T4 economic claims do not stack up

If something sounds too good to be true, it probably is. Last week, Port Waratah Coal Service’s (PWCS) CEO, Hennie du Plooy, appeared in the Herald claiming the proposed Terminal 4 project (T4) would “inject $770million a year into the regional economy during construction and another $418million a year” when operating.

So is this true?

The short answer is, no. PWCS’s claim is based on a type of economic modelling which the Australian Bureau of Statistics calls “biased” and the Productivity Commission says is regularly “abused”, usually to overstate the economic importance of specific projects.

It is the same sort of modelling that got Coal & Allied’s Warkworth project into trouble, when it tried to claim that project would “create” 45,000 jobs. The chief judge of the Land and Environment decided this type of model was “deficient”.

In fact, the original economic assessment of the T4 project suggests its annual operating costs will only be between $45 and $50 million per year.

Since that assessment was made, the size of the project has “almost halved” according to PWCS, so the amount of money it will “inject” into the economy has presumably declined considerably.

The original assessment of the project said that it would not employ any extra staff – the existing PWCS staff would be sufficient to run the new facilities. The economic assessment of the revised, smaller project now claims it will require an additional 80 people. It is only through the use of the biased, abused and deficient modelling that PWCS is able to claim that thousands of jobs will be created.

The project will increase the Hunter region’s capacity to export coal, but with the subdued outlook for thermal coal exports, it is unlikely such an increase will deliver the benefits that PWCS is claiming. Most of the profits from any increase in export volumes would, of course, flow to the overseas owners of the major coal companies.

Even if the claim of hundreds of millions per year were true, what does this mean in relation to the size of the Hunter economy? A recent report by Deloitte Access Economics estimates the Hunter region will produce more than $40 billion worth of goods and services by 2015. PWCS’s overblown estimates would represent a change of around one per cent. The real impacts will be much lower.

What strings are attached to the T4 project? What does the Hunter need to do to secure this less-than-one per cent “injection”?

For the terminal to achieve its economic potential, a lot more coal has to be dug up and exported. This means that a lot more bushland and agricultural land needs to be turned into coal mines. In turn, a lot more coal trains need to pass through Newcastle’s suburbs.

At the site of the proposal, a significant wetland would have to be destroyed. And, of course, the extra coal being burned would contribute to climate change.

None of these costs are considered in the economic assessment commissioned by PWCS. If we take these costs into account and take a realistic look at the benefits, PWCS’s claims about the T4 project are absolutely too good to be true.

Rod Campbell is an economist at The Australia Institute

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