Shenhua buy back could cost $500m

BHP was paid $220m compensation, more than double the $100m it paid in 2006.

Leading energy industry financial expert Tim Buckley said rather than finding a logic compromise, the government was "extremely generous" with taxpayer funds.

"They've bent over backwards for a strand asset that was worth nothing, they probably could have paid 50 cents on the dollar," he said.

"You don’t walk into a house and tell the seller what you’re willing to pay, and let them make an offer.”

The government is in talks with Shenhua to buy back part of its Breeza licence – however reducing the mine’s size won’t address the threat it poses to groundwater.

Mr Buckley said the government may not be pushing for a total buy back because it would struggle to come up with the money.

"They've set a precedent that not only do they pay capital, but they give the company interest for eight years," Mr Buckley said.

"If you apply the same logic to the Shenhua mine, you're looking at compensation north of $500 million, which would be a criminal generous use of taxpayers money."

Despite the difficult position the government had placed itself in, it should negotiate harder with Shenhua.

"They haven't allocated any money to building the Breeza mine,” Mr Buckley said.

"Anyone could look at what the company is reporting to shareholders and see the chances building any coal mine is pretty well zero.”