COLLIE COAL (GRIFFIN) AGREEMENT AMENDMENT BILL 2026
Second reading
Resumed from 25 February.
Hon Dr Steve Thomas (6:01 pm) : It has all been a bit dishevelled this afternoon.
Hon Matthew Swinbourn: How apt that you are standing.
Hon Dr Steve Thomas: That's not very nice, minister.
Hon Matthew Swinbourn: You know I said it with love!
Hon Dr Steve Thomas: We are a bit all over the shop, Acting President. We are dealing with the Collie Coal (Griffin) Agreement Amendment Bill 2026 at this point, and I intend to spend a fair bit of time talking about and explaining the history of Griffin Coal and the coalfields in Collie before we get to the—I can see Hon Kate Doust's eyes glazing over already.
Hon Kate Doust: I am not glazing over; I look forward to you retelling the tale!
Hon Dr Steve Thomas: Excellent!
Hon Kate Doust: I might assist you.
Hon Dr Steve Thomas: The honourable member might stand up and make a contribution to the second reading, to see if she agrees with my history of it.
The second part of my contribution will be a more general discussion around energy in Western Australia and how coal interacts with what the future of Western Australia's energy profile is going to look like. I intend to take a bit of time to go through some of that in detail. I will start, though, by saying that the opposition supports the bill before the house and supports the extension of the state agreement act for Griffin Coal.
Having said that, I would have to say that the current state of the coalfields around Collie in Western Australia is the result of at least two decades of mismanagement. It is in absolutely dire straits. The difficult part, of course, is that the state still needs some coal generation to tick it over to whatever the future is going to look like in energy, but the management of the coalfields and the management of Griffin Coal, in particular, has been dreadful for a very long period of time.
Members are probably not aware that in the old days—always be worried about an old man who starts talking about the old days—in the early 2000s and in the lead-up to that period, the two coal companies in Collie, Premier Coal and Griffin Coal, split the coal contracts with Synergy, which at that point was called Western Power. They each had half of the approximately five million tonnes of coal that was required to feed the coal stations in Western Australia. There were some additional sales to a couple of private enterprises, in particular the Worsley Alumina plant, which was at one point BHP and has now been hived off into South32. Each of those coal companies received good payment for the coal that they pulled out of the ground. At that point, they were getting something like $65 a tonne for the coal that they put into the system. In those days they were on the better seams of coal, so $65 a tonne was a significant amount of money and resulted in significant profits, probably more so for Premier Coal than for Griffin Coal, but we have to remember that at that point, the strip ratios—that is, the ratio of how much overburden had to be taken off to get the coal out of the ground—was in some cases well less than the average of four to one, and in some seams, it was almost even. They had some very good seams of coal.
The first issue I put before the house today is that the easy coal from Collie has already been harvested. Everybody in Collie understands that. Premier Coal at the time probably had an amazing strip ratio. It was getting coal out of the ground for very little. At $65 a tonne, there were probably periods when the cost to Premier Coal was under $20 a tonne. If a company is pulling 2.5 million tonnes out at $20 a tonne, it is making $100 million profit every year, and back in 2000, a $100 million profit was a pretty good one. Griffin Coal has always had a higher cost structure than Premier Coal. Griffin Coal was the heartland of the union movement in Western Australia. If there was anywhere that was going to have burdensome industrial development and problematic industrial relations, it was going to be Griffin Coal. The cost at Griffin Coal was at that point probably double the cost at Premier Coal, but at $65 a tonne, even Griffin Coal at that point was making a profit.
So, where did the coalfields go horribly wrong? I want to say that a lot of history can be shared amongst various governments all the way through, so this is not a problem of one government. I am not even going to blame the current government, because this government has inherited a 20-year-old problem around Griffin Coal, but we need to understand why we have the problem before we try to understand how we might try to come up with some of the solutions.
