Construction of one of the largest greenfield thermal coal developments approved in recent years, have been decided to be started by India’s Adani Group.
However, controversy over the level of public subsidies that should be offered to the Carmichael coal, rail and port project, which could cost as much as A$16.5bn (US$12.4bn) to complete, has resulted in a protracted battle with environmental activists and political wrangling and the decision follows those events.
“We have been challenged by activists in the courts, in the inner city streets, and even outside banks that have not even been approached to finance the project,” said Gautam Adani, founder of Adani Group. “We are still facing activists. But we are committed to the project,” he said.
The Galilee basin’s coal reserves would be opened up to exploitation by other companies by Adani’s development of the greenfield mine, environmental groups warn. They also point out to a catastrophic damage to the environment by the burning the basin’s coal reserves would pump 700m tonnes of carbon dioxide into the atmosphere every year for over half a century.
Environmentalists also fear damage to the world heritage area as Adani also plans to move the coal on a shipping route that cuts across the Great Barrier Reef.
Including buying Abbot Point port in Queensland to ship coal from Australia to India, where the group owns a fleet of power stations, the company has already spent A$3.3bn on the project. But as the seaborne coal market is well supplied, the need for the new mine, which will produce up to 60m tonnes of coal per year at full capacity, is questioned by some analysts.
“Our view is that the market has enough supply already. It’s a big ask for Adani to get funding for the project, which is greenfield, far from the coast, and where there is little infrastructure in place,” said Mathew Hodge, a Morningstar analyst.
Even though Adani is looking to secure A$1bn in financing from Australia’s Northern Australian Infrastructure Facility, a publicly funded body aimed at boosting investment in the region, the company has not said how the project will be funded. Even though royalty payments must be paid back eventually, the Queensland government has agreed to defer those payments due to it in the early years of the project.
The group aimed to finalise project financing by the first quarter of 2018, Adani said.
Partly due to environmental concerns and partly out of worries about the project’s commercial viability, including Deutsche Bank and Commonwealth Bank of Australia, a host of Australian and international banks have ruled themselves out of lending money to the project. The State Bank of India had also opted against providing funding, said people close to the project.
With debt of nearly Rs880bn ($13.7bn) across the group at the end of fiscal 2015-16, Adani Group is one of India’s most leveraged companies. But those debts will not imperil the Carmichael project and Mr Adani is comfortable with these debt levels, he said.
Criticism from some competitors has been drawn and environmentalists in Austraia have been enraged by Adani’s battle to secure public subsidies from federal and state governments.
Warning it would compete with their existing coal mines in Australia, big coal miners, including Glencore, have expressed concern about any government decision to provide public subsidies to Adani.
“Bringing on additional tonnes with the aid of taxpayer money would materially increase the risk to existing coal operations,” Peter Freyberg, the head of Glencore’s coal division, said last year.
The final investment decision by Adani was described as a PR stunt by Market Forces, an environmental finance group.
“Announcing an intention to invest is a far cry from having the finance to do so,” said Julien Vincent, executive director of Market Forces. “A pauper might have the intention to invest in a new yacht and harbourside mansion, but that doesn’t make it any more likely to happen.”
(Adapted from Financial Times)