Japan warns on NSW coal reservation
NSW’s coal reservation scheme risks denting Australia’s relationship with Tokyo, after the Japanese consulate voiced its concerns.
The NSW government’s coal reservation scheme risks putting a further dent in Australia’s relationship with Japan, amid warnings the loss of export tonnes could hurt Japanese industry and power supplies.
The Perrottet government this week pushed back the introduction of a broad-based coal reservation scheme that would require thermal coalminers to set aside up to 10 per cent of production for domestic coal-fired power plants, amid a backlash from companies not already supplying coal to them.
The Australian understands the scheme has drawn the attention of the Japanese government amid fears it will cut the volume of export coal in the market, or hit Japanese utilities and heavy industry such as steel mills.
The Japanese consulate in Sydney said on Tuesday Consul-General Tokuda Shuichi had written to the NSW government “conveying the concerns of relevant Japanese companies … regarding the coal reservation measures”, but declined to comment on the details of the letter.
The Australian understands the Consul-General told the NSW government Japan was concerned that the decision could exacerbate thermal coal shortages in Japan that are affecting supply, damage the confidence of Japanese customers, and undermine Australia’s reputation as a stable and reliable supplier of coal.
It is understood the letter also noted the concerns expressed by Japanese ambassador Shingo Yamagami last year after the Queensland government raised the royalty on coal exports. Mr Yamagami warned in November that Japanese companies could reconsider investments in hydrogen and other commodities if they lost confidence in Australia’s coal industry.
The Australian understands at least one major Japanese power company has also written to NSW Energy Minister Matt Kean and Premier Dominic Perrottet to express similar concerns.
On Tuesday, Japanese industrial giant Idemitsu weighed into the fray. Chief executive Steve Kovac warned the NSW scheme would damage Australia’s international reputation.
Idemitsu operates the 7 million tonne a year Boggabri coal mine in NSW, which exports high-grade thermal coal - and some coking coal products - to Japanese customers.
While its coal is not suitable for NSW power stations, Mr Kovac said the company was one of a number of exporters that had been directed to buy lower-grade coal if they did not wish to provide their own product.
“It is inconceivable that the NSW government would direct our business to supply lower-quality coal, which we do not produce, to the NSW power stations to comply with their requirements,” he said.
“This will result in a substantial financial loss as we would be forced to purchase lower-quality coal from other producers or traders to supply to the power stations – this makes no sense.”
Mr Kean hit back, saying the government was making a “reasonable request” for coal companies to help keep energy prices down at a time they were making record profits.
“I understand that these coal companies want to sell Australian coal overseas to profit from (Russian President Vladimir) Putin’s power prices,” Mr Kean said.
“But we don’t think it’s unreasonable for a portion of that coal to be reserved for Australian families and Australian businesses – and that will be a drop in the bucket compared to the super profits these coal companies are making because of Putin’s illegal war in Ukraine.”
Mr Kean ruled out any increase to coal royalties in this year’s state budget, a promise likely to stymie an alternative proposal floated by some coal companies for a temporary lift in the state’s royalty rates that could be put directly into a power price subsidy.
Former federal trade minister Mark Vaile, now chair of Whitehaven Coal, said the state government should take the warnings from Japanese officials seriously.
“There are protective standards that apply to our trade partnership agreements with Japan – a trusted and long-term trade and security ally – that require they be treated no less favourably than nationals of the host nation,” Mr Vaile said. “Expropriation and diversion of coal from Australia’s export markets to the domestic market at steep and fixed discounts appears inconsistent with these provisions.”
