2020 has not been a good year for thermal coal.
Trends that were already underway have accelerated as a result of the pandemic. As the energy source with the highest marginal cost of operation, coal has borne the brunt of reductions in electricity demand. As a result, planned closures have been brought forward and new closures have been announced.
Financial institutions have announced ever more stringent divestiture policies, making new coal mines and coal-fired power stations increasingly uninsurable and unbankable. Insurance premiums for new and existing coal projects have risen.
National governments including major coal consumers like China, South Korea and Japan have announced plans to reach net zero emissions by 2050 or 2060. Reaching this target implies a rapid end to new coal projects, and an accelerated phase-out of existing ones.
It is striking, then, that emerging reports suggest that the State Bank of India (SBI) might lend $1 billion to Bravus, the absurdly renamed Adani Mining, to finance its Carmichael coal and rail project in the Galilee Basin. A similar proposal, which reached the stage of a memorandum of understanding, was considered and rejected back in 2014.
A source associated with the proposal has been quoted as saying the situation has changed:
Much water has flowed in the last five to six years. The concerns raised in 2014 are no longer there. Most of the local regulatory approvals are in place and the company is expected to start producing coal from 2021 onward.
This is, at best, a half-truth. Despite winning approvals and commencing construction, the mine is as controversial as ever. Even if Bravus succeeds in shipping coal, the pressure to shut the project down will be relentless, and sooner or later, successful. The toxicity of the project is such that even financial institutions without a strong general divestment policy have refused to touch it.
Considered as a commercial investment, the proposed loan looks far worse than it did in 2014, and not just because of the general decline of coal. The original proposal was for a $6 billion dollar project, producing up to 60 million tonnes of coal a year by 2022. The exposure of SBI, as a senior secured lender, would have been a small fraction of the total project value.
In 2018, however, Adani announced a revised project, with a cost of $2 billion, to produce 10 million tonnes of coal a year. The proposed loan from SBI would amount to half the project’s value. If the project falls short of its goals regarding output, sales price or cost efficiency, SBI will very likely be exposed to some of the loss.
The problems continue at the other end of the chain. The project has always been envisaged as a “pit to plug” operation, with coal from Carmichael being delivered (via Adani-owned railway, port and shipping) to Adani’s power plants in India.
The most important candidate is the proposed Godda power station, which has a contract to export power to Bangladesh at prices that aren’t competitive with low-cost renewable energy, or even with other coal-fired power. Now that Bangladesh looks like abandoning or scaling back its coal-based strategy for domestic electricity generation, this contract could well be repudiated or renegotiated.
The only thing that has shifted in Adani’s favour is the domestic political situation in India. In 2014 Narendra Modi was a populist demagogue, fond of cronyist politics, but most of the institutions of Indian democracy were functioning as checks on outright corruption. During the Trump presidency, Modi has moved, like others of his kind, towards a personal dictatorship, where these constraints are weaker.
Perhaps he can push SBI to offer his good friend Gautam Adani a loan that is unlikely to be repaid.
However, it’s been some time since news leaked of the supposedly imminent decision on the loan. Perhaps the board of SBI has seen sense. Or perhaps the rumour was never solidly based. With luck, the whole idea will simply fade away.
The trouble with stories about the Adani Carmichael mine is that there is never any explanation about what is happening at the mine site and along the route of the railway at this moment. As far as I can ascertain there is a large capacity ‘village’ for FIFO workers well under construction, earth and rock is being moved to open the mine itself and tree clearing and some earthworks are happening along the route of the railway even if actual track is not being laid yet. So presumably Adani has sufficient funds to keep on spending and won’t stop until coal is actually being shipped out of its port at Abbot Point. It’s always been said to be a hopeless investment that should never get underway but it has never stopped. So why should we expect that development won’t continue, especially since the Queensland government is virtually underwriting the thing in any way it can?
The way to stop Adani aka “Bravus” is for the federal environment minister to pull the water trigger.
Does anyone watching Sussan Ley batting her false eyelashes really believe that she has the will to do what is completely within her control?
Tony Windsor placed the legislation in place during the Gillard Government?
That said, the mining union has lobbied hard for the mine and when it goes into production and all those contractors with enormous debts for the equipment which won’t be needed go broke, oh dear!
Then it will be, “be careful what you wish for”, because the mining union will face a blow back when the fully automated mine needs about 50 service personnel!
And further blow back when Adani starts replacing the thermal coal markets currently supplied from the Hunter Valley costing more jobs. Joel Fitzgibbons will have retired, good luck to the next incumbent.
That will be it and the government which signed the state government up to this travesty (LNP, thank you Campbell) leaving the current government open to litigation or as it is called Sovereign risk will have it hung around their necks like a dead chook.
I despair!
A “dead cock”.
Agree Charlie. Quiggin’s analysis makes clear how mad the project is, even just financially. Yet, as you say, it continues. Land of the W&J indigenous owners desecrated, habitat destroyed.
Could it be that the plan is for Adani to walk away, but having opened the Galilee Basin up for the much bigger planned mines of Palmer and Rinehart?
Maybe “it will never happen”, but I reckon it would already be shipping coal were it not for a decade of determined opposition by Stop Adani, Galilee Blockade, FLACC, etc – including brave people who have put their bodies on the line, been taken to the cleaners by Adani’s lawyers, etc – people who probably could have done better things with their time were they not doing what the corrupt QLD and Fed govt should be doing!
The whole Carmichael project is not based on any conventional financial or economic considerations so it carries on regardless. Those with the power to decide the fate of the project have entirely different objectives. Adani/Bravus is raking in money from the subsidies governments are handing out (and have presumably made sure they are protected from the consequences when it all goes to hell), the politicians of all major parties are doing favours for their mates and exploiting the chance to boast about jobs (imaginary or real jobs, does not matter, just need to get through the next election) and the coal fanatics are delighted to have a project that causes rage and despair among their enemies as well as, with any luck, trashing the hated environment. When it all falls apart, be assured Australian tax payers will be left to pay all the bills. The guilty will be long gone.
India and Bangladesh, along with Indonesia, will soon join China with an environmental problem. Social unrest, caused by growing air pollution. China’s ‘path to Damascus’ on climate is driven by millions demanding better air quality and life. India and Bangladesh will soon follow as the demand for electricity is overtaken by the demand for breathable air. Indonesia is in the same boat. Along the way coal will become redundant.
I thought only renewable energy received subsidies according to the Great Media Machine.
Carmichael for the LNP is about not losing a culture war battle at any price.
Don’t forget the Big Prawn at Ballina Tom