Home > Economics - General, Environment > Adani mirage fading

Adani mirage fading

April 4th, 2016

Adani Mining has just received the final approval from the Queensland government for the Carmichael mine in the Galilee Basin. According to this report from February, citing a “top Adani Group executive”, operations should start in August 2016, which would be a disaster for the global environment.

But wait! Now it seems yet more “secondary approvals” are needed (it appears this refers to a bond for cleaning up the mess afterwards), and “we hope that construction would start any time in 2017”.

There’s more interesting stuff in the report.

He said the price of coal was not the main issue in determining the viability of the project, but rather the cost at which the coal could be mined as the company already had a price agreement with the Indian government.Adani Mining CEO Jeyakumar Janakaraj claims there’s no need to worry about the price of the coal they produce “We are an integrated player. We have sold electricity in India on a long-term price.

‘‘It is not about the price point of coal, it is about the cost point, at what cost can we produce coal so that we will always be able to make a profit with the electricity price that we have already sold,”

The reference to the Indian government is pretty cheeky, given the government policy of eliminating coal imports over the next few years, which looks to be on track to succeed. (it’s currently a little behind its targets for increased production, but that’s because of weak demand).

More importantly, Janakaraj’s claim that “We are an integrated player” suggests he does not know much about his own business. Adani was an integrated enterprise when the project began. But the restructuring of the Adani Group in 2015 separated Adani Power (the electricity producer with a diversified portfolio of coal-fired power and renewables) from Adani Mining, which holds the stranded assets like Carmichael. This analysis from IEEFA spells it all out. Adani Power would be breaching its fiduciary obligations to shareholders if it paid an above market price for coal from Adani Mining.

I found a response from Adani, which illustrates one of my favorite points. When you have no answer to a damning report, say that it is “flawed“. That’s true of just about anything, and saves you the trouble of an actual response.

Categories: Economics - General, Environment Tags:
  1. Ivor
    April 4th, 2016 at 10:37 | #1

    These acts by capitalists and their governments guarantee that atmospheric CO2 concentrations will increase as long as there is exploitable fossil resources – coal, oil, gas and methane – left for them to extract.

    This simple fact reduces the Paris meeting to nothing but a glorified circus and the various IPCC reports to little more than useful toilet paper for executive wash rooms.

  2. Newtownian
    April 4th, 2016 at 10:57 | #2

    Nice story. Yet again ‘the devil in the details’ trumps the hand waving.

    Should Adani collapse under the weight of reality, as seems likely, the question next is whither the Australian mining/economy exactly? Will Australia’s economy collapse due to a domino effect. Or will something else take its place.

    There is an interesting plot in this page from 538.org showing the inverse relationship between “natural gas” and coal production at least in the US
    http://fivethirtyeight.com/features/its-time-to-start-planning-for-the-next-recession/

    The article goes on to describe a colourful character named Aubrey McLendon who I hadnt come across but I guess should have, whose activities account for much of the rise in ‘ecofriendly’ fracking and who died recently under interesting circumstances to say the least (for more see https://en.wikipedia.org/wiki/Aubrey_McClendon#Death and http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301 ).

    Bottom line is if coal collapses will be see plan B pushed big time…..fracking.

  3. Ikonoclast
    April 4th, 2016 at 11:09 | #3

    The business case analysis as put by the “top Adani Group executive” is flawed. J.Q. has actually outlined the flaws as opposed to just calling it “flawed”.

    One wonders why the Qld Govt approves a flawed project when they could get ecological brownie points by opposing something that is not going to happen anyway. That would seem like an easy political win. They just have to mention climate change and the fact that the mine makes no business sense.

    This suggests to me that the Qld Labor government is not only not clever, it is downright stupid. Why are these pollies so stupid? What reasoning do they use to arrive at these very flawed decisions?

  4. Matt
    April 4th, 2016 at 11:14 | #4

    @Ikonoclast

    The voters who are more concerned about jobs than ‘the environment’ are the ones who in play. They are the ones who might vote for the LNP.

    By contrast, voters who think the project should not go ahead regardless of how many jobs it will create are already going to vote Labor, or vote Green and have their preferences flow to Labor. So there’s not much incentive to appeal to those people.

  5. Ikonoclast
    April 4th, 2016 at 11:15 | #5

    If I might add a quote;

    “Protecting the reef and approving the Carmichael mining lease are diametrically opposed. You cannot do both,” Greenpeace reef campaigner Shani Tager.

    She might also have said;

    “Protecting the climate and approving coal mine leases are diametrically opposed. You cannot do both.”

    OMG, I am so frustrated. Why are our governments into such doublethink? What or who is twisting their thinking?

