Queensland’s state government, inheriting a planned $9 billion ($8.9 billion) coal port expansion from the previous administration, cut the scope of the project, saying it’s too costly and exceeds demand.

Rio Tinto Group (RIO), the world’s third-biggest mining company, last month ended talks to take part in the expansion planned to boost shipping capacity to about 385 million metric tons by 2017, citing a weaker global economy and rising costs. Queensland began talks last year with Rio and five other companies about developing six new terminals at Abbot Point to ship coal to customers in Asia.

“The costs are huge and the scale is too big,” John Wiseman, a Queensland government spokesman, said by phone. “The approach from the new Queensland government is going to be that we will proceed with terminals two and three and scale up as needed.”

Mining companies including BHP Billiton Ltd. (BHP), the world’s biggest, and Rio flagged this month they will ration capital spending after optimism for a global economic recovery was dented by China cutting its growth forecast in March. The cost of adding production in Australia, the biggest exporter of iron ore and coal, has risen as much as 100 percent, Tom Albanese, Rio Tinto’s chief executive officer, said this month.

Vale Ends Talks
Anglo American Plc (AAL), Rio and Vale SA (VALE) were among companies last year given the right to negotiate for the building of future terminals. China-backed Macmines AustAsia Pty, a group comprising Peabody Energy Corp. (BTU), New Hope Corp. and Carabella Resources Ltd. (CLR), as well as Waratah Coal Pty were also in talks. Brazil’s Vale has also decided to withdraw from the process after Rio, the Australian newspaper reported today, citing Jeff Seeney, Queensland’s deputy premier.

“The others are considering their position,” Wiseman said. Thermal coal prices have fallen 13 percent since the start of the year, according to data from researcher McCloskey Group Ltd.

Abbot Point, located 25 kilometers (16 miles) north of the town of Bowen, has been nominated as the potential loading point for companies planning about $32 billion of thermal coal projects in Queensland’s Galilee Basin. The terminal also serves as a loader for coal produced in the state’s Bowen Basin, the world’s biggest source of steelmaking coal.

India’s Adani Enterprises Ltd. (ADE) paid $1.8 billion for a 99- year lease of Terminal 1 last year and is studying an expansion to 85 million tons from 50 million tons. BHP and Hancock Coal Infrastructure Pty are in advanced talks to develop the second and third terminals, according to North Queensland Bulk Ports’ website.

The previous Queensland government in December boosted expansion plans from three to nine additional terminals to meet demand from coal producers, two more than under an earlier A$6.2 billion plan.

The Labor Party-led government suffered a landslide defeat in elections for the state parliament in March, ending its 14 years of rule in Queensland. The Liberal National Party, led by Campbell Newman, won 79 of the 89 parliamentary seats.