New South Wales to Surge its Coal Royalty Rate in July 2024

The government of New South Wales (NSW), Australia, is set to hike its coal royalty rate by 2.4 percentage points from 1 July 2024. With this, the royalty rates for open-cut, underground, and deep underground mining will stand at 10.8%, 9.8%, and 8.8%, respectively. Over the upcoming four years, this move is projected to infuse an extra AUD 2.7bn ($1.7bn) into the NSW budget. Meanwhile, the adjacent Queensland state reaped an added AUD 5.7bn in the 2022-23 fiscal year due to its royalty increase.

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Contrasting Queensland's strategy of introducing elevated royalty tiers to seize up to 40% of earnings beyond $300/t, NSW has chosen a uniform rate increment. This decision was taken after extensive deliberations with 13 coal entities in NSW. On the other hand, Queensland took the leap of implementing its advanced tiers in July 2022 without taking much consultation into account.

NSW's moderated increment, alongside the extended consultation phase, aims to curtail potential disapproval from its coal sector. Post Queensland's royalty augmentation, notable mining companies, such as BHP, retracted all investments in the state. Yet, the scale of NSW's royalty surge did not catch its coal mining corporations off guard.

The enhanced royalty structure will be operationalized following the culmination of NSW's temporary A$125/t domestic coal price cap. This suggests that an extension to the cap is implausible, potentially exposing NSW's coal-reliant power producers to the fluctuating prices of the global coal market.

Primarily, NSW coal enterprises pivot towards thermal coal, diverging from their Queensland peers, who predominantly invest in metallurgical coal. Recent evaluations revealed an elevation in the price of high-grade thermal coal and a dip for its low-grade counterpart. Moreover, the premium hard low-volatile metallurgical coal witnessed a price surge as of 5 September, up from $246.50/t on 8 August but down from $365.55/t on 3 March.

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According to the article by Procurement Resource, from the commencement of 1 July 2024, New South Wales (NSW), Australia, plans to increase its coal royalty rate by 2.4%, resulting in new rates of 10.8% for open-cut, 9.8% for underground, and 8.8% for deep underground mining. Expected to add AUD 2.7bn ($1.7bn) to the NSW budget over four years, this decision contrasts with Queensland's tiered rate system. After discussions with 13 coal companies, NSW chose a uniform increment. Following Queensland's rate hike, firms like BHP withdrew investments there. With the expiration of NSW's A$125/t coal price cap, coal power costs might fluctuate.