  6. Ikonoclast
    April 4th, 2016 at 11:24 | #6

    @Matt

    Well it gets back to what I have said before. NO environment equals NO economy, NO jobs and NO life. Natural forces are going to have to provide us with a salutary demonstration of the errors of our ways. Clearly, indoctrinated people have been made too stupid to get the message any other way. A large climate-change induced natural disaster will have to occur killing or displacing 100,000s of people or more in the developed world. This disaster will have to be unambiguously attributable to climate change. This is clearly what it is going to take. It WILL happen sooner or later if we continue on our current course. It would be wonderful if we collectively had enough foresight and will to prevent this. But clearly we don’t, so we are going to have to learn the hard way.

  7. Matt
    April 4th, 2016 at 11:30 | #7

    @Ikonoclast

    Sure, but politicians are trying to appeal to the actual voters, not the voters you or I wish for. They’re not stupid – they’re responding to the incentives they face.

    Now we might say that they could do more to lead the public in the right direction, but that’s a tough sell for any government in politically-unstable Queensland.

  8. Ivor
    April 4th, 2016 at 11:40 | #8

    @Matt

    they’re responding to the incentives they face.

    Do you mean incentives to foster growth above humanity??

  9. John Quiggin
    April 4th, 2016 at 11:40 | #9

    In my more charitable view, the Qld government can see that the project is dead and don’t want to be lumbered with the political damage and potential compensation that would go with being seen to have killed it.

  10. Paul Norton
    April 4th, 2016 at 11:43 | #10

    Matt, I think you’ve correctly assessed the tactical thinking of the Queensland government, and of the ALP generally, on issues like this.

    The problem for Labor is that sooner or later there has to be a reckoning with the fact that the likely falling-over of the Carmichael mine will signify the death of the dominant paradigm w.r.t. how Australia makes its way in the world economically, and that a responsible Australian government would take responsibility for explaining this to the Australian public and provide leadership in the transition to a new paradigm. We know that the Coalition will never do this, but will Labor ever be up to the challenge?

  11. Zac Spitzer
    April 4th, 2016 at 11:44 | #11

    Does India have enough water to burn all that coal and generate power from it?

  12. Paul Norton
    April 4th, 2016 at 11:44 | #12
  13. Matt
    April 4th, 2016 at 11:53 | #13

    @Ivor

    I mean incentives to behave in ways that increase their chances of being elected. Particularly if, as JQ argues, the QLD Govt believes the project will never go ahead. In that case actively killing the project is, in a political sense, all cost and little benefit.

  14. Mpower
    April 4th, 2016 at 11:56 | #14

    @John Quiggin
    Agree with JQ charity on no point in flogging a dying horse. But there was a way for the Qld Gov to flag they had a bit of moral courage by floating a vague idea of a joint R&D on a renewables investment with Adani or Indian Government, using a bit of the unlikely to eventuate royalties, to reduce/offset emissions. It is not too late!

  15. John Quiggin
    April 4th, 2016 at 13:00 | #15

    @Paul Norton

    To be fair, Rudd in his brief second term started on this, but then got sidetracked onto nonsense like moving the navy to Townsville. I assume this was a reflection of his alliance with Bob Katter, which ended up harming both of them politically.

  16. Ivor
    April 4th, 2016 at 13:58 | #16

    @Paul Norton

    will signify the death of the dominant paradigm w.r.t. how Australia makes its way in the world economically, and that a responsible Australian government would take responsibility for explaining this to the Australian public and provide leadership in the transition to a new paradigm.

    “New paradigm” is too vague. Is this intended to mean carbon-free capitalism??

    We need more than a “new paradigm”. We need a cooperative mode of production. One that does not have a requirement for the commercial competitive advantage fossil fuels provide.

  17. April 4th, 2016 at 16:34 | #17

    Zac Spitzer, obtaining cooling water for new Indian coal power plants is a major hurdle new construction faces. It is technically possible to reduce the amount of water required for cooling, such as with Queensland’s Kogan Creek Power Station which uses radiators and giant fans to reduce the amount of water required, but this raises the cost and with Power Purchase Agreements for new solar in India already competitive with new coal power, any extra cost is just one more nail in the coffin for coal. Which is fair enough, since coal has put plenty of Indians in coffins.

    But possibly an even greater problem is the amount of water that is required for increased coal mining and washing in India. Given the intensity of Indian monsoons, it’s hard to believe that runoff from coal mining and washing will always be contained and not end up contaminating water supplies.

    Given limited water supplies, the huge toll air pollution from burning coal inflicts, and the now competitive and decreasing cost of renewable energy, ending new coal plant construction in India, or anywhere in the world, should be a no-brainer.

  18. April 4th, 2016 at 17:08 | #18

    This looks like an over extension of optimistic future earnings that will meet the harsh reality of falling commodity prices. The Indian company seems to be well out of its depth and all its actions lack transparency. I will be very surprised if this project gets to lift off stage. Governments should not try to pick winners and should not accept blindly claims about future employment.

