One Australian newspaper put the figure of A$4.4 billion of subsidies on a report out this week which said the Adani Carmichael coal mining project in Australia, would otherwise be “unbankable and unviable”,
The report was from the Institute of Energy Economics and Financial Analysis, and it concluded that the Australian Government had pushed subsidies, favorable deals and tax concessions throughout the project’s proposed 30-year life.
It got the final go ahead in June, when Rethink Energy said that it was doomed as an investment after it produced revised plans on how it would look after groundwater and got permission from the pro-coal Australian government to go ahead. Adani is an Indian company, and it plans to extract the coal, put it on a ship to India and burn the coal in its existing coal plants.
We pointed out at the time that most indigenous efforts to build new coal mines were made in order to be self-sufficient in energy, but this Australian mine is not about a county’s self-sufficiency but a company’s, and its coal will be exported to China, India and the ASEAN countries – effectively exporting the CO2 emissions to countries which have not yet begun in earnest their quest for renewables. We have commented recently how coal in the region is already price depressed and falling further.
The Adani mine was supposed to be one of the biggest in the world when it was proposed and employ 10,000 people. Today it plans to open with just 1,500 jobs outputting 27.5 million tonnes of coal a year. And we predict that it will be uneconomic within ten years, and we can see that the shares in Adani will have huge investor hurdles ahead of it.
The Institute of Energy Economics and Financial Analysis is well known for its anti-coal position and Adani released a statement saying that the report “attempts to resurrect old and patently false and inaccurate claims suggesting the Carmichael project will only be viable because of a variety of government subsidies”. They may be old ideas, but it does not mean they are wrong.
But the report does make a case that Adani itself is virtually bankrupt, at home and abroad, and it told local Australian interests not to extend credit to it, as it was propped up purely with extensive loans from the Indian parent, which could be pulled at any time. It highlighted contracts in the past that had been paid exceptionally late and only after legal action. It said that Adani Mining has negative tangible assets, zero income, billions of existing liabilities, and negative shareholder funds of A$507 million. And its parent guarantee from Adani Enterprises has been arranged through tax-havens in Singapore and Mauritius. Adani mining is already carrying A$1.8 billion in debt.
The state has been clear any deal with Adani would involve deferred royalties, with interest, against a secured charge. Tax credits plus royalty holidays might make this as much as A$3.3 billion, and further concessions for building the mine, takes the sum well above A$4 billion.
The ostensible reason for needing so much debt and local finance subsidies, is because all of the Adani assets are shrinking in value, based as they are on potentially stranded assets, which are bound to mean this mine will end up either not built at all or late and smaller than expected.