Back in December, Gautam Adani came to Queensland and gave a very positive view of the proposed Carmichael coal mine in the Galilee Basin. Things went pretty quiet for a while after that, but it appeared that a final announcement on the project would be made in April. Now, Anna Palaszczuk and a number of lesser dignitaries have been to India and brought back the news that the project will shortly be approved by the Adani board, at least if Mr Adani has his way, which seems guaranteed.
That came as a surprise to those of us who have long argued that the project is hopelessly uneconomic, even on the optimistic view that the current uptick in the coal price will be sustained.
But it turns out that there’s an asterisk. The approval will be subject to finance. Anyone who’s ever sold a house knows that means nothing is guaranteed. In Adani’s case, the initial stages of the project will need $2.5 billion in bank finance, as well as a concessional loan of up to $1 billion from the Commonwealth’s Northern Australia slush fund.
You might think that at least the second of these is a safe bet. But Aurizon (the former Queensland Rail) has come up with a competing proposal, which doesn’t have the problems associated with Adani’s opaque (to put it mildly) financial structure.
The real problem though is with the banks. Of the big Australian banks, Westpac is the only one that hasn’t ruled itself out. But they will presumably want only a small share of the risk, as part of an international consortium and there are no obvious candidates. Moreover, given the combination of reputational and project risk associated with a massive coal mine at a time when coal is clearly on the way out, any sane lender would demand a hefty rate of interest and lots of security. It’s hard to see Adani coming up with either.
So, I’m guessing Adani is still playing for time. We’ll probably see a very big announcement with a very small asterisk. Crunch time won’t come until June, when they need to come up with some real money.