Opinion: Shenhua ‘buyout’ sets a low watermark

Shenua site: Many questions remain about why the Berejiklian government needed to pay any compensation to the proponents of Watermark coal mine
Shenua site: Many questions remain about why the Berejiklian government needed to pay any compensation to the proponents of Watermark coal mine

If NSW taxpayers had any remaining doubt the state remains too beholden to big miners, the decision to splurge $262 million in compensation for Chinese-government backed Shenhua should have dispelled it.

Many questions remain about why the Berejiklian government needed to pay any compensation to the proponents of Watermark coal mine planned for the rich farming region of the Liverpool Plains.

Offending Australia's biggest trading partner would have been one concern. Sparking a diplomatic dispute with Beijing and the predictable criticism that the state must be "closed to foreign investment" would not have appealed.

Nor had the Premier much wiggle room following the decision of her predecessor Mike Baird last year to approve the equally excessive handout of $220 million to BHP Billiton for not mining coal at Caroona.

However, lost in the immediate news cycle after the July 12 announcement was the fact that all taxpayers got from the Shenhua largesse was the recovery of areas of exploration beyond the project approval boundary. Even within the government, there's unease about the payment's size.

...the Shenhua case offers a prime opportunity for the parliament to review the Mining Act and how the state weighs the value of mining against other economic, social and environmental values.

Shock jock Alan Jones was rightly condemned for telling Gladys Berejiklian her head was "in a noose" for allowing mining to remain a possibility in the farming region. In attacking the Premier, though, Jones did elicit this comment that's worth exploring further: "We looked at every single option we had."

Fairfax Media understands the Coalition government sought legal opinion in the past about whether the exploration licence and related mining activity could just be allowed to lapse if Shenhua (or other miners) failed to begin substantial work on their project. The learned opinion received was that, because of the wording of the Mining Act 1992, the relevant minister's hands were tied.

Original mining approvals have always been extended – barring some proof the proponent has been found to be no longer a "fit and proper" entity – so procedural fairness precluded their expiry.

That approach is in contrast to rules that apply to development applications in other sectors. A construction firm, for instance, faces a use-it-or-lose-it rule and would have to reapply if substantial work had not begun in the allotted time.

Given their long-term and often wide-ranging impacts, the inability to review a mining project is unacceptable.

Some of the effects are positive, such as increased jobs in struggling towns, and additional royalties for state coffers. But against them, the community's interests and priorities can change.

As Roderick Campbell, an economist with The Australia Institute, notes, the use by NSW of a 7 per cent discount rate to assess costs and benefits is out of step with other states and countries, where the rate is lower. The resulting distortions are many. Near-term benefits of mining projects are given excessive weight by the government compared with, say, agriculture.

Environmental damage from mines – such as the permanent disruption of aquifers from open pits – are also discounted into insignificance by using such a high rate.

Whether Watermark ever eventuates, the Shenhua case offers a prime opportunity for the parliament to review the Mining Act and how the state weighs the value of mining against other economic, social and environmental values.

Editorial from The Sydney Morning Herald.