in the state’s finances, there is a need for higher revenue flows now and into the future.”
“Government reforms targeted at lowering costs, improving productivity and encouraging new investment in the resources sector will lead to stronger flows of sector royalties to the state,” Roche said.