Plans by India’s Adani industrial group to develop Australia’s biggest-ever coal mine in the northeastern state of Queensland can’t find commercial financing and now depend “crucially” on the country’s coal-friendly government, the Institute for Energy Economics and Financial Analysis (IEEFA) writes in an analysis.
Adani first proposed its Carmichael mine in 2010. But despite dramatically scaling down its vision, more than halving its contemplated output and slashing its anticipated cost from A$16.4 billion to $4.2 billion, India’s largest private power producer “has not been able to achieve financial close for seven years,” IEEFA analyst Tim Buckley observes in a briefing note.
“Between 2010 and now, things have changed drastically for the mine,” Buckley asserts. “It is now no longer financially viable. On top of that, there are so many political and environmental risks associated with the project that it becomes toxic from a banking perspective.”
According to Buckley, “as many as 24 Australian and international banks have either refused funding the project, or have introduced rules that would make the Carmichael project out-of-bounds for them.”
“There has been a general move away from financing coal projects,” Australian economist John Quiggin observes. “It is increasingly difficult to get finance, and this is a marginal project. It is low-quality coal and a long way away from ports. There is no clear market for the coal. So the project is not very attractive commercially.”
Adding to pressure facing the Indian giant is $3.6 billion in financing it took on to build a port at Abbot Point, on the Australian coast, anticipating its use to export Carmichael coal. Without it, the port is operating at half capacity and several “take-or-pay” contracts that have been keeping it in revenue are due to expire.
Three-quarters of Adani’s port debt must be refinanced within the next 12 months. “For them to convince financers that port capacity will be utilized in the future,” the IEEFA analyst writes, “they need to show that the Carmichael mine will be up and running soon. Because otherwise, the export volumes will not be enough” to support the facility’s debt.
With commercial doors closing, Adani’s hopes for its project now depend almost entirely on coaxing Prime Minister Malcolm Turnbull to put the Australian public’s money into the Carmichael coal pit.
Turnbull has hinted that his government might extend Adani a $1 billion loan, although he has yet to follow through. But the idea, and Turnbull’s support for coal-fired power generation in general, have become politically contentious in Australia, drawing criticism for locking consumers into unnecessarily high electricity costs.
And even if public financing is confirmed, IEEFA notes, the Adani group still needs to find another $3.3 billion to get even its scaled-down proposal under way.
One source for that money, the think tank suggests, could be Chinese lenders. If that deal materializes, “it could effectively mean that the Australian government is providing subsidies to a project owned by an Indian billionaire and a state-owned enterprise of the Chinese government.”