The development of Queensland’s vast new interior coal province, the Galilee Basin, is a riddle wrapped in a mystery inside an enigma. The Abbott and Newman governments are absolutely determined to see the world’s biggest coal mines opened up there this decade, despite a market glut and in the face of global warming. Defying science and economics, these projects just won’t die.

Queensland Premier Campbell Newman in particular is doing everything he can, offering royalty discounts to first movers in the Galilee and unlimited access to water from the Great Artesian Basin. In the last month, proponents of the two most advanced projects in the Galilee Basin — both from India — have confirmed indicative deals to build the hundreds of kilometres of new rail needed to get the coal to port, suggesting the projects may be getting real traction.

The climate consequences are enormous: at full production, annual emissions from just two of the most likely mega-mines planned for the Galilee will run to 250 million tonnes per annum — almost twice the 130-odd million tonnes a year Australia is trying to save by cutting emissions by 5% by 2020.

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At the beginning of 2013, Greenpeace fingered the Galilee Basin as one of 14 “worst of the worst” fossil fuel expansion projects in the world — if all 14 go ahead as planned, they would lock in more than two degrees of warming.

For the past few years, Galilee coal has been considered uneconomic, as has been argued in a report by progressive-leaning think tank, the Institute of Energy Economics and Financial Analysis. Given the distance to the coast and the lack of rail or port infrastructure, the projects are often said to be uneconomic with thermal coal prices below US$100 a tonne. Right now, thermal coal is trading in the spot market below US$70 a tonne, and lots of commodity analysts do not expect a recovery in the short or medium term, with bearish notes coming from HSBC, Deutsche, Citigroup, Bernstein, Standard & Poor’s and Moody’s in recent months. Coal mines have been shut or put up for sale, and a string of new projects have been shelved.

Defenders of the Galilee Basin projects say the downturn in the thermal coal price will be temporary and point to the long-run demand for more coal-fired power generation in developing countries like India, the world’s third-largest coal consumer in 2010, which could double its demand for coal by 2040.

Last week’s federal environment approval of the giant Indian power company Adani’s $16 billion Carmichael mine, 100 kilometres north of Emerald, was a milestone, but it merely adds to the list of Galilee Basin approvals already racked up, including the construction of a new coal loader at Abbot Point, near Bowen, where Adani hopes to dump dredge spoil right next to the Great Barrier Reef. Adani’s rival GVK also has a big project planned for the area, which we will discuss tomorrow.

Adani is controlled by the country’s 16th-richest man, billionaire Gautam Adani, which is aiming to create a vertically integrated business in Australia supplying coal for its own power stations in India. It can afford to take a longer-term view of the project’s economics. And as Guy Pearse, David McKnight and Bob Burton’s Big Coal points out, Adani has gained carbon credits under the United Nations Clean Development Mechanism for installing particular technology in its power plant at Mundra, meaning the company will be rewarded for climate abatement for burning the coal from the Galilee Basin:

“It raises the farcical possibility that Australian electricity generators might soon ‘offset’ emissions from burning coal with carbon credits purchased at new Indian coal-fired power plants burning even more of the same Australian coal”.

Adani owns the existing coal terminal at Abbot Point, which it bought for almost $2 billion at the top of the coal market in 2011, outbidding then-coal baron Nathan Tinkler. But all of the purchase price was borrowed money — a good chunk loaned by Australian banks and the largest tranche from India. The existing terminal has a capacity to export 50 million tonnes of coal a year but current throughput is half that, as production has wound back at existing mines, and the port would be barely profitable after interest. Press reports have Adani looking to sell a stake in the port, possibly to part-fund Carmichael, and the recent privatisation of the Port of Newcastle supports a decent valuation.

Opening up the Galilee Basin is the only rationale for the construction of new port capacity at Abbott Point. Even then it’s line-ball, and Adani recently threatened to cancel the project if the Queensland government did not approve dredging, which it wants to complete between March and June next year.

The problem is that Adani, already heavily geared with more than $10 billion in net debt, needs to raise billions more in project finance — not easy in today’s tough coal markets. Selling down part or all of the existing terminal at Abbott Point won’t be enough to fund the Carmichael mine and rail. Then three weeks ago, Adani pulled a rabbit out of its hat, announcing an agreement with Korean steelmaker POSCO to build the 388-kilometre standard-gauge Galilee Basin Rail Line, through a corridor already declared a state development area. Construction starts early next year. This was a major leg-up for the Carmichael project: a final contract should be signed by the end of this year, giving POSCO will take an equity stake in the rail line and borrow to fund procurement, perhaps from the state-owned Export-Import Bank of Korea.

It may be enough to help Adani leapfrog GVK, which was previously seen as the most advanced proponent in the Galilee.

*Tomorrow: GVK struggles under debt load