Coal Acquisition Amendment (Fair Compensation) Bill
Debate resumed from 6 April 2005.
Mr GEORGE SOURIS (Upper Hunter) [11.11 a.m.]: It is with pleasure that I contribute to the Coal Acquisition Amendment (Fair Compensation) Bill. The pleasure comes from standing in this House representing, and arguing for just and equitable compensation for, former owners who were divested of their coal assets by several processes, dating from 1982. In 1982 the Wran Government passed legislation that deprived owners of coal rights of those coal rights. In 1990 the incoming Coalition Government, under Premier Greiner and Deputy Premier Murray, amended the Coal Acquisition (Compensation) Arrangements Act 1985 to provide just and equitable compensation for former owners. That form of compensation proceeded for a number of years. In 1997, under the Labor Government's Coal Acquisition (Re-acquisition Arrangements) Order, coal rights were re-acquired from applicants and owners who had, as a result of the Coalition's legislation, applied for restitution of their coal rights rather than accepting compensation.
In respect of that regime, 129 claims remain unsatisfied, or unfinalised. Two serious matters of principle need to be taken into consideration. First, what would have happened had nothing else taken place in respect of the new regime for extracting coal royalties of an ad valorem nature? What would have happened had that not have occurred? Second, what would have happened had this legislation not appeared? In essence, the Government has claimed that it was following a Commonwealth Grants Commission recommendation that it changed the royalty system to an ad valorem coal royalty system, as if to imply that it was some requirement or issue that the Federal Government had taken with New South Wales. It was merely a recommendation, and it appears from the introduction of this legislation that this Government did not fully understand the implications of that recommendation, particularly in respect of the coal compensation arrangements.
In many respects this bill represents a philosophical panic move by this Government to unfairly rein back just and equitable compensation. In July 2004, following the introduction of ad valorem coal royalties, as well as litigation brought by Nardell Colliery Pty Ltd for just and equitable compensation, the liability for compensation had been increased by $116 million. However, the Government has not said that it has taken many, many times that amount in windfall gains—the term that the Government has used—in coal royalties. I remember when the bill was introduced that the Minister for Mineral Resources, who is in the Chamber, predicted that it would raise about $40 million extra. The bill has raised a lot more than that, and will raise a lot more in coal royalties by many times the predicted level of compensation for the remaining129 applicants who, at this point, are unsatisfied, or unfinalised.
The bill seeks to set compensation at $1.70 per tonne, the original level of coal royalty. However, that is not the full story, because applicants were assessed under the so-called super royalty arrangement of $2.20. That is a different issue from the ad valorem royalty scheme, which would have given a different result in compensation. To me it seems very unfair that this bill will cut back those applicants from their super royalty arrangement of $2.20 to $1.70. That is what I meant by saying that if nothing else had happened—if the Government had not introduced ad valorem royalty, and not introduced this bill—the Government would have made compensation based on the super royalty. This bill not only makes adjustments that the Government believes are consequential upon the adoption of an ad valorem system of royalties, but takes the opportunity to very unfairly cut back from the current arrangements to the former arrangement of ordinary royalties of $1.70. That aspect is obnoxious and exposes the philosophical position of the Government: that anyone in this State who owns property, an asset, and properly so, the Government finds to be in some way philosophically obnoxious and it will do anything, including introducing legislation of this nature, to take back value and therefore compensation for proper owners of coal rights.
In the passage of the 1997 legislation the Government accepted a crossbench amendment in another place to apply just and equitable arrangements. That may have been taken to mean actual royalties, and it is that that the Government now seeks to amend. What is the definition of "just and equitable"? The Government needs to very seriously consider those words and the extent to which this legislation overturns the concept of just and equitable compensation—an amendment that the Government accepted during the passage of the 1997 legislation, which re-acquired the coal assets that remained at that time. One other aspect of this bill is that all applicants but one fall into one particular category of private owners. The remaining applicant, Muswellbrook Shire Council, is in a unique position. Whilst all other local governments accepted an arrangement for compensation, Muswellbrook council chose to retain its coal rights and to assess those rights as a property asset for the levying of rates.