It is the case in fact that during the period when I was a member of that other place, the house that shall not be named, in a seat down in that area, there was renegotiation of the long-term contracts. The then Labor government, led by Hon Alan Carpenter, having taken over from Hon Geoff Gallop at that point, was very proud of the renegotiation of the long-term contracts. In fact, I am going to give members a quote from Hansard. It is a little bit later, from 1 April 2008. The then Premier, Mr AJ Carpenter said:
For a start, the negotiations for coal contracts halved the price of coal. It was a few years ago now, but off the top of my head the old contracts that were negotiated in the mid-1980s were $65 a tonne.
In fact, a little further down the same page, he gave a bit more detail and got a bit of information in. He said:
The new coal contracts came in at $30 a tonne compared with the old price of $65 a tonne.
The Carpenter government managed to more than halve the price of coal. This is an amazing situation. It did that by negotiating a single contract with Premier Coal, excluding Griffin Coal completely from the state contracts. Premier Coal was a more efficient coal miner and it was getting, like I said, coal out of the ground for probably $20 a tonne, so it went, "We can probably sell it for $30 a tonne and there is no way that Griffin can do that; we will put them out of business." It was good predatory business activity. Of course, what the geniuses at Premier Coal at the time did not realise is that the coal seam it was on was not going to last forever. It was on a particularly good coal seam that was low strip ratio and high production. In the old days, it was four to one. It might literally take four metres of overburden and have a metre seam of coal.
What happened in the intervening 20 years? The strip ratios have gradually got worse, to the point at which the strip ratios, depending on the seam, are somewhere between 17:1 to 24:1. What happens? More overburden is taken off to get a coal seam that might be 30 centimetres thick. The easy coal has been taken. Premier Coal was ridiculously optimistic in its plan that it would be able to provide coal, as a single contracted supplier, up until 2030. The contract from 2006 to 2030 was effectively a 25-year contract. Premier Coal just assumed that the good coal seams would last forever. Guess what? They did not. It happened reasonably quickly. Almost immediately, as the good coal ran out, Premier Coal started to realise it had a problem.
But at the same time, Griffin Coal had a significant problem in that it had an operating coalmine, operated by a guy called Rick Stowe and his family company, that had no marketplace for the coal. If you run a coalmine, that is a pretty dire situation. There was another market in the marketplace at that point—a major one—and that was the Worsley Alumina refinery, which at that point was owned by BHP. There are a couple of smaller users, in particular Iluka and a couple of the mineral sands miners, but they are quite small users. At that point, they were the big contracts. Griffin Coal had an even bigger problem in that it had a share of the Worsley supply but not much more. If a mine is producing 2.5 million tonnes and has a market for only half a million tonnes, it has a problem. What happened? Rick Stowe and his company built Griffin Energy. Griffin Energy was Bluewaters power station, which was initially Bluewaters 1. The production was sold to Boddington goldmine. After that, Bluewaters 2 was built. At that point, the company got some interesting emissions reductions on Bluewaters 1 and a sales contract with Bluewaters 2 into the South West Interconnected System. That had been split into the four entities in the early 2000s, so Western Power was split into Synergy and the generation company was Verve Energy. The company got a contract with the retail arm, which was Synergy.
Hon Dr Brad Pettitt interjected.
Hon Dr Steve Thomas: Bluewaters 1 was only Boddington and Bluewaters 2 was entirely into the SWIS. Bluewaters 2 still provides about 16% of the state's South West Interconnected System energy supply, on average, but it is slowly going down. However, everybody still had a problem. Premier Coal discovered very quickly that it could not produce coal at $30 a tonne. Once it got over $30 a tonne, it started to have trouble. Griffin Coal, in order to compete—particularly through the Stowe company—was selling coal to Bluewaters and Griffin Energy at about the same price. Griffin Coal was losing a fortune, bearing in mind that in the early 2010s, the cost of production varied but Premier Coal was probably getting it out of the ground for about $35 to $38 a tonne and selling it for $30 to $35 a tonne. It went up fairly quickly. Griffin Coal was being paid about the same price—$30 to $35 a tonne—and it was costing it about $58 a tonne to get it out of the ground. It was losing an absolute fortune and was temporarily propped up by Bluewaters power station. Bluewaters power station probably does not make enough profit to cover Griffin Coal.
