Sunday, September 27, 2020

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Home Issue 19 When 20% royalties shrivel to as little as 1%

When 20% royalties shrivel to as little as 1%

By ERWIN CHLANDA
 
Miners operating in the Territory are required to pay royalties at 20% of the net value of mineral commodities extracted from a production unit – aka gas or oil wells or mines.
 
A major NT player as reported in a prominent finance website: Is their tax performance an indicator of their royalties performance?
 
Sounds great? Now try “between 1% and 2.5% on the value of minerals produced.”
 
A lot less great. The key lies in the words “net value”.
 
The NT Department of Treasury and Finance explains that “a range of production costs can be claimed in calculating the net value of minerals for royalty purposes and includes a range of capital and operating costs … that are directly attributable to the production or sale of the minerals subject to royalty.
 
“These include categories such as expenditure on mine design, shaft sinking and tunnelling, acquisition, installation and construction of mine infrastructure, eligible exploration expenditure, eligible research and development expenditure and costs such as salaries and wages, fees and charges and office expenses.”
 
Of course if the claimable production costs are the same as what the miners sell their products for, then the net value is zero and so are the royalties.
 
Not quite: From July 1 last year  a minimum royalty has been brought in at a rate of between 1% and 2.5% of the value of minerals produced, irrespective of their production costs.
 
The massive gap (up to 19%) is indicative of what the NT Government considers realistic.
 
The public may draw conclusions about how much help the mining sector offers in battling the astronomical Budget deficit. Interest repayments on Territory Government loans were $1m a day at the time of the 2019 Budget and are likely to be much greater now.
 
The whittling down of the value not only impacts royalties affecting the NT Government but also traditional Aboriginal owners entitled to royalties from mining on their land.
 

Where mining is conducted on Aboriginal Land, the Aboriginal Land Rights (NT) Act 1976 requires the Commonwealth Government to make a payment equivalent to the royalty paid by the miner to the NT Government to an Aboriginal Benefit Account which is then distributed to the traditional owners of the land on which mining activity occurred.

 
The owners may also enter into private royalty arrangements directly with miners operating on their land.
 
“The amount of royalties paid by individual entities is confidential and any queries in this regard must be directed to the miner,” says the department, including that of Santos, a major player in the NT, about which we had requested details. [We are now seeking comment from Santos.]
 
The department says: “The total actual mineral and petroleum royalty revenue for 2018-19 was $445.6m and is published in the Treasurer’s Annual Financial Report.”
 
The dismal results for the public from this controversial industry is a hugely debated issue, including in a blog (image at top) by Michael West (at left) who established www.michaelwest.com.au “to focus on journalism of high public interest, particularly the rising power of corporations over democracy”.
 
Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, Mr West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.
 
 
 

6 COMMENTS

  1. With such an apparently paltry return on investment, we’re effectively told these extractive industries are constantly marginally profitable at best.
    We are expected to believe this errant nonsense.
    Under the section of Powers of the Parliament, the Australian Constitution commands: “The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and GOOD GOVERNMENT (my emphasis) of the Commonwealth with respect to” a range of powers.
    The Northern Territory Government, being a creature of Commonwealth legislation, is under the same constitutional obligations.
    I contend that being ripped off by mining and extractive industry corporations, with no real oversight or scrutiny of their claims for production costs, does not qualify as “good government.”
    Equally, a Territory government that is plunging its economy into a financial abyss, and a Federal Government that permits this to happen with no apparent concern or regard for oversight of this economic mismanagement, cannot be construed as “good government”.
    We are being (and have long been) systematically betrayed by our respective Territory and Commonwealth Parliaments.
    Our system of governance is simply not being adequately held to account.

  2. The rich will always “accidentally” create loopholes in their policies so that they and their shady deals can prosper.
    And yet even when realised they don’t get closed up, they just get mentioned and forgotten about. What an age we live in.

  3. As a shareholder of Santos (STO) and Central Petroleum (CTP) I wish both companies had never set foot in the NT.
    More than $100m spent with hardly any return in the Territory.
    Many jobs created, employment of local Aboriginal people, royalties paid along with payoffs (remember CEO Cottee and the six Landcruisers).
    Almost no return for company money. My money in part.
    Constant harassment by green groups.
    STO makes money in PNG as a JV partner in the PNG LNG project.
    CTP has cost most investors dearly but they keep drilling and hoping.
    A single well costs around $7m but can cost double that.
    In my view the NT Government owes the companies as the previous CM recognised.

  4. When mining companies can calculate their own figures from production and deduct costs such as tax, marketing, freight etc from the overall amount due, there is a lot the NT is missing out on.
    I have raised this with the NTG but they are none the wiser.
    Some fancy accounting by the mining companies have the NT Government stuffed and subsequently missing out on millions due.
    A challenge to the figures draws out a long and lengthy process of investigating to which the mining company has all the facts, figures and tables and usually ends up drawing it out over time and winning.

  5. Alex, you need to know how to interpret the legislation, sometimes in what is not written. You cannot complain that the government is acting unconstitutionally.
    The constitution says the Federal Government HAS THE POWER to make laws for good government.
    Nothing says they have to exercise that power or whose interpretation of good we are required to abide by.
    Their interpretation just has to be different to yours. Ask any government if they believe the laws they are passing lead to good government, or course they do.
    We can’t be getting ripped off if the big corporates have broken no tax laws and are acting lawfully.

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