12/10/2011 - 10:50

Coal sale highlights fresh political failure

12/10/2011 - 10:50

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The sale of coal assets to foreign interests is a blow for WA’s future energy needs.

MORE than three months ago this column suggested to Premier Colin Barnett that he move to institute local acquisition – using taxpayers’ funds if necessary – of Wesfarmers’ Collie coal mining operation, since it looked set to slip into foreign hands.

That July 7 column was headlined, ‘Priority should go to essential services’, with the subhead ‘Ensuring the security of long-term energy supply should be top priority for the state government’.

The column considered the implications of Indian energy conglomerate Lanco Infratech’s $850 million acquisition of the Griffin Group’s deposits, and Wesfarmers’ move to sell its nearby Premier Coal operation.

In other words the only two such operations close to Perth – each with about a billion tonnes of coal – that constitute the traditional source of Western Australia’s base-load electricity supply were on the verge of becoming fully foreign owned.

“If, as some expect, Premier Coal also falls into foreign hands, Collie’s coal will be subject to quite different marketing conditions,” I wrote in that July 7 column.

Two further points followed.

Firstly, Lanco had already indicated it intended to ship Collie coal to India to meet its domestic energy needs.

Secondly, if Wesfarmers’ Premier Coal was bought by another foreign group – as now looks to be so with China’s Yancoal paying nearly $300 million – then for the first time in its history WA would have its close-to-Perth coal reserves generating electricity overseas, rather than solely in this state.

I’d have thought the likelihood of that outcome was adequate reason for a premier, energy minister, and opposition leader to get off their hands to learn more and reassess WA’s immediate and longer-term energy usage implications, and then initiate desirable counter-moves.

But since I suspected none of them was imaginative and farsighted enough, the following paragraph was added.

“Shouldn’t Mr Barnett have already met Premier Coal’s management to organise a financial entity, with a public stake as silent partner, to acquire its operation, rather than fiddling around with an unneeded river foreshore property development that’s set to cost taxpayers over $500 million?”

The $500 million-plus figure refers to Mr Barnett’s decision to dig-up the Swan River foreshore to build a $250 million artificial pond and prepare surrounding land for an 11-structure high-rise project (which we need like a hole in the head), rather than focusing upon who controls Collie’s second coal mining operation.

What’s astounding and unforgiveable isn’t so much that Mr Barnett hadn’t already met Premier Coal’s management before July 7, but that he appears not to have bothered doing so after that date.

If nothing else that paragraph was a hint to ‘scratch gravel’, and fast.

Instead, July slipped by, then August, and September, with The West Australian’s editorialist writing on September 30: “Strangely, he [Barnett] did not seem to be aware of the likelihood of Chinese-owned Yancoal Australia buying Premier Coal until the day before the deal was made public.”

Perhaps Mr Barnett can explain why? 

Doesn’t his department have telephones?

Why did he not contact Wesfarmers’ managing director, Richard Goyder, to inquire about what was clearly a crucially important issue of state?

If he feared calling Mr Goyder, he could have easily asked Labor leader Eric Ripper to pick up his telephone and call former Labor premier Alan Carpenter, now Wesfarmers executive general manager, corporate affairs. 

It was as simple as that. Why didn’t it happen?

Clearly none of Mr Barnett, his energy minister Peter Collier, or Mr Ripper saw this crucially important issue as worthy of their time.

This despite both Messrs Barnett and Ripper having been energy ministers in previous governments.

That’s most certainly not how their trail-blazing parliamentary predecessor, the late Sir Charles Court, would have reacted.

As soon as there was a hint that a significant segment of WA’s coal reserves were likely to fall into foreign hands he’d have become involved in one way or another.

That’s the difference between him and his far-less-imaginative successors – Liberal and Labor.

Perhaps that’s why the just-released biography of Sir Charles is so aptly titled, I love this place.

He made it his business to know what was happening and why, whereas his successors appear to prefer doing nothing.

That said it’s important to note that I don’t see the Indian and Chinese acquisitions as an immediate threat to our electricity security.

The reason is that the terms and conditions under which coal is supplied to government-owned Verve Energy and both privately owned Collie-based Bluewaters power stations are determined by contracts entered into by the parties.

According to an insider who knows WA’s energy sector well, actual change of ownership won’t affect current coal contracts.

“For a company [Lanco or Yancoal] that tries to unilaterally change the terms and conditions, legal remedies exist for the buyers to insist the terms and conditions are maintained,” the insider said.

“Change, however, is possible through renegotiations of existing contracts, but the parties would only agree to changes that were mutually beneficial.

“The expiry of existing contracts provides an opportunity to renegotiate in the context of the general coal market conditions prevailing at the time.

“An additional factor that moves the situation beyond the purely commercial arena is the existence of state agreements that provide, in effect, unique statutory control over the operation of the companies operating in the Collie coalfields.  

“The regulatory structure contained within the state agreements cannot be changed except by negotiation with the state government, and subsequent incorporation in the relevant statutes.

“Any change of ownership therefore does not change existing contract rights held by coal buyers, nor do obligations under state agreements change.

“The commercial crunch comes only with respect to new purchases by buyers or the expiry of old contracts.  

“In those situations buyers will have to negotiate in the then prevailing market conditions. 

“If the export of Collie coal is commercially feasible and on a significant scale, then local buyers will have to pay the export parity price, that is, the price landed in whatever export market is involved, less transport costs to that market.”

It’s that last remark that’s crucial because WA’s primary coal reserves are now open to the direct impact of foreign pricing and marketing policies.

Secondly, since those now controlling these reserves appear to have acquired them primarily to supply their domestic markets, WA’s needs will become and remain secondary considerations.

More significantly, with the world nearing peak oil production, the oil price will inevitably continue to rise.

Among other things, that means coal-to-liquid fuel manufacturing operations will increasingly be utilised to meet the liquid fuel gap, especially for farming and heavy haulage, essential for WA’s economy.

Countries such as China, the US, and South Africa, operate coal conversion plants.

Both the one-time Griffin and Wesfarmers-owned deposits could have ensured WA had feedstock for such conversion plants, thereby guaranteeing liquid fuel security into next century.

Now that our two billion tonnes Collie coal reserves are controlled by India and China, WA’s fuel security will be, if not the very last thing on their minds, then way down their to-do list.

Who should accept blame?

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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