Research economist, Professor John Quiggin, hypothesizes on Adani’s “green light” to Carmichael. His likely (scary) scenario sees the Australia public dudded with a half-built rail line to nowhere and a $1 billion black hole.
A COUPLE OF days ago, Gautam Adani made the long awaited announcement that the Adani board had decided to proceed with the Carmichael mine-rail project in the Galilee Basin. As usual there was an asterisk. Construction work won’t start until Adani can get financial backing.
This was previously supposed to be in June 2017 (that is, within weeks) but has now been deferred until 2018. Still, Adani has opened a head office in Townsville, promises to hire up to 250 staff and is also saying it will begin pre-construction works like land clearing in the September quarter.
— Peter Hannam (@p_hannam) June 6, 2017
But on the same day, unnoticed by almost the entire Australian press, with the exception of Peter Hannam at the SMH with his article ‘Adani’s ‘green light’ on Carmichael coal mine more mirage than reality’, the board of Adani Power, the putative buyer of Carmichael Coal, made a much more consequential decision. They are spinning off the 4GW Ultra Mega Power Plant* at Mundra, along with a huge load of debt, into a subsidiary, provisionally called Adani Power (Mundra).
The plan it seems is to sell majority ownership, hopefully to the government of Gujarat, and thereby leave the slimmed down Adani Power with a manageable debt load, while it shifts further away from coal and into renewables.
But without Mundra, Adani Power won’t have nearly enough coal-fired plant to take up the output of even the first stage of Carmichael. And this “mine to plug” model was crucial to the viability of the project. Even if the modest recovery in thermal coal prices over the past year were sustained, Carmichael couldn’t cover its costs by selling on the world market.
So what is Adani up to? I’ve thought about a bunch of hypotheses and now I have one that I think makes sense. Adani doesn’t want to write off the $2 billion or so it’s already put into acquiring the mine site, but it also doesn’t want to throw good money after bad.
Suppose that Adani gets $1 billion in loans from the Turnbull-Canavan Northern Australia slush fund to build the rail line, which is owned by a separate Adani company in the Cayman Islands. They could use that money to get started on the rail line, while discovering yet more reasons not to start spending their own money on the mine.
ABC: Adani family would receive up $3b in royalties via Cayman Islands tax haven
That would buy them perhaps a couple of years during which something might turn up. The price of coal might go up a lot and the Hancock-GVK Alpha project might somehow be revived. If so, the rail line could be viable even without Carmichael.
And, if nothing did turn up, Adani would have bought a couple of years breathing space before writing off the losses that have already been incurred, without spending a significant amount of its own money. Adani (Caymans) would slide gracefully into bankruptcy and the Australian public would be left with a half-built rail line to nowhere and a billion dollar hole in our collective pockets.
‘Adani (Caymans) would slide gracefully into bankruptcy and the Australian public would be left with a half-built rail line to nowhere and a billion dollar hole in our collective pockets’
Of all the explanations I’ve tried out, this is the one that makes most sense to me right now. Comments appreciated.
Author’s Note: *I love this grandiose name, redolent of the great days of Soviet-inspired central planning. The UMPP program was started with great fanfare a decade or so ago, but has now collapsed almost completely.
You can follow (better still, join) the live Twitter stream on #StopAdani below:
Professor John Quiggin is an Australian economist, a Professor and an Australian Research Council Federation Fellow and a Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government.
If you’re Melbourne on Tuesday, 13 June, don’t miss this ACF event: Alan Kohler on The Great Coal Hoax plus film ‘Guarding the Galilee’, 7.30pm at Hawthorn Arts Centre, 360 Burwood Rd, Hawthorn.