Westpac’s announcement of a new policy that appears to exclude funding for the development of mines in the Galilee Basin appears likely to sound the death knell for Adani’s proposed Carmichael Mine and rail line. Westpac was the last of the four big Australian banks to announce such a policy. It joins at least 17 global banks, notably including Standard Chartered, which had previously been a major source of finance for Adani
In these circumstances, the proposed $900 million loan from the government’s Northern Australia Infrastructure Facility would involve a high risk of loss, and would therefore be an improper use of public funds. The same is true, admittedly to a lesser extent, of the rival proposal for a rail line put forward by Aurizon (the privatised business formerly known as Queensland Rail).
But if the NAIF doesn’t fund coal railways, how should its resources be allocated? And, what about the jobs promised by the Adani project that will not now be created? Obviously, these two problems are inter-related.
On the evidence of Adani’s own experts, the Carmichael project would create around 1000 jobs (despite this, the discredited figure of 10 000 jobs continues to be touted). So, the proposed NAIF loan would involve an investment of nearly $1 million of public money for every new job created. It shouldn’t be too hard to match that.
But what’s really needed is an alternative to the outdated developmentalism that has characterized not only the Adani proposal but the whole idea of a Northern Australia policy. What are the real economic and social needs of the people of the region, including indigenous people, who are directly affected by the Adani proposal? I’m planning more work on this soon.
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John Quiggin 
The Indian Supreme Court judgement against Adani’s attempt to wriggle out of lossmaking PPAs from the giant Mundra plant (which runs on Indonesian coal) has forced the group to write off massive losses, estimated at $500m or more. The group is very heavily leveraged, wirh $15bn or so of debt against <$2bn of equity. This is compounded by margin loans of $1.5bn taken out by family members, secured against their shrinking equity. (Source latest IEEFA report.) Indian banks must be getting very, very nervous about their existing loans. Lending Adani billions more for a very risky foreign project based on a business plan contrary to repeatedly stated and entirely credible Indian government policy to phase out coal imports ASAP? Me neither.
During the 1970s there was a considerable body of scholarship based around decentralisation and ‘regional studies’, exploring how population growth might be steered away from the large cities. This all petered out in the later 1980s with the rise of economic rationalism on the familiar grounds that the market would determine where people live. Forty years on, I suggest that there is no accepted mainstream theory to explain how to facilitate regional development, or even whether governments should bother. I can only speculate on what is happening inside NAIF but wouldn’t be surprised if the advocates of 1960s National Party-style “Develop the North” thinking are finding it difficult to overcome the obstacles placed in their path by economic rationalists within their organisation or the central agencies in Canberra who can argue (probably with good reason) that most proposed projects are uneconomic or boondoggles.
We still lack a coherent model or theory of regional development, and the task of developing one is made more urgent by climate change (implies big shifts in agriculture) and energy policy, which makes inland Australia generally and the north in particular vulnerable to peak oil and rising prices of transport energy.
Personally, I don’t see how any strategy of regional development can succeed in a an environment of ruthless adherences to free trade, free foreign investment, foreign ownership of land, transfer pricing of revenues and importation of cheap foreign labour. A large agricultural project, for example, might be owned by a foreign company, staffed with imported FIFO contract employees or serfs, using imported equipment meaning no income taxes, payroll taxes, dividends or corporate taxes paid in Australia and little or no local employment.
The Greens’ economic policy recognises the benefit of ‘localisation’ of production, transport and employment, but nobody is taking any notice. If you’re going to build an economic model in this field, Prof John, I would recommend starting with the Greens policy documents, climate change and peak oil.
@Geoff Edwards
The political climate has shifted very sharply in the last few years, to the point where free market dogma has lost its power to terrify. Labor has already shifted away from 1980s nostalgia, and now Turnbull is announcing a new intervention every day. So there’s much more room for a regional policy than there was. I’ve avoided the term “development” because I think it’s potentially misleading, but I’m not going to worry about being accused of “picking winners” etc.
Morrison may see any gift to Adani as ‘good debt’.
But not Keynesian pump priming
@Paul Foord
I’m very suspicious of the idea that keeping people in regional areas is valuable for its own sake. Aren’t cities more socially and environmentally efficient? As activities undertaken in regional areas become more efficient (eg. agricultural productivity improvements), the workforce will shrink and we either have to create jobs in regional areas or expect people to move to the city.
This is not an argument for hanging rural people or communities out to dry, but an argument that it’s more important to help people to transition than it is to “develop” the regions. One area that stands out to me in this regard is education. The fact that families in regional areas can’t always afford to send their children to university is a disgrace, as is the effect of the VET fiasco on young people.
Alternatives.
1 billion is 10,000 time 100,000. Keep that in mind.
In my world $100,000 will buy a high precision computer numerically controlled machine that is 2 metres by 2 metres and weighs around 3 tonnes. Such a machine will have an annual earning rate of perhaps 200,000 and directly fully occupy the time of 1 person, and indirectly one other. As an example.
The next time a politician says that it is “good” to spend 1 billion dollars on some project compare that to an engineering application of the same money…..
20 kilometers (and 30,000 tonnes) of edge to edge CNC machines, $2 billion annual turnover generated, and 10,000 new jobs, the billion dollars reimbursed to the investment fund over 5 years for redeployment, $200 million in GST revenue each year and another $500 million in income and company tax collected per year.
