Is this the end for Adani's Australian mega mine?

Published by MAC on 2017-12-25
Source: The Guardian

Is this the end of the road for Adani’s Australian megamine?

Australian and Chinese banks have turned it down, and analysts say Adani’s failure to secure funding for the Carmichael mine leaves it high and dry

Michael Slezak

The Guardian

6 December 2017

Adani’s operations in Australia appear to be hanging on by a thread, as activists prove effective at undermining the company’s chances of getting the finance it needs.

China seems to have ruled out funding for the mine, which means it’s not just Adani’s proposed Carmichael coalmine that is under threat, but also its existing Abbot Point coal terminal, which sits near Bowen, behind the Great Barrier Reef.

The campaign against the mine has been long. Environmentalists first tried to use Australia’s environmental laws to block it from going ahead, and then failing that, focused on pressuring financial institutions, first here, and then around the world.

The news that Beijing has left Adani out to dry comes as on-the-ground protests against construction of the mine pick up. Two Greens MPs, Jeremy Buckingham and Dawn Walker, have been arrested in Queensland for disrupting the company’s activities.

Is China’s move the end of the road for Adani’s mega coalmine in Australia, and will the Adani Group be left with billions of dollars in stranded assets?
Environmental laws fail to halt mine

Despite the mine threatening to destroy some of the best remaining habitat of threatened species of birds and lizards, federal environmental laws proved unable to stop the mine in the face of a government that wanted it to go ahead.

The initial federal approval for the mine was overturned after it was revealed the then-minister for the environment, Greg Hunt, had ignored his own department’s advice about the mine’s impact on two vulnerable species, the yakka skink and the ornamental snake.

One by one, each of the big four Australian banks ruled out financing the mine

But Australia’s environmental law leaves very little opportunity for challenging the merits of a minister’s decision – it only allows for challenges on whether those decisions considered everything required by the law. As a result, the minister needed only approve it again, after formally considering the impact on the two species.

Another court challenge argued the approval was invalid because the emissions caused by the mine – which would be greater than those of New York City – were a threat to the Great Barrier Reef. Hunt argued in court, successfully, that there was no definite link between coal from Adani mine and climate change.

It became apparent Australia’s environmental laws were unable to stop a project like this if the government of the day was determined to push it through.

Although further court challenges remained on the cards, they could only serve to delay the project. So activists changed tactics, aiming to undermine the company’s chances of securing finance for the mine and its associated infrastructure.

While threats to reputational damage were not effective against Adani Group, since it is family-owned, the same was not true of Australian banks, which were targeted heavily by activists.

And one by one, each of the big four Australian banks ruled out financing the mine.

The first of the big four banks declared it would not lend to the project two years ago. NAB distanced itself from the mine in September 2015 and ANZ followed suit in December.

Then in April this year Westpac became the third of the big banks to rule out funding the project, drawing criticism from resources minister, Matthew Canavan, who said the bank had a conflict of interest because of its interest in other coal-producing regions, and called for a boycott of the bank.

Undeterred, and in the face of a large campaign by environmental groups, the Commonwealth bank followed suit in August this year.

By then Adani had seen the writing on the wall, and had shifted to seek finance from overseas institutions. It entered negotiations with the state-owned China Machinery Engineering Corporation (CMEC), which was thought to raise the potential of subsidised Chinese government loans.

The Australian government, which was seeking to give Adani its own subsidised loan, had supported the company’s efforts in China, according to a freedom of information request by the Australia Institute that reveals “several hundred pages” relating to formal representations to foreign financiers by the Department of Foreign Affairs and Trade.

In a Senate estimates hearing, it was revealed that the minister for trade, Steve Ciobo, and the deputy prime minister, Barnaby Joyce, had written a letter to the Chinese government confirming the mine had received all necessary environmental approvals.

But even support from the highest levels of Australian government could not secure Chinese financing for the project – the activists won again.

Pressure from the Australian Conservation Foundation, with assistance from former foreign minister Bob Carr, has resulted in news this week that China will not be cooperating with Adani on the Carmichael project.

In a letter to ACF’s Geoff Cousins, China’s Australian embassy said that Beijing had “taken note” of his concerns, and that while a Chinese entity had been negotiating with Adani, it had terminated the negotiation process “due to the absence of commercial feasibility”.

It also noted that “no Chinese banking institution has made any financing commitment to the project”.

Where to now for Adani?

Adani’s spokesman in Australia says he isn’t willing to comment on the revelation, without seeing the communication from China.

But according to most commentators, financing from China was the end of the line for the company’s operations in Australia.

“Approaching China would seem like the last roll of the dice so Carmichael is now looking even more like the definition of a stranded asset,” says Simon Nicholas, an analyst from the pro-renewables Institute for Energy Economics and Financial Analysis (Ieefa).

“Although there have been many twists and turns on Carmichael already, which makes it hard to predict,” Nicholas says. “Adani is faced with writing off their A$1.4bn investment if they can’t get the project going so they’ll continue to state that they are pursuing funding and make it sound like everything’s under control.”

Tim Buckley, also from Ieefa, says the news is a major blow to the Carmichael project, and will mean there is unlikely to be much movement from Adani until after the federal court hears a case brought by representatives of the Wangan and Jagalingou, the traditional owners of the site of the mine.

Julien Vincent from financial activist group Market Forces agrees, saying the company is a bit hard to predict, and has a lot hanging on the project’s success.

But Vincent says the fact every major bank in Australia has ruled out financing it, and the Chinese government is saying the project is not viable, it will be surprising if another financer jumps on board.

“We’ve now got probably the vast majority of the top 20 coal-funding banks worldwide saying they’re not going to fund the project,” Vincent said. “That’s massively influential.”

The two options that might seem possible are loans from banks in India, or financing from other Adani Group companies in India.

Cousins says both these options are unlikely to work. “I believe [the Carmichael project] is dead in the water.”

He says when he was travelling in India, lobbying against the project, he was told by “people connected to the Bank of India” that it had never loaned any money to the Carmichael project. He said without a loan from the Australian government, loans from Indian banks seemed unlikely.

And the idea that other Adani Group companies might cross-subsidise the Carmichael project was counter to the apparent strategy of Adani Group to buffer itself from the risky Australian operations.

And if the Carmichael project doesn’t succeed, that makes keeping the Abbot point venture afloat harder. That project is due for refinancing, and Westpac – currently one of its major lenders – has already indicated it would not refinance its loans on environmental grounds.

“Abbot Point needs to refinance A$1.5bn in 2018 which was already going to be difficult,” Nicholas says.

A report he recently co-authored with Buckley shows the port is only being half-utilised, and needs Carmichael to succeed in order to make Abbot Point profitable. “With Carmichael looking ever more doubtful, the task of refinancing Abbot Point has become even harder.”

Buckley says Adani will make sure the refinancing happens, but at a significant cost to the company. “The $1.5bn debt refinancing by November 2018 will be problematic – they’ll get it done, but the price will be high.”

Buckley says without financing, coalmining in the Galilee basin is dead.

“There will be no other buyer – Adani has invested $1.5bn, invested seven years, they are one of the richest groups in India,” Buckley says, adding if it isn’t able to get the project over the line, nobody will be.

“That’s why we’ve heard nothing from GVK,” he says, referring to the proposed Alpha coalmine in the Galilee Basin, adjacent to the Carmichael mine. It is a joint venture between Indian company GVK and Gina Rinehart’s Hancock Prospecting,

“That’s why the Galilee has not been developed for 50 years. The coal industry has known about it for the last couple of decades,” he says. “Nobody has built anything there because it is too remote – the costs are too high.”