We are disappointed to read the NSW Planning Assessment Commission’s (PAC) report on the Boggabri Coal project, giving the open-cut mine the green light.   Last year we made several submissions relating to this project on behalf of the Maules Creek Community Council, pointing out the shortcomings of the economic assessment of the mine.

What’s disappointing is that the PAC don’t seem to have understood our submissions.  On page 51 of their report they repeat the original economic assessment’s claims of a net present value of $1,362 million, emphasising that this figure includes $234 million of external employment benefits.  Not only have these figures have been repudiated by us, but also by the ANU’s Prof Jeff Bennett.

In a report commissioned by neighbouring coal project proponents, Aston Resources, Prof Bennett says:

Where the shareholders are not citizens, their mine benefits are expatriated and should not be included in the BCA.  Careful attention should therefore be given to the register of shareholders and adjustments made to the producer surplus benefit calculation.  (Bennett, 2011 p3)

But the figure the PAC quote makes no consideration of this requirement – and  the Boggabri Coal project is wholly owned by Japanese energy corporation Idemitsu.  More recent assessments of coal mines include adjustments to reflect foreign ownership, reducing the claimed benefits by billions.

The PAC clearly haven’t considered the part of Prof Bennett’s report where he emphasises:

[The] inclusion of the employment benefit as a component of the EIA is not recommended. Their inclusion would overstate the extent of proposal benefits. (Bennett, 2011)

If you reduce the NPV of the project by the benefits that flow overseas and the discredited employment externality figure, the value of the project will be reduced to the extent that the uncertainties surrounding the valuation of environmental and health externalities really matter.  But the PAC don’t realise this:

While the Commission acknowledges that many costs, particularly the externalities, have not been quantified in this instance, the Commission is largely satisfied that the regional and statewide benefits identified would be significantly greater than the likely costs of mining.

How can they know?  How can they be “largely satisfied” that one number that has never been publically calculated can be greater than a series of numbers that have never been quantified?

Furthermore, the PAC seem to give weight to the input-output modelling in the original assessment, despite the ABS and just about everyone else acknowledging that:

While their ease of use makes I–O multipliers a popular tool for economic impact analysis, they are based on limiting assumptions that results in multipliers being a biased estimator of the benefits or costs of a project. (ABS, 2011)

I–O models lack resource constraints and fail to capture significant welfare (consumer and environmental) impacts. They always produce a positive gain to the economy, however disastrous the event. (Abelson, 2011)

Let’s be clear about this: Large, open-cut, foreign-owned coal mines are of uncertain economic value to Australia.  Their value is uncertain because economic assessments do not fully and transparently consider the implications of foreign ownership and externalities.  Input-output modelling of these mines produces a biased picture of their impact on employment and output.

We agree with parts of the mining industry that mining assessment needs to be changed.  The PAC’s lack of understanding of economic issues and hook-line-and-sinker acceptance of the original Boggabri economic assessment shows why economic assessment must be brought out of the darkness of appendices and into the public light.

References:

ABS. (2011). Australian National Accounts: Input-Output Tables – Electronic Publication, Final release 2006-07 tables. Australian Bureau of Statistics. Retrieved from http://www.abs.gov.au/AUSSTATS/[email protected]/Previousproducts/5209.0.55.001Main Features4Final release 2006-07 tables?opendocument&tabname=Summary&prodno=5209.0.55.001&issue=Final release 2006-07 tables&num=&view=

Abelson, P. (2011). Evaluating Major Events and Avoiding the Mercantilist Fallacy. Economic Papers: Journal of the Economic Society of Australia, 30(1), 48-59. doi:10.1111/j.1759-3441.2011.00096.x

Bennett, J. (2011). Maules Creek Coal Project Economic Impact Assessment: A review. Research Evaluation. A review commissioned by Aston Resources, proponents of the Maules Creek Coal Project Proposal. Retrieved from https://majorprojects.affinitylive.com/public/d70ab9717ed8449eafa6b1e7d8e4cea5/Appendix G Bennet Peer Review_lowres.pdf