Victory in sight on Adani, but Aurizon still a threat

After years of campaigning, it finally looks as if the Adani mine-rail-port proposal in the Galilee Basin has been defeated. A week after the Palaszczuk government was re-elected on a promise to veto funding from the Northern Australia Infrastructure Facility, the two biggest Chinese banks have announced that they will not be lending to the project either.

The election outcome is particularly striking. Premier Palaszczuk executed a rather inelegant backflip on this question after it became apparent that her weak pro-Adani position was politically untenable (I hope my column on the subject may have had some small influence there). My expectation (widely shared, I think) was that this would cost the government seats in Townsville and Rockhampton, where the local governments had committed millions of dollars to be nominated as FIFO hubs. In fact Labor held all these seats, with the possible exception of Townsville, still in doubt. Meanwhile, the LNP proposal for a coal-fired power station gained them nothing in North Queensland and cost votes in the South-East. With the election over, Adani’s political leverage in Queensland is now non-existent.

The Chinese banking decision also welcome. Although China is rapidly moving away from coal in its domestic economy, the Chinese export finance machine is still pushing coal projects around the world, as long as they use Chinese equipment and expertise. Perhaps this announcement is part of a broader change, or perhaps the Carmichael mine project is too much of a dog even for pro-coal lenders.

There’s still one cloud on the horizon (trying to work out a pun on Aurizon here, but failing). The former QR has a competing proposal before the NAIF, seeking funding for its own rail line connecting Abbot Point and the Galilee Basin. This is a revival of a project put forward in partnership with GVK Hancock, which owns three prospective mine sites: Alpha, Alpha West and Kevin’s Corner. Aurizon abandoned the project in 2016, but revived it to the point of a proposal to the NAIF.

The Aurizon proposal would involve the public lending money to an Australian company with substantial assets. On the other hand, the GVK coal mine project makes Adani’s Carmichael look like a great investment. GVK defaulted on half of the purchase price owed to Gina Rinehart’s Hancock Prospecting and remains massively in debt, with heavy accumulated losses and with the banks declaring the company’s debt as non-performing. The company’s namesake and founder GVK Reddy, has just resigned as Managing Director of the main company in the group, GVK Power and Infrastructure. Even with a bump in the price of coal, it seems impossible that this project can proceed any time soon.

The same is true, for similar reasons, of Clive Palmer’s Waratah Coal.

So, if Aurizon went ahead, it would depend on Adani somehow finding the money to start up the Carmichael mine, and the willingness to pay enough to make the rail line profitable. That seems highly unlikely, but with a project as potentially destructive as this, it’s important not to relax until it has been finally abandoned.

22 thoughts on “Victory in sight on Adani, but Aurizon still a threat

  1. “The election outcome is particularly striking…”

    The Qld ALP brains trust have successfully executed a cunning plan to save their Premier Palaszczuk and her government by having Townsville City Council Labor Mayor, Jenny Hill, just before the brief election campaign commit to spend $18mil plus on Adani’s airport situated well away from Townsville. In a city with such a gross lack of jobs the large out of town spend in aid of a foreign billionaire was always going to raise ratepayers’ ire. To boot, a substantial sum of the funds committed were from City job cuts. With the Palaszczuk backflip voter concerns over what Palaszczuk’s long held soft position on Adani might mean for Townsville business and jobs was switched to evident widespread anger directed toward the Townsville City Council and Mayor Jenny Hill. Palaszczuk’s “rather inelegant backflip” on Adani as contrasted starkly with Tim Nichol’s LNP was also rather likely to be seen by ratepayers/voters to stop their City spend on Adani and so save ratepayer funds and probably add to any City jobs spend in Townsville itself. Helping save the funds helped save Palaszczuk. Next: the Qld ALP brains trust caped crusaders save their Townsville Mayor.

  2. Adani has been the focus of attention for some time. However, the loss to Adani won’t necessarily see a reduction in coal production overall.

    China owns coal mines in the Hunter Valley, they own a portion of the coal loader plus they hold the lease on the Port of Newcastle and they continue to mine, load and ship the stuff out in record quantity.

  3. We seem to miss the point that coal is now driven by demand and that is falling, so every new efficient mine just displaces older less efficient ones or extracts different subsidies, but there is a more sinister risk of being burdened with expensive stranded assets that have never turned a profit.

  4. “trying to work out a pun on Aurizon here, but failing”

    …, but threat looms on the Aurizon

  5. I think it is long past the time when we should not be working so hard to buy stuff, both intangible financial ‘products’ and real products for which coal from mines like Adani mine are often required to make . Much of the real stuff – cars, car accessories, furniture, kitchen gadgets, computers, multimedia devices, etc. – only ends up a few years later in landfill or on the footpath during the local government clean-up weeks.

    We should spend more of our lives doing what we enjoy – reading, making or listening to music, painting, drawing, bushwalking, playing sport, watching movies, etc.
    If we all worked less to earn what less money was required, unemployment could be quickly eliminated.

  6. News link for the two Chinese banks: *****

    It’s striking that these announcements were both categorical and pre-emptive. Neither bank claimed to have been approached by Adani, so they were basing their flat rejections on publicly available information, possibly supplemented by their own limited investigations and trade gossip. They read like “we don’t want to have anything to do with this company”.

