Business and household electricity tariffs will come under further pressure to rise, with power provider Synergy poised to sign a deal to pay a Chinese-owned miner more for its Collie coal.
Synergy is understood to be close to finalising an agreement under which Yancoal, which owns Premier Coal near Collie, will be paid $7 extra for every tonne of coal it provides.
The deal will equate to an extra 20 per cent for the price Premier receives for its coal, and will put pressure on electricity tariffs, which have jumped 86 per cent since 2008.
Coal has experienced something of a resurgence in WA in recent years as gas prices soared. The black fuel was used to produce about half the electricity consumed in the south-west grid last year.
Despite this, it is understood Premier Coal had been struggling to make money since it was bought by Yancoal from Wesfarmers for $297 million in 2011.
The deal with State-owned Synergy is believed to be worth up to $30 million a year - a figure that would amount to hundreds of millions of dollars over the life of Premier's long-term contract with the utility.
This would leave the Barnett Government in a difficult position given the increased costs will hit the deteriorating budget bottom line, unless they are passed on to users through higher electricity tariffs.
Energy Minister Mike Nahan declined to be drawn on the matter yesterday, saying only the Collie coal fields' broader problems were on the Government's radar.
"The State Government continues to closely monitor developments in the Collie coal basin," Dr Nahan said.
"The solution to longevity in the Collie coal fields requires strong commitments from all players to reach a successful outcome."
Shadow energy minister Bill Johnston said if a deal had been done, it "put a lie" to the Government's claims last year that merging Verve and Synergy would ease pressure on fuel costs.
"There hasn't been a day since the Government came to power that they've been managing the electricity system properly," Mr Johnston said.
"You look at the costs booming in every aspect of the operation and the Government has no answers."
Premier Coal's woes are not as severe as those of its neighbour Griffin Coal, which has lost hundreds of millions of dollars since it was acquired for $830 million by India's Lanco Infratech in 2010. Premier Coal and Griffin are both struggling to deal with the declining coal grade at Collie.