In the case of Muswellbrook Shire Council the loss of rating rather than the loss of royalties would be relevant. To take Muswellbrook council down in this cover-all bill is unfair to that council. It is pretty obvious to all those who have studied this matter that Muswellbrook council should be excluded from this legislation. The Opposition will oppose this bill. I flag at this point that the Opposition is considering moving amendments in the Legislative Council. I give notice of the Opposition's intention to move those amendments in the other place rather than introducing them in this Chamber, as there has not been sufficient time to draft them this week.
As yet those amendments have not been drafted. The Opposition needs a period of time within which to consult before drafting them. We will not go into Committee at this stage to introduce any amendments; rather, we reserve the right to do so in another place and we will then vote in favour of the legislation if it is amended in the upper House. Not much more can be said in the absence of any drafted amendments. This legislation is philosophically obnoxious as it cuts back the rightful entitlements of owners more drastically than would have been the case if the Government had not adopted an ad valorem duty. That is objectionable and obnoxious. I am sure all honourable members would agree that it is unfair, unjust and inequitable. As I said earlier, the Opposition will oppose the legislation.
Mr GEOFF CORRIGAN (Camden) [11.23 a.m.]: I support the Coal Acquisition Amendment (Fair Compensation) Bill. Unlike the honourable member for Upper Hunter, I am proud to speak in debate on legislation that provides just and equitable compensation. The Coal Compensation Board was created in 1985 to receive, determine and pay claims to former private owners of coal. Coal was acquired by New South Wales under the Coal Acquisition Act 1981. Compensation is provided to claimants pursuant to the provisions of the Coal Acquisition (Compensation) Arrangements 1985, which is known as the Compensation Scheme. The Coal Ownership (Restitution) Act 1990 allowed for the revesting of certain coal titles in former private owners of coal. Eligible claimants for loss of estate in coal under the Compensation Scheme were given the option of applying for restitution of their coal in lieu of compensation.
Passage of the Coal Acquisition Amendment Act 1997 allowed the State to reacquire coal that had been returned to some former owners and to refuse restitution applications. The great majority of coal titles were restored but a few titles were reacquired and a small number of restitution claims were refused because of the loss of potential coal royalty to the State. Compensation for coal titles reacquired or refused is calculated pursuant to the provisions of the Coal Acquisition (Reacquisition Arrangements) Order 1997 and is known as the Reacquisition Scheme. Compensation is calculated differently under the Compensation Scheme and the Reacquisition Scheme. However, both involve capitalising a net present value at the date the compensation is paid of the expected future income stream from coal royalties in line with a risk assessment of the future. The traditional return to private coal owners was by way of royalty. Effectively, a private coal owner received seven-eighths of the royalty collected by the State from a colliery operator.
The State deducted one-eighth of the royalty to cover its administrative costs in collecting the royalty. I have gone through all this background to address the comments made earlier by the honourable member for Upper Hunter. I am sure that the Minister will also address those issues. After the State deducted one-eighth of the royalty the remainder was then subject to income tax in the hands of the private coal owner. The compensation payable under the Compensation Scheme and Reacquisition Scheme provides a substitute for this income stream. In essence, under both schemes, the State captures the Commonwealth income tax calculated at the corporate taxation rate that former owners would have paid if their coal had not been acquired by the State. As the Minister said in his second reading speech, the Coal Compensation Board has paid more than $650 million in compensation for around 28,000 claims to date.
The calculation of coal compensation under the Compensation Scheme and the Reacquisition Scheme is in accordance with the fixed base royalty of $1.70 per tonne. Coal royalty has been calculated at this fixed rate since 1981, more than 23 years, except for a brief period during 1986-87 when the rate had been reduced. I make that point to rebut some of the statements made earlier by the honourable member for Upper Hunter. Of course, there is always a possibility that the coal price will drop. Under the ad valorem scheme those people would get less than $1.70 per tonne if any amendments were accepted. In 1999 the Commonwealth Productivity Commission released its report on the Australian black coal industry. The commission examined the existing royalty system in New South Wales and recommended that it be changed to an ad valorem system. The Federal Government supported that recommendation. In addition, the Commonwealth Grants Commission concluded in its 2004 report on State revenue sharing relativities that New South Wales could raise $87.6 million through an ad valorem royalty system for mining. Clearly, the Commonwealth Government had that in mind.