  19. James Wimberley
    April 4th, 2016 at 20:33 | #19

    Up to now, Indian coal supply has been constrained by the incompetence of Coal India. Now that the corporation seems to have fixed its production problems, along comes the demand downturn. No wonder the big conglomerates, including Adani Power, have been sitting on their hands and singularly not breaking ground on the long queue of stalled coal plant projects. India is not replicating China’s Gaderene rush of unneeded new coal plants.

    India actually has huge excess generating capacity – consumers wouldn’t notice this as the grid is still shambolic. I suspect the Indian government is still working from obsolete models of electricity demand, ignoring the huge recent increases in efficiency in everything from LED lights to variable-speed pumps and motors.

  20. Peter T
    April 4th, 2016 at 21:01 | #20

    I agree this one is likely to do a slow fade, and the Qld government is probably betting that it can skate past the politics with a ‘well, that’s the market, not us”. If they are sensible, they’ll demand Adani pay a very large sum into escrow for environmental clean-up, and then with-hold permits when it cannot come up with the money.

    More broadly, the issue is that a money-based economy requires continual money-generating activity (basically, buying and selling). Government, households, environmental repair and similar are not money-generators but money sinks – they buy but do not sell. I think the economy as a whole has been under pressure for some decades to find new sources of turnover rather than new sources of profit. The resources collapse is intensifying that pressure.

  21. April 4th, 2016 at 22:14 | #21

    Good post flawed by reference to “fiduciary obligations to shareholders.” Directors have a duty to “act in the interest of the company” which is not the same as the shareholders. See Kay and Silberston and Lynn Stout. The idea that shareholders are the owners of companies was a bit of law making on the fly by Milton Friedman, obscuring the difference between limited liability companies and partnerships. Adam Smith got that one right.

  22. Lt. Fred
    April 4th, 2016 at 23:35 | #22

    Well, Labor has almost certainly lost a number of state seats, for the first time, to the Greens. Their environment minister, whose fingerprints are all over this, will face a very tough re-election battle in his seat of Mount Cootha, the most environmentally conscious seat in the state. His slogan last election was “Miles better for the reef”, a pun on his last name.

  23. Donald Oats
    April 4th, 2016 at 23:51 | #23

    As far as I am concerned, the ALP give approval, fine: they’ve nailed their colours to the mast. Sure, it may have been a political calculation, but I’m just a dumb voter who looks at what they do, and whether it matches what they say.

    The ALP—state and federal—has to bite the bullet and come clean on not being green. We are surely beyond the point where we can argue for environmental issues but then approve coal mining, etc. We know what the risks are; the scientists have been spelling it out for years, and hindsight indicates the scientists have a tendency to a conservative bias in their amount of alarm.

  24. Paul Norton
    April 5th, 2016 at 09:18 | #24

    Ivor @16, I think an ecologically sustainable economy, if achieved, will not be capitalist. However what is interesting about the current juncture is that “the commercial competitive advantage fossil fuels provide” is rapidly ceasing to exist, even within capitalist parameters. It is this that the ALP either does not realise or is afraid to openly acknowledge.

  25. Jim
    April 5th, 2016 at 09:23 | #25

    If Adani have already forward sold the coal, but the market spot price is way below the cost of production from the Carmichael Mine, wouldn’t Adani make more profit from fulfilling their obligations through purchases from existing producers?

    I’m glad I don’t have shares in these clowns….

  26. Ivor
    April 5th, 2016 at 12:42 | #26

    Paul Norton :
    Ivor @16, I think an ecologically sustainable economy, if achieved, will not be capitalist. .

    Yes, and the more people who come to this realisation, the better.

    So far – except the Yugoslav 1976 Associated Labour Act – no model exists of any practicable “ecological sustainable economy”. But you have to be acquainted with Karl Marx in the original to see this.

    In Australia, “ecological sustainable economy”, seems to be little more than a nice, poetic concept.

  27. derrida derider
    April 6th, 2016 at 17:04 | #27

    I suspect the Qld government’s support for the project is precisely because they know it aint gonna happen. From their POV the politics would be much more difficult if the thing was financially viable.

    If that was the case if they blocked it on environmental grounds they’d lose votes as being “anti jobs” while if it went ahead they’d have much more problem dealing with the sane greenies (including those in their own cabinet) during construction and operation. The best possible outcome for them is to be able to say “well we tried but the price of coal is just too low – can’t be helped”.

  28. Tim Macknay
    April 8th, 2016 at 15:19 | #28

    Indian coal imports continue to drop, as does the price of solar. At this rate it can’t be too long before Adani pulls the plug completely on Carmichael.

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