Earlier this month the Federal Government granted environmental approval to the central Queensland Kevin’s Corner coal project without having performed a cost-benefit analysis.
The proponents of the mine, Indian conglomerate GVK, were overjoyed at the result. They described it as the culmination of a "rigorous and thorough assessment process by two levels of government spanning five years".
Really, they have had their project approved without serious scrutiny. The economic assessment of the project, by Brisbane-based consultants Economic Associates, includes no consideration of economic benefits such as royalties, tax revenue or profits retained in Queensland or Australia.
There was no discussion of coal quality and likely prices, nor of the long-term outlook for thermal coal markets, as none was required by their terms of reference. Costs were not well covered in the economic assessment either, especially not the tricky issue of who is going to pay for the infrastructure to get the coal to market.
The assessment of environmental damage was even more bizarre — it was based on a 2002 study of Townsville wetlands and a 2005 study of urban bushland in Perth. Neither study appears to have any relevance to the ecosystems threatened by the Kevin’s Corner project. Why the many environmental valuation studies of the Central Queensland University were ignored is a mystery.
If a cost-benefit analysis had been performed on Kevin’s Corner, state and federal governments would have had to face some uncomfortable facts about the project.
First, financial analysts are unimpressed. Macquarie Bank recently declared that backers would need to “ignore conventional economics” for Galilee Basin projects like Kevin’s Corner to go ahead on schedule. The Institute for Energy Economics and Financial Analysis called GVK’s similar and previously approved Alpha coal project “uneconomic” and “an unacceptable risk”.
Secondly, cost-benefit analysis would have shown that the vast bulk of the economic benefits of the project will accrue to overseas shareholders, with very little being retained in Queensland or Australia.
Although the economic assessment never bothered to ask how much the project would cost or how much we would get out of the hole, it did claim to keep people busy for a very long time.
To estimate the employment effects of the project, the mine’s consultants used a type of economic model that was guaranteed to overstate the results. Their “input-output” model assumes that there is an unlimited amount of skilled labour in the Galilee Basin and that this can be used without taking workers away from other industries or increasing wages.
Consultants to other mines in the area, such as Clive Palmer’s China First, concede that their projects will reduce employment in industries such as agriculture and manufacturing. However, the Kevin’s Corner proponents concede no such negative impacts and claim thousands of “indirect” jobs will be created.
The problems with this sort of economic modelling are no secret. Queensland’s own planning framework states, “Input-output methodology (or the use of multipliers) is not a preferred methodology for economic evaluations”.
The ABS has stopped publishing inputs to these models due to “debate in the user community as to their suitability”. A judge in NSW recently overturned approval of a coal project, finding the input-output modelling supplied was “deficient”.
All of this was pointed out in submissions to the Kevin’s Corner assessment process. The only response was that the proponent considered the consultants had “[met]the requirements of the prescribed Terms of Reference for the Project”.
The most disturbing thing is that this is standard practice in Queensland. Projects are rarely given serious assessment from an economic perspective. While NSW insists on cost benefit analysis, Queensland continues to rely on discredited modelling. On top of this, the Queensland Government is now considering subsidising the Galilee Basin coal developments, further increasing their cost and reducing any benefits.
In the case of Kevin’s Corner, the Queensland and federal governments are sending a clear message to GVK: Don’t worry about how much it costs us or if we get anything out of it, as long as you stay busy you can dig up the whole place.
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