The New South Wales Government faced significant budgetary pressure to move to an ad valorem system for coal royalties. Therefore, the Commonwealth decided that funding to the State should be cut by $87.6 million to reflect that. The ad valorem scheme calculates coal royalty on the value of coal production. That would deliver higher returns to the State when coal prices are high. It would also reduce the royalty burden on coalmine operators when coal prices are low. So ad valorem royalty applies whether the market price for either domestic or export coal rises or falls. The new ad valorem royalty for coal commenced on 1 July 2004. The new system and recent court decisions have increased the liability of the Coal Compensation Board by $116 million. Litigation that may arise from applications yet to be determined by the Coal Compensation Board may also further increase the board's liability by more than an additional $50 million.
I understand that of the more than 28,000 claims only a small number—129 claims for loss of estate in coal, a figure rightly referred to by the honourable member for Upper Hunter—are yet to be finalised. These claims are pending the outcome of recent test case litigation. Calculating compensation based on the ad valorem royalty rather than the fixed royalty would result in a windfall benefit to a small number of these remaining applicants for compensation. That is opposed to the vast majority of the 28,000 applicants whose compensation has been finalised under the flat rate per tonne royalty scheme. This bill will ensure that all compensation claimants are treated the same and that all compensation is calculated based on the same flat rate per tonne royalty regime. Given that all the claims were received at the same time, the same royalty criteria must apply. This bill is in the interests of fairness for claimants who have already settled and the wider New South Wales community.
As a member of this Government I strongly support the Minister in directing these savings towards community priorities. Police, nurses and teachers are certainly community priorities in my electorate. Entitlements established by negotiation and court decisions prior to the introduction of the ad valorem royalty on 1 July 2004 are not affected by the provisions in the bill. The bill will also ensure that applicants for compensation for lower value coal, normally coal earmarked for domestic power generation, do not have their claims for compensation reduced by the move to an ad valorem royalty system. The ad valorem royalty system encourages development of lower value coal—domestic coal such as that used to produce electricity. Potentially, up to one-third of outstanding applicants could be penalised because their claims are located in domestic coal areas. Compensation will be calculated by reference to the fixed coal royalty in force when the coal was acquired and for the 23 years from 1982 to date.
It is clearly unfair that a very small proportion of people receive greater or less compensation as a result of the ad valorem royalty simply because their claims have not yet been finalised. The bill provides that compensation payable to the remaining claimants should be calculated in the same way as it was calculated for the 99.5 per cent of people whose claims have already been determined. The proposed amendments provide for fair and consistent compensation regardless of when claims are settled. I commend the bill to the House.
Mr GERARD MARTIN (Bathurst) [11.29 a.m.]: I support the Coal Acquisition Amendment (Fair Compensation) Bill. I note the comment of the honourable member for Upper Hunter that the Oppositions intends to move amendments to the bill in another place. The bill was introduced a month ago so one would think Opposition members could get their act together and move those amendments in this place. But it is for Opposition members to decide how much elbow grease they use in such cases.
The purpose of the bill is to ensure that all compensation claimants are treated consistently and fairly under the same royalty scheme no matter when their claims were determined. This is an issue of equity, which the Government is always prepared to support. As has been pointed out, only 129 compensation applicants remaining from a total of approximately 28,000 will be affected by the amendments in the bill. As the Minister for Mineral Resources and the honourable member for Camden pointed out, those 129 applicants will be treated in exactly the same manner as the 28,000 who went before them. They will receive exactly the same compensation for the same things. As the Minister said in his second reading speech, the bill will have no impact on any current entitlements to compensation. Coal compensation is calculated on the basis of future royalties from coal that may or may not be mined at some stage in the future. The compensation proposed by the bill will be fair as it will be in accordance with claimants' expectations and entitlements prior to 1 July 2004. It is important to note that the bill will not affect the gains won by previous applicants.
