Cobbora mine deal could cost taxpayers $6 billion

The development of the Cobbora mine in New South Wales’s central west is expected to cost billions of dollars more in taxpayer dollars than originally thought.

The New South Wales Government decided to operate the project, to provide coal for state-owned power stations, after negotiations with a company fell through during the tender process.

Earlier this month, Mid-Western Region councillor Russell Holden claimed that information on the potential impact of the Cobbora Coal project on water supplies was deliberately being withheld.

The Sydney Morning Herald is reporting that the mine will supply to government owned power stations and says an analysis from an international investment bank sought by the New South Wales Opposition has found taxpayers will lose up to $400 million per year, as compared with the profit that could be made by exporting the coal internationally, which sells for a higher price.

Taxpayers would lose about $6 billion because the coal from the mine will be sold at the reduced price for the length of its 15 year contract to supply to government power stations.

The establishment of the mine is expected to cost $1.5 billion, which will probably be funded from the $5.3 billion raised by selling state-owned electricity retailers, as well as the output from two power stations near Lithgow and one on the central coast.

The recent parliamentary inquiry has called for an independent review to establish the necessity of the Cobbora mine, including a full examination of the subsidy involved in selling the coal below the market price.

It was recently revealed in a report by the NSW Auditor-General that the coal from the min will be supplied to government power stations for $31 a tonne, believed to be less than the price paid on some existing contracts.

The poor quality of the Cobbora coal has been assessed by the bank analysis, as well as $120 million cost of building rail links to connect the mine to the existing rail line.

The current spot price of coal is $125 per tonne when sold in small quantities into the international market.

The twelve-month contract price is $98 a tonne, which is expected to rise throughout this year.

The difference of $27 a tonne would provide a loss of up to $400 million a year, and $6 billion over the life of the supply contracts, based on Cobbora supplying 12.2 million tones of coal per year to the local power industry.

The initial estimates of the cost of the subsidy on taxpayers was $1 billion.

The Nature Conservation Council’s Chief Executive, Pepe Clarke, told the ABC the report’s findings prove there should be more investment in renewable energy.

"What we’ve seen this week is a mounting case for abandoning the privatisation process as a whole but also in particular the proposal to establish a state-owned mine at Cobbora," he said.

"Really the sale in its entirety needs to be dropped and in particular we really need to step away from this extraordinarily expensive proposal."

He said the new mine is a waste of taxpayer dollars.

"This proposal really exposes the taxpayers of New South Wales to enormous risk, financial risk.

"They deliver very little in the way of lasting benefits to the state and very importantly from our perspective they block the development of clean energy in this state," he said.

Image: Tony Neilson

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.