The controversial Shenhua Watermark mine may not win a mining lease for an entire year, despite applying for one over six months ago.
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Secretary of Department of Regional NSW Gary Barnes took the blame for the project hold-up.
He told a parliamentary estimates hearing on Friday the "ball is now in our court. It's us that are taking our time".
The delay means the Chinese-owned mining company will not have to pay a $200 million bill, its first lease payment installment on the Breeza project, for the forseeable future.
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Shenhua would need to pay the $200 million within 30 days of winning the licence.
Lock the Gate Alliance NSW spokesperson Georgina Woods said the government was "playing silly buggers" with the process to allow the company to delay an investment decision.
"I suspect everybody is playing silly buggers on this," she said.
"They have to grant it to them - the law says they must grant them that mining lease. And when they do grant it, Shenhua will have to pay the government $200 million."
She said she suspected "there was some hesitation on Shenhua's part" about pouring millions of dollars into the project.
"If Shenhua decide they don't want to proceed with that mine, clearly they don't want to be awarded a mining lease and have to pay money just to walk away."
Mr Barnes said it may take over 18 months to approve the licence since the company first applied for it in June last year.
"I would have thought [approval] would be within the next 12 months," he said.
Deputy Premier John Barilaro said there were "a number of outstanding issues" for regulators to consider including water, Indigenous heritage, koala habitat and more before ticking off the project.
"I'm more than comfortable for my agency to take their time in this final assessment," he said.
The project's water, environmental and rehabilitation plans have yet to get signed off by the federal government.
The Chinese-owned company narrowly met a June deadline to apply for a mining licence for the billion dollar mine last year and avoided a cancellation clause in their exploration lease.
Mr Barilaro told media in January that the international environment for mining had changed in the years since the project won development approval. He said the company had asked for the extension on the payment.
The NSW state government paid $260 million to buy back half of Shenhua's exploration licence in 2018.
A spokesperson for Shenhua Watermark Coal said the company had made a long-term commitment to establishing the mine "and has been diligent in ensuring we adhere to the rigorous planning and environmental approval processes, as set out by state and federal governments".
"The project has already received a State Development Consent which was approved by an independent planning panel. The mine has been approved under national environmental law subject to many of the strictest conditions in Australian history, which fully implement the advice of the Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development (IESC)," he said.
"We continue to work with relevant government agencies to meet the required technical approvals, including for items like the Water Management Plan."
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