There is a metric to compare a politician’s “good” and “bad” against when it comes to the use of money in the billions.
@BilB
To put people in the loop;
“Some of the common machine tools that can run on the CNC are: Lathe, Milling machines, Drilling Machine etc. The main purpose of these machines is to remove some of the metal so as to give it proper shape such as round, rectangular, etc. In the traditional methods these machines are operated by the operators who are experts in the operation of these machines. Most of the jobs need to be machined accurately, and the operator should be expert enough to make the precision jobs. In the CNC machines the role of the operators is minimized. The operator has to merely feed the program of instructions in the computer, load the required tools in the machine, and rest of the work is done by the computer automatically. The computer directs the machine tool to perform various machining operations as per the program of instructions fed by the operator.
You don’t have to worry about the accuracy of the job; all the CNC machines are designed to meet very close accuracies. In fact, these days for most of the precision jobs CNC machine is compulsory. When your job is finished, you don’t even have to remove it, the machine does that for you and it picks up the next job on its own. This way your machine can keep on doing the fabrication works all the 24 hours of the day without the need of much monitoring, of course you will have to feed it with the program initially and supply the required raw material.
Most of the manufacturing companies are now equipped with the CNC machines as the markets have got very competitive; however, getting the expert labors for operating these machines is becoming quite difficult. Even the machine operators of these days prefer to operate the machine by programming instead of operating it manually. In most of the machine tools training institutes the new operators are taught manual machining as well as CNC machining and programming.” – brighthubengineering
So, we are talking computer-controlled, metal machining in the light engineering to medium engineering sector perhaps? Running one or more of these machines and an associated fabricating plant maybe (or selling the made parts) presupposes a market for the product. But I take your point (if I get it right) that making “stuff” these days is rather easy in a sense, not all that capital intensive and with very low labour costs. I guess as well as CNCs we would have to add in modern printers and printed parts or are these machines also called CNCs in the bigger picture?
On a personal note, this says to me that the (sometimes) arrogant, over-charging and sloppy-workmanship tradesmen that I have to deal with from time to time will have to watch out. Most of them will soon be replaced by machines. When it comes to the trades, I am a jack-of-all trades and master of none. It does mean I know enough to know when tradesmen are not worth their hire and when they are doing poor work. It is mostly the case now that pride in workmanship in the trades is declining. I think it’s a sign of a number of things in Australia:
(a) over-demand for the trades (housing and building bubbles);
(b) over-paid and under-skilled tradesmen;
(c) the feeling of creeping obsolescence that overtakes the more skilled and intelligent who realise that their (justly) once proud trade will be overtaken by technology and consigned to the dust bin of history.
It is sad in a sense. Soon there will be a generation which has no skills with its hands at all. All the manual trades and the art and craftemenship that went with them will be gone. But that’s progress I guess. As J.Q. has asked: What does everybody do then and how do they get an income? That question has particular sharpness under a capitalist system. With no capital and no trade, no craft, no job nor any recognised, needed and appreciated place in society, what do people do? They turn to despair or crime. There is little else for them.
Our neoliberal parties who share government between them (LNP & ALP) have no idea what is happening, nor what to do about it. To a man and a woman they are bereft of ideas and understanding in these matters. We are in for a rough ride until a new generation with a new ideology (more empirically based one would hope) takes over and sets a new direction.
Murdoch’s Brisbane Mediocre Mail is reporting this morning that Adani will announce in June that the mine will proceed “pending finance” which is pretty much what JQ predicted a few weeks back:
https://johnquiggin.com/2017/03/22/adani-with-an-asterisk/
The main difference being that Westpac has now ruled itself out from funding the project, so finance is now going to “pend” for a very long time.
Adani is still claiming they will have the money by June. But it’s hard to see who would lend on collateral that will be worthless if the decline of coal continues.
@Paul Norton
The Courier Mail is the best of the Murdoch papers, IMO. I can’t quite put my finger on why. I think it’s because it is simply bogan without apology or pretense. Plus it is not as sneeringly nasty as the others, or so it seems to me.
I think what Prof. Quiggin is suggesting is that ideological factors need to be removed from decision making processes involving scarce funding resources.
No more Zombie economics, Barnaby and co!
It is worth pondering that the Federal Government coerced a principle of capital recycling on State Governments as a condition of funding socially necessary public infrastructure. Perhaps the same obligations should be extended to Adani to demonstrate funding capacity, not just from debt, but also from parent companies, retained earnings, sale of assets or even the selling of the Abbot Point coal terminal before dipping into the public purse. Funding can come from many sources and the ownership of a multi-user coal terminal providing open access to higher value met coal isn’t a pre-requisite for the development of a new thermal coal mine.
Creating employment in regional Australia is a real challenge. How to create 1,000 jobs in central Queensland through NAIF investments in capital? And how to do it for less than $900,000,000?
I’d suggest that NAIF invest in 10 McDonalds franchises in regional centres that are missing this vital social infrastructure. According to the McDonalds website, each franchise employs about 100 people (often youth in a demographic with chronic underemployment), and the investment required in only $12,000,000 for 10 restaurants (creating 1,000 jobs). That is a 98.7% discount in the cost of the jobs for Adani!
And think of all off the employment multipliers (dieticians, personal trainers etc.) and office rent savings for the newly decentralised public service.
If job creation through public investment is as easy as my crazy idea, why do Governments always select projects at the top of the marginal cost curve?