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Asia-Pacific

Nov 13, 2014

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Paddy Manning interviews Indian activist Debi Goenka about the case against Adani’s Carmichael coal mine.

It will be strange optics if, only days after China and the United States unveiled a historic climate deal, India and Australia proclaim their commitment to building the biggest coal mine in the southern hemisphere.

Indian Prime Minister Narendra Modi will arrive in Australia tomorrow ahead of the weekend’s G20 leaders summit in Brisbane, and he will address Australian Parliament on Monday. Last week Queensland Premier Campbell Newman hinted that Modi was likely to make a major announcement about Indian power giant Adani’s Carmichael project, which will open up the Galilee Basin, a whole new thermal coal province.

Adani is tight-lipped, but environment sources fear the announcement could confirm Adani as “first mover” in the Galilee — giving the company an open-ended holiday from state coal royalties — or go further and abolish any appeal rights against the project.

Adani is the last man standing in the Galilee, and Newman is on a veritable crusade to ensure the $16 billion project, including a 400-kilometre rail line and new export terminal at Abbot Point, is developed as soon as possible.

There were three possible players in the Galilee Basin, but Clive Palmer’s Waratah Coal project effectively collapsed two years ago after Newman rejected his preferred rail corridor to get the coal to the coast — a dispute that fueled formation of the Palmer United Party.

The second most likely, Gina Rinehart’s partnership with another Indian company, GVK, has been looking shakier all year.  Last week Hancock wrote off $641 million after GVK missed the final tranche $560 million payment it was to make to complete the purchase of its 79% stake in the Alpha projects in the Galillee, sold for $1.2 billion in 2011. Hancock may still hope to collect the money from GVK; Rinehart is pals with founder Krishna Reddy and dragged Coalition frontbenchers Barnaby Joyce and Julie Bishop over to his daughter’s wedding. The diminishing iron ore heiress, battling her children in court and a plunging iron ore price, is in no position to walk away from half a billion dollars. But even Rinehart’s famous appetite for litigation will not help if her Indian partner goes broke. What looked like a savvy, top-of-the-market coal deal has turned out to be nothing of the sort. GVK’s partner in the rail component of the Galilee, Aurizon, the former QR National, acknowledged in October that any go-ahead was years away. Among the many climate questions hurled at chairman John Prescott, the former BHP chief presiding over his last Aurizon AGM in Perth yesterday, was a pointed reference to the corruption charges against GVK and Reddy. Prescott admitted neither he nor Aurizon chief Lance Hockridge knew anything about it.

That leaves Adani, which has secured almost all the necessary planning approvals — state and federal — to build the Carmichael mine but now has to raise the money. To do that, Adani is hoping to offload a stake in the existing coal terminal it bought for $2 billion at Abbot Point in 2011 — outbidding an extremely over-geared Nathan Tinkler — in another top-of-the-market deal.

Funding the Carmichael project is not going to be easy with coal prices depressed and eight global investment banks already indicating they will not fund the project. Adani said in a statement those banks weren’t asked to fund the project — or weren’t in greenfield project finance anyway — and points to the new China-backed Asian Infrastructure Investment Bank as a possible source of funding for coal-based energy projects.

Adani certainly won’t be able to fund it alone; this week it reported widening losses in the September quarter from subsidiary Adani Power (which will buy the coal from Queensland) — although parent Adani Enterprises, which reported overnight, is profitable. Adani Power has lost money for the last three years, and its balance sheet is looking “ridiculously” stretched according to analysis by Tim Buckley of the Institute for Energy Economics & Financial Analysis, with seven times more debt than equity.  Adani says those debt levels are irrelevant, as the Indian entities won’t be called on to fund Carmichael, and anyway all the money’s not needed up-front. Australian subsidiary Adani Mining’s latest accounts showed $1 billion in debt and a net deficiency of assets, which Buckley says underlines the question: where on earth will the money to develop this mega-project come from? Korea’s deep-pocketed steelmaker POSCO has taken a small minority stake in the $3 billion rail component, but that still leaves billions to raise.

