Pollies step in for Adani where free markets fear to tread

Coalminer can threaten to walk if government does not line its pockets, writes

THE proposed Adani Carmichael coal mine in Queensland makes no sense because the best determinant of whether an investment is sustainable, the market, has said so.

Not one cent of taxpayer funds should be pushed the way of the Adani promoters. But unfortunately politicians will do just that.

Last week the Queensland government “approved” the Adani mine and of course, the Coalition has used this project for electoral gain in the recent election when it ran the line that hardworking and jobhungry communities like North Queensland should back it because unlike the ALP it stands shoulder to shoulder with the Adani project.

On ABC Radio on Friday the Coalition MP for Capricornia, an electorate based around Rockhampton, was running this line about Adani being a godsend for her region. Hardworking Queenslanders are sick of being abused by “southerners” was the illogical and intellectually bereft line that Michelle Landry ran.

It’s a time-honoured formula to divide the world between hardworking honest blue-collar workers in regional areas and disreputable intellectuals from the cities who want to deny the former a job.

But despite the Coalition’s love affair with a billion-dollar Indian company it is the fact that the market knows the Adani project is not financially sustainable.

The blue-sky projections of thousands of jobs being created by the project and the wild optimism of the politicians of North Queensland and their friends in the Coalition in Canberra is misplaced if independent analysis is right.

We know the global banking sector will not fund the Adani project. That market spoke some time ago. More on that in a moment.

So Adani announced it will self-fund the $2 billion project. But it will still need outside financing and have to talk to Indian banks. According to Tim Buckley from the Institute for Energy Economics and Financial Analysis, “Adani is not a big mining company like BHP Billiton or Rio Tinto with big cash on their balance sheet.” “Adani will still have to find financing from somewhere and that somewhere is likely to be from Indian banks already struggling with stranded coal plant assets and huge debt,” Mr Buckley told the Australian Financial Review on November 29.

The market’s negative response to the Adani project appears to be because the numbers do not make sense. No doubt some environmental pressure and principles about sustainable lending were also factors.

But markets at the end of the day need to be assured the investment is financially sound.

Bloomberg’s David Fickling presented a detailed and compelling analysis on May 22, so compelling it has been republished across the world.

Here is a summary of Fickling’s analysis. He suggests Adani will make gross revenue of about $66 of revenue per metric ton of coal sold, or about $660 million of

annual revenue. Then you subtract the costs of “blasting, shoveling, washing, blending and loading the coal.” Add in the cost of transporting coal to port and the cost of building the mine and a 2000km railway line. There is the interest to be paid on the project debt.

In summary Fickling argues, “Adani is losing $220 million a year: It would cost about $88 to produce a ton of coal that would sell for $66 on the open market. Those challenging numbers (rather than pressure from environmentalists) look like the best explanation for why banks have refused to lend to Carmichael. Adani has promised to fund the project from its own balance sheet,” he concluded.

Gavin Wendt, a mining analyst of considerable experience, told the ABC last Thursday that the Adani mine faces the risk of falling thermal coal prices. He notes that when the Adani mine was first planned a decade ago this was in the run-up to record prices in 2011-2012 but that there has been a significant drop-off since then.

“You’d have to say that Adani — or any other thermal coal developer — wouldn’t want prices falling much further than around the $80 per tonne mark. They would like prices to stay around that level, to generate a reasonable margin for them,” Wendt said.

So the market is sceptical about the Adani project but unfortunately politicians, particularly in the Coalition have invested heavily in promoting it.

This means one thing. Adani has the Federal Government, and probably an electorally wary Queensland Labor government where it wants them.

Adani is now in a position where it can screw taxpayers, via government, for handouts and subsidies. It can threaten to walk if government does not line its pockets.

This is a disaster for taxpayers in the making.

And why? Because politicians did not heed the rational decision of the market. Instead they have ensured they are captives to a company and a project which has promised a road paved with fool’s gold for North Queensland.

Hobart barrister Greg Barns is a human rights lawyer and a former adviser to state and federal Liberal governments.