Opinion: Royalties hike major risk to coal industry

It beggars belief that the Queensland government would promote the state as a mecca for new investment and in the same breath deter investors by blindsiding existing industry, writes Warren Pearce.

Over the past two years, despite the impact of Covid-19, Queensland has seen record coal production and ­exports, and near record levels of mineral investment across exploration in all commodities.

These achievements have been made possible by the commitment of industry and government to work together, and in a stable regulatory environment with fair and consistent taxes.

But on Tuesday all of this changed, and not for the better. This week’s budget saw Queensland’s coal companies sucker-punched with a massive increase to royalties.

Queensland’s coal royalties are already easily the highest in Australia, double that of its coal producing neighbour New South Wales.

It has not only delivered record-breaking royalties exceeding $6bn this year, the highest amount of royalties ever paid to a Queensland gov­ernment but has been the backbone of Queensland’s post-Covid economic recovery.

An outcome that has essentially ­delivered this year’s budget surplus.

And while only coal companies will pay the increased royalty, this decision will have major implications for the entire Queensland resources sector.

The Queensland mining industry has been ‘sucker-punched’ by the state government.

Royalty rates of 30 per cent and 40 per cent will certainly make international investors think again before making major new investments in Queensland in any new resource project, making it harder for all Queensland resources companies to secure investment to build new projects.

And while the Treasurer seems to believe that only overseas investors will be affected, 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.

It appears that the government ­naively thinks the coal industry exists in a vacuum, and that what impacts the coal industry won’t impact in investment in hydrogen project, 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 they are investing in.

There will still be major investment in these projects and industries, but they are now less likely to be in Queensland.

Queensland is not the only place where the sun shines and where the wind blows. But it is the only place consistently ratcheting up royalties without consultation or warning. 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 $500m Queensland Renewable Energy Fund into a $2bn Queensland ­Renewable Energy and Hydrogen Jobs Fund and it received a significant piece of the federal funded critical minerals pie helping to promote the state as a dependable trading and business jurisdiction.

AMEC CEO Warren Pearce. Picture: Supplied

Billions of dollars are proposed for the development of new mines and processing facilities 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 and downstream processing and in the same breath deter investors by blindsiding existing industry with unjustified increases.

While royalties are important to help fund important spending on schools, roads, hospitals and recovery, 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 generated support those communities with the infrastructure and community investment that they deserve.

There is a likely chance that Queensland will win the State of Origin shield back from New South Wales this weekend, but you can be sure that the increases to coal royalties will mean it won’t be winning any new investment, as investors only need to look across the borders for far more stable investment jurisdictions.

Warren Pearce is Chief Executive Officer of the Association of Mining and Exploration Companies