Home > Economic policy, Environment > Queensland government backing away from Adani?

Queensland government backing away from Adani?

May 29th, 2017

Looking at news coverage and the emails I’m getting from climate action groups, it looks as if I may have misinterpreted the Queensland government’s move on royalties (or maybe I posted before the decision process was complete). The latest news is that the state government will take no part in processing any loan to Adani from the Northern Australia Infrastructure Fund. I’ll try to post again when I get a clearer picture on this.

What remains clear is that Adani is having a lot of trouble finding bank loans or equity investors to invest in the Carmichael mine project. Given the poor economics of the project, any money lent by Australian governments is likely to be lost, leaving the publci with a stranded and useless asset.

Update 31/5/17 The Guardian reports that https://www.theguardian.com/business/2017/may/30/adani-reaches-mine-royalty-agreement-with-queensland-government to defer nearly all of its royalty obligations for the first five years of production under the new deal, with interest charged on anything owed to the state above that. Almost certainly the interest rate would be well below what a commercial lender would charge, given the risk of default.

More noteworthy, I think, is the following

That would be the trigger for what the company has flagged would be $100m to $400m of preliminary works. But the deadline for financial close, the securing of bank backing to build the mine and rail to haul coal to the coast, is early 2018

As has been true for the past several years, the date when the project actually starts still seems to be at least a year away.

We’ll see at least some money on the table if the “preliminary works” start on the supposed schedule. But my guess is that the scale of the work will be less than meets the eye. I wonder, for example, whether the expenditure figure includes work done before Adani mothballed the project back in 2015.

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  1. Newtownian
    May 29th, 2017 at 11:20 | #1

    Oho, that explains it. Barnaby Joyce on the radio this morning standing up for worker’s rights to dig coal which are being frustrated so he said by the influence of inner city types (?Balmain basketweavers and similar trendoids…..declaration of conflict of my interest – I confess to living in a gentrifying suburb) on Labor Party policy settings and Shorten’s stance.

    This will be an interesting fight, the Commonwealth throwing money at this dog with fleas.

    But the decision may not just turn on Adani but also the willingness of the Government to blatantly subsidize the interests of Barnaby’s mate Gina Rinehart https://en.wikipedia.org/wiki/Galilee_Basin#Coal_Mining_Leases and others from the pampered mining industry.

    It would be nice if from time to time in Barnaby’s interviews he declared his own conflicts of interest.

  2. Smith
    May 29th, 2017 at 13:38 | #2

    In the latest news, via the AFR

    “Queensland Treasurer Curtis Pitt says the Palaszczuk government will not stand in the way of the federal government loaning $1 billion to Indian energy giant Adani to help fund its controversial $16.5 billion Carmichael mine, rail and port project.”

    Will take no part, will not stand in the way. As the saying goes, the only thing being able to sit on the fence proves is that you’ve got a fat arse.

  3. May 29th, 2017 at 15:01 | #3

    This piece from the ABC news website makes it clear (or as clear as Labor seems to be able to be on this). In short, Qld Labor admits they have the power to block the $1 billion loan from the federal government, but will none the less facilitate it.

    http://www.abc.net.au/news/2017-05-29/queensland-government-to-play-ball-over-adani-loan:-treasurer/8568348?WT.ac=statenews_qld

    Somehow the pivotal factor of the Adani issue as far as the media is concerned – and that of many of the campaigning groups as well, so it would seem – seems to have just become whether or not Qld Labor will allow public funding of this new coal mine.

    The threshold issue should be whether or not they will do all they can to stop this new coal mine, and any other one in the future.

    And sadly, regardless of the shuffling from one side of the fence to the other, the simple fact is that Qld Labor unequivocally supports the mine going ahead, and have also frequently stated that they support the entire Galilee Basin being opened up for new thermal coal mines.

  4. rog
    May 29th, 2017 at 15:48 | #4

    Peter Beattie offered a new interpretation of “holiday”, that royalty payments would be deferred to a later date.

    QLD want the mine, or anything else that will sustain jobs in the north.

  5. John Goss
    May 29th, 2017 at 16:40 | #5

    The problem with any Government making a decision to ban the Adani coal mine, is that I do not see it is the role of government to stop companies making decisions which create losses for their shareholders. I know that the Adani decision has become a talisman for the left, so therefore what I am saying is controversial, but let me say it anyway, even though I know most people won’t hear it. The mine should be stopped if it is against environmental law (and so far it seems not to be), and there should be no subsidy of any sort from governments, and there should be a charge for the externalities of the increase in greenhouse gases and any other environmental impacts due to the construction and operation of the mine. But, apart from that, governments should not interfere. I do not see, in public policy terms, that it is appropriate to ban the mine because of the damage that greenhouse gases do in the countries that buy our coal, as that is interfering in the sovereignty of other countries. ie I do not believe it is right for other countries to refuse to sell something to Australia on the grounds that they consider we may do something bad with that commodity. Therefore applying the do unto others rule, we should not stop people buying our coal because we think that the net consequence on them buying coal from us is bad. As long as they comply with international agreements and law, it should be their decision.

