If the Adani mine gets built, it will be thanks to politicians, on two continents



Re-elected Indian prime minister Narendra Modi might have helped the Adani mine in the Galilee Basin to get over the line.
southwind.com.au, CC BY-SA

Quentin Beresford, Edith Cowan University

With the final approval of the Adani Carmichael coal mine now apparently imminent, it is important to ask how it has seemingly defied the assessment of experts that it is not financially viable.

After all, it’s only a week since the Chinese owner of another mine planned for the Galilee Basin, the China Stone mine, suspended its bid for mining leases because of commercial considerations.

The numbers appear not to add up because the location is remote, the coal would be expensive to transport, and the price is expected to fall.

But such a purely financial analysis ignores the political forces driving the development of the coal industry in both India and Australia.

Mates in India, mates in Australia

In short, both are locked into what I describe as a model of crony capitalism, in which special deals are handed out to projects such as Adani that tip the scales in favour of development.

The actions of China and Japan in deploying enormous state power to export their respective coal technologies to Southeast Asia strengthens the hands of those pushing such developments.

In my recent book, Adani and the war over coal, I outline a network of power that for several decades has promoted the development of Australia’s coal resources in the interests of national and international corporations.

The mining companies, then the big four banks became part of it, lending billions in the rush to develop Australian coal mines as Asian countries sought to lock in long-term supplies. The Minerals Council of Australia, the New South Wales Minerals Council and the Queensland Resources Council, with their collective close ties to both political parties, handled public relations.




Read more:
With the LNP returned to power, is there anything left in Adani’s way?


Yet they have faced resistance from the rise of an anti-Adani movement that links grassroots environmentalists, peak environmental lobby groups and progressive organisations such as GetUp!

By mid-2018, these campaigners seemed to have backed the Carmichael mine into a cul de sac by scaring off both Australian and foreign investors. They had also pressured the Queensland government to withdraw its support for a loan to the project from the Commonwealth government’s Northern Australia Infrastructure Facility.

Then Adani surprised them by announcing that it would scale back the project and fund it from its own resources. On the face of it this seemed unlikely, but it had help.

Adani and Modi have history

The chairman and founder of the Adani group, Gautam Adani, has had a long relationship with the recently re-elected Prime Minister of India, Narendra Modi.

Modi played a decisive role in paving the way for Adani’s latest mega deal: selling coal-fired power from a plant in the Indian state of Jharkhand to nearby Bangladesh.

The power for Bangladesh is set to be fired by Carmichael coal. Many Australians would be concerned to learn that our coal is to be used to power one of the most climate-challenged countries on the planet, but we have this on the authority of Adani’s previous Australian-based chief executive, Jeyakuma Janakaraj.

Twelve days before the 2019 Indian election date was announced, the Modi government gave approval for an Adani project in Jharkhand to become the first designated power project in India to get the status and benefits of a Special Economic Zone, saving Adani billions of dollars in taxes, including clean energy taxes.

The Indian state will provide land, infrastructure and water for the project and shoulder the burden of pollution. The cost of the power to Bangladesh is not expected to be cheap.

Will we be asked for more?

Adani’s form suggests it might come back to Australia for more. Following the re-election of the Morrison government it is already being speculated that the pro-coal Minister for Resources, Matt Canavan, will revisit the original proposal for a billion-dollar government-sponsored loan from the Northern Australia Infrastructure Facility to construct the railway from the Galilee Basin to the Abbot Point coal port.

The Adani saga points to a critical flaw in the Paris climate agreement. It is an agreement between nation states, but what those states do is often determined by arrangements between politicians and private companies that feel no particular obligation to keep global warming to less than two degrees.

We are pawns in a larger, climate-destroying game.




Read more:
Interactive: Everything you need to know about Adani – from cost, environmental impact and jobs to its possible future


The Conversation


Quentin Beresford, Professor of Politics, Edith Cowan University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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The Queensland election outcome is a death knell for Adani’s coal mine


John Hewson, Crawford School of Public Policy, Australian National University

The coal mine proposed for Queensland’s Galilee Basin by Indian mining giant Adani has been a moveable feast, with many stories about its scale, purpose, financing, job prospects, and commerciality. The prospect of a return of the Palaszczuk government in Queensland is effectively the death knell for the project.

Labor has so pledged to block a concessional, taxpayer-funded loan, while embracing a significantly expanded program to develop regional solar thermal power in the state.

It seems the proposal has been reduced in scale, with the original A$21 billion plan reined back to just its initial stage, costing about A$5 billion. Its purpose has changed from exporting coal to India’s Adani Power, to now possibly shipping coal to Bangladesh and Pakistan. Its job prospects are confusing with early estimates well in excess of 10,000, down more recently to fewer than 1,500, after Adani admitted that the mine’s operations will be heavily automated.

