Nov. 2, 2017 (IEEFA) — A Chinese government-owned enterprise is being courted as a new partner for Adani’s proposed Carmichael coal mine and rail project in northern Queensland, according to a research brief published today by the Institute for Energy Economics and Financial Analysis (IEEFA).
The deal being sought with state-owned China Machinery Engineering Corporation (CMEC) is meant to secure much-needed funding—in addition to enormous Australian public subsidies in the works—for the long-delayed project.
The IEEFA brief—“Are Australian Taxpayers About to Subsidise a Chinese State-Owned Enterprise?”—cites sources with knowledge of talks between the parties involved who say negotiations are in progress that would award CMEC with engineering, procurement and construction (EPC) contracts in exchange for Adani access to funds from the China Export Import Bank and/or the China Construction Bank.
Tim Buckley, IEEFA’s director of energy finance studies, Australasia, said China’s involvement would benefit China at the expense of Australia.
“The creation of economic benefit for the home country is the essential role of export credit agencies (ECA) like the Export-Import Bank of China, which would only be involved if there is benefit to China,” Buckley said. “A Chinese state-owned enterprise investment would secure jobs for equipment and manufacturing in China.”
Buckley said the existence of such negotiations speaks to the fundamental frailties in the Adani project and serve as a red flag to Australian policy-makers.
“This further weakens the Adani pitch for Australian political support for the Carmichael coal and rail projects, which is based on the assumption of new local jobs being created in Queensland,” Buckley said, noting that an agreement like the one under discussion may well create problems for China as well. “It is a huge investment and reputational risk for the Chinese government, which would be joining Australian taxpayers in bailing out a stranded asset of a tax-haven-based billionaire family that is under Indian government investigation for fraud, tax evasion, bribery and corruption.”
Further, the project would be out of sync with thermal seaborne coal markets, Buckley said, even with proposed domestic government support.
“With the forward price of thermal coal at around US$75/tonne, Carmichael is both unviable and, absent the Australian development loan, unbankable.”
Buckley said China’s involvement would raise the probability that Adani can secure a financial close on the proposed mine and rail complex, but that it would come at a high price to Beijing.
“This would undermine their global leadership role going into the Bonn climate discussions and it would undercut their claim to be the global energy-transformation leader in the wake of the U.S. government’s regressive policies under President Trump.”
The research brief also discusses speculation around the possibility that—as part of China’s “One Belt, One Road” initiative, CMEC’s participation could mean that Carmichael coal would end going to Pakistan rather than India, as originally proposed.
“It would raise a range of new geopolitical questions for an already highly controversial project,” Buckley said.
Tim Buckley (Australia) P: +61 408 102 127 E: [email protected]
Brami Jegan P +61 448 276 945 E: [email protected]
IEEFA conducts research and analyses on financial and economic issues related to energy and the environment.