April 26, 2017 Read More →

Pushback by Rival on Australian Subsidy to Indian-Owned Coal Conglomerate

Australia Financial Review:

New Aurizon boss Andrew Harding gets a chance this week to remind the broader investment community that the debate about how to pay for a big new Queensland coal railway is more complicated that whether or not Commonwealth can see its way to lending $1 billion to an Indian billionaire.

Adani has, very famously, gone to the brand new Northern Australia Infrastructure Fund seeking quite a bit of financial help to build the railway tracks that will run coal from his company’s fiercely disputed Carmichael coal project to the company’s coal export terminal at Abbot Point in Queensland.

The application was the subject of some seemingly clumsy personal pressure during Prime Minister Malcolm Turnbull’s trip to India earlier this month. Ahead of that visit there were reports that Adani expected to see some clarity on its funding proposal. Very sensibly, that assurance was not forthcoming. Turnbull said Adani would get his mine. But he was clear that the NAIF application would remain the subject of crystalline process.

One of many, many reasons for this cleverly crafted Prime Ministerial discretion was that on March 14 Queensland’s legacy coal freighter, Aurizon, delivered NAIF with an alternative to the potential that the personal aspirations of an Indian billionaire might benefit from Commonwealth funding.

Adani’s public affairs strategy has been, essentially, to ignore the Aurizon challenge. This might work for politicians, who seem equally content to ignore the reality that the federal and Queensland governments have been provided with a far cheaper and more economically rational option that would be more transparently owned and operated by a listed Australian company.

The Australian Financial Review has consistently reported for the better part of 18 months recognition by local Adani executives that the holding companies that own both the rail project and the long-established Abbot Point coal port are wholly owned by interests associated directly with Gautam Adani.

Details on the way that Adani has structured its plunge on Australian coal were published on Tuesday by the Institute for Energy Economics and Financial Analysis and they suggest that those Adani people have been agreeably frank.

Local director Tim Buckley was a 17-year Citi man before embracing his inner renewable self and, while we might disagree with some of his conclusions, he has consistently produced data-driven analysis of quality and insight.

Buckley’s latest work is a classic of that kind.

Buckley has repeated his cynicism about the economics of the so-far blighted Carmichael project and reiterated that Adani has structured its adventure in Australian coal so that one of its listed entities carries the risk of coal mining, while its principle will get to clip the ticket on moving the coal from its home on the Galilee to the Indian power stations that are supposed to burn it.

Buckley asserts that a recasting of the staging of the Carmichael project, which was flagged first in this space last September, serves to substantially reduce the upfront cost of getting the project under way. But that raises a whole lot of important questions about the economic impact that sustains Adani’s case with state and Commonwealth governments. The Carmichael now flagged is a $5 billion build, not the $21 billion exercise in job creation that has long been promoted.

Adani says it still has plans to build a 60 million-tonnes-a-year coal complex in the Galilee. But the journey to peak production could be far more faceted that once planned. Carmichael appears to be a development with a yet unquantified set of phases but whose productive mining life will start some time after 2020 with an opening campaign aiming to export 25mtpa.

How long the ramp up to peak phase one production might take remains another of Adani’s many commercial-in-confidences. But, further to the earlier point about Abbot Point capacity, there is reason to believe that the growth path could be patient enough for Adani to avoid the need for early investment against new terminal capacity.

Reduced to a digestible precis, Buckley clams that Adani’s recently subdivided corporate structure creates a subset of opaque entities with the one left with the task of funding Carmichael looking to be under-capitalised, excessively debt-extended and unable to adequately fund the development proposed.

Buckley claims Adani has proven itself an ineffective manager outside of India, that the Carmichael project has gone backwards over the past 18 months, that Adani’s collective balance sheet cannot obviously support the $US36 billion of projects that have been flagged by management and that India’s shift from coal has reached profound proportions leaving India’s power generation industry looking at structural under-utilisation.

Aurizon’s Plan to Derail Adani’s $1Bn Loan Pitch

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