The project’s financing has been under a continuous cloud given the scale of the debts of the Adani Group, and the reluctance of global banks in a world transitioning to low-emission technologies. All of this is complicated by the potential for concessional finance from the Northern Australia Infrastructure Fund (NAIF) and Chinese money. As a high-cost, low-grade coal project, its commerciality has bounced around, given variations in “offtake prices” and expectations on coal futures prices.


Read more: Why big projects like the Adani coal mine won’t transform regional Queensland


The latest version is that the project has been scaled down from some 60 metric tonnes per year (mtpa) to about 25mtpa, requiring an extra investment of some A$2 billion for the mine development, and A$3.3 billion for the rail link to the export terminal at Abbot Point, but avoiding the need to expand Abbot Point. Adani Enterprises is already financially strapped, with net debt exceeding market capitalisation, and the Adani family needing to refinance Abbot Point. The Adani family has already spent some A$3.5 billion on acquiring the deposit and developing their Australian project to date.

So with virtually no capacity to inject additional equity, the focus is on whether even this scaled-down proposal can be financed by additional debt? This is why a government-sponsored concessional loan of up to A$1 billion from the NAIF to build the rail link has been seen as crucial to the project moving forward. It could be accepted by potential financiers as low-cost, high-risk “quasi equity”. It would also effectively hand Adani a monopoly position in standard gauge rail, in turn creating monopoly conditions at Abbot Point.

A more recent constraint on sentiment towards to the project has come from the Indian government’s rapidly changing attitudes to future power generation, accelerating the transition from coal-fired power to renewables. Recent statements by RK Singh, India’s Minister of Power and New and Renewable Energy have confirmed that India can exceed its target of 275 gigawatts of renewable energy by 2027, a massive shift from its historic reliance on coal.

This accelerates the likely end to coal imports by India, which has seen the Adani project seek alternative markets in Bangladesh and Pakistan.

Indeed, there is now documentary evidence of an electricity offtake agreement with the Bangladeshi government’s power board, setting a contractual “cost plus plus” supply of low-quality imported coal delivered at prices that are likely to approach 50% above the current coal spot price. But even at the current futures price of about US$80 per tonne, the Carmichael mine could be cashflow-positive.

Funding the Carmichael mine

Can the Adani group hope to raise the necessary additional debt? This is a two-pronged challenge – the family needs to refinance Abbot Point requiring some A$1.5 billion over the next 12 months, and the A$5 billion-plus project itself.

It looks like the family had to enlist the services of second-tier investment bank Jeffries to initiate a bond refinancing for Abbot Point – to be rated just above junk bond status. However, Jefferies reportedly pulled out within a week, its reasoning unstated.

With some 20 to 30 global banks, including Australia’s big four, having ruled out financing the mine, and Indian banks strapped for capacity, the focus has shifted to Chinese group CMEC as a potential financier, against likely Bangladesh or Pakistani alternatives. However, even with such offtake agreements the project’s longer–term viability is questionable.


Read more: The future of Australian coal: an unbankable deposit


Obviously the Chinese Communist Party, and other Chinese authorities, will need to think carefully about the potential consequences of getting involved now that the project lacks direct financial support from state and federal governments in Australia. This is especially so when the issue of Chinese influence and involvement in Australia generally, and in our politics specifically, is becoming controversial.

I also suspect that the federal Labor opposition may now adopt a position against the Adani project, in light of Queensland’s state election result.

The bottom line for financing is an assessment of the longer-term risks with Adani Enterprises, the family, and the project. Both the company and the family are already heavily exposed financially, and the project is a high-cost, high-risk one.

Bearing in mind the Paris climate agreement, the rapidly falling costs of reliable renewables, and India’s shifting energy strategy, the development of any new coal mine is certainly a very big call.

I suspect that the Adani project is already a stranded asset, and definitely not worthy of either Australian taxpayer support or Chinese investment.

Interactive: what the Adani coal mine means for Queensland

The Conversationhttps://cdn.theconversation.com/infographics/134/1cbeb15f9237d4fbc13472fb72fa7981bc16961f/site/index.html

John Hewson, Professor and Chair, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

Why Adani may still get its government loan


Brendan Gogarty, University of Tasmania

Even though Queensland Premier Annastacia Palaszczuk announced she would be vetoing the around A$1 billion loan to Adani for a rail link to its proposed Carmichael coal mine, funds could still flow to the company.

Currently in caretaker mode for the Queensland election, the premier would need the consent of the opposition party to exercise such a right. That is very unlikely given the LNP’s longstanding support of Adani’s mine.

