NSW Treasurer Matt Kean last month unveiled a new scheme forcing the state’s coal companies to reserve 10 per cent of their output exclusively for domestic use.
The new blanket requirements are being put in place to ensure the state has enough coal to fire its power stations.
Yancoal and Whitehaven, two of the state’s largest coal producers, have received instruction from the NSW Government regarding the reservation scheme.
Yancoal Australia announced that from April 1 2023 to June 30 2024 it will be required to make up to 395,000 tonnes of coal available to domestic power stations per quarter.
The reservation scheme mandates that the volumes are to be made available at a maximum delivered price of $125 per tonne for 5500 calorific value (kcal) coal per kilo.
The quality must also remain consistent with the quality of thermal coal that has been domestically supplied during the previous three years.
Yancoal said the NSW Government advised the company it will not be compensated for the difference between market rates and the mandated domestic price cap. However, the Government said compensation may be made available in certain circumstances, such as where costs exceed the capped price.
Yancoal expressed its concerns over the scheme’s effects on its financial position, as well as the logistical challenges presented by the mandate.
“In addition to the policy’s direct impacts on the company’s sales profile and revenue, the requirement to re-direct coal into the domestic supply chain presents significant logistical challenges,” Yancoal said in the ASX statement.
Yancoal said it would be in a better position to evaluate the effects of the reservation scheme after operating under the policy for a sufficient period.
Whitehaven advised that it received final directions from the NSW Government for the thermal coal reservation policy that will mandate a portion of the company’s coal be made available to domestic power stations.
According to Whitehaven, the company’s mines will be required to domestically supply an aggregate volume that will be capped at the lower of 200,000 tonnes per quarter, or five per cent of each mine’s expected saleable thermal coal production.
The same price cap and kcal quality assurances apply to Whitehaven under the scheme.
Whitehaven indicated it is finalising plans to ensure it meets its obligations under the reservation scheme, while minimising “value leakage” for its customers and shareholders.