My thoughts on why the exposure of Adani’s dubious dealings came as no surprise
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Adani and the grief to income ratio (from my newsletter)
Adani (now ludicrously renamed Bravus) is pushing ahead with the Carmichael mine-rail-port project, but the financial and reputational costs keep mounting. Having been forced to finance the mine and rail project out of its own funds, Adani is now finding that its Adani Ports business (of which the Abbot Point coal terminal is only a small part) is becoming equally toxic. PIMCO, once its biggest bondholder announced that it would no longer invest in new bond issues. At the same time, S&P reversed a decision to include Adani Ports in its sustainability index because of investments in Myanmar – without the continuous focus of critics, this investment might have escaped notice.
The name changes under which Adani Mining became Bravus and Adani Abbot Point became North Queensland Export Terminal is an indication of the toxicity of these projects.
The continuing struggle against Adani may not stop coal being shipped from the mine, but it will sooner or later make the project a stranded asset, ensuring that most of Adani’s investment is lost.
The bigger picture is that Adani has greatly increased the “grief to income ratio” of investments in any part of the coal production chain. Financiers and suppliers who have agreed, under pressure, to withdraw support from Adani, have realised that they are better off getting out of coal altogether, and are starting to draw the same conclusion about gas.
A recent example is the decision of US insurer Liberty to abandon a proposed mine at Baralaba in Queensland. Liberty had already agreed, under intense pressure, not to insure Adani, and this step was a logical consequence
This pattern is not unique to Australia. The struggle to stop the proposed Vung Anh 2 coal-fired power station in North Vietnam hasn’t yet succeeded. But companies like Mitsubishi involved in Vung Anh 2 have dumped projects that haven’t yet started and promised to withdraw from coal altogether. . The Hunutlu coal plant in Turkey, funded by China’s Belt and Road initiative, looks like being the last such venture.
More grief, less income. That’s the future for anyone involved in coal.
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Adani news, June 2020
Amid the coronavirus pandemic, the climate crisis rolls on, slowed a bit by the economic impact of travel restrictions. The campaign to stop carbon dioxide emissions, including those from the Adani Carmichael project, has to continue as well. It’s now almost a year since Adani Mining gained the final environmental approvals for the construction of the Carmichael mine and rail project. At the time, the company promised to ramp up construction in a matter of weeks, with at least 1500 jobs in prospect during the construction phase. What has happened in the subsequent year. Three points stand out First, the project is proceeding, but it can still be stopped. Work on the site continues and contracts said to total $1 billion have been announced. Nevertheless, the progress so far has been much less than might be expected if, as announced, the mine is to be exporting coal by next year. Second, in global terms, the news for thermal coal has been remorselessly bad. Demand for coal-fired power has crashed in many countries, closures and cancellations have been announced regularly and major corporations and financial institutions have divested their assets Finally, there is still no sign of the promised jobs bonanza. What is happening on the site? A number of recent announcements suggest substantial progress. The most notable are * A $350 million contract with BMD for the construction of the rail line, including rail camps and other works, for a total of more than $1 billion in contracts. * The completion of an airstrip permitting Fly In Fly Out (FIFO) operations * Completion of the first of three camps for workers to construct the railway However, throughout the long and troubled history of the project, Adani has made announcements of progress that turn out to be overstated. For example, the claim that more than $1 billion in contracts have been issued repeats an earlier claim. Many previously announced contracts with Downer EDI, Kepco and other large companies have come to nothing. The airstrip (pictured here) was macadamized in March, and is nothing like the $35 million airport Adani initially proposed to build, to be financed by Townsville and Rockhampton city councils. It’s unclear whether it would be suitable for the large planes that would be needed for a FIFO operation with 1500 workers as claimed. The contract for the construction of rail camps was announced in November 2019. The construction of one camp in the subsequent seven months is much less progress than might be expected for a rail line that is supposed to be operational next year. Satellite imagery suggests modest progress at best beyond this development, though even this is sufficient