Another amendment in the bill is designed to give the State more certainty about its budget obligations by clarifying the law in relation to commercial arrangements for affordable coal used for electricity generation. In the Nardell Colliery test case the Court of Appeal decided that compensation should include provision for front-end payments where appropriate. A front-end payment is a payment to the State by the tenderer for a coalmining title in consideration for the grant of a coalmining lease. That is fairly simple and I think we all understand it. The Government is always working to reduce the cost of electricity for the people and businesses of New South Wales. That is particularly evident in my electorate of Bathurst, where more than 20 per cent of electricity in New South Wales is generated—and there is potential for that yield to increase.
In 2002-03 the State's seven major coal-fired power stations used around 26 million tonnes of coal to generate around 62,625 gigawatts of electricity. In the past decade the three New South Wales coal-fired electricity generators—Eraring Energy, Delta Electricity and Macquarie Generation—have progressively modified their coal-purchasing strategies. This change was in response to the decreasing number of potential coal suppliers as a result of the growth in the export thermal coal industry and the competitive pressures associated with the national electricity market. The price of export coal has doubled in the past 12 months. I worked in the coal industry for 30 years before I became a member of this place, and I assure honourable members that that is a revelation. There has been a marked change in Australian coal markets, particularly our export market.
In the past, domestic power generators kept the price of coal low by competitive tendering, but the booming export market in recent years has made that difficult. We have only two suppliers on western coalfields whereas a few years ago generators had the pick of probably five or six suppliers. The Government helped generators to keep the price of coal low by introducing the ad valorem royalty scheme, which reduces further the cost of low-quality coal to the generators. In most cases the generators who pay the royalty on coal, rather than the miner, will pay less royalty under an ad valorem scheme than they did previously. The Government is contributing directly to these reduced costs through the introduction of the ad valorem coal royalty and the way it issues coalmining leases.
In the past the fixed royalty on low-quality domestic coal could be up to three times as high as the royalty on high-quality export coking coal as a proportion of the coal price. By reducing the amount of royalty paid on lower-quality coal, the ad valorem royalty scheme is expected to enhance the attractiveness of such coal to New South Wales electricity generators. That has to be a good thing. That may, in turn, contribute to greater coal resource utilisation, and operational and marketing flexibility for coal suppliers. The Government has also contributed to a reduction in the cost of power generation by awarding coalmining leases to companies that can provide the lowest-priced coal to New South Wales electricity generators.
The Government was able to achieve a commercial deal with the mining company that undertook to mine the Mount Arthur lease to supply coal to Macquarie Generation. Certain applicants for compensation have claimed that the contract for the supply of coal to Macquarie Generation is just a substitute for a front-end payment. These applicants argue that their compensation should include the contract negotiated by the Government for the tenderer to supply coal to Macquarie Generation at a reduced price. It is obviously unreasonable for applicants to expect their compensation to be inflated by an agreement negotiated by the Government for the benefit of the people of New South Wales. I find it difficult to understand how any member opposite could argue against that proposition. These claims have the potential to increase the Government's liability under the re-acquisition scheme by a further $50 million. The bill clarifies the law so that compensation does not include any amount related to such commercial arrangements. That is the intent of new section 6A (5). As a result, this is not a front-end payment, and the bill will clarify the law so that these commercial arrangements do not apply to any compensation determinations.
It is unfair to the wider community of New South Wales that compensation should be sought for what is a mutually beneficial commercial agreement for cheaper electricity generation, which benefits all community sectors. At the same time it should be noted that the bill restores fair compensation to claimants who may be disadvantaged by the ad valorem royalty scheme. This includes claimants whose compensation relates to low-value coal used in domestic electricity generation. As I said earlier, in the case of coal supplied for domestic electricity generation there is potential for the ad valorem royalty to be less than the traditional royalty of $1.70 per tonne. While this is good news for electricity generators and coal producers, it was not intended to impact on the compensation payable to remaining claimants.
