Thiess Indian coal plans ended by landowner opposition

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The Australian subsidiary of Thiess has been stripped of a $5.5bn mining contract, highlighting the high cost of the coal business in India.

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Prolonged opposition to the proposed huge Pakri Barwadih coal mine in India, which could displace hundreds of villagers, has resulted in a subsidiary of the Australian construction company Thiess being stripped of a $5.5 billion mining contract.

The mine, together with two others slated to be built in the Karanpura Valley in Jharkhand by other companies, are hugely controversial as seventeen villages are slated for demolition with approximately 8000 villagers facing displacement if the three projects proceed. Opposition to the mines has come with a heavy price tag, with mine opponents subject to arrest by police and violent harassment by gun-toting vigilantes.

Back in November 2010 a subsidiary of Thiess, a wholly-owned subsidiary of the giant Australian contracting company Leighton, was awarded the contract with an Indian joint venture partner to build and operate the mine which had been allocated to by the government-owned power utility, the National Thermal Power Corporation (NTPC).

When the deal was publicly announced in December 2010 Leighton was ecstatic over what was expected to be a 22-year contract to mine over 300 million tonnes of thermal coal. A particular cause for celebration by Thiess was that it had won the contract “against stiff competition” from two other Indian companies.

While the proposed 15 million tonnes a year Pakri Barwadih coal mine is a big project, the main game for Thiess was in building a strong working relationship with NTPC. With over 43,000 megawatts of installed coal plant capacity and growing fast, NTPC is the largest power generator in India. (For the sake of comparison, the capacity of NTPC’s power plant network is over three-quarters the size of the whole Australian grid).

NTPC had high hopes for the project too as, frustrated by lack of reliable supplies on the domestic coal market and daunted by the high cost of imported coal it had decided to take on coal mining to supply some of its own plants. The Pakri Barwadih coal mine was to be NTPC’s first and crucial in reinforcing its mining credentials when bidding for other coal blocks.

With NTPC planning to build a further five mines to feed its ever-expanding fleet of coal plants, Thiess saw the Pakri Barwadih mine as providing “a platform on which to build a contract mining business in India.”

Party time over

However, the celebrations proved short-lived.  The joint venture for the Pakri Barwadih project, Thiess Minecs, is 90% owned by Thiess and 10% owned by the Indian company, Minecs Finvest Private Limited. Minecs Finvest, the Economic Times reported in 2012, is controlled by Vinod Bagrodia, the brother of former coal minister Santosh Bagrodia.  The former minister has been under investigation over several coal deals unrelated to Thiess as a part of the suite of investigations as part of the sweeping ‘Coalgate’ probe of potential corruption in the allocation of lucrative coal deposits.

For its part Thiess denied any impropriety in the Pakri Barwadih deal and stated that Santosh Bagrodia was not the minister when the contract was awarded.  However, Santosh Bagrodia was Minister during the bidding period for the contract in 2008-2009, though he denies having had any contact with his brother or other family members. Even so, according to the NTPC the Central Bureau of Investigation, the Indian agency charged with handling major criminal investigations, was probing the matter.

With first coal scheduled to be mined by late 2011, community opposition to the Pakri Barwadih and two other coal projects slated for the Karanpura Valley became intense. Farmers stood to lose valuable well-watered land and the initial compensation offer was paltry. Faced with opposition, NTPC later increased the compensation for landowners. Despite this, opposition from villagers persisted.

Dev Prasad, a farmer facing displacement by the Pakri Barwadih mine, told the Sydney Morning Herald late last year that he would not move. “If it was only me, I could take the money and live for the few years at the end of my life. But I have to hand this land on to my children and grandchildren. If I lose this land they will have nothing. Our lives are in this land. Without it, who are we? It is not just a house to live in, it is our way of life, our history. I am a farmer. My father passed this land to me, and I must pass it to my son. I cannot fail where my ancestors succeeded,” he said.

