A smutty story that taxes belief

AUSTRALIA’S $5 billion worth of coal exports to Japan face being hit by an environmental tax that appears to have floated out of the rarefied air of the Johannesburg “earth summit”. Like many proposals emanating from Tokyo these days, it is half-baked. The word is that the tax with be somewhere between the yawning margins of $18 and $90 a tonne. It is not yet clear either whether the impost would go on steaming coal burned in power stations to provide heating, or be extended to include coking coal used for blast furnaces in the steel industry.

The reports came on the heels of the news that the president of the Tokyo Electric Power giant has resigned because of an alleged cover up of safety breaches at its eight nuclear power plants. Nobuya Minami, and company chairman Hiroshiki Araki, are reportedly carrying the can for the falsifying of the nuclear power plant’s safety record since the 1980s.The scandal awards a free kick to the anti-nuclear lobby. Japan had been relying on growth in its nuclear power sector to meet the greenhouse emission targets it had pledged under the Kyoto Protocol. With nuclear on the nose, it now wants to push industry and consumers away from coal towards clean green natural gas. And what better weapon than the blunt instrument of a tax.

The initial reaction was a sharp drop in the shares of big coal boys BHP Billiton, Rio Tinto and MIM, which together supply 60 per cent of Japan’s coal imports. But hang on a minute, does this story have legs? The tax changes are supposedly coming in April next year. Ever heard Tokyo move so quickly? Slapping on a $90 surcharge would nearly double the cost of the smutty product and be plain daft as a policy, especially if coking coal was included. Japanese steel mills and heavy industry simply would not wear it. Many would baulk at the prospect of converting their plants to gas, at an unimaginable cost to an economy flat on its back. At the other end of the scale, a tax of $18 a tonne could be compared with the $11 already ruling for natural gas. Both Japan and China want to substantially reduce their reliance on coal in favour of gas – hence the $25 billion contract won by the North West Shelf partners to supply LNG to Guandong Province. An extra tax on steaming coal would stimulate the pace of the changeover in Japan. Woodside shares recently slid to $13 – back to where they stood before the Guandong deal was clinched. The preposterous implication that it would have been better off not winning the contract rested on speculation that China was being let into the project on too generous terms. There was a danger, the knockers said, that the future extension of LNG supplies to Japan would be jeopardised. That seems nonsense. The long-term price of Australian LNG is likely to fall, but only because customers will want better terms for buying absolutely oodles more of the stuff.

The Woodside share price is now $13.15.

Qantas hits airpocket as shares lose altitude

QANTAS has mailed out 150,000 copies of its prospectus inviting retail investors to stump up $4.20 a pop for the $200 million one-for-eight rights issue. Unless the stock price perks up significantly soon, most of those documents could wind up in the trash bin.

Qantas shares began to lose altitude as soon as the much bigger $600 million rights issue to institutional holders began last month. It has slipped 65 cents to $4.05. Many of the 300 or so players participating are said to have sold down their existing Qantas shareholdings in the knowledge they could have them replaced cheaper. The dive came as worries mounted about higher jet fuel prices, although the airline’s hedging policies are second to none. Also hurting was speculation that Singapore Airlines will muscle in on the domestic routes, possibly taking over the mothballed Ansett fleet. Every time a third airline comes into Australia one of them staggers off the runway with a multi-million dollar fat lip. It is not going to be Qantas. However, a major shortfall in the retail rights issue, which closes on September 27, would be a concern. Only half the $200 million has been underwritten.

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