The very day after the G20 concluded, with its recommendations about ending government subsidies to fossil fuels, it appears the Queensland government is poised to ramp up its subsidies for the humungous Galilee Basin coal project.
The final communique of the G20 says:
“We reaffirm our commitment to rationalise and phase out inefficient fossil fuel subsidies that encourage wasteful consumption, recognising the need to support the poor.”
Today however we have Queensland Premier Campbell Newman saying:
“We’ll be saying, if necessary, we’ll be prepared to invest in infrastructure, core infrastructure, common-use infrastructure. We’ll be making the case that we are prepared to do that to get this going… we just want a new coal resource basin to be opened up.”
Meanwhile Adani Mining, the Australian subsidiary of Indian power company Adani Enterprises, which is the prime player in the biggest thermal coal development in Australian history, has issued a media release welcoming the Newman announcement, that “the state government proposes to invest in infrastructure-enabling investments, underpinning jobs, economic growth, and vital export opportunities”.
So something is brewing. And if you were to join the dots you would conclude that taxpayers are about to be put forward to subsidise the Galilee project despite the G20 calls to end subsidies, low coal prices and the dubious economics of the project.
Taxpayers could certainly be forgiven for reminding Queensland Treasurer Tim Nichols of the promise he made to “subject major projects to cost benefit analysis” in the budget speech.
This recent turn of events is hardly surprising in view of the fact that the state is heading for elections early next year and Premier Newman’s enthusiasm to show progress on big projects and jobs.
Others, however, will not be pleased. According to analysis by The Australia Institute released earlier this year, Queensland has spent over $8 billion subsidising its coal industry over the past six years.
This comes directly at the expense of spending on schools, hospitals and social wellbeing, as described by Queensland’s own treasury:
“Governments face budget constraints and spending on mining related infrastructure means less infrastructure spending in other areas, including social infrastructure such as hospitals and schools,” Treasury says.
Meanwhile, it is doubtful whether, even with the support of taxpayers, the Galilee project stands up on economic grounds.
Notwithstanding low coal prices, the capacity of the major player Adani Mining to fund its share of the project is stretched – as revealed in these pages earlier this year.
Should the Queensland government proceed with its mooted subsidies it is likely to find that Indian arms will be outstretched for further taxpayer assistance as the project proceeds.
More recently however there is further evidence of the prospective inability of another key joint venture player to fund Galilee.
The market value of the other Indian group involved in the proposed Galilee joint venture, GVK Power & Infrastructure, has continued to slide. GVK has already spent $800 million on its leg of the $10.4 billion project and earlier put off its commitment to pay Gina Rinehart $US560 million for rights and leases.
GVK’s market capitalisation sank to $US313 million last week. It is no longer an “Indian giant” – as it was labelled by project partner Aurizon – but now more of a minnow.
Its net debts are ten times its market cap, at $US3.4 billion as at September 2014.
Last week GVK reported a trebling of its net loss for the September 2014 quarter to $US38 million on a 70 per cent increase in net interest expense for the quarter of $US59 million. Net interest expense is nearly double the group’s cash earnings (EBITDA) for the quarter.
Having built three gas-fired power plants over the last decade with a combined 1 GW of capacity, GVK reported power revenue down 67 per cent year-on-year to a combined $US5 million for the quarter, with the gross cash-flow loss from this division rising 30 per cent year-on-year.
It is little wonder that the Indian politicians at the G20 were keen for Australian taxpayers to chip in.
GVK is unable to operate the three plants most of the time due to unavailability of gas fuel. It has also had its Indian coal deposit cancelled by the Indian Supreme court during the quarter as part of the $US33 billion Coalgate scandal.
Moreover, GVK has surrendered back to the government offshore oil exploration permits it held in partnership with BHP as the development over the last five years has been problematic.
Earlier this month the Indian police charged the founder of GVK with forgery and cheating, along with his son, plus the former chairman of Airports Authority of India and four police officers, with seven accused in total.
While Aurizon’s chairman this week professed to know nothing about these criminal charges, it has been suggested in some quarters that Aurizon might be more judicious in its selection of equity partners for $10 billion investment programs.
It was also reported last week that Gina Rinehart’s private company booked a $641 million write-down on its Alpha coal project in Queensland after GVK failed to make payments.