Now that Adani has got approval for its Carmichael mine, financiers are nowhere to be seen, writes economist John Quiggin.
Adani has finally received environmental approval from the Queensland government for its proposed Carmichael mine in the Galilee Basin. At this point, in a standard news story about a multibillion-dollar project, we’d be reading about the domestic and global banks competing to be the lead financiers for the project, and those that would have to content with the crumbs. Along with that, there would be stories about the partners and subcontractors that would get the lucrative work of construction.
Instead, we have a long list of banks and other funding sources that have announced that they won’t finance the project, or have pulled out of announced and existing finance arrangements. The list includes the Commonwealth Bank (formerly a big lender to Adani), NAB, the Queensland Treasury, the State Bank of India and global banks including Standard Chartered (another former big lender), Citigroup, JP Morgan Chase, Goldman Sachs, Deutsche Bank, Royal Bank of Scotland, HSBC, Barclays, BNP Paribas, Credit Agricole and Societe Generale. The US and Korean Export-Import banks have been touted as possible sources, but they appear to have backed away.
Even the Abbott-Turnbull $5 billion slush fund for northern Australia boondoggles, seen when it was announced as a rescuer for Adani, now appears unlikely. At the recent Northern Australia Investment Forum, the fund was the centre of attention, but Adani apparently didn’t get a mention, unless it was implicit in Minister for Resources, Energy and Northern Australia Josh Frydenberg’s claim that the government wouldn’t be investing in “white elephants”.
The situation with suppliers is just as bad. Adani sacked the engineering team from WorleyParsons and the construction group from Posco (also a supposed equity partner) last year. A $2 billion announcement of work for Downer EDI seems to have vanished into thin air. And at Abbot Point, Adani, as owner, is engaged in a nasty brawl with Glencore, the current operator.
In summary, we appear likely to find out what happens when a dog catches the car it has been chasing. Adani and its backers have been denouncing green tape and “lawfare” as the only obstacles to the bonanza they have on offer. Now, the legal and administrative obstacles are gone, so they have only to line up the money, rehire the contractors and announce the starting date. My guess is that this will never happen.
*This article was originally published at John Quiggin’s blog
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.
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
Feb 18, 2014
Labor has moved into the lead for the first time in three years in this week's Essential Report. It may be because voters are increasingly worried about losing their jobs.
For the first time in almost three years, Labor has taken the lead in two-party preferred terms in this week’s Essential Research poll, with the party’s primary vote reaching 40%. The last time Labor led was on February 21, 2011, before the party’s vote collapsed in the wake of then-prime minister Julia Gillard’s announcement that she was embracing a carbon price.
The Coalition’s primary vote has fallen 2 points to 41%, while the Greens remain on 8% and Clive Palmer’s party has picked up a point to 4%.
Labor’s primary vote in Essential’s poll (which uses a fortnightly rolling average, with a sample size of around 1800) has been slowly but steadily building since the start of the year, while the Coalition’s vote has been well below its September election result of just under 46% — although Labor’s vote still remains below that of the Coalition by a whisker.
Labor’s steady rise might reflect the dominance of manufacturing and employment in the political conversation for the last few months, given Labor’s relative strength in those issues. Some 55% of voters are concerned that they or a member of their immediate family will lose their job in the next 12 months, compared to 47% in August 2012. That includes 48% of Coalition voters. In particular, the number of voters saying they are “very concerned” has risen from 13% to 22%, the highest figure since Essential began asking the question in mid-2009, in the aftermath of the financial crisis. Concern is particularly high in Victoria (61%)
Some 46% of voters also believed the government did not do enough to keep car manufacturing in Australia, compared to 36% who think it did enough. The response splits heavily along party lines, with Labor voters (68%) and Greens voters (55%) much more likely to view the government’s response as inadequate than Coalition voters (22%). Other voters also view the government’s response as insufficient, 54% to 36%.