to cause substantial damage to the local environment. Meanwhile the coronavirus is said to have cost Gautam Adani $1.5 billion of his $9.2 billion fortune, which raises the question of whether he can afford to sink $2 billion into a project that seems unlikely to generate any significant cash flow at current coal prices (see below) Much of the loss has come from a decline in the share price of Adani Power, the presumed customer for Carmichael coal. The Adani group has proposed to delist the company, repurchasing all its shares, a transaction that has been highly controversial in India Overall, it is clear that the project is moving forward slowly. But, it still appears possible that Adani can be stopped by a combination of the global decline in thermal coal and continued pressure on every aspect of the production chain, from insurance and finance, through the construction of the mine and rail line, the financing of the Abbot Point coal port and the cronyism surrounding Adani Power’s dealings in India and Bangladesh. An important example emerged recently with the exposure of a number of insurance companies that have outstanding contracts with Adani, negotiated through broker Marsh (a disgusted Marsh employee leaked the info). Most of these contracts are nearly expired, and Adani will need either to renew them (some of the companies have said this won’t happen) or look elsewhere, such as to US company AIG, which still has no serious climate policy. You can take action here https://www.marketforces.org.au/liberty-mutual-hdi-talanx-and-aspen-revealed-as-adanis-insurers/ and here https://www.marketforces.org.au/adani-could-be-doing-an-insurance-deal-with-lloyds-canopius-and-axis-capital/ The global decline of thermal coal In the year since Adani got its approval, the global outlook for thermal coal has worsened, steadily at first, and then rapidly in the wake of the coronavirus pandemic. In most of Europe and the Americas, coal-fired power is disappearing fast. Sweden and Austria closed their last coal-fired power plants earlier this year, and most EU countries have committed to a phase-out by 2030 (in many cases, by 2025). In the US, renewables now generate more electricity than thermal coal, which is likely to account for no more than 10 per cent of generation by 2030, while Canada has promised a complete phase-out. Although China has continued to develop and finance coal projects, other Asian countries, most notably Korea, have gone the other way. In India, it is already clear that solar PV, even with firming is cheaper than new coal. Most Indian electricity generators, including Adani, are moving in this direction, even as Adani pushes ahead with projects that rely on political connections to secure an above-market prices. The rise of renewable energy has been reflected in a sharp decline in the market price of thermal coal, which has fallen 40 per cent since the revised version of the Adani project was announced in November 2018 Jobs The central claim made in support of the Carmichael project is that it will generate large numbers of jobs. All sorts of numbers have been bandied about, but the current claim is that the construction phase of the project will generate 1500 direct jobs and many more indirect jobs. A year after the final approvals, and halfway to the announced date for shipping the first coal, there is no sign of these jobs. Adani’s own jobs portal is currently advertising only a handful of jobs with the company. The “Carmichael jobs” website which includes ads from contractors such as Martinus rail, as well as Adani itself, has advertised less than 30 jobs in the last month. Adani is currently claiming that there are 500 workers on the project, a number that is almost certainly overstated. How to follow what I’m doing (if you want to!) Signup for this list is here. I also have a general mailing list, to which you can sign up here Some readers have had trouble signing up using their phones. If that happens, use a computer or get in touch with me. My johnquiggin.com blog Facebook Public Page: Economics in Two Lessons Facebook Page: Twitter feed @johnquiggin Comments, bouquets and constructive criticism always welcome at johnquiggin1@mac.com Best wishes John |
My latest Adani newsletter
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Read More »Adani beware: coal is on the road to becoming completely uninsurable
That’s the headline for my latest piece in The Conversation. Although I use Adani as a convenient example, it’s about the bigger issue of whether insurers will flee from the potential litigation liability of insuring fossil fuel producers. Of these, thermal coal miners and generators are the most vulnerable because they are already marginal in economic terms.
Adani’s silent partners
A month after Adani got the final approvals for its Carmichael mine, it’s still hard to work out what’s going on with Adani and the Galilee Basin in general. Adani has been making a fair bit of noise, but the project still seems to consist of tree clearing and road building.