Which brings us to one fat, buzzing fly in the soup: a five-week case set down in the Land Court for March, that threatens to blow out the project timetable. Possibly the last of the merits review appeals to be heard in Queensland after the Newman government abolished appeal rights, the case will be the culmination of years of work by the environmental movement to frustrate and oppose new coal projects. Remember the hysteria whipped up around the Greenpeace anti-coal strategy leaked to The Australian Financial Review in 2012? It has come to this: no case will prove more important than the Carmichael case. The judge, Land Court president Carmel MacDonald, previously rejected climate change arguments against Xstrata’s now-shelved Wandoan mine in 2012.

There are two objectors to Carmichael. Leading the case is local green group Land Services Coast and Country, represented by Queensland’s Environment Defenders Office. The EDO’s lawyer Sean Ryan told Crikey this would be “biggest case we’ve ever run”. The other objector is an Indian NGO, the Conservation Action Trust — the first foreigner to take legal action in Australia against a development proposal. I interviewed CAT director Debi Goenka when he visited Australia to speak at a conference. The Land Court does not have rules of standing, which would ordinarily preclude a foreigner taking court action here. Anyone who objects to a proposal, as CAT did, can appeal the approval. CAT’s submission is based on objections to Adani’s environmental track record in India, a relevant consideration to the court’s consideration. There has been no strike out motion from Adani.

The odds are certainly against the objectors, and not only financially. Adani has the Queensland government on side. Recently Newman ordered the North Queensland Bulk Ports clearing work to start at the site where spoil will be dumped from dredging to make room for Abbot Point’s new coal terminal — even before the dredging has received final approval.

The key will be whether Modi’s government wants to rely on Australian coal for its development, or would prefer to encourage development of India’s own coal resources. Last week, at a World Economic Forum in India, Energy Minister Piyush Goyal spoke on an hour-long panel and, while he mentioned doubling India’s coal production by 2019, did not once mention coal imports, let alone Australia. In fact overnight Goyal canvassed ending India’s coal imports altogether. Instead, much of the session on “Lighting India” was devoted to renewables. Also on the WEF panel was a representative of the Rockefeller Foundation, which recently announced it would divest from fossil fuels entirely and is funding development of a thousand mini-grids in rural India. That’s tackling energy poverty, in a way the coal industry talks about (but never actually does).

How that squares with Modi’s forthcoming announcement will be interesting to see.

Companies

Aug 7, 2014

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Gina Rinehart with GVK Chairman and MD G. V. Krishna Reddy and GVK Vice-Chairman G. V. Sanjay Reddy

After partnering with Gina Rinehart’s Hancock Prospecting in 2011, India’s GVK was seen as the company most likely to open up the Galilee Basin. But with onerous make-good requirements and falling coal prices, will it be worth it?

Rinehart’s top-of-the-market sale of Hancock’s Galilee coal interests for US$1.3 billion in 2011 proved her deal-making savvy, and her attendance at the wedding of GVK founder Dr Gunupati Venkata Krishna Reddy — with then Nationals leader Barnaby Joyce and foreign affairs spokesperson Julie Bishop in tow — showed her ability to schmooze. Controlled by one-time millionaire Reddy, GVK is a much smaller than rival Adani but was nevertheless the first to get approval for a rail corridor to Abbot Point, and it has produced the first coal from the Galilee at a trial pit. Hancock retains a 21% stake in the Alpha Coal projects, and Hancock’s coal chief, Paul Mulder, is a rising star within the empire, regarded as one of the most talented miners in the country, making up for GVK’s lack of experience in coal.

As Crikey wrote yesterday, analysts have argued Galilee coal is uneconomic in today’s market, but GVK argues the thermal coal seams it is targeting in the Galilee are shallower and thicker than in the established Bowen Basin, and that analysts applying the same cost structures would clearly get their figures wrong. GVK is a believer in long term demand for thermal coal, and its mines in the Galilee are “comparatively immune to the volatility of cyclical coal prices”.