The Government acknowledges and accepts that the amount of the coal royalty it may receive under the ad valorem scheme is potentially less than $1.70 per tonne for low-value coal. However, the Government cannot accept that some compensation claimants may receive less compensation as a result of the ad valorem scheme. The Coal Compensation Board has paid more than $650 million in compensation to approximately 28,000 claimants to date. Through this bill the Government is ensuring that the amount of compensation payable to remaining claimants is fair and is calculated at a royalty rate not less than they could have expected prior to the introduction of the ad valorem royalty scheme. As I said at the outset, this bill is about equity—a concept that the Government will always support. I commend the bill to the House.
Mr JEFF HUNTER (Lake Macquarie) [11.38 a.m.]: The Coal Acquisition Amendment (Fair Compensation) Bill is of particular interest to me because there are five or six underground coalmines and one open-cut coalmine in my electorate of Lake Macquarie—Lake Macquarie and the Lower Hunter are traditional coalmining areas—and also because I am a member of the backbench committee of the Minister for Mineral Resources. The overview of the bill states:
The Coal Acquisition Act 1981 (the principal Act) vested all coal in the Crown and enabled the Governor to make arrangements for the payment of compensation to claimants. The Coal Ownership (Restitution) Act 1990 provided that certain successful claimants could apply to have the coal restored to them rather than accept compensation. The principal Act then enabled the Governor, by proclamation, to revest the coal that had been restored under the Coal Ownership (Restitution) Act 1990 in the Crown and to make arrangements for the payment of compensation to claimants in those cases.
The overview of the bill outlines its object:
The object of this Bill is to amend the principal Act:
(a) to ensure that if royalty is included in the determination of compensation for any claim that has not been finally determined under the principal Act the royalty will be calculated on the same basis on which other claims have previously been determined rather than in accordance with the new scheme for the payment of royalty recently introduced under the Mining Act 1992, and
(b) to make it clear that compensation for loss of "super royalty" can be paid in relation to appropriate claims, but only for periods occurring before the repeal of the provisions of the Mining Regulation 2003 that allowed the payment of super royalty, and
(c) to provide that a payment of compensation under the principal Act is not to take into account any arrangements required to be entered into under the Mining Act 1992 by the holder of a mining lease or similar authorisation that deal with the supply of coal at a particular price.
The bill will remove from the calculation of compensation the windfall benefits and losses arising from the ad valorem royalty regime. It will also restrict compensation payable to key litigants for front-end payments. The bill amends the Coal Acquisition Act 1981 to ensure parity between all compensation claimants. It will mean that the claims of a small group of remaining claimants will be assessed under the same royalty regime as claimants whose claims have already been settled. But the bill does not affect current entitlements for compensation.
As other speakers have said, following the recommendation of the Commonwealth Grants Commission the New South Wales Government moved to an ad valorem royalty system in line with other States. At the time of this recommendation the Grants Commission indicated that New South Wales would be further penalised if it failed to implement this policy. The bill makes sure that all claimants are assessed under the same flat rate per tonne royalty scheme. Ad valorem is obviously a value-based system, and to apply it to the remaining claimants is to use a different calculation. As I pointed out earlier, this matter is of particular interest to me and the people in the Lake Macquarie electorate.
Mr KERRY HICKEY (Cessnock—Minister for Mineral Resources) [11.42 a.m.], in reply: I thank honourable members representing the electorates of Camden, Bathurst and Lake Macquarie for their contributions to the debate on behalf of their constituencies. I congratulate the honourable member for Upper Hunter, because it is about time he represented his constituency in this House. I was interested in what he said, but what he neglected to say is probably more to the point, that is, that 28,000 claims representing 14,000 people across New South Wales have already been settled. The reason for a change to an ad valorem system is clear. It was forced on us by the Commonwealth through the Grants Commission. A penalty of $87.6 million would have been imposed on the Treasury coffers of this State if we had not moved to an ad valorem system. That is why this legislation has been put in place. It was not put in place to provide a compensation windfall.
