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IEEFA Australia: Adani Can’t Seem to Get the Public Subsidies It Requires for Its Carmichael Coal Project

May 23, 2017
Tim Buckley

In saying that it has deferred its investment decision on its Australian Carmichael coal proposal because the Queensland Government hasn’t granted it yet another subsidy, Adani Enterprises is demonstrating once more that the project is unbankable.

We’re not aware of a single private financial institution that has endorsed the proposal, which suggests to us that financial close will remain elusive absent multiple government subsidies.

A long list of globally significant financial institutions have ruled out financing what would be a major new coal-production basin and the associated rail and port infrastructure due to a myriad of issues, not the least being the Australian government’s endorsement of the Paris Climate Agreement.

Adani will not have passed any real test for viability until the project is endorsed by the requisite combination of bankable coal off-takers; engineering, procurement and construction firms; and financial institutions. No financial close will occur until legally binding contracts are signed, and there is zero indication of that happening.

While some Australian politicians keep endorsing the virtues of the project proposal, it is telling that the Northern Australian Infrastructure Facility (NAIF)—before it commits to any subsidies—is required to seek comment from the federal government’s Infrastructure Australia, which operates under a mandate “to prioritize and progress nationally significant infrastructure” and whose representatives testified this week that the Carmichael rail proposal does not pass muster.

India would be the main market for Carmichael coal, and India’s electricity sector is changing.

The cancellation of 13.7 gigawatts of Indian coal power projects just this month, coupled with a record low solar tariff of 2.44 Rupees/Unit (0.038USD/kWh), are the latest and strongest indications yet that an energy transformation in India is gaining rapid momentum and that it is doing so with global capital-market support.

For the first time, solar is now cheaper than even domestic coal in India, and the implications for Adani with regard to the Carmichael proposal are profound.

Adani itself concedes as much.

Admissions by Adani Power Management this month that close to US$9 billion worth of existing import-coal-fired power plants at Mundra, Gujarat are no longer viable further undermine Adani’s claims of the viability of an import-coal “pit-to-plug” strategy.”  Adani cites the prohibitively high cost of imported coal relative to the long-term electricity supply contracts in play.

Adani Enterprise announced seven years ago that first coal would be mined at Carmichael by 2014-15. It latest timeline says 2020-21, a goal every bit as fantastical as the original.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.


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Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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