In April, Land Court member Paul Smith ruled on objections to GVK’s Alpha mine by environmentalists and neighbouring farmers. Smith recognised the case was a “watershed”, as the project would result in the opening up of the Galilee Basin. Smith stressed his impartiality: he had proud Ipswich coal miners on one side of his family, sugar cane growers on the other. He held dear the independence of the Land Court — it was no rubber stamp — and stressed he had not been subject to political interference. Then, in a careful 149-page ruling,  he recommended that given uncertainty over the mine’s impact on groundwater, the project should either be refused altogether or approved on condition that make-good agreements were reached with the neighbouring landowners.

“Locals at the nearby town of Alpha no longer expect the mine to go ahead … ‘The boom hardly started, and the bust is already here’.”

Both sides claimed victory — Queensland Treasurer Jeff Seeney said the make-good agreements would have been negotiated anyway — but the Land Court ruling was no mere speed bump. The onus to reach an agreement with neighbouring landholders falls on GVK. One of those landholders, Paola Cassoni, co-owns an 8000-hectare property within the Bimblebox Nature Reserve — which featured in a 2012 documentary — where she runs 200 head of cattle. She hasn’t signed and three weeks ago rejected an approach by GVK to meet without lawyers present. She and other landowners depend completely on groundwater, and she told Crikey she only had one chance to get the deal right: “I’m not going to, out of the blue, sign on the back of an envelope. If I want to sell, this is my security for water. If I make a mistake there is no safety net. No one’s going to compensate me.”

In an apparent attempt to reduce the number of objectors, GVK recently narrowed the mining lease area by almost 40%. GVK does not appear to be in a hurry. Cassoni and others are also objecting in court to GVK’s adjacent Kevin’s Corner mine, and in that case the company was keen to push out the timeframe for hearings, so a decision is unlikely before next year. Unusual for the proponent of such a large project to seek to delay it.

Cassoni says locals at the nearby town of Alpha no longer expect the mine to go ahead. “Alpha is dead. It was buzzing in the exploration phase. Houses are empty, the usual stuff that happens … The boom hardly started, and the bust is already here.”

Financially, GVK is in poor shape. Listed on the Bombay Stock Exchange, it currently has a market capitalisation of under US$400 million dollars and US$3.3 billion in debts. It owes Hancock a final tranche payment of US$560 million, due by September, and there are serious questions it can raise that money. Last year GVK reportedly tried to sell down to Coal India, but was rebuffed. Only in June GVK announced it was considering asset sales to reduce debt, including the Australian rail and port assets.

Shareholders in rail freight giant Aurizon, the former QR National, may be getting nervous. As chief executive Lance Hockridge reconfirmed at a Brisbane speech to the Australia-Israel chamber of commerce a fortnight ago, Aurizon is readying to invest billions to take majority 51% ownership of GVK’s $6 billion port and rail infrastructure development — a deal foreshadowed over a year ago. Analysts aren’t factoring the capital expenditure into their spreadsheets yet — they see Aurizon’s joint venture with Baosteel in the Pilbara as more likely to proceed short term — but the day cannot be too far away.

Aurizon, which depends on the big miners for most of its haulage, is playing a risky game venturing billions on a partnership with GVK, given opening up the Galilee will add as much as 30% to Australia’s coal export volumes in an already-oversupplied market, and lower thermal coal prices.

“A lot of coal companies will be ruing this announcement,” Tim Buckley, of the progressive Institute for Energy Economics and Financial Analysis, told Crikey after Hockridge’s speech. Still, GVK’s looming deal with Aurizon, and Adani’s deal with POSCO, are big steps forward. Both are credible, bankable parties. Buckley concedes the Galilee projects are advancing — lining up some of the ducks. “But there is a huge milestone ahead of them called financial close,” Buckley said. “It doesn’t matter how many government approvals they get, until they can raise the ten and sixteen billion dollars respectively, neither of these projects can proceed. In this market that is a huge obstacle”.

