Adani to finance Australia project on its own, cut capital requirements

Eight years after announcing an ambitious coal mine, port and integrated rail project in Australia, and facing financing hurdles and green lobby protests, the Adani group has said it would fund the project on its own. Adani Mining, led by billionaire Gautam Adani, said it looks to downsize the initial phase of the project and reduce capital requirements.

The project has faced opposition from environmental groups, who argue it would contribute to global warming and damage the Great Barrier Reef. The group has also been struggling to financially close this project, as global banks are under pressure to not lend to environmentally polluting projects.

“Adani Mining’s Carmichael mine and rail project will be 100 per cent financed through the Adani group’s resources,” a statement released by the Adani group on Thursday said.

It said the group would begin developing a smaller open cut mine “comparable to many other Queensland coal mines” and would ramp up production over time to 27.5 million tonnes per annum — less than half the size of the approved project. The group refused to share the production expected from the initial phase of development and its timeline.

According to the group’s statement, $3.3 billion has already been invested in the Australian businesses. Initially, the project was to involve a total investment of $16.5 billion as capital cost for construction and sustaining capital for a 60mtpa mine over the mine life, railway and port terminal.

“Adani Mining has not provided an amount for this initial investment. Industry experts have estimated it would be around Australian $2 billion ($1.46 billion),” an Adani group spokesperson said a response to an email query. “Funding from company resources is a common practice for funding projects.”

The statement said all coal produced in the initial ramp up phase would be utilised for the Adani group’s captive requirements.

In a separate response to a query on if this would be supplied to Adani Power and Adani Enterprises and if it would be a conflict of interest, the group said, “There are strict transfer-pricing rules in Australia’s taxation region that will ensure these sales will be at arm’s length and will be at market price. This ensures taxes and coal royalties are paid in full in Australia.”

Promoter holding in Adani Power stands at 74.97 per cent and 74.92 per cent in Adani Enterprises. Both are publicly listed entities.

On any concerns arising out of conflict of interest, Amit Tandon, managing director, Institutional Investor Advisory Services, said, “This would be a related-party transaction and, hence, needs to be made at arm’s length. It is a fair transaction if at arm’s length which in this case would mean coal supplied at prevailing market rates.”

Not everyone is convinced of Adani’s new financing plans. “In November 2014, State Bank of India was to lend $1 billion to Adani for the Australia project. In the present scenario, it is not clear how Adani will manage to get debt-based funding, in case that is the plan, from Indian banks,” an analyst, who did not wish to be identified, said.

A Reuters report quoted Australian Marine Conservation Society spokeswoman Imogen Zethoven as saying they would “fight this to the end” and that the company still needed some final approvals. But the group said the only approvals the project now needs are standard clearance for mine management plans.

Taking off

• The group announced the ambitious coal mine, port and integrated rail project in Australia in 2010
• Initially, the project was to involve a total investment of $16.5 billion. Around $3.3 billion has already been invested, the group said
• The mine will now begin on a small scale and ramp up to a capacity of 27.5 mtpa — less than half the size of the approved project 
• This follows years of delays amid opposition from environmental groups, leading to banks ruling out taking any role in the project