Harmful policies taking toll on Canadian coal producers

Canadian coal operations cannot expect to become much more competitive than they are today, according to Michael Lipkewich, vice-president of mining for Teck (TSE).

“I do not expect to see double-digit operating cost reductions at the mine sites, as the major improvements have already been done,” Lipkewich said during a recent panel discussion on the future of coal, sponsored by the Coal Association of Canada.

“New technology will not be our salvation either,” he added. “So we will have to look at the revenue side (price and volume) and at what happens off the property.”

The Canadian coal industry has had a rough ride in recent years, squeezed by falling prices and a fiercely competitive international market beset with huge subsidization programs. These supply-demand problems contributed to an industry-wide restructuring which reduced industry-related jobs and the number of producers in both Western and Eastern Canada.

By all accounts, over-taxation has also been an enormous problem for producers, particularly in British Columbia. Between 1987 and 1991, the province’s coal producers earned a total profit of only $8 million, while governments collected $454 million in direct taxes from those same companies. Thus for each dollar of profit made by the producers, governments collected almost $57 in taxes.

Although some tax relief was promised by the British Columbian government early this year, producers are less than optimistic about their prospects. Metallurgical coals make up most of Canada’s coal exports, and this market is expected to be flat over the short term. Over the longer term, Pacific Rim steelmakers are expected to use technology that allows them to use less metallurgical coal per tonne of output.

Although Canadian producers expect international trade in thermal coals to grow, most will have a tough time competing for these international sales because of competition from Southeast Asia, which has low labor costs and is nearer to markets.

Nevertheless, Jack Morrish, chairman of Fording Coal and the World Coal Institute, pointed out that coal’s overall future is ensured because it is the most widely available and most plentiful fossil fuel, with 200 years of reserves. And he expects the development of clean-coal technologies will become increasingly important as reserves of oil and natural gas are depleted. But Morrish said the industry has to fight recent proposals by the Canadian government to put caps on greenhouse gas emissions. He said Canada is leading the charge to reduce carbon emission levels, based on idealistic goals set two years ago during the Earth Summit in Rio de Janeiro, Brazil. “These targets are not based on reliable science but on doomsday environmentalism,” Morrish warned. “There was no consultation with industry, and no other country has any intention of following Canada’s lead.” He said the cost of such ill-conceived policies will be staggering in terms of lost jobs and lost economic benefits. “If these proposals are adopted, Canada will be the first nation to drive its economy to Third World status,” he said.