Wallarah 2 Coal Project

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The Wallarah 2 Coal Project is proposed by Wyong Areas Coal Joint Venture, which is predominantly owned by KORES Australia (82.25%).[1] If constructed it will be situated 7.5km north west of Wyong, New South Wales (NSW), Australia.

The proposal is for an underground longwall mine with a lifespan of 28 years.[2] Coal would be transported via rail to Port of Newcastle for export.[3] The application was approved in June 2019 by the New South Wales Government.[4] A Final Feasibility Study needs to be completed.

KORES is a South Korean company looking to supply mineral resources to its home country. The coal from this mine would be exported to Asia.[5]

The project was initially expected to be commissioned in 2013 and produce 5 million tonnes per annum of thermal coal. At the time estimated cost of the project was $700 million and projected to employ 300 people when operating.[6] However, the mine proposal was rejected in 2011 by the then Labor government following strong community opposition.

Location

The undated image below shows the exact location of the proposed site.[2]

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Coal Mine Background

In 1995 the New South Wales Government granted Exploration Licenses to the Wyong Areas Coal Joint Venture for the two areas east and west of the F3 on the Central Coast of New South Wales. Coal Operation Australia was the original majority shareholder of the Wyong Areas Coal Joint Venture, with KORES Australia and other Korean and Japanese interests holding minority shareholdings. BHP Billiton subsequently became the majority shareholder in the Wyong Areas Coal Joint Venture through the acquisition of Coal Operation Australia in 2002 and later sold its interest to KORES in 2005. As a result of the sale, KORES' equity in the venture increased to 82.25% and they are now the major shareholder and manager of the Wyong Areas Coal Joint Venture.[7]

Opposition

Since 1995 there have been fears about longwall mining in this area. Local people are worried as Dooralong and Yarramalong Valleys account for 50% of the water catchment for the entire Central Coastand the company proposes to mine in these catchment areas. The mine would run underneath Jilliby Jilliby creek and come within 154 meters of Wyong creek, therefore underneath contributing streams. KORES says there will be no significant impact on these creeks. Other longwall mines have caused complete dewatering above ground. KORES is criticised by opposition groups for failing to provide information regarding subsidence as a result of these mining techniques. Documents from the Department of Mineral Resources obtained via Freedom of Information requests, demonstrates that subsidence will be between 1.6m and 2.4m in the water catchment area if the Wallarah 2 mine proceeds. KORES has refused to confirm this data and said it was out of date as it was from 1999. The first ten years of mining is intended to be below 150 people's homes.[8]

Rejection

In 2011 the Wallarah 2 mine was rejected by former Planning Minister Tony Kelly weeks before Labor lost power in March that year. Environmental concerns regarding the impact on water quality were the reasons for the rejection,[9] although in response, Wallarah 2 general manager, Kerry Heywood stated that “water was not an issue in the previous determination”.[10]

2013 Developments

Plans for the Wallarah 2 mine were resubmitted with the NSW Government in January 2012.[11] KORES lodged a development application in October 2012.

Craig Thomson, the controversial former Labor member, who became an Independent member for Dobell, put forward a private members bill to stop the export of license of KORES in 2013. The bill was rejected by then Prime Minister Julia Gillard on the grounds that the use of federal environmental law would be more appropriate.[12]

Approval

New South Wales Planning Assessment Commission granted consent to Wallarah 2 Coal Project in January 2018. In January 2019, the Commonwealth Minister for Environment and Energy granted approval for Wallarah 2 under the Environment Protection and Biodiversity Conservation Act 1999. Mining leases were issued by the Department of Mineral Resources in June 2019. To start production from the mine in 2025 Wallarah need to complete the Final Feasibility Study and review the detail design by the end of 2021.[13]

Approval of the mine was challenged by Australian Coal Alliance on the basis that legal errors were made in the Planning Assessment Committee’s approval of the Wallarah 2 longwall coal mine. The case was dismissed in November 2018.[14]

Economic Assessment

Economic assessment of the Wallarah 2 project was undertaken as part of its environmental impact statement (EIS). The assessment was written Gillespie Economics on behalf of environmental consultants, Hansen Bailey.[15] The assessment consisted of a cost benefit analysis (CBA) and input-output model. This assessment was reviewed by public interest economics group, Economists at Large, in a submission to the EIS.[16]

The CBA came to the conclusion that the total net production benefits will result in $671M. A minimum of $346M of these benefits will accrue to Australia. The net production benefits of $671M will be distributed amongst the following stakeholders:

  • Wyong Areas Coal Joint Venture (WACJV) will receive $325M in form of after tax profits
  • The Commonwealth Government will receive $139M in form of any company tax
  • The NSW Government will receive $207M via royalties
  • Local community will benefit of voluntary contributions

According to the input-output analysis the contribution to the NSW economy is estimated to make up the following:

  • $900M in annual direct and indirect output
  • $507M in annual direct and indirect regional value added
  • $154M in annual direct and indirect household income
  • 1,711 direct and indirect jobs

Project Details

  • Sponsor: Wyong Areas Coal Joint Venture
  • Parent Companies: KORES Australia - 82.25%, Sojitz Coal Resources - 5%, Kyungdong Australia - 4.25%, SK Networks Resources Australia (Wyong) - 4.25%, SK Networks Resources - 4.25%[1]
  • Location: 7.5 km north west of Wyong, New South Wales
  • GPS Coordinates: -33.223341, 151.390511[2]
  • Status: Proposed
  • Production Capacity: 5 Mt/year[2]
  • Total Resource:
  • Mineable Reserves:
  • Coal type: Thermal[2]
  • Mine Size:
  • Mine Type: Underground, longwall mining[2]
  • Start Year: 2025[13]
  • Source of Financing:

