Low prices, high taxes killing B.C. coal industry, says report

Low coal prices and high taxation have had a devastating impact on British Columbia’s coal mining industry, according to a report by The Coopers & Lybrand Consulting Group.

The industry’s return on common equity in 1987 was 3.5%, despite record coal shipments, improved productivity, and lower production costs. That return compares to an 8% yield on treasury bills last year, the report added.

From 1983-87, inflation-adjusted prices for metallurgical and thermal coal dropped 33% and gross coal revenues tumbled $80 million last year alone. The revenue squeeze was exacerbated by the stronger Canadian dollar which cut an additional $40 million from revenues, the report said. The largest single-year price decrease during that period occurred in 1987 when the price of metallurgical coal dropped 11.5% and thermal coal 18%.

“This precipitous decline in coal prices has been partially due to the relative strength of the Canadian dollar against the U.S. dollar. While all the industry’s costs are incurred in Canadian dollars, nearly 56% of 1987 revenues were generated in U.S. dollars,” the report said.

Levels of taxation where 74 of every $1 in pre-tax earnings is paid to government in taxes and royalties has also had a negative impact on the industry; and attempts to reduce this burden has so far been ineffective.

“Despite pleas by industry that non-income related taxation cannot continue in apparent disregard of the industry’s financial status and ability to pay, such has regrettably been the case,” the report said.

“Tax changes have been largely cosmetic and ineffectual, and royalties and non-income related taxes have remained at oppressively high levels. How much longer will governments overtax an industry which, weakened by record low prices, is doing its utmost to remain financially sound?” the report asked.