I will read from the 2007 annual report of Wesfarmers, which owned Premier Coal at the time. On page 17 is the heading "Year in brief" and under the subheading "Premier" it states:
Deliveries under the extended long-term coal Contract with Verve Energy commenced in April 2006 and are expected to run to 2030.
Remember that I said Verve Energy was the generation arm at that point. Effectively, it had a 25-year coal contract that was losing money every step of the way. Why Wesfarmers did not understand that its cost of production would go up, I have no idea. I was in the room at the time with Alan Carpenter when he was very proud about halving the cost of coal. The coalfields have never recovered. The income has been gradually increasing but the coalfields still have never recovered. They are still in an absolutely disastrous state.
In 2005 or 2006, Premier Coal took over. Griffin was in trouble. By 2009 it had constructed Bluewaters power station, but Griffin Coal was gradually going broke supplying Bluewaters power station, just as Premier Coal was going broke a bit more slowly. Given the difference of $20 a tonne in the cost of production, Griffin Coal was going broke much faster. It was in a disastrous state and was about to shut the gate when, lo and behold, a set of international purchasers were found. I think in March 2011, if my memory serves me, an Indian energy company called Lanco Infratech purchased Griffin Coal for $750 million. I would have struggled to put a $50 million price tag on Griffin Coal at that point, but Lanco Infratech paid $750 million for what was probably a $50 million asset. It was absolutely astounding. The theory was it was going to export coal out of the port of Bunbury.
If members look at the numbers, they will see that Griffin Coal has a much bigger coal reserve than Premier Coal. There is probably close to a billion tonnes of coal reserve in the Griffin Coal reserve. The question is how much economically viable coal is there, because that is a significantly different argument. The amount of economically viable coal there is a much smaller number. It probably gets to a point at which that number approaches zero. There is a bit more coal that is a bit easier to get out of the ground, but it is in the Wilga seams, if anyone has seen the geology. But then a $50,000 brand-new conveyor belt has to be built, or the transport issues need to be worked out, to bring the coal across, whereas at the moment it is a lot closer and easier to supply. That adds to the cost and the viability. The Wilga coal seam has been looked at for as long as I have been around the industry. Basically, it has been determined that nobody thinks it is an economically viable prospect. It has more coal, but it just does not have more coal that is economically viable, and that gets worse over time.
We need to accept a few basic principles. The first is that economically viable coal is not what we have in the Collie seam or the Wilga seam. For that reason, amongst others, nobody will build a new coal-fired power station in Western Australia. The question is not about new coal—I will come to that at some point—but about the existing coal capacity. However, neither of those companies have been economically viable. The $750 million purchase of Griffin Coal by Lanco Infratec was entirely debt funded. It had losses year in, year out, of anywhere between $70 million and $90 million a year. I used to meet with Lanco Infratech regularly. I met with its bank, the ICICI
Bank, and we would go through the numbers for this, but it never added up. The billions of dollars that would be required to export coal out of the port of Bunbury was insane, particularly when people could get Indonesian coal with exactly the same calorific value at about an one-third of the price and one-third of the way closer to the marketplace in India. Griffin Coal was always a highly optimistic opportunity and it was never deliverable. What it could potentially do was concentrate on the domestic market, but the problem was that the price the company was getting paid was a fraction of what was required given that the cost was twice the payment. Lanco Infratech had a problem. That is not to say that Premier Coal did any better because it was at best borderline and in a bad year loses money and is still in the same situation.
Lanco Infratech borrowed $750 million for the purchase and 10 years later, because all the losses were added to the debt, the debt was about $1.2 billion. The current debt sitting over Griffin Coal is about $2.3 billion for a coalmine that, in my view, is still worth $50 million. That is what I thought was the original purchase price. With a little built of inflation built in over the last 20 years it is maybe worth $80 million now.