  6. May 29th, 2017 at 17:38 | #6

    @John Goss
    The mine’s intended market is India. The government of India has a clear public policy to phase out coal imports. The Supreme Court decision on the Mundra PPAs is a clear warning to Adani and his bankers that there will be no bailout on Carmichael. Ethics, foreign policy, and commercial prudence are fully aligned here against the project.

  7. Ikonoclast
    May 29th, 2017 at 17:52 | #7

    @John Goss

    Your logic is faulty in this case. (I don’t know how to put that more tactfully.) You say;

    (1) “I do not see, in public policy terms, that it is appropriate to ban the mine because of the damage that greenhouse gases do in the countries that buy our coal, as that is interfering in the sovereignty of other countries.”

    Firstly, the greenhouse gases damage the global climate for all countries, including Australia.
    Secondly, you should be concerned about infringing on the sovereignty of all countries and peoples who will be damaged by these greenhouse gases including poor countries like Pacific Island countries.

    (2) “I do not believe it is right for other countries to refuse to sell something to Australia on the grounds that they consider we may do something bad with that commodity.”

    This belongs in the “see no evil” category of arguments when the implied reverse is considered. We don’t “consider” that other countries will do something bad with coal, we KNOW they will. They will burn it and release GHGs. Countries refuse sales to other countries all the time for a plethora of reasons, some morally justifiable, some not morally justifiable and some out of self-interest for having first call on the goods and commodities domestically. It is morally justifiable, indeed it is morally imperative to NOT sell coal. Selling coal or burning it is an act of climate criminality, in moral terms.

    (3) “As long as they comply with international agreements and law, it should be their decision.”

    This is argument is pure legalism. Pass an Australian law banning coal exports and ipso facto, legal problems are solved. Complying with this law would mean no international buying and selling of Australian coal.

    In conclusion, it is never just someone else’s decision when what they do harms others. It becomes the business of those harmed (all of humanity in this case) and of those with a moral duty and power to prevent such harm (all concerned citizens and their hopefully democratic governments).

  8. rog
    May 29th, 2017 at 18:11 | #8

    The issue (as I see it) is clear, the Crown and/or its agents, must decide which is the best way to protect and perhaps enhance its assets. In the case of Adani the known assets are coal and Adani proposes that this resource can be converted from an inherent to a fungible wealth.

    As I see it the Crown needs to have a better offer to refuse the Adani bid.

  9. 2 tanners
    May 29th, 2017 at 20:43 | #9

    John, I don’t think you were wrong. The government has suddenly realised that Adani is as popular as a dose of the clap and are foreigners to boot, always popular in Queensland. Who knows what took them so long? Having done so, they are now trying to walk back their words without actually changing what they said. Any deferral will still cost the public money unless Adani can’t produce in the time available. Which may be what the government’s advisors are telling them.

  10. John Goss
    May 29th, 2017 at 21:51 | #10

    My debate is around the appropriate policy stance that the government should take with regard to the Adani mine. On any cost benefit analysis one does whether one includes the costs of climate change or not, it is a bad project. The costs exceed the benefits. But if a company is stupid enough to invest in such a project, it is in my view not the government’s role to stop them. The government’s role is to ensure that the company pays for any costs it imposes on the rest of society.
    It is a furphy to talk about the damage done by the coal when it is burnt in India, because roughly the same environmental damage will be done by Adani burning coal it mines in India as compared to coal it imports from Queensland. Stopping the Carmichael mine will not change the amount of coal that is burnt.
    Still, despite my disagreement with the arguments that all new coal exports should be stopped, I am very pleased that the Adani Carmichael mine will not go ahead, and the anti Adani campaign has been very successful, in that it has stopped governments subsidising the Adani coal barons, and both Labor and the Coalition really wanted to do that. I don’t agree with all the arguments of the anti-Adani forces, but I salute a successful campaign.

  11. Collin Street
    May 30th, 2017 at 07:17 | #11

    The government’s role is to ensure that the company pays for any costs it imposes on the rest of society.

    And if the company cannot do this and is known to be unable to do this, on account of for example a lack of capital coupled with the operations of limited liability… what do you suggest then?

    In an abstract world of frictionless cows and inelastic monkeys your position might make sense, but we don’t live in that world and in the one we do live in, we run into physical limitations.

  12. John Goss
    May 30th, 2017 at 08:09 | #12

    In the example you give Collin Street, a company is obliged to follow certain rules in order to have the right to operate as a company eg it is not allowed to operate when insolvent, and it is ASICs job to ensure those rules are followed. In the case of the Carmichael mine which is expected to fail, one would ensure one got any remediation money upfront.

  13. Robertito
    May 30th, 2017 at 10:03 | #13

    It’s so frustrating to be having this conversation on the basis of hearsay, rather than clear policy. Obviously that is the fault of no one but the Queensland Labor Party, but given the urgency of the campaign to stop the mine, it is necessary to work with what we have.

