Western Power’s decision to award its long-term coal supply contract to Wesfarmers’ Premier Coal has sparked speculation about the future of The Griffin Group’s coal mining business.
Western Power’s decision to award its long-term coal supply contract to Wesfarmers’ Premier Coal has sparked speculation about the future of The Griffin Group’s coal mining business.
Premier and Griffin historically have both supplied Western Power with coal, but from 2010 Premier will be the sole supplier.
The announcement of the new coal supply contract coincided with the government’s announcement that Wambo Power Ventures has been selected to build the state’s next base-load power station.
Wambo, which plans a 320-megawatt gas-fired power station at Kwinana, beat competition from both Griffin and Wesfarmers Energy, which had proposed coal-fired power stations at Collie.
Under the new coal supply arrangements, Premier will cut its selling prices under its existing contract and will make a “further significant reduction” after 2010.
The new contract also eliminates the current ‘take or pay’ arrangement, with future payments tied to actual volumes used and the quality of the coal.
Western Power managing director Tony Iannello said the new arrangement ensured that coal was a competitive fuel source and would help Western Power’s coal-fired power stations compete against gas-fired power stations.
He said Western Power had not been seeking a single supplier, but wanted to lock in a “secure supply at the lowest possible price”.
Wesfarmers Energy managing director David Robb said the impact of the price reductions would “not be material” on earnings.
He said Wesfarmers was keen to build on the new contract to supply 3.5 million tones of coal to Western Power.
The group’s long term strategy was to increase sales volumes to five million tones per year, which Mr Robb said would require further productivity improvements and development of new markets, including in mineral processing.
Mr Robb said coal exports from WA were a “long shot”, though opportunistic sales may be possible.
Rick Stowe’s Griffin Energy is expected to lose just over half of its coal sales after 2010.
The group will continue to sell about 1.35 million tonnes of coal to industry customers, including Iluka Resources and Worsley Alumina, and will sell coal to its own Bluewaters power station, which Griffin plans to build at Collie.
While this may provide a basis for the coal business to continue, the latest developments add to the logic of Premier and Griffin merging their coal mining operations.
The companies’ open-pit mines are next door to each other and an integrated development has long been seen as a logical development at Collie to maximise the efficiency of the industry.
Mr Stowe said he was “bitterly disappointed” by the coal contract decision and would seek “urgent discussions” with the government in relation to the matter.
He also indicated the company would continue its current “broad-based energy strategy”, which includes construction of Bluewaters and a wind farm north of Perth.
Bluewaters initially will have a capacity of 200 megawatts and Griffin plans to seek further opportunities to expand the station by securing new contracts in the deregulated energy market.
Mr Stowe also said Griffin would continue to support the Collie community and was committed to the completion of new projects in the area.
Premier Geoff Gallop also announced yesterday a strategy to boost the coal industry, including the appointment of a coal industry advocate and assistance for Griffin and Wesfarmers in the development of export markets.