    Are the Comanche circling the Adani wagons?

  7. James W firstly the mine is not commercially viable. Careful analysis has made that clear. Would you lend them money? You would not because you would not be repaid. I think the Chinese banks (and all the other (29?) see insufficient security.
    Secondly, ownership of the mine, rail project and Abbot Point is found in various trusts and companies resident in the Cayman Islands – a tax haven as you must know.
    Third, the Adani Carmichael coal is of poor quality. Compared to Newcastle coal, it has a higher ash content and less thermal energy. The coal is sold at a discount against high quality coal of around 30%.

    The reports about Chinese involvement have been around for at least a month and in some detail. I don’t believe that “Neither bank claimed to have been approached by Adani,…”, particularly given the importance of the project to the survival of Adani Corp.

  8. It was an Adani director that “let slip” that they had obtained finance from a Chinese bank. Geoff Cousins and Mark Burrows approached the Chinese embassy asking them to confirm this, something which the Chinese flatly denied.

  9. @gmhendo
    The statements in question:
    ICBC: “ICBC has not been, and does not intend to be, engaged in arranging financing for this project…”
    CCB: “is not involved with, nor considering involvement with, the Adani Carmichael Mine project”.

    It is true that they do not claim to have been approached by Adani. Nor do they explicitly deny it. It is possible there have been feelers that were rebuffed. These statements are, as I said, categorical denials of involvement. They are unusually brusque in tone. My point stands.

  10. @rog
    But much of this coal is coking coal – a very different beast than thermal coal. The confusion over coking coal exports and thermal coal exports and new mines continues. However the proposed Galilee Basin coal mines are all for thermal coal.

  11. It is very unusual for banks to announce that they won’t fund a project, whether or not they have been approached. It’s a pretty clear indication that the Adani project is both politically toxic and so obviously unfinancial that no one is prepared to pay the political price for keeping the option open.

  12. Well JW you seem to have great confidence in what a politically linked Chinese bank has to say or not say. Do you have similar confidence in what Australian banks have to say? Respectfully JW the conclusion(s) that you draw are speculative – unless you can cite some credible authority.

  13. @John Quiggin
    It’s also clear that, when the project evaporates, Messrs Joyce and Canavan are will run hard with the line that Palaszczuk’s volte face on NAIF funding is wot cost our jerbs. She needs to start by correcting the record on employment prospects of the proposal, which has already cost real jobs on the Townsville public payroll. Announcing some renewable energy projects to complement the excellent Kidston one would also be wise from many points of view.

  14. @gmhendo
    How does it help Adani if the public smackdown from the banks is politically influenced? That would be much worse than a straight business decision, as it raises the spectre of being cut out of the Chinese import market. Xi Jinping is currently making the inhabitants of satellite towns near Beijing sleep without heating in 6 degrees below zero exterior temperatures, to cut air pollution from coal in the capital. You think he would hesitate to hang Gautam Adani out to dry to make a point about tax havens?

  15. Very good to hear that the Chinese will not fund the project I wrote to the CMEC some weeks ago about the foolishness of this project, copying their Canberra embassy, as well as to China’s National Development and Reform Commission, and I’m sure many others also responded to Adani’s announcement that they were pursuing Chinese funds.

    But back to JQ’s observations about Aurizon. It strikes me they are taking some large gambles. From their Annual Report: “Whilst long-term (coal) demand is predicted to increase, in the short-term there may by variances in volumes, contract profitability and growth that impact on Aurizon’s financial results.” Long-term increase?? They state further: “Aurizon references credible sources such as the International Energy Agency (IEA) in evaluating long-term demand for the key commodities of coal and iron ore”. The IEA are very conservative but nevertheless show two years’ of decline in global coal demand and make it very clear their “scenarios” are not forecasts, merely projections of what may happen absent changes in policy. Aurizon are also lining up to take on the Wiggins Island Coal Export Terminal (WICET) and its $3.5 billion debt. Nothing could go wrong here, surely?

  16. @Hal9000

    If you care to look at various websites including those for the Qld govt, Renew Economy and Solar Energy Council, you’ll see listed numerous projects that are already underway or awaiting the election result which will bring some thousands of jobs over the next few years to parts of regional Queensland. The trick will be to turn the short-term construction jobs into something more long-term, hopefully based on the increased supply of clean energy.

  17. Setting aside whether you hold the view about whether demand for coal will be there or not, I’m somewhat astonished that the frequently stated political view by Canavan that ‘its lifting poor people out of poverty and if they don’t burn ours then they’ll simply burning dirtier coal’ is not challenged. However, Galilee coal is not high quality and certainly not higher than Bowen or Hunter coal with both more than enough reserves and infrastructure to meet that demand. While ABC fact checker confirmed Galilee is cleaner than Indo and other coal it didn’t look at whether that demand could be met by higher quality coal elsewhere in Australia with existing assets.

  18. Aurizon are also lining up to take on the Wiggins Island Coal Export Terminal (WICET) and its $3.5 billion debt. Nothing could go wrong here, surely?

    Moral hazard: aurizon looks pretty much rooted if coal volumes collapse.

  19. A fourth Chinese bank has now issued a categorical denial of any current or future involvement with the Carmichael mine: ****

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s