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China contractors and finance may help Adani’s mega coal mine

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Senator Matt Canavan has returned to the Resources and Northern Australia Ministries just in time to see the Carmichael coal and rail projects enter a new phase. IEEFA has today published a Carmichael Briefing Note highlighting new information that is material to the project.

Having reportedly been struggling to secure finance for the project, the possibility of Chinese state-owned enterprises (SOE) becoming involved changes the picture.

According to various sources, the Chinese SOE China Machinery Engineering Corporation (CMEC) appears to be the leading contender for the engineering, procurement and construction (EPC) contracts for key parts of the Carmichael mine and/or rail projects.

Quite where this would leave Australian engineering firm Downer EDI, which has previously been linked to the project, is unclear.

CMEC sometimes takes minority equity stakes in the projects it is contracted to engineer. This could be a desperately needed boost for Adani which has recently stated it is seeking to sell a minority stake in the project.

Importantly, CMEC can bring with them access to the Export Import Bank of China and the China Construction Bank, amongst others, both also state-owned enterprises.

News broke last week that the former Australian Deputy Prime Minister, and the Trade Minister, wrote a letter to the Chinese government informing them that the projects have received all the necessary environmental approvals. This appears to fall squarely into the context of CMEC involvement.

Chinese SOEs won’t become involved if there is no benefit for them. As a result, this raises the question of where Carmichael coal will actually be exported to.

Adani has always stated that Carmichael is part of a vertically integrated “Pit to Plug” strategy with Adani Power the intended coal off-taker in India.

However, the chances of the majority of Carmichael coal going to India appear to be decreasing; Adani Power Ltd has stated that its import coal-fired power station at Mundra is no long viable. Tata Power’s Mundra power plant is in the same situation.

Furthermore, Adani has stated an interest in selling a majority stake in the plant to the state government of Gujarat for a single rupee. If this occurs the Gujarat government is likely to attempt to source alternative coal sources that are cheaper than Carmichael.

It also seems unlikely that Carmichael coal would go to China. Although thermal coal imports into China have risen recently (after a 40% fall in the preceding two years), this seems likely to be short term as the nation reorganizes its electricity system to be less reliant on coal in the face of its battles with air pollution issues and continued commitment to the Paris agreement.

A possible answer to the destination for Carmichael coal lies in China’s Belt and Road Initiative. The initiative is a US$1 trillion build-out of infrastructure projects, including coal-fired power plants, across ancient land and sea trade routes. At the recent Chinese Party Conference, the Belt and Road Initiative was enshrined in the Party constitution, increasing the focus and pressure to succeed.

CMEC itself has interests in coal-fired power projects within the Belt and Road Initiative with Pakistan as a key priority.

If this potential involvement of Chinese SOEs plays out, the project starts to look very different from the one that was stated for so long by Adani, including a promise to ‘light up 100 million Indian homes’. With landed cost of US$129/t in the case of Pakistan, imported coal is not in a position to solve energy poverty. As well as a potential reputational risk for Adani, there is also risk for the Chinese government.

The Chinese government is increasingly playing a prominent global leadership role in driving the Paris Climate Agreement going into the Bonn conference in November.

China is also investing in the global energy market transformation, as illustrated by the phenomenal outcome of installing up to 50GW of solar in 2017 alone. As such, any contradictory move by a leading Chinese EPC firm to develop the largest new coal basin globally brings significant reputational risks for China.

The Northern Australia Infrastructure Facility (NAIF) will soon a make a decision on the provision of a A$1 billion subsidy to a billionaire on the taxpayers’ behalf. The level of government support from the government has been questioned by many.

The NAIF loan would be in addition to a A$600m royalty holiday courtesy of the state government and now A$31m of funding from local governments for an airstrip.

If it turns out that Australian taxpayers and ratepayers are also effectively subsidizing Chinese state-owned enterprises with low-cost, high-risk loans, there are likely to be further eyebrows raised.

Simon Nicholas is an Energy Finance Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).   

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  • George Darroch

    This project is sitting above a drainpipe, but nobody has the courage to publicly pull the plug.

    It’s farcical, and reflects badly on everyone involved.

    • Joe

      ..smoke, mirrors, Ponzi…STENCH.

  • Michel Syna Rahme

    Today’s announcement is different and a big risk on China’s part for limited return, because as Antipodeans we have our own ways, and when push comes to shove we are not pushovers. China has been consciously improving it’s ‘Brand’ with us over the last 10 years – this completely Shatters that!!! I’m all for a more integrated and responsibly globalized world – but a billionaire with his wealth stashed in tax havens teaming up with the Chinese Government to come down here and take over isn’t going to be easy, at all! This ain’t a good look China – have you really thought this through??? If there is one potential issue capable of fracturing the Australian fabric, it’s that mega-Thermal Coal mine and our taxes being handed out to fund a nonviable project that will clearly and quickly become a liability. Because, as Peter Garrett and many others have recently highlighted, if that mine breaks ground – China, Adani and Malcolm Turnbull (the guy who has so many faces he doesn’t’ know who he really is anymore) better prepare for peaceful resistance and non violent civil disobedience and obstruction in all it’s forms!!!

    • Rebecca

      We need to keep fighting, Good Luck Peter Garrett & many others who fight. So many fights in Australia, Farmers & Coal Seam Gas. This Adani Mine, the fight for the Great Barrier Reef if these things progress Australia will be one huge dump & we will be in the same situation as India.

