Home > Economic policy, Environment > There are better things to spend $1 billion on than the Adani coal mine

There are better things to spend $1 billion on than the Adani coal mine

That’s the self-explanatory headline for my latest piece in the Brisbane Times (reproduced in the other Fairfax papers, I think). Text is over the fold.

And, on the same theme, Richard Denniss.

Ever since taking office the Palaszczuk government has been walking a tightrope with respect to the Adani Group’s proposed Carmichael mine in the Galilee Basin. On the one hand, it’s obvious that the project is both environmentally disastrous and economically dubious. The government has been keen to avoid putting public money into this mess. On the other hand, if the project falls over, as still appears quite likely, the government is keen to avoid the blame. The supposed benefits of 10 000 jobs and billions of dollars in royalties make an appealing case to voters at any time and particularly with the mining boom on the edge of failing.

For most of the past eighteen months, Ms Palaszczuk and her government have managed the tightrope act successfully, but now it appears to be on the verge of falling. Adani is pushing for a ‘holiday’ from royalties which might last as long as nine years. If the government accepts, the project may go ahead, but the promised benefits to the Queensland public will disappear into the never-never.

The holiday is supposed to be temporary, but that’s unlikely. The mine is always going to be marginal at best, so any attempt to extract royalties in the future, let alone collect those foregone during the holiday, will raise the threat of closure. What Queensland government, having put so much into the project, would be willing to take the blame for its failure?

Meanwhile, the project proponents are still touting the 10 000 jobs. Adani’s own expert admitted in court that the modelling technique used to derive this number was unsound, and estimated the real figure at less than 1500. But that number refers to the full version of the project, commonly described as involving an investment of $22 billion. With most major banks having rejected the projected, that version has been scrapped, or at least deferred indefinitely.

The ‘first stage’ currently being discussed involves a total investment of around $5 billion, of which the Australian public is supposed to contribute at least a billion dollars. There doesn’t appear to be any public modelling of the jobs created by this cut-down proposal, but simple arithmetic suggests that the number is likely to be in the hundreds rather than the thousands, at least once the initial construction phase is over. So, we may easily end up with the worst of all worlds: no royalties and few jobs for a project that will contribute massively to environmental destruction both locally and globally.

Even a few hundred jobs would make a positive difference to centres in regional Queensland. But, with over a billion dollars of public money already on the table, and almost certainly more to come, we could do a lot better than subsidise a railway line and coal mine. The list of options is long, but it’s worth spelling out a few possibilities.

First, we could make a start on addressing the housing affordability crisis with a return to building public housing. Recently released maps of rental affordability have shown that this problem is just as severe in regional Queensland as in many parts of the South-East. Spending money on public housing used to be ruled out by free market dogma, but the willingness to throw money at Adani shows that this dogma is no longer operative. With a focus on low-cost options, a fund of a billion dollars could finance the construction of 500 houses a year for ten years. And, at the end of the ten years, the public would own a substantial stock of housing. By contrast, money given or lent to Adani is probably gone for good. The chance that the mine will be profitable enough to pay back its debts is marginal at best.

Another option would be to admit that, rather than being unpredictable disasters, cyclones and the associated floods are a regular part of life in North Queensland, likely to get worse rather than better in the future. Another option would be to admit that, rather than being unpredictable disasters, cyclones and the associated floods are a regular part of life in North Queensland, likely to get worse rather than better in the future. Instead of making special arrangements every time, we could set up a permanent core workforce to work on disaster preparedness and form the nucleus of a rebuilding effort in the aftermath of cyclones.

If these ideas are too innovative, we could simply spend the money on the services that make up the core business of governments, like schools, police services, roads and parks. At a cost of $100 000 per worker (including various on-costs) a billion dollars would be enough to fund 1 000 jobs for 10 years, almost certainly more than Adani’s cut down scheme will deliver.

