The Australian has reported today that the incoming Coalition Government is attempting to delay the unwinding of the mining capex boom by forcing miners to spend on new projects, or risk losing their mining rights:
RESOURCE giants will be told to step up their spending on mammoth new projects or risk losing their rights to tap the deposits, under an Abbott government plan to accelerate investment and kill off fears of an end to the boom.
The incoming government aims to use its power over the vast gas deposits to bring forward up to $180 billion in new investment, sending a blunt message to companies to develop rather than hoard the nation’s resources…
Mr Macfarlane warned that companies that shelved their projects could lose the “retention leases” they held over the reserves, given the commonwealth’s power to revoke the rights as they came up for renewal over the next few years.
“I want to put the industry on notice that if the deposits are able to be developed they’ve got to be developed,” he said yesterday as he arrived in Canberra for briefings.”We’ve got to make sure that every molecule of gas that can come out of the ground does so. Provided we’ve got the environmental approvals right, we should develop everything we can.”
The Coalition’s policy could have some serious unintended consequences. Sure, while it may lead to increased mining investment and delay the mining investment cliff for a few more years, it also risks:
- encouraging the development of marginal projects that would otherwise not get approval, leaving unproductive “white elephants”;
- substantially increasing the supply of resources exports, thereby lowering prices; and
- depleting Australia’s fixed endowment of resources more quickly than desirable from an inter-generational perspective.
If the market dynamics were such that new investment was viable, the chances are such projects would be developed.
