Tuesday, June 3, 2008

Queensland Coal Royalty Payments Set To Rise

Coal export royalties in Australia's Queensland state, home to the world's biggest coking coal shipper, will rise for the first time in 14 years as record prices bolsters profits for producers.

The royalty on coal sold for more than $100 a metric ton will increase to 10 percent from 7 percent, while the lower rate will be maintained on cheaper coal, Andrew Fraser, the state's treasurer, said in statement today ahead of a budget announcement for the year starting July 1.

The price of coking coal, a steelmaking raw material, surged to a record this year as floods in Queensland and Australian port and rail bottlenecks constrained deliveries. The value of minerals and energy output in the state may rise 60 percent next year to more than A$40 billion ($38 billion), the Queensland Resources Council said last month.

The increase was criticised as a “smash and grab raid for short-term cash at the expense of long-term economic security,'' by the council's Chief Executive Officer Michael Roche. Prior to the rise, payments for the year ending June 30, 2009, were estimated to double to A$3 billion, he said.

The introduction of two-tiered payments is the first overhaul of the royalty system since 1974, the minister's statement said. The percentage rate was last increased in 1994 when it rose to 7% from 5%.

Large producers agreed in April to a threefold increase in annual prices for coking coal to $300 a ton. Thermal coal producers won a 125% increase in annual contract prices to $125 a ton in the year started April 1.


“This is not an industry that needs discount rates to stimulate investment,'' Queensland's Fraser said in the statement. “Our task is about financing the infrastructure investment to support the resources boom, not discounting their royalty payments. This is about a fair deal for the owners of the minerals, the people of Queensland.''

Constraints in port and rail infrastructure in the state have slowed expansions at mines amid record prices. The council, a non-government body representing mining and energy companies, is lobbying the state to use increased royalties to boost investment in infrastructure to allow producers, including BHP and Xstrata, to expand output faster, it said last month.

“The coal industry pays for its infrastructure, and as a consequence, taxpayers have a right to know what's been happening to the billions in royalties that have been collected by the state government in recent years,'' Roche said today. “Not a single cent of the state's mineral royalties has paid for any of the essential rail, port or water infrastructure used by mining companies.''

Miners may spend A$11.5 billion during the next five years opening 17 new coal mines and expanding 11 others in central Queensland, the council said. The industry is also investing A$9 billion in new coal transport infrastructure, it said.

Prices for coking coal may rise again next year because of the extent of the flooding damage in Australia. Coal supplies are “likely to remain extremely tight over the next 2-3 years,'' and the price may increase to more than $350 a ton in 2009, Credit Suisse Group analysts said in an April 28 report.

Source: Bloomberg

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