Australia's NSW State to Raise Coal Royalties

New South Wales, Australia's second-biggest coal-producing state, will raise coal royalties from next year as it looks to shore up its sagging finances.

The state government, in releasing new budget measures on Tuesday, also said it would no longer allow coal-miners to deduct transport costs from the royalty calculation.

The move comes against the backdrop of slumping prices for coal, but analysts said it shouldn't have a major impact on miners.

"The new levy won't be a big burden to miners in terms of total impact to cost base. Although coal prices have fallen, the weakening in the Australian dollar has actually helped to offset the impact," said a coal analyst who declined to be identified because he was not yet authorised to speak to the media.

From 1 January, royalties will rise to 8.2% for open cut mining, from 7% now; to 7.2% for underground mining, from 6%; and to 6.2% for deep underground mining, from 5%.

Coal miners with operations in New South Wales include Swiss miner Xstrata, BHP Billiton Ltd, Rio Tinto Ltd/Plc subsidiary Coal & Allied Ltd, Centennial Coal Ltd, Gloucester Coal and Felix Resources.

New South Wales' imposition of higher coal royalties follows a decision by the Queensland state government in June to raise the coal levy to 10% from 7%. It also comes at a time when commodity prices have fallen sharply and demand from China is moderating.

The prices of thermal coal exported from Australia, a benchmark for Asia, has fallen by almost half from a record of $201 a ton in July to hover at about $105 on Tuesday, but is still up about 10% compared to the start of the year.

Coal dominates the New South Wales industry, accounting for about 75% of the state's mining income and about 20% of its export income. The state exported about 130 million tons of coal last year, of which 80% was thermal coal that is mostly used for power generation.

The New South Wales government released the new measures after an economic slowdown and big drop in tax receipts forced it to revise its budget for the year to June 2009.

The of state assets

It also said it would sell state assets, including the New South Wales lottery and a waste-services business, WSN Environmental Solutions, though it gave few details.

New South Wales, home to a third of the country's 21 million population, accounts for about 10% of the nation's A$1tn economy and is now planning for a deficit of A$917m for 2008/09 from a previously forecast surplus.

Australia's economy is being dragged by the global chaos on financial markets. Still, it is faring better than most developped countries thanks to a sound banking system and healthy fiscal and monetary stimulus packages.

($1=1.497 Australian Dollar)

By Rhys Jones; editing by Michael Urquhart, Reuters .