More details needed, but royalties deal better than the one before Trad’s intervention

We still have scant details on the new Adani mega mine royalties deal, particularly the exact royalty rates and the deferral terms (interest rate and collateral/financial security required), but at least it appears the Government has pulled back from its original overly-generous royalty holiday. The Courier-Mail reports:

It is understood the deal involves a royalty escalation – paying smaller amounts at the start and the full rate and interest as production increases. The deal is expected to include a substantial reduction to the royalty rate in the first five years, but payments would then revert to the full rate from the sixth year.

Interest on any deferred royalties would also be paid from the sixth year onwards.

Adani will be required to provide a financial security to the State Government to ensure the company can get the reduced rate in the first five years of production.

Over the last week, Deputy Premier Jackie Trad has received a lot of criticism for kyboshing the original royalties deal proposed by the Treasury to Adani, but I think she deserves credit for taking what should have been the standard Treasury line against tax concessions (most eloquently put by Nick Behrens in his post earlier this week), even if her motivation was primarily political. Her intervention has likely resulted in a better outcome for Queenslanders, and for that we should be thankful.

I hope the project now proceeds, so that Queenslanders can benefit from the royalties income and from the jobs and economic opportunities provided by the mine. I should note, however, that many observers are skeptical about whether the mine will proceed or ever pay the State Government a reasonable amount of royalties. UQ Professor John Quiggin thinks Adani has been going through the motions, doing the minimum to keep the project going, so it can delay a huge write off and to strengthen its case for compensation, and it has not intended to proceed with the mine for a while now:

My guess is that, before anything of substance happens in the Galilee Basin, Adani will be back with more demands (maybe a Danzig corridor). Sooner or later, they’ll make an offer that can be refused, at which point they’ll pull up stumps and send in the lawyers asking for compensation. (from John’s post More Adani Asterisks)

And, at MacroBusiness (QLD fights a losing battle with Adani), Houses and Holes is skeptical about whether the Queensland Government will receive any significant royalties if they are deferred:

Given thermal coal remains in a huge global gut that will get worse not better, if it were to go ahead Adani won’t be paying anything back. It’ll get another holiday later.

It has been an extraordinary week in Queensland politics and business, and any rational observer would significantly write down their estimates of the probability the mega mine will actually proceed and the net benefits to Queensland it would provide. I await further details of the new royalties plan.

Finally, I should note there are a lot of different figures being quoted regarding the jobs impact of the mega mine. Apparently the project will result in up to 5,000 jobs while under construction and over 4,500 jobs when operating at peak capacity. However, regarding the ultimate impact on the economy, we need to take into account crowding out effects, given much of the labour would be sourced from alternative employment. Only a fraction of the jobs (directly and indirectly created) would go to otherwise unemployed people. ACIL Allen’s Carmichael Coal and Rail Project Economic Assessment, prepared for McCullough Robertson acting on behalf of Adani, found that the project would result in around 1,500 additional jobs relative to the baseline (see pp. 15-16 of the report). This is not insignificant, but not as substantial as some figures (e.g. 10,000 jobs) I have heard quoted recently.

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