    I see the most concerning part of the the Queensland Government’s policy as the fact that although they are trumpeting the claim that there is no royalty holiday, they keep open the “possibility of a royalty deferral in the first few years” (http://www.abc.net.au/news/2017-05-26/adani-carmichael-coal-mine-to-pay-full-royalties-queensland-gov/8564412). In theory, the royalties will be paid back, with interest, after those first few years. In reality the plan here for the Queensland Labor leadership is to allow royalties to accrue for a few years and then when Adani cry poor in the future, the government will discount the royalties owed under threat of mine closure.

    This is terrible for the reasons that we already understand, but also for what it says about the Labor party. The deferral of difficult decisions to future governments has become their modus operandi and if Labor aren’t punished at the ballot box in Queensland as a result of this plan, it will become entrenched at the state level as it is at the federal level (eg. Gonski, NDIS).

  14. rog
    May 30th, 2017 at 10:58 | #14

    QLD ALP have clarified saying that royalty deferment will apply to any new venture in the north and that they are keen to develop all the coal deposits.

    The Aust Mineral Council have come out saying that Adani is a litmus test and if it fails it could impact on India/Australia trade.

    On the other hand Adani are under pressure to sell assets to pay off their bank debt.

    “The billionaire Gautam Adani’s Adani group, with Rs 96,031 crore debt, is under pressure to sell its stake in the Abbott Point coal mines, port and rail project. The Adani Group’s debt stands at Rs. 72,000 crore. Last year, Standard Chartered bank had recalled loans amounting to $2.5 billion as part of its global policy of reducing exposure in emerging markets. Global lenders have backed out from funding the $10-billion coal mine development project. State Bank of India has also declined to offer a loan despite signing an MoU to fund the group with $1 billion. An Adani spokesperson declined to offer any comments on the issue.”

    http://www.thehindu.com/business/Industry/the-biggestever-fire-sale-of-indian-corporate-assets-has-begun-to-tide-over-bad-loans-crisis/article8573163.ece

  15. derrida derider
    May 30th, 2017 at 15:33 | #15

    Being seen to be helpful but being careful not to be was always Labor’s (both federal and state) best strategy for this project, given that they could always be confident it was located somewhere on the spectrum between “financially dubious” and “outright scam”. As it’s a financial dog as well as an environmental dog they don’t have to talk about the environmental issues at all and so can avoid losing anyone’s vote.

    Of course they are going to frame their (correct) decision not to actively help the project as “we will not be the ones standing in the way”.

    It is, though, fortunate for them that the finances of it are so bad. If it was a really sound investment with our banks keen to bankroll it then the politics would be much more difficult.

  16. Collin Street
    May 30th, 2017 at 22:00 | #16

    John Goss :
    In the example you give Collin Street, a company is obliged to follow certain rules in order to have the right to operate as a company eg it is not allowed to operate when insolvent, and it is ASICs job to ensure those rules are followed. In the case of the Carmichael mine which is expected to fail, one would ensure one got any remediation money upfront.

    … you do know that people sometimes break laws, right?

  17. hc
    May 30th, 2017 at 22:01 | #17

    I get the feeling that Adani, at least, is serious about doing a deal to get this project going and that Queensland (and Federal Coalition & Labor) are keen also. Early days of course and still lots of borrowing required. But theories that Adani is seeking an escape clause and perhaps compensations seem to me fanciful.

    https://www.theguardian.com/business/2017/may/30/adani-reaches-mine-royalty-agreement-with-queensland-government

    It is a monster project.

  18. May 31st, 2017 at 01:06 | #18

    @rog
    Why do you think the Galilee coal is an asset? As Tim Worstall never tires of reminding us, a mineral reserve is an ore body that (a) is known and delimited (b) can be profitably extracted using current technology. The Galilee coal does not meet the second test. It is therefore not an asset, any more than the Pacific ocean.

    Construction and cement companies operate quarries of granite and limestone. The quarries have an asset value, as they cost money to set up, acquire the extraction rights, compensate for nuisance, build access roads, etc. SFIK the owners do not include the unquarried rock as an asset. There is an infinite supply elsewhere that can be got for a similar investment. That’s coal today.

  19. Paul Norton
    May 31st, 2017 at 08:41 | #19

    hc @17, the project is a monster in more ways than one. However much has changed in terms of global energy market conditions since it was first announced in 2010 and I don’t think this would have gone unnoticed by a successful real-world capitalist like Gautam Adani.

  20. hc
    May 31st, 2017 at 10:43 | #20

    @Paul Norton

    It is a monster in many ways. Monstrously bad for the environment and mega-big in economic terms. But still large amounts of coal are in demand.

  21. Ronald B
    May 31st, 2017 at 12:07 | #21

    Hc, large amounts of coal are being used in the world today, but the amount is only going to decline. This is because new renewable capacity can supply electricity more cheaply than new coal capacity.

    Just look at what is happening in Australia, a country with low cost to extract coal and a federal government hostile to renewables. Coal generation is in decline and the country will never build a new coal power station because it is not cost effective.

    I’ll repeat a comment I made in a previous thread:

    The cost of solar electricity in India has fallen again with the lowest bids now coming in at 5 cents a kilowatt-hour. That is apparently less than what is paid to 92% of Indian coal power plants:

    https://cleantechnica.com/2017/05/25/new-solar-projects-india-cheaper-92-thermal-power-plants-country/

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