Article – Regulatory Thicket Exacts A High Price

25 July 2015
Mikayla Novak
Canberra Times

It’s not just miners who are stung by regulatory settings. As the ongoing Liverpool Plains coal mine saga illustrates, regulators are frustrating Australia’s ability to join global efforts in eradicating energy poverty.

Through a rather severe winter this year Australians have taken for granted their ability to flick on a switch providing extra light, or to turn on an electric heater to keep warm.

Much of this lifesaving energy, in fact more than 70 per cent of the total domestic energy available, is provided by electricity generation plants fuelled by black or brown coal.

Not only does this electricity sustain us during unforgiving climatic conditions, but it serves as a vital input keeping much of our national machinery and equipment capital stock, valued at about $606 billion last year, in working order.

Without the ability for workers to combine their skills and talents with electrically charged capital to produce valuable goods and services for Australia and the world, our wages and hence material living standards would be years, if not decades, behind their relatively lofty standards today.

While the radical alleviation of absolute poverty in the world over the past two or three decades is an achievement to be greatly admired, we shouldn’t rest on our laurels knowing that about one in seven people on our planet still live without electricity.

It is estimated that about 1.3 billion people remain without access to electricity, with Africa and Asia accounting for about 97 per cent of the deficit in energy access.

Even in the emerging economy of China, now our largest trading partner, it is estimated that about 3 million people lack an effective power supply.

And if numerous households in some parts of the developing world are lacking in cheap, reliable electricity sources, one could be certain that the energy deficit means businesses in those regions are limited in their capacity to produce even more.

That so many people around the world are deprived of cheap, abundant sources of electricity, which help underpin healthy, safe, comfortable, and productive lives, is nothing short of an economic and moral travesty.

This is why Australia can ill afford to delay the onset of new natural resources production by dragging out environmental and other regulatory approvals for mining projects.

The Shenhua Watermark coal mine, proposed to be established in the NSWs Liverpool Plains agricultural area, is a case in point.

It is forecasted the mine would extract 10 million tonnes of coal per annum over 30 years, most of which would be metallurgical coal for use in steel production and about 15 per cent thermal coal to be extracted for electricity generation.

The $1.7 billion mine is estimated to support a local workforce of up to 600 employees during the mine construction phase, and in excess of 400 people employed during the mine’s operation, which could prove most serviceable in a region with above-average unemployment rates.

In addition to extraction activities to take place at the mine site, the Shenhua Watermark project proponents intend to develop rail infrastructure to load 5500 tonnes of coal an hour to the Port of Newcastle.

Despite the economic benefits, numerous local farming and conservation groups claim the project would impose an ecological “Armageddon”, with local federal member and Agriculture Minister Barnaby Joyce bitterly opposing the federal approval decision.

The recently concluded environment impact assessment process merely one component of an extraordinarily intensive amount of regulatory scrutiny since the company was granted an exploration permit in 2008.

The scrutineering has included four expert reviews and two reviews by independent scientific committees, which in addition to exploration licenses and farmland acquisitions has entailed a seven-year process costing the company, thus far, more than $800 million.

In the most recent development, the Commonwealth government imposed 18 environmental amenity conditions upon the project, including strict water limitations and a prohibition of mining on the alluvial soil plains currently being farmed, and with an insistence of ongoing rehabilitation of the mine site.
Amid the chorus of protests against the proposal continuing unabated, Environment Minister Greg Hunt appeared to rekindle the fires of uncertainty by invoking regulatory policy on the run.

Publicly commenting on a morning radio program, Hunt undertook to refer future water management plans for the mine to an independent scientific committee, with the minister reserving to right to veto the project should the committee be dissatisfied with the water management plan.

Noting he is “not required to under the law” to invoke this additional test in environmental regulatory approvals, Hunt has effectively signalled an overturning of due process with potentially significant ramifications for future resources investment projects in this country.

Of course, even if Shenhua Watermark are to successfully jump through the federal regulatory hoops they still must gain an environmental protection licence and mining lease from the NSW state government.

Mining projects can remain economically and financially viable even in the presence of structurally declining commodity prices, but the key is to ensure that exploration and development costs are minimised from project conception through to actual production.

This implies that regulatory burdens and other costs imposed by governments on major projects are minimised to the greatest extent possible, however there are numerous anecdotal reports to the effects that regulation-induced project delays, at least, are worsening.

Submissions to a Productivity Commission inquiry into mineral and energy resource exploration have indicated that approval time frames for major projects have stretched out from a few months, on average, in the early 2000s to between 18 and 36 months in 2012.

In a joint industry submission on streamlining environmental regulation, it was reported that assessment of one major resources project took more than two years, involved more than 4000 meetings, briefings and presentations to interest groups, and resulted in a 12,000 page environmental assessment study.

Commonwealth and state governments imposed more than 1500 conditions on the approved project, with those conditions containing an additional 8000 sub-conditions therein.

Project delays affect our position as a cost-effective, low-risk investment destination, with consultants Port Jackson Partners showing the typical Australian thermal coal project endured an average extra 3.1 years in project delays compared with 1.8 years elsewhere.

Regardless of whether the Shenhua Watermark project eventually becomes a reality, it seems the clear losers from our overly prescriptive regulatory settings are the countless people in developing countries needing more Australian coal, right now, to lead better lives.

Courtesy of the Canberra Times

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