PERTH (miningweekly.com) – The Queensland Resources Council (QRC) has warned that the severe tax regime in the state might deter future investment in the coal sector, despite the need for a long-term supply source.

“The outlook for the coal industry in Queensland is daunting, which makes you wonder why governments appear so determined to make it worse,” QRC CEO Michael Roche said from Brisbane this week.

He pointed out that the current effective taxation rate for a new coal mine in the state was 50%, making it the second-highest tax rate of all competing jurisdictions, with the exception of Indonesia.

“While paying slightly higher taxes, Indonesia has the distinct competitive advantage of much lower per unit extraction costs, as well as a freight cost advantage over Queensland,” said Roche.

“Under the weight of these external factors, Queensland coal companies are finding it difficult to make the case to globally focused boards for further investment here, despite forecasts of strong long-term global demand for coal.”

However, Roche noted that it was not only Queensland that was suffering under a heavy taxation burden.

“There is an increasingly desperate rush for cash and I doubt there’s much chance of the resources sector dodging a bullet in next month’s federal budget. Somewhere between thin capitalisation rules, accelerated depreciation, exploration deductibility and fuel tax credits – a pocket is waiting to be picked,” he noted.

Quoting figures from the recently released 'State of the Sector' report, Roche noted that QRC member CEOs reported that only 16% of current resources projects were currently in the lowest quartile of production, while 32% were in the second quartile.

A further 32% of projects were in the third quartile of production, while some 20% were in the fourth quartile, meaning they were unlikely to be producing at costs less than the prevailing market prices.

“In effect, five years down the track, 52% of operations are under serious competitive threat if they cannot control costs and move down their respective cost curves,” Roche said.

He noted that a number of companies that have embarked on significant cost-cutting over the past 12 months have been able to move their operations from higher to lower quartiles and the QRC expected to see more follow that trend.

“Another disturbing signal is that capital costs for projects in Queensland, and Australia more generally, are rising faster than anywhere else, putting our projects at a distinct capital cost disadvantage. The Woodside announcement on the Browse Basin project is the latest piece of evidence confirming Australia’s predicament.”