The Carmichael Coal & Rail project is looking more and more like Queensland’s James Price Point Browse LNG moment.
The Carmichael project faces numerous financial, environmental and social hurdles, at the same time as proponent Adani may be about to gain easier access to coal supplies in India.
Banks claim they are yet to even undertake due diligence on the Carmichael coal project.
Despite a positive spin in the Australian Financial Review last week the fact remains Adani still needs to raise at least $4.2 billion for the project to proceed. This is a lot of money for a company which in Australia has just A$2.4 million in the bank and net liabilities of A$44.9 million.
Adani remains outwardly optimistic, but investors may yet decide better opportunities exist elsewhere for the company.
Such a decision would be a game changer for the project and would leave the Queensland Government with pie on its face, especially Deputy Premier Jeff Seeney and Premier Campbell Newman, who have staked their reputations on turning the Galilee Basin into a coal mining centre, at any cost.
Seeney and Newman have declared a State Development Area for coal projects in the Galilee Basin, established preferential royalty deals for first movers and most recently, announced the state purse would contribute hundreds of millions of dollars towards rail infrastructure to connect the Galilee Basin coal mines with coastal ports.
In 2013, under similar circumstances, Woodside abandoned plans for an onshore liquefied natural gas project located at James Price Point on the Kimberley coast in Western Australia.
Woodside abandoned its project for a number of reasons, many of which bear some similarities to issues with the Carmichael Coal & Rail Project.
Woodside faced opposition from non-government organisations, potential cost blowouts, weakening gas markets, difficulties convincing investors about the merits of the project and quite simply had better options elsewhere.
In the end it was the Western Australian Government and Premier Colin Barnett who were the biggest cheerleaders for the onshore option, with Barnett saying he would do “whatever it takes” to get the project up and running, even after Woodside walked away.
A Queensland Premier doggedly promoting greenfield thermal coal developments in the Galilee Basin – against a tide of evidence and advice – is beginning to look a lot like a WA Premier standing alone at James Price Point.
Opposition to greenfield coal projects proposed in Queensland’s Galilee Basin has been sustained and organised. While state and federal governments have been supportive, there is deep and widespread community concern.
As proponents have balked at the various financial, environmental and social blocks, then number of proposals has dwindled. At one point there were proposals for nine coal mines in the area. Now Adani’s Carmichael proposal is seen by many as the last chance for Campbell Newman and Jeff Seeney to realise their Galilee Basin dreams.
If Adani is to raise the money needed to proceed with Carmichael, Australia’s ‘big four’ banks – Westpac, Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and the Australia and New Zealand Banking Group (ANZ) – will be crucial. Why? Because the Australian banks understand the operating environment here. The Commonwealth Bank and Westpac have already been involved in financing Adani’s purchase of the Abbot Point coal terminal.
But a new report by the Australian Conservation Foundation argues the big four banks should to rule out financial support for Galilee Basin coal projects, because to fund the projects would conflict with the banks’ responsibilities as signatories to the Equator Principles.
The Equator Principles are a voluntary risk management framework for environmental and social risk management. A self-declared “gold standard”, Australia’s big four banks are all signatories to the Equator Principles and point to their status as a signatory when discussing sustainability performance.
Our report finds the environmental impacts of Galilee Basin mines will be significantly adverse, irreversible and unprecedented, making it difficult for Australian banks to justify involvement in the projects.
These impacts include the destruction or degradation of tens of thousands of hectares of land, including protected areas; unsustainable water use; and degradation of the Great Barrier Reef from industrialisation and the effects of global warming that will result from burning the coal exported from the Galilee Basin.
The Equator Principles aren’t the only hurdle Adani’s Carmichael Coal & Rail Project faces.
The Adani Group has had a busy year acquiring ports and power stations. Adani is India’s largest private sector power generator. The Institute for Energy Economics and Financial Analysis (IEEFA) estimates that Adani’s net debt will rise by US $1.7bn to US12.7bn once two power station acquisitions are finalised.
Following recent revocation of coal licenses in India, Adani now has the potential to acquire domestic coal supplies. These would be potentially cheaper and far easier for Adani to manage than a huge export-focused coal project in a foreign country.
Investors in Adani may begin to question the wisdom of embarking on contentious overseas export projects when domestic supplies could become available at much lower cost.
Within Australia, community opposition will continue, on environmental and social grounds. But the announcement that the Queensland Government is willing to tip in hundreds of millions of dollars to subsidise coal rail infrastructure will also come under intense scrutiny by a wider variety of groups. Especially since the Queensland Treasury has acknowledged that spending on infrastructure for coal mines comes at the expense of spending on social infrastructure.
The Australian Conservation Foundation and other groups will continue to keep a close eye on financing for the Galilee Basin coal proposals. Jeff Seeney and Campbell Newman should be watching more closely still, as they may end up the last ones at the table, footing the bill for a coal feast they never got to enjoy.
Tristan Knowles is the Australian Conservation Foundation’s energy analyst