Review of Economic Assessment

A review of the economic impact assessment was undertaken by Economists at Large in June 2013. Economists at Large suggested the economic assessment overstated the economic case for the project and criticized a lack of transparency around key calculations. They claim that without confidence in these results it is impossible for decision makers to make an informed assessment of this project.[17] The following points were criticised by Economists at Large:

Calculations of royalties and Commonwealth taxes

In the benefit cost analysis by Gillespie Economics, the royalties to NSW consist of $207M. The analysis doesn’t contain a discussion what royalty rate has been applied in this calculation. NSW coal royalties vary depending on the type of mining and the depth of operation.[17] The tax revenue of $139M seems to be calculated with a tax rate of 30%. While a corporate tax of 30% is theoretically faced by companies, it is more likely that mining companies in Australia face a tax rate between 13.9% and 17%. Applying this tax rate would overstate the value of the project by $75M. [18]

Production

An indicative production schedule is not contained in either the economic appendix or in the main body of the EIS. Without this information it is difficult to calculate the royalty and tax revenue and to understand the viability of the project.[18]

Price

The assessment is based on a Newcastle benchmark coal price of $AUD99/t. But without the specifications of the coal it is difficult to assess the price that may be received for it. This should be considered by decision makers.[18]

Costs

The capital, mining and processing costs seem unrealistically low. Assuming that the project produced 4mtpa of saleable coal, this implies costs to free on board in Newcastle of $48/t. Normally NWS coal mines have cash costs per tonne of between $55-80/t. This price affects the commonwealth tax payments, which are based on income rather than the production volume.[19]

Wider economic considerations

Economists at Large were critical of the inclusion in some calculations of the CBA of a social value of employment. The inclusion of a social value of employment “would overstate the extent of proposal benefits”.[19] Furthermore the external costs due to environmental impacts on water supplies, air quality, amenity and local traffic were not taken into account. Ignoring these external costs overstates the project value, especially to the local residents who are affected by the negative environmental impacts.[19]

Use of input-output modelling

The use of the input-output modelling for economic impact assessment and the emphasis placed on its results by Gillespie Economics and Hansen Bailey creates a misleading impression of the importance of the project according to Economists at Large. Neither the Australian Bureau of Statistics nor the NSW Treasury encourages input-output analysis to estimate economic costs and benefits because of assumptions which result in an exaggeration of the project value.[20]

Conclusion

The current assessment is not suitable for decision making in its current form. The assumption and discussion of royalties and tax rates is crucial if the project has to be justified and must be explained and discussed in a comprehensible way. In addition the inclusion to social benefits of employment and misleading use of input-output modelling need to be revised before decision makers can use the assessment.[21]

Project website

Website: http://www.wallarah.com.au/index.html

Articles and resources

References

  1. 1.0 1.1 Wyong Coal, "Wyong Coal and the Joint Venture Partners" accessed 21 October 2019.
  2. 2.0 2.1 2.2 2.3 2.4 2.5 Wyong Coal, "Project Description" accessed 21 October 2019.
  3. Wyong Coal, [www.wallarah.com.au/files/doc_file/Wallarah%20Amendment%20Fact%20Sheet%20July%202016%20EMAIL%20(003).pdf "Wallarah 2 Coal Project: Amendment"] July 2016.
  4. International Mining, "Wallarah 2 underground longwall coal project in NSW approved" 24 June 2019.
  5. KORES "Our structure" KORES website, accessed 22 October 2019.
  6. Australian Bureau of Agricultural and Resource Economics, "Minerals and energy: Major development projects", April 2010. (Pdf). The list is also available in Excel format here.)
  7. KORES "Other projects" 2019.
  8. Australian Coal Alliance, "Wallarah 2 recipe for disaster", accessed 22 October 2019.
  9. "Plans resurface for Wallarah Two coal mine", ABC News, April 26, 2013.
  10. "Call to stop $1billion Wallarah 2 mine", Newcastle Herald, October 18, 2011.
  11. "O'Farrell stays silent on mine and its Liberal champion", The Sydney Morning Herald, March 9, 2013.
  12. "Wallarah coal battle continues", Australian Mining, June 7, 2013.
  13. 13.0 13.1 Wallarah 2 Coal Project, "Coal Project Newsletter" Number 34, August 2019, page 3, June 2013.
  14. NSW Environmental Defenders Office, "ACA v NSW MInister for Planning & Wyong Coal Pty Ltd & KORES Australia Pty Ltd", 22 March 3019.
  15. "Environmental Impact Statement - Appendix W Economic Impact Statement", Hansen Bailey, April 2013.
  16. "Review of Wallarah 2 Coal Project Environmental Impact Statement - Appendix W Economic Impact Assessment", Economist at Large, June 2013.
  17. 17.0 17.1 Economists at Large, "Review of Wallarah 2 Coal Project Environmental Impact Statement Appendix W Economic Impact Assessment", page 4 Economist at Large, June 2013.
  18. 18.0 18.1 18.2 Economists at Large, "Review of Wallarah 2 Coal Project Environmental Impact Statement Appendix W Economic Impact Assessment", page 5 Economist at Large, June 2013.
  19. 19.0 19.1 19.2 Economists at Large, "Review of Wallarah 2 Coal Project Environmental Impact Statement Appendix W Economic Impact Assessment", page 6 Economist at Large, June 2013.
  20. Economists at Large, "Review of Wallarah 2 Coal Project Environmental Impact Statement Appendix W Economic Impact Assessment", page 7/8 Economist at Large, June 2013.
  21. Economists at Large, "Review of Wallarah 2 Coal Project Environmental Impact Statement Appendix W Economic Impact Assessment", page 8 Economist at Large, June 2013.

Related SourceWatch articles

External resources

Economists at Large

External articles