One of Australia’s most prominent energy investors has urged the Western Australian government to intervene in the state’s ailing coal industry before it collapses and the lights go out.
- Indian-owned Griffin Coal has been placed in receivership with nearly $1.5 billion in debt
- Chinese-owned Premier Coal has been hit by a series of setbacks and falling production
- Coal still accounts for about a third of the power generated on WA’s largest grid
Oliver Yates, the first head of the federal government’s green bank and senior adviser to investment fund Sentient Impact Group, said WA is headed for an energy disaster amid a growing crisis affecting the coal industry.
Coal-fired power still accounts for about a third of the electricity used on the state’s largest power grid, but the local miners responsible for producing the fuel are struggling financially.
In September, Indian-owned Griffin Coal was placed in receivership with nearly $1.5 billion in debt, while Chinese-owned Premier Coal was hit by a series of setbacks and falling production.
Mr Yates said the problems plaguing the two miners were likely only to worsen if demand for coal power continued to fall amid a burgeoning renewable energy industry.
Coal is still needed “until it is no longer”
But the former investment banker said WA still needs the coal plants “until the point at which they don’t anymore” and the state cannot afford to let them fail.
And he said it was a similar situation across Australia, as other regions that have long been the heart of electricity systems, such as Victoria’s La Trobe Valley and New South Wales’s Hunter, have struggled with the same problems.
“It became quite apparent to me that the participants in the Collie region…are in dire straits financially,” Mr. Yates said.
“Actually, they don’t invest in their assets.
“They are sweating their assets, which is a common occurrence that occurs when the private sector knows their assets are likely to be closed.”
Mr Yates said it was a “logically sensitive” measure for the companies.
“The problem is, if you don’t invest in the assets — whether it’s equipment or it’s a mine that’s just clearing the overburden so you can get to more coal — effectively you’re getting very significant, abrupt ones.” encounter problems,” he said.
“They are important strategic assets for the state and WA.”
Earlier this year, Premier Mark McGowan announced the government would close its two remaining coal-fired power stations – supplied by Premier Coal – by 2029.
That would keep a single coal-fired power plant, the 440MW Bluewaters plant controlled by US hedge funds, in the state.
According to Mr Yates, who ran the Clean Energy Finance Corporation, the WA government must step in before the local coal industry’s problems get any worse.
There are many ways to do this, from direct state control via a so-called transitional authority to a regulated company that can be understood by the state and private investors.
He said it seemed inevitable that the current operators of Washington’s two coal mines would hit the wall.
“Sharks” can start circling
While acknowledging that some private investors would be willing to pick up the pieces, Mr Yates said only “sharks” would be interested due to the extreme financial, political and social risks involved.
“You can always get the private sector involved,” he said.
“When the state says, ‘We really need this coal, how about we give guarantees on coal or everyone has to pay a lot more for coal,’ they are effectively crowding out the private sector.
“And if you do that, you’ll end up getting sharks around.”
WA Energy Minister Bill Johnston acknowledged that the plight of WA’s two coal miners was a serious problem for the government.
However, Mr. Johnston argued that their problems were inherently private business matters and it would be inappropriate – even unlawful – for the state to intervene.
“While the Griffin and Premier Coal companies are operating, there is no legal way for the government to take over the mines,” Johnston said.
“These two companies have statutory rights under Australian law.
“It is simply not possible for the government to ignore private ownership of the mines.”
To make up for lost production at Premier and Griffin, customers including state-owned power producer Synergy and mining giant South32 have resorted to importing coal from abroad, despite record-breaking fuel prices.
Grahame Kelly, the general secretary of the Mines and Energy Union, broadly supported the calls for action.
Mr Kelly said it seemed obvious that the financial position of WA’s coal industry was unsustainable, particularly at Griffin.
“In our opinion, business as usual just doesn’t work for Griffin,” Kelly said.
“A private company will focus on profits, it will focus on the short term, and it will focus on minimizing the end-of-life risk of the operation.
“If they do all that and the state government is involved in some way, the entire risk passes to the government.
“We think there should be a better structure … some sort of regulated arrangement that allows for effective and orderly administration.”
The WA government is in place
Mr Johnston acknowledged that the state’s power system would need coal for a number of years, but disagreed with Mr Yates’ assessment.
A major concern for Mr. Johnston is the financial risk to taxpayers if the state steps into a flagging market.
Noting that both coal mines are foreign-owned, he stressed that the government is unwilling to bail them out.
“We will not transfer any assets from Western Australian taxpayers to the foreign owners of these two companies,” he said.
“That wouldn’t make any sense.”
Despite the minister’s reluctance, Mr Yates said there was a big financial reckoning ahead for the state, whether he wanted one or not.
He said the private sector’s overriding profit motive was incompatible with the government’s goal of keeping the lights on.
“If you’re trying to get a private sector solution out of a Chinese state-owned company, a company that’s broke… and then a power plant owned by a hedge fund… good luck,” Mr Yates said.
“They actually need coal in WA for a while.
“You can’t have a disorderly closure of coal.
“It’s unfair to the workers. It’s unfair to the industry, which will struggle to cope with sudden supply changes, and it will actually result in far more cost and risk across WA.”
#Warning #government #intervene #embattled #coal #miners #pull #power #system