Only two weeks ago, the new Resources and Energy Minister, Josh Frydenberg, was enthusing about Galilee coal and contending the government could tip in taxpayer funds to kick-start the project, even though its bankers have fled the scene.
Adani’s Carmichael mine, he said, was “a very important project, which will see significant investment in Australia and provide electricity to millions of people in the developing world”.
Adani’s thermal coal project is a white elephant of Brobdingnagian magnitude.
On Friday morning however, he told ABC radio Adani was “a commercial operation. It needs to stand on its own two feet. It (funding) won’t be a priority for the Commonwealth”.
Environmentalists will rejoice, as will taxpayers – anybody with common sense for that matter – as Adani’s thermal coal project is a white elephant of Brobdingnagian magnitude.
Not only would the price of thermal coal need to double before the Indian conglomerate could make a profit and whisk that profit out to Mauritius via Singapore, as is its corporate structure, but Adani’s own modelling assumes it to be more efficient a coal miner than the likes of Glencore, BHP and Rio.
Gouging a giant pit in the Galilee Basin, slapping down a $3 billion rail line to the Queensland coast and dredging the Great Barrier Reef at Abbott Point can hardly be justified for a caper of such flimsy economic prospects.
But what was behind Frydenberg’s volte-face? Was it a tap on the shoulder from Malcolm Turnbull, who would surely be loath to embrace a legacy as Australia’s Lord Cardigan; the man who led the Charge of the Lignite Brigade, hurling the nation into the world’s largest thermal coal project in the twilight of the brown coal cycle.
Or did Frydenberg get a tap on the shoulder from Peter Freyberg, the boss of Australia’s biggest coalminer Glencore? Already, Glencore has slashed its coal production by 15 million tonnes as prices have sunk. Adani’s Carmichael Project would flood a weak market with another 60 million tonnes.
“Bringing on additional tonnes with the aid of taxpayer money would materially increase the risk to existing coal operations,” Freyberg told a business lunch in Newcastle on Wednesday.
Freyberg may be an ironic champion of the taxpayer, given Glencore’s own record on the income tax front. He is speaking sense though, and Frydenberg’s department would be listening. Energy and Resources is captive, sorry, lends a sympathetic ear, to industry concerns.
One can only hope that this sane thinking is a sign of things to come, that our elected representatives are morphing from ideologues – chanting the “coal is good for humanity” mantra – into economic rationalists.
Labor out on a limb
It is a paradox that this sudden, modern policy approach in Canberra puts the Coalition at odds with the Labor government of Annastacia Palaszczuk in Queensland, which is still pining for federal assistance to build Adani’s rail line.
Fairfax Media obtained a trove of documents under Right to Information requests submitted to Queensland Treasury. These show a retinue of meetings between Adani and bureaucrats and politicians in Brisbane, almost from the moment the Labor government came to power.
The correspondence is heavily redacted but it includes evidence of a legal advice memo about Galilee rail project financing, risk reports and a memo entitled “Memo re: Galilee Rail Line Infrastructure Draft Term Sheet Principles”.
There is no disclosure of any detail as the request relates to “QTC (Queensland Treasury Corp) in its borrowing, liability or asset management function”.
The question might well be asked though, if one of Labor’s election promises was not to fund Galilee rail, why did QTC send an email with a “credit structure diagram” attached on June 17 this year, two days after a well-attended meeting between the Queensland government and Adani?
Questions to Treasury were met with this response: “The Palaszczuk government will not use taxpayer money to invest in the Adani rail line” and the government “has suggested the Australian government consider supporting rail access to the Galilee Basin under its proposed Northern Australia Infrastructure Facility”.
Further: “The government remains committed to supporting the private sector to develop the Galilee Basin on an environmentally and commercially sustainable basis in order to contribute to economic development in Queensland. In regard to Adani, this includes assistance in securing the necessary rail corridor, development of a new EIS for dredge spoil disposal at Abbot Point and facilitation of the approval processes to allow the project to continue moving forward towards completion.”
This fits quite nicely with Frydenberg’s original position: “If there is a good case and state governments are willing to step up, then you would think that rail is one of the areas where it will go.”
Now that Canberra is no longer “stepping up” with a taxpayer solution to the rail line, the federal and state governments seem at odds. Stage one of the $16 billion Galilee project, in rough numbers, will cost $10 billion of which one third goes to the mine, one third to the port and one third to the rail line.
Without government hand-outs it would seem the project will be put on ice. Although straight subsidies may be out, don’t count out some deployment of the taxpayer balance sheet to de-risk the project, possibly in the guise of road upgrades, electricity transmission, water license provision or water infrastructure.
Coal market blackening
Meanwhile, the outlook for the seaborne thermal coal market is not getting any rosier.
A Chinese coal company has just sacked 100,000 of its 240,000 workers it is bleeding so badly, while in India the ambitions of Energy Minister Piyush Goyal are rapidly becoming a reality.
Coal India Ltd reported last Saturday its September half year production was up 9 per cent year on year and coal dispatches were rising even faster, up 9.3 per cent, a record for domestic coal shipments. Why dig the Galilee Basin if Indian coal is increasingly available in spades at US$24 a tonne?
Adani itself is set to open the world’s largest solar project, a 648MW plant at Tamil Nadu in March 2016. The latest solar auctions are coming in more cheaply than any new import-coal fired power plant.
It can only be hoped that the new regime in Canberra has forsaken its flat-earth energy policy in favour of good old-fashioned common sense, and the realisation that Australia should quickly embrace renewables to bring sustainable and increasingly cheap energy for both business and consumers.