Coal companies want Ottawa to engineer a lower dollar (March 21, 1988)

Low-sulphur thermal coal from British Columbia, Alberta and Saskatchewan could compete in the Ontario market without government subsidies, according to members of the Coal Association of Canada (cac). All that’s needed, they have said, is a sensible tax policy from Ottawa and the provinces.

The four members recently told The Northern Miner they have difficulties with federal/provincial tax policies affecting coal. An excise tax on diesel fuel, for example, adds $2.00 to every ton that western coal producers ship to Ontario.

That coal has to compete with high-sulphur coal from the eastern U.S. at contracted prices ranging from $20 to $24 per ton. Saskatchewan alone levies a 16 cents tax on every litre of diesel fuel consumed.

In 1987, shipments of coal from the western provinces to Ontario Hydro, exceeded three million tons. The coal is burned in thermal electric generating stations near Thunder Bay and Toronto, Ont., to produce electricity.

“The federal and provincial governments are trying to encourage west-east coal trade,” cac Chairman Larry Dykers said. “And yet they don’t appear to want to eliminate or substantially alter their tax policies.”

The premiers of the three western provinces plan to meet April 7 to examine the issue of shipping western coal to markets in central Canada.

“We don’t want subsidies,” Dykers said, “we simply want the premiers to come up with a judicious tax initiative through prudent research into producing and transporting coal to market. We have pointed out just one of these — the exise tax on diesel fuel — for their consideration. We have asked that taxes be tied to something that is definable, like production rates or profits.”

Ontario Hydro is facing the problem of reducing acid gas emissions while choosing an appropriate energy mix for future requirements. The cac believes the low-sulphur coal option is the solution to acid rain.

A number of technological solutions to the problem of reducing acid gas emissions from the burning of high-sulphur U.S. coal are also being investigated by Ontario Hydro.

Although the coal industry chalked up record volumes last year and expects to add a further 3%-5% this year, company revenues took a beating in 1987, according to the Coal Association of Canada (cac).

In 1986, the last year for which complete figures are available, coal companies in British Columbia made a profit of $33 million on a capital investment of $1.6 billion, says Chairman Larry Dykes. British Columbia is Canada’s leading coal-mining province.

“They could have made a better return on their capital by investing in Canada Savings Bonds,” quips Giacomo Capobianco, vice-president of Esso Resources’ Coal Division.

Capobianco and Dykes were two of four members of the cac who were in Ottawa last week lobbying for prudent fiscal management by the federal government. The other members were Jack Smith, chairman of Westar Mining, and Edward Barry, vice-president research, TransAlta Utilities Corp.

The rising value of the Canadian dollar vis a vis the U.S. greenback accounted for about 40% of the decline in company revenues, says Smith.

Falling coal prices worldwide, especially since April 1, 1987, is the main culprit, accounting for about 60% of the decline in the industry’s revenues, the members say.

Taxes too, took a big chunk out of the industry’s profits in 1986 — about 72% of pre-tax profits in British Columbia, according to Smith.

“B.C. Premier William Van der Zalm has admitted to us that, yes, this is an unreasonable situation, but he has done nothing concrete to change that situation,” Capobianco says.

About half of the industry’s revenues come from coal which is exported, largely from mines in British Columbia to Pacific Rim countries. Most of these contracts are negotiated in U.S. dollars.

Coal producers anticipate markets will continue to grow in Korea, Taiwan and Hong Kong. But Japan, which was the largest customer in 1987, will no longer be a growth area, Capobianco says.