I am concerned that the Opposition seems to favour rich landholders who can afford expensive legal representation to ensure long, drawn-out court cases. Clearly, the claimants will benefit. The 129 claims relate to only 80 people, who will share in $330 million, a large amount of money, if this legislation is not passed. If this bill is passed they will share $214 million. The Coal Compensation Board was established as a sunset organisation, but the longer these matters are drawn out the more it will cost governments. It costs approximately $9 million to keep the board operating.
Those who own the coal rights are benefiting from an historical accident dating back to 1850. The remaining claimants have already been paid, under the old system, 75 per cent of their estimated compensation entitlement, so the Government can minimise interest on the outstanding payments. The concern is that they now want to get a bigger bite of the cherry for the remaining 25 per cent. The top five remaining claimants have already received $81.9 million. The top 15 remaining claimants have been paid more than $112.2 million and they will be paid more under their entitlement. The $116 million saved by this bill equates to 1,450 new nurses, based on an annual salary of $80,000; 1,380 police, based on an annual salary of $83,000 to $84,000; and 1,700 new teachers, based on an annual salary of $68,000 and on costs. The Government does not shy away from its priority of running the State efficiently and effectively. It is not ashamed of making sure that the people of New South Wales get the benefits of the State's excellent triple-A rated economic management.
In 1990 when the Greiner-Murray Coalition was in office—I might have still been in short pants then—it put a cap on coal compensation. The Premier, Nick Greiner, said there was a need for budgetary constraint. He was one of the best economic managers any Coalition government has produced. He took on both tasks of Premier and Treasurer without hesitation and clearly understood the concept of fiscal responsibility. That included capping coal compensation payments. Where does that leave the honourable member for Upper Hunter?
During the Coalition's last days in the sun it set a limit on compensation. That is far removed from what this bill sets out to achieve, that is, to maintain the status quo. The Government aims to ensure fairness to all claimants. The honourable member for Upper Hunter has no idea of fiscal responsibility. After all, he blew $50 million on Luna Park. I am not sure whether it was on the dodgems or the giant slippery dip. It could have been on the laughing clowns, the symbol of The Nationals. The fact is that for years the Federal Coalition Government pushed New South Wales from pillar to post. Since 1999 the Commonwealth and its agencies, namely the Productivity Commission and the Grants Commission, have wanted to change the way coal royalties are calculated in this State to an ad valorem system.
By opposing this bill the Opposition is thumbing its nose at almost 14,000 people who have already settled their claims. Although the Opposition claims it wants to maintain the just and equitable system under which those 14,000 claimants have settled, it now wants to change that just and equitable system to the application of a super royalty. That argument is flawed; it is double dipping. The introduction of an ad valorem system by the Commonwealth abolished super royalty. As it does not exist, it could not be applied. What the Opposition proposes, on a whim, would cost the Government an extra $45 million. That is not fiscally responsible.
This bill does not affect Muswellbrook Shire Council. The legislation clarifies how loss of estate in coal claims will be treated. The council can only claim for loss of rate income. Again, the honourable member for Upper Hunter is wrong. It is admirable that he is representing his electorate, but that does not make him right. We need to ensure that we have a fair and just system that does not undo the 28,000 claims that have already been settled.
The board's liability may also be increased by an estimated $50 million as a result of potential future litigation regarding front-end payments, a legitimate entitlement. However, the bill clarifies that tender arrangements for the lowest price of coal-to-electricity generators do not constitute front-end payments. The bill is even-handed and a fair way forward for the compensation scheme arising from the move from the coal royalty standard rate of $1.70 a tonne to the ad valorem system. It is fair for the remaining claimants, fair for claims that have already been settled and fair to the wider community that this be passed. I commend the bill to the House.
Question—That this bill be now read a second time—put.
The House divided.
Mr J. H. Turner
Mr R. W. Turner
Question resolved in the affirmative.
Motion agreed to.
Bill read a second time and passed through remaining stages.