Adani again

In pointing out that Adani’s Carmichael mine wasn’t viable without government help, I focused on the possibility of a concessional loan from Australia’s Export Finance Insurance Corporation. As commenters have pointed out, Adani (a prominent crony of Indian PM Modi) looks like being able to charge above-market prices for electricity in India. I’m not clear whether this helps much to make the Carmichael project viable. Over the fold, an exchange I had with Charles Worringham.

In other news, it seems likely that Adani will move fairly slowly even after the environmental clearances come through. They’ve announced on their Facebook page that they are filling “more than 50” positions for pre-project work, and there are a dozen or so HQ jobs listed on their jobs portal. That’s a long way short of their announcements in January that they were ready to start digging the moment they got the go-ahead.

From Charles

Hi John

Just wanted to get your view (following your calculations about Carmichael mine viability), whether he could make the mine break even if

a) he ships half the coal to the proposed Godda plant in Jharkand, which now has a Special Economic Zone eliminating or reducing a slew of taxes and duties, and a tariff for 35 yrs of 8.6 US cents per KWh (close to Tim Buckley’s estimate of 10.0 US cents per KWh – 8.71 Tk/KWh) which, at a proposed 1496 MW supply from his 1600 MW plant, should bring in about 1.1 bn USD annually (once it’s been built, obviously).

b) the other half goes to his west coast plants including Mundra, now he seems to have secured fom India’s CERC a pass-through of coal costs below USD 110 per ton

Interested in how you see this… if it could work, we could see Indian and Bangladeshi consumers paying over the odds for electricity, subsidised by the Indian and (assuming a royalty deal) Quensland tax-payers – forgetting for the present any environmental issues, greenhouse emissions, displacement of tribal peoples etc.

My reply

Hi Charles,

This seems like the most plausible account of why the mine might be made profitable. However, there are a bunch of technical and political problems.

As regards Jharkand, the deal is hugely favorable to Adani, but there’s no obvious benefit in using Carmichael coal at an internal high price, as opposed to buying it cheaper on the open market.

On Mundra, the same kind of question arises. Adani can pass through increases in the market price of Indonesian coal, but that doesn’t obviously mean that he can set a high price for his own coal and pass that through.

The political problem is that  it’s hard to see these sweetheart deals being sustained for 35 years, regardless of contracts. Modi won’t last forever, and once he goes the position of his cronies will be problematic.

23 thoughts on “Adani again

  1. “there’s no obvious benefit in using Carmichael coal at an internal high price, as opposed to buying it cheaper on the open market.”

    There’s the benefit of controlling its supply of the key input, coal. On the open market, anything could happen. Carmichael might be higher cost, but it is lower risk. Businesses integrate up and down the supply chain all the time for exactly this reason.

  2. “it’s hard to see these sweetheart deals being sustained for 35 years, regardless of contracts.”
    But they don’t need to – they only need to last long enough fo get the projects running. He will have more notice than outsiders of when his cronies are likely to cease to be willing or able to keep the deals going, so will be in a good position to sell all or part of the whole shebang at a profit to somebody else.

    This was always the flaw in the claims that Adani was financially unviable. Of course that’s so in open markets, regardless of AGW, but it won’t be on the open market but in a captive market Gautani controls, through his wholly owned Gujarat government. And one beauty of it is that, because he’s selling the coal to himself, transfer pricing is built in so he pays no Australian tax. His Gujarati friends will, of course, ensure he pays no Indian tax either.

  3. @derridaderider

    Billionaires, especially (but not only) in developing countries, don’t get to where they are by meekly accepting whatever it is they can get from open markets.

    Anybody who doubts this should ask the Russian oligarchs. Come to think of it, they should ask the President of the United States.

  4. How do they get funding though? Sounds like quite a dubious business case to finance for the amount of capital they need to raise.

  5. It’s all academic now as the Adani groundwater management plan has just been given approval by the QLD govt

  6. “the QLD govt”

    Palaszczuk will dig the stuff up with her bare hands if it means saving a few seats.

  7. Palaszczuk’s complete opportunism has certainly been on display since the result of the Federal Election. As with all politicians, maintaining power is largely a goal in itself.
    “Politics is the art of the possible, the attainable, the art of the next best,” said Otto von Bismarck. But when the next best is wrecking the reef and wrecking the climate, is that good enough? The game ends when the “next best” move leads to checkmate.

    Today we can say: “Politics is the art of the possible and only elite/populist market fundamentalism is now possible.” I certainly hold these days that only populist market fundamentalism is possible. It is the only outcome structurally and systemically possible. The structures and system of political economy will need to change markedly before other outcomes become possible. In turn, these changes won’t occur until a serious crisis, even a global catastrophe, drives the change and drives people to change. It’s empirically clear, from all lack of progress to date, that nothing else will work. A serious crisis is now, paradoxically, the necessary condition for progress. This crisis will occur. It’s the fully calculable outcome of the current inflexible algorithms of market fundamentalism.

    Smith9, do you prefer “market fundamentalism” as a term for the system? 😉

  8. Iko, no, because market fundamentalism doesn’t mean the same thing as neoliberalism. The first is a quasi-religious faith in markets as the deliverers of all things good and righteous. The second is a political program to deliver money and power to the already rich and powerful, using the doctrines of small government and (sometimes) free markets as the instruments to that end.

  9. I don’t think you can ‘blame’ Palaszczuk, ostensibly Adani has met and complied with every existing condition and regulation regarding their application, as do all the others.

    In that regard they are lawful and I don’t think there has or will ever be a govt that will outlaw mining.

    Next cab off the rank will be Palmer.

