Resources sector fighting cost impediments to growth

first_imgQueensland’s resources sector is making a determined effort to control costs to ensure the industry remains strong. Michael Roche, the Chief Executive of the Queensland Resources Council, told a training sector gathering in Yeppoon yesterday that coal companies were undertaking root and branch cost reviews. Roche said they had started to close unprofitable parts of their operations, economise on their use of contractors, slowed or cancelled work on new projects and slimmed down corporate offices.“As pointed out by BHP Billition CEO Marius Kloppers, the industry has had a perfect storm of plummeting prices, rising costs and an Australian dollar that remains stubbornly high” said Roche. “And now, on top of that, we have increased state royalty imposts that, combined with the 30% company income tax rate, will mean Queensland will carry an effective taxation rate of 50% on a typical coking coal operation. This now makes us the equal highest taxing coal jurisdiction globally. However the industry has put a proposal to the Queensland Government to inflation proof the new royalty rates announced in the budget, which ramp up from 7 to 12.5% and then to 15%.”He continues: “‘We have been able to show that indexing the thresholds will go a long way to limiting the damage to the net present values of new projects caused by the royalty hike. If the government agrees to indexation, it will pull the effective tax rate over the life of a typical coking coal project back to 45% – high but not higher than where we were before the latest royalty increase. Unless the thresholds for those stepped rates are indexed, Queensland’s effective tax rate for coal will keep on rising to be far and away the highest in the world and sadly a survey of QRC members has confirmed that this royalty hike is likely to lead to more job cuts and new projects being put on hold. This is disturbing news given that on our estimates some 4,000 employees and contractors have been let go by coal companies over the past few months.”However, it’s not all doom and gloom. Roche told the Resources RTO Conference that even under a scaled-back growth scenario, beyond the current cyclical downturn, the 10 to 15 year outlook was huge. He said the QRC had welcomed the government’s establishment of the Resources Committee of Cabinet, under the chairmanship of Deputy Premier Seeney, to address the regulatory burdens left by the former Labor government. “Early indications are that the government is genuine in its determination to deliver tangible cost-reducing and productivity-boosting reforms through the new Cabinet Committee” said Roche. He also told the Resources RTO Conference that even if only half the 66 major resource sector projects identified in QRC’s Growth Outlook Study released last November go ahead, this would represent capital expenditure of over A$70 billion.“This means that we will continue to face shortages of skilled people” said Roche. “Just today a quick look on a major jobs site shows there are currently 2,300 vacancies in our sector in Queensland. We can’t continue along the business as usual model with education and training. One of the first priorities for change recommended by the Queensland Government’s Queensland Skills and Training Taskforce, which I chair, is an overhaul of the TAFE system. We need to put in place innovative measures, and quickly, to ensure that Queenslanders can reap maximum benefit from the coming growth cycle. However, if Queenslanders are to enjoy the full potential of its valuable mineral and energy resources, the government needs think twice about any measure that will result in the sector creeping up the global cost curve.”last_img

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