Whitehaven Coal royalties alleged “arrangement” exposed in NSW Supreme Court
Whitehaven Coal’s scheme to reduce coal royalty payments has been disclosed in a three-day hearing before Justice David Hammerschlag, Chief Judge in Equity of the NSW Supreme Court. It was revealed that for years Whitehaven used the small Canyon Mine near Gunnedah, which was closed and has not produced coal since 2008, to generate fictitious “negative royalties” that it could transfer to other mines to reduce the parent company’s liability to the State of NSW.
Whitehaven now claims that the amount of royalty demanded by the Commissioner of State Revenue is excessive, and demands that the Commissioner set aside royalty assessment notices. The case is called Whitehaven Coal Limited v Chief Commissioner of State Revenue 2023/00240301.
Since 2009, the tiny Canyon Mine, once known as the Whitehaven mine (which thus gave its name to what we now know as Whitehaven Coal) has been “in closure” (see map), otherwise described as “in care and maintenance”. Nevertheless, the former mine has done good duty for Whitehaven by generating so-called “negative royalties” for the company’s benefit over a period of years.
The Commissioner pointed out to Whitehaven that the ability to carry forward and transfer losses was for non-producing mining operations to offset future positive returns and was not to be applied to mines which are closed and never intended to resume coal production. Counter to this viewpoint, Whitehaven claims it had an “arrangement” with the former Department of Industry, unique among all coal mining companies in NSW, to use “negative royalties” to reduce its liability which the Commissioner vigorously denies.
The hearing was live-streamed by the Supreme Court.
Some years have passed since the integrity of the coal royalties scheme was questioned by the NSW Audit Office in its 2010 Performance Audit Report, Coal Mining Royalties, which found that we did not have sufficiently robust systems and processes to identify what royalties were owed and to make sure they were paid. The Auditor General made numerous recommendations, some of which were subsequently implemented by the State Government.
Reforms included the establishment of ROS (Royalty Online Services) which is the portal for mining companies to lodge their returns, and a transfer of responsibility for mining royalties from the Department of Industry to the Office of State Revenue.
Ironically, Whitehaven’s challenge to the Commissioner of State Revenue comes when the environmental regulation burden of this company is under intense scrutiny. The Environment Protection Authority alone has been prosecuting Whitehaven on 12 blasting charges, over several years, and the Resources Regulator also has a prosecution on foot in the NSW Industrial Court.
The hearing was due to finish today (Friday, 2nd May 2025). Who knew there was such a thing as a negative royalty? It is hoped that all will be revealed in the judgement of His Honour Judge Hammerschlag in due course.