  10. To concentrate only on what is legal and not on what is right empirically and ethically is mere legalism. I don’t care if what Adani is doing is currently legal, it is still wrong and it should be made illegal.

    There is no need to outlaw all mining or all gathering of all natural resources. There is a clear and present need (imminent dangerous climate change and Barrier Reef destruction) to outlaw the opening of all new thermal coal mines in Queensland and indeed in the world.

  11. rog, that may well be so, but if the election had gone the other way the bureaucratic judgement calls about compliance with conditions – not to mention the pronouncements from on high from Palaszczuk – would probably have gone the other way too.

    Of course, she is a politician, and you can’t blame politicians for acting on that most basic, innate and fundamental of instincts, survival.

  12. A couple of polls.
    I heard John on the radio last night on the economics of Adani and basically agreed with everything he said. I also had the unfortunate experience of hearing Michelle Laundry on Adani who did not have a good grasp of the subject and had extraordinary figures for indirect employment.
    An election will occur in three years time.
    I am pretty confident many of Adani’s statements will be proved incorrect. That and the market for steaming coal not being flash could wel lead many votes in considering they were wood-ducked on this issue.

  13. “hearing Michelle Laundry”

    Did she rinse and repeat the same talking points? Did she try to whitewash to environmental approvals? Did she tell the mine’s opponents to throw in the towel? Did she extol the virtues of coal as a means of generating (cold) power?

  14. Michelle Laundry? Apt though, as she consistently recycles to the wonky Adani spin cycle. Further, I heard along with Landry there this morning several others reliably greenwashing the ‘benefits’ to the world of cleaner Adani coal.
    https ://www.abc.net.au/radionational/programs/breakfast/adanis-carmichael-coal-mine-passes-final-environmental-approval/11208616

    On Adani job numbers. I’ve lately been checking Tim Buckley (IEEFA) twitter updates for news headers, and…

    Retweeted byTim Buckley this morning: Tom Swann,

    “Adani says different things to different people at different times.

    In court 2015:
    40Mt per year mine = 1464 jobs, direct & indirect

    Now:
    10Mt per year mine = 8250 jobs, direct & indirect

    A mine is four times smaller = five times more jobs. Magic!”

    https ://medium.com/@TheAustraliaInstitute/explained-adanis-continuously-changing-jobs-figures-e2a67baac540
    “We are supposed to believe this magic pudding of a coal mine will somehow create more direct jobs than what Adani said would be created — direct and indirect — across the life of a mine that was originally slated to be four times the size.”

  15. nottrampis, “An election will occur in three years time.
    I am pretty confident many of Adani’s statements will be proved incorrect.”

    Many, if not most, of Adani’s statements have been found incorrect.

    Federal election? Yeah, but there’s a QLD election due for a fixed four year term before Adani says they’ll commence serious construction work on the Carmichael mine. The ALP will see some seats fall to Greens, and some others fall to the real deal parties not the Adani ALP monkey. Palaszczuk may try on a law ‘n order election over expected civil protest actions against Adani and reactionary strife, but there again the real deal parties win. Palaszczuk more than ever in the time left will be looking toward delivering herself cushy post politics career options in return for services rendered. It bodes well for a federal COALition parties’ reelection.

  16. The focus will be on protesters – and reinforcing the (false) idea that this is all and exclusively about what ‘extremists’ want and that what they want is unreasonable and even objectionable will continue. The depth of antagonism Adani protesters get in rural Qld is not because that is true but because it is not; taking the protesters out of this won’t result in the issue being treated more seriously by ‘adults’ in charge – quite the opposite; it would be taken as a weakening of community concern about it. And a victory of comforting falsehoods over facing difficult truths head on; in the face of modern civilisation’s greatest test – of observation, of intelligence, understanding, foresight, organisation and inter-generational institutional ethics – our Australian government(s) chooses to lie and cheat on this Big Exam.

  17. Stuck in Ad’ni Again.

    If I had a dollar, for ev’ry blog I’ve read,
    And ev’ry time th’ few had their say
    While people stayed mind-dead.
    You know, I’d build a solar land, where we all could live.
    But Oh! Lord, I’m stuck with Ad’ni again.
    Oh! Lord, I’m stuck with Ad’ni again.

    – Apologies to Credence Clearwater Revival

  18. Are both of the Galilee basin mines (Adani and Macmines) not viable? If so, what would be China/Macmines motivation for pushing ahead?

  19. As I understand it, the China mine project is not pushing ahead, currently. This is not to say it won’t be pushed later. My understanding of motivations is this;

    (1) The owners of Adani and their cronies in the Indian Government (cronyism works both ways) obviously think, with some considerable validity, that they can make money on marginal ventures by getting themselves big subsidies from the people. Subsidies from the government(s) ARE subsidies from the people. Summary: Crony capitalism drives this aspect.

    (2) From a strategic point of view, Chinese strategists would be thinking “import as many resources as possible from the rest of the world, before using all of our own”. At the same time, some Chinese state corporations or subsidiaries are working in a quasi-capitalist fashion. So, they won’t always follow pure PRC strategic logic. They will follow more standard corporate and financial logic at most times, unless instructed otherwise by the Central Committee. Summary: Offensive realism as a realpolitik force of nationalist and bloc competition drives this aspect.

    I suspect at some level, the strategic realists in the USA, China, Russia and E.U. know that major climate change and sea level rise are coming inevitably, along with major food, water and energy shortages. They would now be running many scenarios and crunching numbers to work out who suffers the most and who suffers the least from the changes. The least worst affected will be the relative winner in their twisted but also (sadly) realistic logic.

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