The government, which failed to reach agreement with Whitehaven Coal to operate the mine, would then sell it once it was developed at a cost of more than $1.3 billion, NSW treasurer Eric Roozendaal said yesterday.

The government would build and operate the mine to provide coal to generators “at a reasonable price”, he said.

“Our intention is not for the government to stay in that business, and once the business is developed, then to on-sell it,” he was quoted as saying in the Sydney Morning Herald.

Shadow treasurer Mike Baird said the government’s sale of the state’s electricity assets failed to meet its own objectives of wanting to create a competitive market and encouraging private investment.

“We have re-entered the coal market with all its risk and a $1.3 billion price tag,” he said

The NSW government was forced to step in and develop Cobbora after Whitehaven did not agree on the price being offered by the government for the coal, believed to be $45/t.

NSW taxpayers could now be saddled with a 17-year contract for the state to mine Cobbora, which will effectively be subsidised to the tune of $1 billion below market prices, according to NSW opposition industry spokesperson Duncan Gay.

The subsidy is based on the $35/t price for Cobbora coal the state is believed to be offering to the electricity generators.

“We would be locked in to this contract come March and there would be absolutely nothing we could do about it," Gay was quoted by AAP as saying.

“Even if we won power at the election, there's nothing we could do about it. The contract would be signed.

“The biggest problem is for the taxpayers of this state.”

Industry sources are also questioning the state’s ability to operate a mine efficiently and the economic sense of owning one operation that will have to run at a cost basis.

The move by Roozendaal was seen as a last-ditch effort to ensure an attractive cost of coal for the new owners of the generators.

The state government last mined coal in NSW through its Powercoal entity in 2002, before selling its assets to Centennial Coal.

At the same time, long standing supply contracts from suppliers such as Centennial are not being taken up because of the much better prices being offered by the export.

It is believed Centennial is not prepared to accept a complex set of conditions and the historic government supply benchmark price – about $60/t – being offered by Delta in a contract for well in excess of 1 million tonne per annum of coal.

Just days after assuming full ownership of Centennial for $2.5 billion, Banpu signalled that it would prefer to supply the more lucrative steaming export market where prices are currently at $100/t.

Centennial provides 47% of coal to NSW power stations and picked up the coal assets of the previously government-owned Powercoal eight years ago.

The recent change in ownership of independent coal companies is ushering in a new pricing regime and an end to the discounted supply arrangements between NSW power generators and coal suppliers.

NSW opposition leader Barry O'Farrell has demanded NSW premier Kristina Keneally immediately establish a full judicial inquiry into the power selloff.

"While the inquiry is underway, Kristina Keneally must halt the sale process," he said.

"If Ms Keneally fails to establish this inquiry, the NSW Liberals & Nationals will do so, if elected in March.

"I will bring the findings to the Parliament and reserve the right to use whatever remedies are available to protect the interests of the people of NSW.

"Kristina Keneally needs to halt this sale process today pending the findings of the full judicial inquiry.”