The world, including India, and even the Adani corporation itself, is moving away from coal at an accelerating rate. Rather than throw away huge sums of public money in an attempt to resist the future, we should be thinking about how best to manage it. Regional Queensland has vast potential, and, with a renewed willingness to undertake public investment, we have the chance to realise that potential. We shouldn’t throw it away on a doomed project that will leave us with, at best, a stranded asset and a legacy of massive environmental damage.

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  1. Ikonoclast
    May 20th, 2017 at 13:29 | #1

    King Coal is dead. Long live King Solar (but put its benefits in the hands of the people, not in the hands of the corporations).

    And of course we need all the ideas J.Q. listed above. I 100% agree.

  2. Moz of Yarramulla
    May 20th, 2017 at 15:10 | #2

    Prof Q, do try to think like an economist 🙂 If the state starts building houses the price of housing might not rise fast enough to allow the personal borrowing that maintains the Australian Way of Life{tm}. Much better to literally throw money into a hole in the ground.

    The cautionary tale of Kevin Rudd and the Pink Batts should also be a lesson to anyone thinking of trying to avoid catastrophes. It’s much better to deny the problem then short-cut the repairs afterwards. That’s what we’ve always done and it’s got us where we are today. Hooray for us?

  3. hc
    May 20th, 2017 at 21:18 | #3

    I enjoyed this incisive commentary. Yes, it is really a dud deal and we will all lose out if it goes through. Hopefully, it won’t. When the facts are set out starkly it looks so silly.

  4. May 21st, 2017 at 03:23 | #4

    Cui bono? The prime beneficiary of keeping the project alive is Gautam Adani. Not for the profits, because there won’t be any, but to avoid taking the write-off of A$1.3 bn representing the sunk expenditure. Adani and his family are majority shareholders in the various companies of the group. A Carmichael cancellation would be a second major hit to their wealth, coming right after the over $500m writeoff following the Indian Supreme Court’s refusal to let Adani break his lossmaking PPA contracts from the giant Mundra coal power station. The family would be be reduced to poverty for all that. But the group is highly leveraged, and the family equity even more so with margin loans, on conditions we don’t know. Adani is in bad trouble, and may be fighting for his business life. But it seems an odd priority for Queensland taxpayers to rescue struggling Indian billionaires.

  5. May 21st, 2017 at 03:25 | #5

    Blast. “not be reduced to poverty…” Edit function!

  6. rog
    May 21st, 2017 at 08:17 | #6

    It seems that, time and time again, an elected govt will favour the interests of the Crown over the interests of its citizens. AFAIK only Mike Rann from SA has sided with the public interest, that being over Arkaroola.

    Is this a Constitutional question for all govts?

  7. Ken Fabian
    May 21st, 2017 at 09:40 | #7

    Oh, and now Australia’s EFIC wants to loan money to help a competing South African coal mine get down and dirty. https://www.theguardian.com/business/2017/may/20/government-may-fund-south-african-mine-that-would-compete-with-adani

  8. May 21st, 2017 at 20:52 | #8

    @Ken Fabian
    The article has an amazing quotation from Turnbull. He’s reduced to simple lying about India’s coal plans. When – not if – India stops importing coal from Australia, it won’t be replacing it with coal from Indonesia and South Africa, but with nothing at all. Ending coal imports is the stated, often repeated, and entirely credible policy of the Indian government. After decades of shortage of domestic coal, it now has a structural glut and growing fears of stranded coal generation assets, as in China. Imports are falling sharply in both countries. This won’t change.

  9. Jon Brodie
    May 22nd, 2017 at 10:32 | #9

    I assume the Queensland Government knows very well the mine will not go ahead and hence giving let-offs from royalties involves no real money at all. On the other hand the possible Feds money to build the railway is “real” money and a different kettle of fish. The latest relaxation by the Feds in protecting turtles at Abbot Point just continues to show the current Fed. Gov. have no interest in protecting the Great Barrier Reef whatsoever.

  10. Hal9000
    May 22nd, 2017 at 10:34 | #10

    “Gautam Adani”. Hindi for “Christopher Skase”.