This means any veto could not be exercised until late November, or more realistically, December 2017.

As the Northern Australia Infrastructure Facility (NAIF) loan doesn’t need state approval (but rather explicit veto) it could also mean the money will make its way to Adani, without any direct action by the state government.

How would Commonwealth money make its way to Adani?

The NAIF body was established in 2016 and administers A$5 billion in Commonwealth funds. It’s been empowered to award grants to the northern states and Northern Territory for infrastructure projects. Practically, however, these jurisdictions are used as financial conduits to pass this money to large corporations operating in northern Australia.

The NAIF is established under the “tied-grants” provision of the Constitution, Section 96, which states:

…the [Commonwealth] parliament may grant financial assistance to any state on such terms and conditions as the [Commonwealth] parliament thinks fit.

This section was intended to provide for a short-term (around ten years) mechanism for central funds to be granted to the new states affected by the restructuring of national public finances, after federation. However, the Commonwealth parliament continued to use this section well into the 20th century (and increasingly today) to grant funds to cash-strapped states.

Over time, the Commonwealth started to impose terms that required the states do things that were outside of the Commonwealth’s legislative power – such as education or, indeed, infrastructure development.

The early-20th-century High Court concluded that this was acceptable, as long as the state technically consented to the terms and conditions of the grant.

While the NAIF legislation does not require such consent, under rules issued by the Commonwealth minister the NAIF has to:

… commence consultation with the relevant jurisdiction as soon as practicable after receiving an investment proposal

In Adani’s case, the Investment Rules indicate that the “jurisdiction” is the “state or territory the infrastructure project is located”, namely Queensland. The state government after reviewing project and investment may provide:

… written notification that financial assistance should not be provided to a project.

If that is the case then the NAIF is not permitted to provide the grant money to the applicant (Adani). But that doesn’t mean the state hasn’t consented to the loan.

The problem is that the High Court has never really addressed what the word “state” means in Section 96. Specifically who should the money be paid to: the “parliament of the state”; “government of the state” or, as seems to be implied in the Palaszczuk statements the “premier of the state”?

Conventionally, when we talk of “state consent” to funds, we envision a complex process by which money is paid into a central state fund under the control of state parliament. However, the NAIF legislation appears to allow for merely the state government to consent in a very minimal way, simply by passing the money directly to Adani without the state parliament ever reviewing or approving the transaction.

The NAIF legislation also doesn’t specify who in the government might consent. To date, it is the treasurer who seems to have been most actively involved in working with the NAIF, and indeed Adani. It seems that, so long as the state has been “consulted”, unless it takes active steps to stop the loan, it will go ahead.

Does Palaszczuk have a ‘veto’ power?

The premier’s reasoning for the veto is a continuation of her government’s legacy of having “no role to date in the federal government’s NAIF Loan Assessment Process for Adani” and no “role in the future”.

These statements seem to be contrary to earlier ones by the Queensland treasurer, Curtis Pitt, that the government would “do what is required” to facilitate Commonwealth funds going to Adani. In fact, as early as November 2016, Pitt declared in state parliament:

Since we came to office, we have been working very closely with the Commonwealth government to facilitate … the NAIF – in North Queensland… It is through the NAIF facility, which the state wholeheartedly supports, that Adani can get the infrastructure support that it needs.

As a result, it would seem that everything needed to pass the NAIF funds to Adani is provided for. The only thing to actively stop it is a formal, written statement by Palaszczuk to the NAIF refusing the loan (not to the prime minister as she claimed). Given Palaszczuk’s statement that she intends to write this statement, it is clear that no formal notice has yet been issued to the NAIF.

However, it would seem that a “Master Facility Agreement” between Queensland and the NAIF has already been agreed to and set up. This agreement seems to envision the treasurer of Queensland passing the money to Adani, without it ever going into the state’s bank accounts. Hence, in May this year, the Queensland treasurer confirmed that:

Our role, for constitutional reasons, is the legal financing contract, the loan agreement including the drawdown and timing, repayment of interest — all of those things have to have state involvement constitutionally.

So, unless the Queensland opposition takes the very unlikely step of agreeing to a veto, Palaszczuk would appear to lack the power to issue one herself until after the election.

The ConversationIn the interim, NAIF has no legal restrictions on issuing the loan and, with the apparent agreement of the Queensland treasury, this money is likely to flow through to Adani. While Palaszczuk can say her government gave no active assistance to Adani, without active measures to block the loan, it would certainly be a silent partner in the process.

Brendan Gogarty, Senior Lecturer in Law, University of Tasmania

This article was originally published on The Conversation. Read the original article.