Politics

Feb 28, 2008

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NSW MPs should be brushing up on their Mandarin, re-reading Chairman Mao’s Little Red Book and digging out their worker-peasant Red Guard uniforms in advance of next month’s vote to sell commanding sectors of the state’s electricity industry.

Tickets should go on sale for seats in state parliament’s public gallery to watch the historic spectacle of MPs tramping through the lobbies to flog the power utilities to the giant Shenhua Group Corporation Ltd, one of the richest and most powerful state-owned companies in China.

Ferociously anti-communist Liberal blue bloods, Nats, Fred Nile’s Christian Democrats, the two Shooters Party MPs and independents will be asked to join Labor MPs to support the transfer of the power industry to Shenhua despite two-thirds of the public being against any sale.

The Iemma Government is doing its best to conceal the fact that Shenhua is the frontrunner to acquire the distribution and retail sectors in partnership with Australian private investors.

It is already having enough trouble convincing its own MPs, the party’s rank and file and the trade unions to support the sell-off without revealing that control of the publicly-owned electricity industry is heading overseas to the People’s Republic of China.

Senior Shenhua executives visited Sydney late last year as the guests of Energy, Mineral Resources, State Development and Primary Industries Minister Ian Macdonald who, incidentally, led the left faction’s charge against power privatization when it was attempted by former premier Bob Carr and then treasurer Michael Egan in 1998 and roundly defeated.

Shenhua is China’s biggest coal mining company and the world’s second largest coal company after America’s Peabody Energy group based in St Louis. According to a glossy KPMG prospectus on China’s booming energy industry, Shenhua is “a state-owned enterprise under the supervision of China’s State Council”. (“Going for gold: China as a global mining player.”)

It operates four mining groups and produced more than 150 million tonnes of coal in 2007, almost 16 per cent more than the previous year, and is forecasting a 200 million tonne output by 2010.

“In August 2006, it announced its goal to be the world’s biggest coal miner within five years,” KPMG drooled: 

The company is also far more than a mining business. It currently operates 11 coal-fired power stations, and runs a series of rail networks totaling 1,300 kilometres.

However, far more important for its continued success is the strong backing it has received – and will continue to receive – from the state. The central government in Beijing is determined to have a model for other domestic mining companies to emulate.

This backing has allowed the group to establish the scale and financial muscle to build a vertically integrated, advanced and safe energy business.

KPMG’s links with Shenhua have been immensely profitable. “We are proud to to say that KPMG in China and Hong Kong was instrumental in taking China Shenhua Energy Company Limited to the Hong Kong Stock Exchange in June 2005. At US$3.3 billion, it was one of the largest listings of the year.”

KPMG’s undisclosed fees and commissions for the listing of 21 per cent of the company’s shares would have been colossal.

Late last year, Shenhua president Ling Wen said the group was studying acquisition targets in Australia, Indonesia and Mongolia, telling reporters: “It’s very important to use not only organic growth but also mergers and acquisitions to make our enterprise larger, better and more profitable. We have huge room to make some acquisitions.”

Without identifying specific items on his shopping list, Ling said the company was considering coal mining, electricity generation, railways and ports.

The share price of China Shenhua, one of the top 200 companies in Asia, more than doubled last year, outpacing the 43 per cent advance in the benchmark Hang Seng Index, while its war chest for overseas expansion was estimated to be a breath-taking $90.8 billion.

Will the Foreign Investment Review Board withhold permission for the sale of the NSW power industry to China? No chance. Mandarin-speaking Prime Minister Kevin Rudd and Treasurer Wayne Swan will be supportive of any sale to any quarter that will give the embattled Iemma Government a financial lifeline.

Not to be missed will be the sight of leading Liberal hardliners David Clarke, Charlie Lynn, Chris Hartcher and Greg Smith, all members of the parliamentary “God squad”, joining comrades from the ALP to vote for the power sell-off to the godless, atheistic, satanic, baby-devouring, sabre-toothed communists in Beijing.