Nov. 11 (Bloomberg) -- Australia's New South Wales state, the nation's most-populous, confirmed today it will increase royalties on coal production, boosting revenue by A$1.2 billion ($806 million) over the next three years.

Royalties on coal produced from surface mines will increase to 8.2 percent on Jan. 1, from 7 percent, the government said in a mini-budget released today. Levies on coal produced underground will rise to 7.2 percent from 6 percent, and from ``deep underground'' to 6.2 percent to 5 percent, it said.

Contrary to a report in the Australian Financial Review last week, the state didn't introduce a ``super-royalty'' on higher-value coal, or replace the three-tier levy with a single rate. The royalty increase comes on top of increased costs for miners caused by bottlenecks at Newcastle port, the world's biggest export harbor for the fuel.

``The decision by the NSW government to raise additional revenue through an increase in coal royalties is a short-sighted, knee-jerk reaction,'' the New South Wales Minerals Council, whose members include Xstrata Plc and BHP Billiton Ltd., said in a statement. ``The NSW government should be embracing opportunities to increase output and productivity which will lead to long-term economic growth.''

The additional royalties payable if Newcastle Port ``was allowed'' to reach its nominated capacity of 211 million tons a year by 2013 would wipe out the state's budget deficit in one year, the group said.

Power Sale

The state's coal royalties in the year ending June 30, 2009, are set to jump to A$1.447 billion from a previously expected amount of A$840 million, according to the budget. Some A$363 million of the increase is due to price changes, A$91 million to a decline in the Australian dollar and A$152 million from the royalty change.

``Deep underground'' mines are classified as those more than 400 meters below ground surface.

The government also confirmed a plan announced Nov. 1 to sell electricity retailers and power plant development sites and to transfer rights to trade power from the generators to the private sector. In the event that the reforms don't result in private industry commitments to develop enough new supply capacity, the government itself may invest in new plants, it said.

The state will retain ownership of power distribution and transmission networks.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

Last Updated: November 10, 2008 23:07 EST