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Australia Ernst and Young rejects allegations it overvalued Tahmoor coal mine project by hundreds of millions

01:51  03 march  2021
01:51  03 march  2021 Source:   abc.net.au

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a house with trees in the background: Tahmoor colliery is expected to run out of coal in 18 months if an expansion is not approved. (ABC Illawarra: Tim Fernandez) © Provided by ABC News Tahmoor colliery is expected to run out of coal in 18 months if an expansion is not approved. (ABC Illawarra: Tim Fernandez)

One of the "big four" consulting firms has rejected claims it ignored a landmark court ruling and inflated the value of a mining project by hundreds of millions of dollars.

Ernst and Young (EY) was engaged by British mining company SIMEC in 2019 to carry out an economic assessment of its plan to expand the Tahmoor coking coal mine south-west of Sydney.

The Independent Planning Commission (IPC) is considering whether to greenlight the project that will extend the life of the mine until 2032.

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EY estimated the expansion would generate an overall economic benefit of $664.9 million.

According to think tank The Australia Institute, the assessment methodology used was discredited in the landmark Rocky Hill mine judgement in 2019 and dramatically inflated the value of the project.

"It is very clear to anyone who has been watching coal in the New South Wales planning processes in the last 10 years, that the economic case for the Tahmoor mine has been wildly overstated by its consultants," said research director Rodney Campbell.

"They estimate that [the project] is probably worth more than $600 million, but at least $450 million is based on calculations that are unorthodox and the NSW Land and Environment Court has said are 'plainly wrong.'"

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The Australia Institute claimed in its submission to the IPC that several key criteria were omitted from the assessment:

"When local environmental impacts and the future of the coal market are considered this value is likely to be negative," the submission said.

"We recommend against approval and urge the IPC to make a strong statement about the need for higher standards of economic assessment in the NSW planning process."

In its response to the criticism, EY claimed its assessment complied with the guidelines set by the NSW Department of Planning, Energy and Environment (DPIE):

"The analysis presented in the economic impact assessment of the Tahmoor South Coal Project follows a logical framework in accordance with The Guidelines," the response said.

"The calls for key components of the analysis to be excluded, in our view, should be viewed with caution by the IPC."

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Assessment ignores landmark ruling: think tank

In its report produced last year, EY estimated the expansion would generate $450 million in "indirect benefits" including $217 million in worker benefits and $233 million in supplier benefits.

The firm's approach assumed workers would earn $150,000 a year if the Tahmoor expansion proceeded, but that they would earn the average NSW wage of $68,000 a year if it did not go ahead.

This analysis, the Australia Institute claimed in its submission, was contrary to standard cost-benefit analysis which assumed workers would earn a similar wage in a similar job regardless of the project in question.

The consultant behind the EY report, Steve Brown, also evaluated the application for the Rocky Hill open-cut coal mine in Gloucester, then working for Cadence Economics which was later acquired by EY.

The mine was refused in a landmark judgement by the NSW Land and Environment Court in 2019.

In handing down his decision Chief Judge Brian Preston referred to an assessment of the project by Deloitte Access Economics which indicated it was not expected to generate any significant additional benefits to workers in NSW.

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"It is conservatively assumed that workers employed by the [Rocky Hill mine] are not expected to receive a wage premium," he said.

Justice Preston found that the economic assessment of the project was flawed and at odds with DPIE guidelines:

"Mr Brown sought to inflate the benefit to workers by adopting a different methodological approach to that required by the Economic Assessment Guidelines," he said.

"Contrary to the comparison required by the Economic Assessment Guidelines, Mr Brown incorrectly compared the average coal mining wage to the weighted average non-mining wage.

"Mr Brown assumed that there was no disutility of working in the mining sector and there were no additional skills needed to work in a mine compared to an average job.

"These assumptions are not only at odds with the Economic Assessment Guidelines …  they also lack evidentiary foundation."

'Logical framework' followed: EY

The Australia Institute said Mr Brown used the same approach for his assessment of the Tahmoor South Expansion project, which formed the basis for the DPIE's decision to recommend the project for approval.

"Despite the Rocky Hill judgment's criticism of Cadence in early 2019, and further criticism in a DPIE commissioned review of the Tahmoor EIS economic assessment, the 2020 economic assessment of the project is based on the same discredited techniques," Mr Campbell said.

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"The DPIE assessment report relies on the results of this discredited economic assessment in recommending approval of the project."

EY insisted however that its approach followed a "logical framework" which took into account all stakeholders and was aligned with planning guidelines.

"The Guidelines are clear in their allowance for the use of worker benefits as part of the [cost-benefit analysis]," EY told the IPC in a written submission.

"To claim that the 400 direct employees at this mine who will earn a significant wage premium compared with average wage earners in NSW and yet want to exclude these benefits can only be justified under the most restrictive of circumstances.

"This is contrary to the framework developed in the guidelines, which aimed to consider the extent of the net increase in economic activity as a result from an investment and weigh up the economy-wide costs and benefits of the investment."

Coat mines 'shop around' for best report

Mr Campbell believes EY's decision to continue using this assessment methodology in light of the court ruling is concerning.

"I think Ernst and Young are being fundamentally deceptive and [are] ignoring criticism of them by the courts and by the department's own experts," he said.

Mr Campbell argued that the different approaches of economic consultants had created a market for companies that wanted to shop around for the most favourable assessment.

"We are in a situation where in NSW, if you are a coal mine, you can choose Ernst and Young and they will value your coal mine hundreds of millions of dollars higher than Deloitte Access Economics.

"Tahmoor [mine] has managed to pick the consultants that will give them favourable numbers and I think the Independent Planning Commission should call them out."

The ABC understands attempts to standardise approaches to economic assessments have so far been unsuccessful.

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