Among his achievements in this landmark visit, Indian Prime Minister Narendra Modi has definitely given Adani Mining’s $16 billion Carmichael coal project in the Galilee Basin a big shot in the arm.
The giant project was touched on in Modi’s Canberra press conference with Prime Minister Tony Abbott this morning, and his parliamentary address was long on the economic opportunities for Australia as a “major partner in every area of our national priority” including “energy that does not cause our glaciers to melt, clean coal and gas, renewable energy, [and] fuel for nuclear power”.
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In Brisbane yesterday, Modi said the Carmichael project would “set a new standard for India-Australia co-operation”, and the rhetoric was backed up with a fistful of dollars: Adani was given a US$1 billion line of credit by the majority government-owned State Bank of India.
Queensland Premier Campbell Newman announced that in addition to the open-ended royalty holiday already on offer to the first mover in the Galilee Basin — and Adani is unquestionably the most advanced — the state government was willing to invest hundreds of millions of taxpayer dollars to fund the associated rail and port projects.
As The Australia Institute’s Richard Denniss points out this morning, for at the least the beginning of its projected 90-year life, the 11 billion-tonne Carmichael mine will pay no royalties, and would not proceed without subsidies. It will be interesting to see how Queensland taxpayers feel about that in the coming state election.
This was not the state government’s plan: only in August Deputy Premier Jeff Seeney told The Australian Financial Review that it was up to the proponents in the Galilee Basin to sort out their own project funding.
It speaks volumes that Australia’s largest coal project is now so completely dependent on government financial support.
But as the NSW government discovered with the Cobbora coal mine it hoped to sell off — underpinned by subsidised off-take agreements with power stations — even over-the-top state subsidies might not be enough to make an uncommercial project viable.
Queensland funding would be conditional on opening the infrastructure up to the other possible users in the Galilee, but, as Crikey wrote here last week, the two other major proponents are struggling to get off the ground. The scenario canvassed in today’s Courier-Mail, with not one but two state-funded rail lines built to the Galilee, is exceedingly unlikely.
Gina Rinehart’s Hancock Prospecting partnership with GVK is years away, mired in financing difficulties and a corruption scandal back in India, while Clive Palmer said yesterday his Waratah Coal was unlikely to take up Newman’s offer.
Palmer’s spokesman told Crikey the Newman announcement was pre-election political spin: “a good news story on the back of high unemployment figures”. Palmer remains miffed at the support for his two Indian rivals in the Galilee, and implacably hostile to Newman. As the spokesman said: “On one hand this government wants to sell assets and now they want to invest in helping one company.”
There are misgivings on India’s side as well. Quite apart from the legal challenge from India’s Conservation Action Trust, referred to here last week, Indian tweeters today bemoaned Modi’s support for the Carmichael mine, calling it a repayment for billionaire friend, supporter and chairman of the Adani Group Gautam Adani, who is on this trip (and has apparently joined five of the PM’s six recent overseas jaunts).
Modi is a reformer, and India is in the middle of a wrenching restructure of its coal industry, hoping to double production, opening it up to private investment and selling down the state-owned company Coal India, which mines the vast bulk of the country’s abundant coal.
Adani Mining is moving steadily, aiming to take a final investment decision by the end of next year and to produce first coal by 2017. Even with the finance it still has billions to raise and there are questions about the commitment of its partner in the rail project, Korea’s steelmaker POSCO.
There is a long way to go.