Lights off: Part II

Does $6-7 million per year sound like much of a risk in the scheme of things, given the sums being bandied about?

So the end result of the fire sale seems to be that our assets have been sold at a price that may leave a paltry $3 billion to disappear into consolidated revenue, the State has lost a substantial source of recurrent revenue and the people of NSW have been left with public ownership of the ageing assets - existing power stations and electricity transmission and distribution networks (the poles and wires) that still need to be upgraded or replaced. According to Premier Keneally the NSW Government is investing more than $9 million every single day in maintaining and upgrading the state’s power supply, and over five years the NSW Government will spend $17.9 billion on electricity infrastructure to support our growing population and to secure the NSW power supply for the state’s families. Where’s that money going to come from now?

The official line: The coal mine

The NSW government last mined coal in NSW through its Powercoal entity in 2002. But an unincorporated joint venture between State owned Macquarie Generation, Delta Electricity and Eraring Energy recently bought up 25,753 hectares of land in the Cobbora and Lahey’s Creek area to launch mining at Cobbora for 21 years. It aims to produce 30 million tonnes of run on mine coal and 20 million tonnes of thermal coal a year to ensure the cost of coal for the state’s electricity generators is capped.

The mine site is to include a coal handling and preparation plant, ancillary infrastructure and a 25 km rail spur line connecting it to the existing rail network. Two water pipelines, 25 and 50 kilometres long, will link the site to the Cudgegong River and the Ulan Coal Mine respectively. An estimated 4 GL of water from multiple sources will be required by the mine each year, with negotiations under way to obtain high security water licences on the open market for some 1.5 GL of water.

In May 2009 the then Minister Ian MacDonald said that the Cobbora resource would deliver security of coal supply to the generators and affordable power for NSW homes and businesses. Yet in December Treasurer Roozendaal said it is not for the government to stay in that business, and once the business is developed the government will on sell it.

The mine was intended to supply state-owned power generators with coal at $35- $40 a tonne, well below the export market price of $60-$70 a tonne. In November last year The Australian reported that

“…sources close to the deal say that the State has promised 17 years of supply from Cobbora at prices of about $32 a tonne, rising to $35 a tonne when transportation costs are included. That compares with recent published estimates by Merrill Lynch of a spot export price of about $US95 a tonne, a long-term export price of $US74 a tonne, and a long-term domestic contract price close to $60 a tonne….”

Sounds like a good deal for the generators, or those who own their output!