  • Michel Syna Rahme

    There are some email addresses if you feel like emailing to tell them what you think about that announcement:
    [email protected]
    [email protected]
    [email protected]
    [email protected]
    [email protected]
    [email protected]

    • Rebecca

      Thank you for the information.

  • bedlambay

    The Qld ALP government would not be happy with Adani’s Chinese contractor importing workers on dodgy 457 visas. Dutton is very happy to facilitate this sort of deal in total contrast to maintaining gulags in Nauru and Manus.

  • Michael Porter

    The major weakness with the whole project seems to be the ‘unlimited’ water extraction which Qld govt has granted to Adani. Nobody seems to be hammering this point.

    • RobertO

      Hi Micheal Porter pease see PacoBella comments towards the end. Only free water is seapage inside the mine and there is a $20 million deposit required for more water, some 10800 ML.
      See http://reneweconomy.com.au/time-for-australia-to-wake-up-to-scale-and-pace-of-clean-energy-transition-49862/#disqus_thread

      • Michael Porter

        Thanks for that little bit of good news.

      • Rebecca

        And if you dig such a huge hole we have no idea of the total depth, all water be it surface, or from our artesian water basin, will flow into this lake, forgive me pitt. This has been an ongoing problem for mines. Who misses out on the natural flow of water, the farmers & the land.

  • Radbug

    The revelation that, in the PRC, as 150 coal-fired plants were closed, 12 were opened, caught my eye. I get the feeling that one hand in China still doesn’t know what the other hand is doing. So it could be with CMEC & Adani.

  • Roger Franklin

    Seems about time to ask Mat and others who are pushing the project to confirm exactly how many jobs are going to be created, and who is likely to do those jobs!

    With the level of automation including automated trains, trucks and drilling machines plus much more to come – combined with O’Seas companies looking like getting a look in for the Engineering and Construction activities – some of the initial job numbers may be laughable at best.

    Seems to be a lot of people involved in installing solar panels and related technologies – including a number of local companies who are making and selling world class Inverters EV chargers and other equipment. Two of these are in Brisbane and both could scale very quickly if the Canberra FIFO works would start listening to the people for a change.

    Oh and the former Australian Deputy Prime Minister who was involved in writing a letter to the Chinese government informing them that the projects have received all the necessary environmental approvals, is exactly that – the “Former” Deputy PM and there is some question as to the legality of decisions he was involved in!

    • Joe

      ‘Mining Automation’…it was a feature on last nights (3/11 ) ABC show ‘The Business’…there are bugger all jobs to do with running a mine nowadays.

      • Roger Franklin

        Joe – If the current Qld Govt steps back and updates everyone on the number of “Australian”jobs that the Adani mine will really create – I think the reaction might be very surprising.

        NAIF chipping in $1b to build a railway is infrastructure, however so is helping to build 1-2 Battery Gigga Factories, which have been talked about for Darwin and potentially Mackay. This would show some real initiative. I know the board of NAIF has significant Mining interests and Senator Matt has made no mystery of the fact that he enjoys working for and promoting the Coal sector – well lets mine materials and make batteries. That is where the world wants so lets plan for the future and Just Do It!

  • Joe

    The NAIF is ready…and coming to the rescue of Adani and their Rail Line. I read a pice in todays (3/11 ) Australian Financial Review.NAIF’s Peter Ross says that The NAIF is attracted to infrastructure projects that could have multiple users…Bingo ! Adani gets the Rail Line…maybe call it The Galilee Railway…and all those other would be players in the Galilee Basin are suddenly ready to go….one rail line from The Galilee to the Abbott Point to ship all that little black wonder rock….to where exactly?

    • Rebecca

      I have put further information about the NAIF loan. I have written to the ABC then followed up with GETUP to ask them to work with the ABC this is about the 50 letters written to the NAIF including mine. And I have sent an Email to China.

  • Rebecca

    Good News Annastacia Palaszczuk will Veto the NAIF $1Billion of Taxpayers Money going to the Adani Mine. Next step is Tim Nichols, the people of QLD are angry & fighting & it helps when all the information is put out in the public domain.

    • Joe

      Premier Annastacia is now in the political fight of her life. The revelations about The NAIF, Federal COALition and QLD LNP in a smear campaign on Premier Annastacia and her partner over the whole ‘Adani stench’.

      • Rebecca

        Yes Annastacia Palaszczuk is in for a fight which I predicted & the LNP will take this opportunity as they have their backs to the wall & will come out fighting. Only thing to do is to keep putting information out in the public domain & its working. But the problem is people have only two ways to swing P Hanson who will go with LNP, or the Greens I believe they have made a mistake on the extra days off for Q.L.D They should concentrate on improving bad government.

        • Joe

          Just like the Turnbull with last years DD election in trying to wipe outt he minor parties in the Senate and now Premier Annastacia…both reaping what they sow.

          • Rebecca

            Yes Joe, This Australians turn to stand up united, they have pushed to hard. Remember the Age of entitlement, what a joke only entitled people in Australia is uncaring Political parties & Corporations. Now big business says the Australian population are not spending Wonder why.

  • Robert Comerford

    What I don’t get, is why the b.s. figure of circa 10,000 jobs is not being constantly exposed as the fraud it is by Qld labor.
    Adani stated less than 2000 jobs initially with most to go with automation, why not be out there every news grab in Northern Qld pushing those figures?
    Why not campaign on real jobs in renewables? Offer to start reverse auctions for renewables based projects in North Qld that will give work to electricians and labourers who drive heavy machinery. Jobs that won’t be there if they vote for the Adani fantasy. Time is well past for Qld Labor to get off the fence and vote Adani down.