When the protests grew, a police crackdown followed. Protesting villagers were threatened and arrested. When construction of an NTPC office block commenced near a village unrelated to the Thiess Minecs mine, police shot and killed a protesting villager and injured two others. On another occasion, vigilantes toting AK-47’s violently broke up a community meeting and have threatened villagers on other occasions. Thiess Minecs deny any involvement with the armed vigilantes insisting that “all land access issues are the responsibility of the mine owner.”

By 2012, Thiess was in constant dispute with the NTPC over the schedule for the mine. NTPC complained that Thiess Minecs had failed to meet construction deadlines. By mid-July 2012 issued Thiess Minecs with a ‘show cause’ notice setting out the failure to meet the agreed construction schedule. NTPC claims that it even lobbied the federal Minister for Resources and Energy over its problems with Thiess. (NTPC does not state who was minister at the time).

While the relationship between NTPC and Thiess Minecs had all but broken down, community opposition remained. By mid-2013 a source told The Hindu that NTPC was thinking of withdrawing from the project “due to obstacles and demoralisation of the staff.” By early 2014 community opposition continued to block mining prompting NTPC Chairman & Managing Director Arup Roy Choudhury to complain about “illegal mining” and rather ominously urge police to “restore law and order”.

Divorce proceedings filed

Last Thursday NTPC informed Thiess Minecs that it was terminating the contract for the Pakri Barwadih mine. In its statement to the Australian Stock Exchange on Monday Thiess referred to the NTPC contract as only running for five years and worth just $267 million. The company claimed that even if the agreement was terminated, a move it vowed it would resist, it would have no “material impact on” Leighton’s financial results. How a deal which had been touted in 2010 as being worth $5.5 billion deal over 22 years had become just a five year long project worth a twentieth of the original estimate went unexplained.

The day after NTPC gave Thiess Minecs notice that its contract would be terminated in 45 days, the Chief Executive of Thiess Minecs, Dr Raman Srikanth, was arrested by Hyderabad Police on what has been reported as charges of cheating and criminal breach of trust.  Local police also report that Thiess Minecs and Bruce Munro, chairman of Thiess Pty Ltd are also named in the complaint by Roshni Developers, an Indian company which failed to get a sub-contract working on the mine.

The Pakri Barwadih mine debacle is an all too familiar tale of the dynamics of coal projects: developers in a panicked rush to get coal to market, controversy and scandal over how decisions were made and contracts awarded, demands by coal proponents that farmers and residents get out of the way and governments willing to use repressive measures to force a project through when they don’t. Even developers dreams of easy money from coal projects have withered.

The high costs of coal don’t stop at the mine gate either. World Health Organization data released last week revealed that of the top ten cities for air pollution, India took second, third and fourth positions. Further expansion of coal fired plants with minimal pollution controls would make India air quality even worse.

Even if Thiess’s legal defence against NTPC fails, the company has its eye on even bigger fish, this time in Australia. In June last year Thiess struck an agreement to work with GVK Hancock Coal to help develop the $10 billion Alpha Coal Project in Queensland’s Galilee Basin.  The company hopes that the proposed 32 million tonnes a year mega-mine will be able to export its coal to India.

While GVK Hancock Coal is awaiting a final decision from the Queensland government, exhibits many of the characteristics that dog coal projects around the world. Farmers worried about the impact of the mine on groundwater were so persuasive that, in an unprecedented recommendation, the Land Court stated that either GVK Hancock’s Alpha Coal Mine not be approved at all, or if it was, that it be subject to conditions intended to limit potential damage to water resources.

Even if the Queensland government approves the Alpha mine, there are serious doubts that GVK Hancock will be able to persuade a coalition of banks to pour billions into a project which at best can only deliver expensive coal to an already oversupplied market.

As the global appetite for coal slows – undermining the market for Galilee Basin coal – and falling prices drive companies to insist contractors slash costs, Thiess may well be set for further disappointment because it picked coal as a financial winner when it has turned out to be a big-time loser.

Bob Burton is a Contributing Editor of CoalSwarm and a Director of the Sunrise Project, a non-profit group promoting a shift away from fossil fuels. With Guy Pearse and David McKnight he co-authored Big Coal: Australia’s Dirtiest Habit. Bob Burton’s Twitter feed is here.

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