The engineering work related to Australia’s largest proposed coal mine, Adani Group’s Carmichael mine, have been halted amidst lease approval changes. Environmental concerns combined with low commodity prices could further compromise the project’s development.
Based in the Galilee Basin in Queensland, the Adani mine is an ambitious project comprising the development of a coal plant, a railway network, and the expansion of Abbot Point port. The Indian coal giant has spent A$1.2bn on the first phase of the project, which is estimated to cost A$7bn. Total investment could reach A$16bn (US$12bn). “As a result of changes to a range of approvals over that time, it’s necessary to synchronise our budget, project timelines and spending to meet those changes,” reads an Adani statement.
Delaying the works is the granting of the mining lease, which has been challenged in court by activists concerned with the economic, environmental and ecological impact of the project. These difficulties are worrying investors across the state. “Investors will be concerned at delays experienced by this and other projects. To the extent that some of the approval delays are down to litigation by anti-mining activists, this is a pointer to a larger trend we are seeing in Queensland,” says Queensland Resources Council chief executive Michael Roche.
Banks are pulling out of coal because right now the economics of coal are not healthy. Keira Brennan, Norton Rose Fulbright Australia
Keira Brennan, partner at Norton Rose Fulbright Australia, the firm acting for the EPC contractor for the rail and port projects Posco, doubts that the court challenge will prevent the granting of the lease: “Every single coal mining lease application that has happened in Queensland in the last five years has been heavily contested by green lobby groups and, to date, none of them have stopped the granting of the mining lease.” A bigger concern, she tells GTR, comes from the low coal prices which have been experiencing a worldwide decline: “It’s a big and expensive project, but if you take the long view, it’s a 30 or 40-year mine at least, you’d think they would recover their costs during this period and the price of coal is not always going to stay this low.”
Adani has also been struggling to win the financial backing necessary to carry out the project. A memorandum of understanding between Adani and the State Bank of India (SBI) for US$1bn signed last year came to no conclusion after SBI refused the loan request in April. A number of investment banks including BNP Paribas, Crédit Agricole, Société Générale, Barclays, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley and Royal Bank of Scotland have also stated they are unwilling to provide the loans. “Banks are pulling out of coal because right now the economics of coal are not healthy,” says Brennan.
The company had received a US$680mn loan from Standard Chartered, which the bank denied being used as funding for the mine and has described as “a pre-existing refinancing facility that was not part of the expansion of the port or construction of the mine”. Standard Chartered, a long-time international lender to the Adani Group, also announced in May it would no longer advise on the mine project until it is “fully satisfied with the environmental impact of this project,” as reported by The Financial Times.
Adani is now rumoured to be discussing deals with Chinese banks, the Exim Bank of Korea and American equipment maker Caterpillar, but nothing official has been announced as yet. Support from US Export-Import Bank also seems improbable given the debate surrounding the ECA’s re-authorisation and the vigorous US-Australian lobbying effort against funding the mine.
Support at the state level is also unlikely. Documents published by Australian media on July 1 showed officials at the highest level of the Queensland Treasury of the former government holding serious concerns about Adani’s financial capacity to see through its mine project, just days before announcing that the government would help Adani build its rail. That government is however no longer in power, and the new Labor government is unlikely to financially support the project. “The government is really short of money. The last government was able to offer financial support because, if re-elected, they were expecting to sell a lot of assets so they’d have the money,” says Brennan. According to her, part of the reasons why they lost the election was because the people did not want those assets to be sold.
The new government had made a public commitment, shortly after the election, to support the project, just not financially – the form in which the support will happen is unclear as the government relies on votes of the Green party, so their position on the lease will result from careful considerations. “It may be that they load up the mining lease with conditions that make it impossible to work,” says Brennan.
IEEFA views Adani Enterprise’s Galilee coal mine, rail and port proposal as a stranded asset. Tim Buckley, IEEFA
The financial viability of Adani’s project is further undermined by low demand from China and India, where a change in policy championed by Prime Minister Narendra Modi is shifting consumption from imported to local coal. Tim Buckley, former head of equity research at Citigroup and now director of energy finance studies, Australasia, at the Institute for Energy Economics and Financial Analysis (IEEFA) has supervised a report doubting the commercial viability of the project. “IEEFA views Adani Enterprise’s Galilee coal mine, rail and port proposal as a stranded asset, left financially unviable by the structural changes in both the Indian electricity market and the global seaborne thermal coal sector, in a pattern similar to a number of other Indian companies with failed overseas coal expansions since 2010,” says the report.
Rising opposition against coal investments is not just affecting Asia Pacific. Media reports say the OECD has been trying for a year to get an agreement from its 34 member nations on phasing out export credits for coal, the most polluting of the fossil fuels, but the talks reached a deadlock when Japan refused to commit to the agreement.
A land court challenge has been filed by the Land Services of Coast and Country (LSCC) citing environmental concerns. The location of the mine, activists denounce, would endanger the area’s wildlife and nature, including the endangered black-throated finch. The closing arguments were heard in May, and court recommendations are expected to be handed out to the state government within about six months. The state government will then need to consider the recommendation of the Land Court when making a decision on whether to approve the mine in the form of the state mining lease and state environmental authority.
In absence of the lease, there is a limit to how far the works can go. “It may be that they’ve gone as far as they can without a mining lease, there could be a little bit of that, but we are still working quite hard on the ground,” says Brennan.