To get past this stage, and without significant in-house experience of major projects, Adani needs partners: engineering design firms, construction contractors, and so on. And even if no external funding is needed, the project still needs insurance, which is getting harder to come by.
Adani claims it has insurance lined up, but declines to say which firm is providing it. Assuming the claim is true, the obvious explanation is that the insurer is worried about reputational damage from being associated with such a toxic project. Presumably, that concern will be reflected in higher premiums.
The same is true as regards engineering. It’s widely rumored that global firm Gutteridge, Haskins and Davey will get the job, but so far GHD has refused to comment. As well as reputational damage, GHD needs to consider the fact that Adani has burned a string of previous contractors. They are still fighting their last partner, AECOM over a payment of $12 million. AECOM must surely be regretting ever getting into bed with Adani, ending up losing their money as well as their reputation.
Any firm looking at this history, and tendering to Adani, would want a high price and money up front for its services, as well as trying to keep its involvement as quiet as possible. That in turn raises the question of how a project that was marginal to begin with can manage to pay over the odds for everything it needs. This at a time when a company like Whitehaven is relying for its continued profitability on the assumption that existing producers will leave the market.
On the jobs front, Adani has been advertising positions in its Townsville office (about 60, as of today). But that’s barely enough to replace the cuts made last year. There’s no sign of the promised thousands of jobs so far.
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.
Read More »Explaining Adani: why would a billionaire persist with a mine that will probably lose money?
That’s the title of my latest piece in The Conversation, republished on the ABC website. Possible answers
So what could be going on? Perhaps Gautam Adani is willing to lose a large share of his wealth simply to show he can’t be pushed around. Alternatively, as on numerous previous occasions, his promises of an imminent start to work may prove to be baseless.
The third, and most worrying, possibility is that the political pressure to deliver the promised Adani jobs will lead to a large infusion of public money, all of which will be lost.
The $900 million Adani sought from the Northern Australia Infrastructure Facility in 2017 would be enough to keep the project going for a couple of years, without the need for Mr Adani to risk his own money. It now appears that a similar sum might be sought from the Export Finance and Insurance Corporation.
Adani’s moment of truth
The political campaign against Adani’s Carmichael mine has failed. That’s a big shift from the last Queensland state election, where the state government gained support in the south-east and held on to it in North Queensland. Obviously, Bob Brown’s convoy was counter-productive, perhaps disastrously so, and this failure will undermine any future direct action campaign in the region.
Given the election outcome, the approvals made by the Federal government will stay in place, and the Queensland state government is under immense (I would judge irresistible) pressure to expedite the remaining processes.
But we have been here before. Most of the approvals[1] needed to begin work were completed in 2016, at a time when both the Queensland and Federal governments were highly supportive (Anna Palaszczuk cut the ribbon at the opening of Adani’s Townsville regional HQ in 2017). At the time, I wrote
In summary, we appear likely to find out what happens when a dog catches the car it has been chasing. Adani and its backers have been denouncing green tape and “lawfare” as the only obstacles to the bonanza they have on offer. Now, the legal and administrative obstacles are gone, so they have only to line up the money, rehire the contractors and announce the starting date. My guess is that this will never happen.
That’s still my guess, three years later. The economics of the scaled down project still don’t stack up, and the problems with finance and contractors are even greater now than in 2016. However, there’s nothing more I can do to influence the outcome, so we will just have to wait and see.
Update: I meant to add that, if the project does go ahead, it will almost certainly involve a substantial injection of public money, which will not be recovered. Adani has plenty of form in this respect.
fn1. Obviously, not all of them. But if Adani had wanted to start work in 2016, they could have done so, and, given bipartisan political support, would certainly have found a way to deal with any remaining clearances. In fact, they announced they would be starting work then, and reannounced it in 2017.
Adani’s Carmichael mine is unlikely to go ahead, and most people know it
That’s the headline on my latest piece in the Guardian, and sums up the content pretty accurately. A couple of key paras over the fold
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John Quiggin 