Manufacturing more broadly also ranks highly in voters’ expectations of what industries will provide jobs in the future: 58% say construction, 57% say agriculture and 55% manufacturing; the only big change since the same question was asked in February 2012 was mining, regarded as big future employer by 64% of voters back then but now by 52%. Telecommunications is the lowest-ranking industry at only 37%.
Quite what this question is tapping into on the part of voters isn’t clear: agriculture is a tiny employer, and no one expects it to dramatically increase its ranks of workers any time soon, except perhaps some diehard Nationals. Mining, while a tiny employer, has at least enjoyed several years of attention in the media, but manufacturing is currently associated with job losses. The question might thus be being interpreted by respondents as asking for the industries they hold in high regard, not the industries they genuinely think will be big job providers in the future.
The government’s decision to approve dredging and dumping near the Great Barrier Reef to expand the coal port at Abbot Point is also intensely unpopular with voters: 66% of voters disapprove of the decision by Environment Minister Greg Hunt to allow dumping of spoil near the reef, and only 17% approve. That includes 41% of voters who “strongly disapprove”. The sentiment is also relatively uniform: 59% of Coalition voters disapprove of Hunt’s decision, including 28% who strongly disapprove.
Essential also asked about how interested people were in hearing about drug trafficker Schapelle Corby. Forty-seven per cent said they were “not at all interested” and a further 24% said they were “not very interested”. Only 6% of people admitted they were “very interested”. Slightly more women (9%) than men (4%) said they were very interested, but otherwise there was virtually no difference between men and women and ages, except for older people being even less interested than younger people.
There’s more of a difference in views of her treatment: while 25% of people think she was treated too harshly and 21% think too leniently (37% say “about right”), men (22%) are less likely to think she was treated too harshly than women (28%) and more likely to think she got off lightly (25% to 17%). On the other hand, older people are more likely to think she was harshly dealt with than younger people — 30% of over-55s think her treatment was too harsh and only 19% too lenient.
Dec 11, 2013
The decline of manufacturing in Australia was the most popular topic of conversation across all media this week.
The future of Australia’s two great transport icons, Qantas and Holden, dominated political coverage this week, with independent Senator Nick Xenophon leaping his way into the list with calls for just about everyone at Qantas to be sacked and delivering the usual South Australian horror at any suggestion the automotive industry should pay its own way. He also got coverage calling for inquiries into AFP phone surveillance, GMO foods and the pokies, after the opposition backed down on even the paper thin pokie reforms it had allowed to go through in the last parliament. Nick has been a busy chap.
Industry Minister Ian MacFarlane, South Australian Premier Jay Weatherill and Opposition Industry Spokesman Kim Carr were the other big movers due to the discussion about Holden’s future. There was intense media debate about what the government is trying to achieve in publicly calling out General Motors, with many saying it might be a convenient way to try and palm off as much responsibility as possible for their departure, while others saw brinkmanship before the government comes to an inevitable deal to throw in some portion of what Holden is asking for. Either way, the media has found Carr’s apoplexy mighty newsworthy.
Greens leader Christine Milne continues to rise in the list, receiving plenty of coverage following the deal on the debt ceiling, as well as the timing of the carbon tax repeal vote and the government’s decision to allow the Abbot Point port expansion in Queensland, which pushed Environment Minister Greg Hunt into the top 10 as well.
Crikey Political Index: December 5-11
It’s always popular on talkback radio to call for “fat cats” to be sacked, but to be fair the response to Nick Xenophon was far more nuanced than that, with plenty of criticism going both ways.
Talkback top five
Prime Minister Tony Abbott was totally dominant as furore about the education flip flops subside, with the social media types not getting deeply in to the Holden or Qantas debates. The young lefties just don’t care about our national bloody icons? Well, you may say that.
Social media top five
Ok, we are cheating a bit here, because technically Mandela was a politician. But he was clearly so much more than that. Many will be watching to see how modern South Africa, of which he is the father, fares over the next few years.
Comparison on media mentions