NSW Increases Coal Royalty Rates to Raise $2.7 Billion Over 4 Years

NSW Minerals Council says higher rates would burden coal producers

Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee in Australia on March 8, 2018. David Gray/Reuters

New South Wales (NSW) will increase coal royalties in a bid to add $2.7 billion (US$1.7 billion) to its budget over four years from 2024 to 2028, a move that mining companies say would result in a heavier burden for the sector.

The 2.6 percent increase in coal royalties starting July 1, 2024, will replace the emergency domestic coal cap and reservation measures introduced in December 2022. The NSW government said that it will mitigate a $1.3 billion write-down in royalties revenue in the forthcoming budget and be used to rebuild essential services and provide families with cost-of-living relief in the state.

“This is a fair outcome for the people of NSW. The old system is out of date. The market has moved on. That’s why we are modernising the state’s coal royalties,” NSW Treasurer Daniel Mookhey said on Sept. 6.

Upon implementation, open-cut, underground, and deep-underground coal royalties will increase to 10.8 percent, 9.8 percent, and 8.8 percent, respectively.

The NSW government noted that it has not increased coal royalty rates since January 2009 and that international coal prices have already increased even peaking well above $500 late last year amid Russia-Ukraine tensions.

It added that international coal prices are now consistently trading above $200 per tonne.

“These changes will take effect on July 1, 2024 giving the industry time to adjust and upholding the Minns Labor Government’s commitment not to consider royalties changes while emergency measures were in place,” Finance and Natural Resources Minister Courtney Houssos said.

“Having embarked on extensive consultations with mining companies, industry groups and our trading partners, we have struck the right balance.”

The government said that 13 mining companies and four major power companies attended roundtable consultations for the new scheme.

More Pressure on Sector

Meanwhile, the NSW Minerals Council said that the increase in royalties would impose a heavier burden on the sector as players are already facing high operating costs, including from the introduction of the safeguard mechanism.

The Australian government implemented the safeguard mechanism to reduce emissions in the largest industrial facilities in the country with an aim to reach net zero by 2050.

“It is acknowledged that the coal sector has an important role to play in relation to royalties, particularly in relation to the repair of the NSW Budget, and the industry takes its royalty and taxation obligations seriously,” NSW Minerals Council CEO Stephen Galilee said.

“However, the rate increases announced today, will mean NSW coal producers will pay at least 30 percent or more in royalties than under the existing royalty arrangements, continuously throughout the commodity price cycle, including when coal prices are low. ”

Mr. Galilee, meanwhile, expressed support for the abolition of the price cap and said it that it did not do much for the industry.

“The coal cap is poor public policy that has done nothing to reduce power prices, which have continued to increase, despite a significant fall in global coal prices since the cap was introduced. The associated reservation measures were also unnecessary.”

Last month, Queensland Treasurer Cameron Dick threatened to cancel BHP’s coal mine leases if the mining giant stopped investing in the state as the Palaszczuk government sought to raise taxes on mining companies. The threat came after a month BHP said it would no longer invest in further growth in Queensland.

BHP said that its decision is due to the state having the “highest coal taxing regime in the world,” which negatively impacts the company’s investment economics and increases sovereign risk. The company, however, is committed to sustaining and optimising its existing operations (pdf).