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Raising royalties - it's about more than coal
from BBMC Yearbook 2022
by bbminingclub
Raising royalties – it’s about more than coal
Warren Pearce, Chief Executive Officer, Association of Mining and Exploration Companies
Despite the impact COVID-19 has had on supply chains globally, Queensland has experienced record coal production and exports over the past two years while trading at record highs and near-record levels of mineral investment across exploration in all commodities. This has largely been credited to industry and government working hand in glove to keep the industry moving forward, alongside a stable regulatory environment with fair and consistent taxes.
But mid-way through 2022, this all came to a grinding halt when the Queensland government blindsided industry and re-wrote the royalty rules, imposing three new trigger points for higher mining royalties and ending a decade-long freeze on coal royalties.
Despite already imposing the highest coal royalties in the nation, the new rate of 40% was predicted to net the state $1.2 billion over the next four years. In reality, this cash grab will collect billions more, and breaks the government’s promise not to increase taxes during the term.
While only coal companies will pay the increased royalty, lining government coffers and boosting budget surplus, the decision has and will continue to have much broader implications for the entire Queensland resources sector and the State of Queensland.
Royalty rates of 40% will make investors think again before making major new resources investments in Queensland, making it harder for all Queensland resources companies to secure capital for new projects.
Queensland Treasurer Cameron Dick came under fire for the increase, and rightly so, after repeatedly promising no new or increased taxes during the 2020 state election campaign.
He not only drew the ire of the industry but also of the Japanese ambassador to Australia, Mr Shingo Yamagami, who expressed concern that there was no consultation, and that the state’s decision could damage Queensland’s decades-long reputation as a safe and reliable destination for investment.
He said, given the long history and relationship between Japan and Queensland, he would have expected the government to consult with Japanese companies before making changes. For many years, Queensland and Japan have had strong and complementary trade relations, while in more recent years, Japan has been
Queensland’s second-largest trading partner. And according to the most recent annual trade statistics released in April 2022, Japan has now become Queensland’s largest export market.
In 2021, Australia exported 365 million tonnes of coal, and just under 120 million tonnes or roughly a third of that coal went to Japan. Queensland exported 198 million tonnes of coal in the 2020-21 financial year, with 43 million tonnes or roughly 22% going to Japan, making Japan the largest coal export market for Queensland and Australia as a whole.
While the State Treasurer may not think to consult our overseas friends, it is worth highlighting that most major resource investment comes from overseas capital and international investors. In short, to build new resource projects, overseas is where the money comes from. You can be assured that phones for other commodities rang for days with investors seeking assurances and questions about what was going on.
AMEC’s phones rang hot at that time with members seeking assurance or clarity about whether their commodity was next in the firing line.
In the same week that the Queensland Treasurer hiked up coal royalties, the Minister for Resources released the Queensland Resources Industry Development Plan (QRIDP).
This plan was developed in consultation with industry. While the QRIDP espouses that Queensland has a stable political environment, this commitment is unfortunately heavily undermined by the actions of the Queensland Government. In every sense, actions speak louder than words.
There is an increasing body of evidence being produced that it is getting harder to develop in Queensland. The churn of legislative prescription in the last half of this year alone will not deliver an improved landscape for proponents to do their work. From getting on the ground through to production, it is simply getting more and more difficult to do any business in Queensland. This must change.
The Queensland government must also recognise that delivery of their emissions reduction targets or renewable energy targets is dependent on critical minerals and the technologies they support.
And that Queensland’s coal will be needed to make the steel for the transmission infrastructure for renewable projects that will crisscross the landscape once this state has phased out its coal-fired power generation by 2035.
It appears that the government naively thinks the coal industry exists in a vacuum, and that what impacts the coal industry won’t impact investment in hydrogen projects, renewable energy projects, or critical minerals projects. Companies, investors, investment funds and banks don’t just look at the commodity or project in which they want to invest; they look at the place in which they are investing.
The most recent Fraser Institute survey sees Queensland decline once again. And while departmental officers might not value this as a source of evidence, it is clear evidence. Evidence that Queensland is getting harder to do business in. There will still be major investment in these projects and industries, but they are now less likely to be in Queensland.
This is the third such unanticipated royalty increase in the last 15 years, and definitely not the stable investment environment that investors are looking for.
Just over a year ago, the Government announced the expansion of the $500 million Queensland Renewable Energy Fund into a $2 billion Queensland Renewable Energy and Hydrogen Jobs Fund. It received a significant piece of the federally funded critical minerals pie, helping to promote the State as dependable trading and business jurisdiction.
In September this year, the Queensland government announced a landmark energy plan to the tune of $6 billion, outlining several key renewables targets and actions; essentially a plan for a plan, as we see it, with their aspiration being to deliver clean, reliable, and affordable energy for Queenslanders.
Billions of dollars are proposed for the development of clean energy infrastructure, downstream processing facilities and job security, demonstrating a commendable commitment to advance the minerals industry, increase employment, and attract investment.
So, it beggars belief that the Queensland Government would promote the state as the mecca for new investment, hydrogen development and downstream processing, and in the same breath, deter investors by blindsiding its established industry with unjustified increases.
There is no doubt that royalties are important to help fund important infrastructures such as schools, roads, hospitals and recovery. But there is a very real possibility that these drastic changes to the royalty rates will raise red flags to investors, affecting the development of projects and putting local jobs and livelihoods at risk.
Regional towns depend on the coal industry for jobs, and royalties support those communities with the infrastructure and community investment they deserve. While the government continues to state that coal has a long future in Queensland and resources are essential to the economy, their actions are to the contrary.
It appears now that many investors will look across the borders for far more stable investment jurisdictions.
