What's fuelling Adani's Australia drive?

The group has no option but to go ahead with the project even as tide turns against coal globally

A day after the world observed the Environment Day on June 5, the board of Adani Enterprises gave the green light to the first phase of the $4 billion, or Rs 25,800 crore, Carmichael coal mine project in Queensland, Australia.

Adani Enterprises, part of the $12-billion Adani group, has announced a 25-million-tonnes-per-annum thermal coal mining project at Carmichael, along with a 388 km rail line to the company-owned Abbot Point port. In his announcement, billionaire Gautam Adani, chairman of the Adani Group, said that the Carmichael projects will generate 10,000 direct and indirect jobs, with pre-construction works starting in September quarter 2017.
 
However, a week later, Union minister for coal, Piyush Goyal, said the country already had enough coal without the Adani mine. “We don’t wish to import coal from anywhere in the world. We have sufficient coal capacity in our country,” Goyal told ANI.
 
Goyal’s statements contrast with the Adani group’s stated objective of the project. The group had maintained the project is crucial to “address power poverty for hundreds of millions in India and unacceptably high unemployment in regional Queensland.”
 
To be sure, the project has been facing challenges from multiple fronts, including from greener alternatives such as the wind and solar energy. Coal imports have reduced in India and China, given the rapid progress, the two countries have made in policy measures to promote renewable energy sources such as solar.  At Kandla Port Trust, senior officials say, coal imports have been on a constant decline month-on-month.
 

Lately, imported coal has been facing pricing challenges from natural gas and solar as well. While gas prices have fallen below coal's peak prices since 2014, solar tariffs have hit Rs 2.5, or $0.04 per kilowatt per hour. Rising domestic coal production is also set to add pressure on coal imports.  According to a recent report by S&P Global Platts, “India is no longer the dynamic coal import market of yesteryear. Domestic production will continue to expand, but India's energy trajectory is becoming less coal-based, raising a real risk of stranded assets.”
 
The Adani group’s own power plants in India are moving away from imported coal.  “After reporting a net loss of $954 million in 2016-17, Adani Power’s 4.64 Gw Mundra power plant is in negotiations with the government over allocation linkages that will allow the Mundra plant to access domestic coal,” the Institute for Energy Economics and Financial Analysis  (IEEFA) said in a report recently.
 
Tim Buckley, director of Energy Finance Studies, IEEFA, says: “Admissions by the Adani Power management that its $5 billion investment in the existing import coal power plant at Mundra, Gujarat, are no longer viable, because of the prohibitively high cost of imported coal relative to the long-term electricity supply contracts signed, is adding to the rise of stranded assets across the Indian power generation sector.”
 

The Carmichael coal mine project has also been red-flagged by environmentalists. Activists have been raising constant concerns over the project's carbon emissions as well as imminent damage to the Great Barrier Reef, the world’s largest coal reef off the coast of Queensland. Activists have been campaigning publicly in Australia and India alike, trying to convince banks not to finance projects like the Carmichael mine that pose environmental, social and economic risks.
 
An emailed query to Adani Group did not elicit any response. But the group has rejected the criticism levelled by activists.  “We have been challenged by activists in the courts, in inner city streets, and even outside banks that have not even been approached to finance the project. We are still facing activists. But we are committed to this project. We are committed to regional Queensland and we are committed to addressing energy poverty in India,” Gautam Adani said recently.
 

Analysts say despite the opposition, the Adani group has no option but to go ahead with the project in which it has already invested $3.3 billion so far. “If the project is written off, it will effectively mean a write-down of half the value of Adani Enterprises,” says environmental finance campaigning group Market Forces Executive Director Julien Vincent.
 
The company is yet to secure a loan of around $672 million (or 900 million Australian dollars) from the Northern Australia Infrastructure Facility. “The approval has been deferred to December. As per clause 16 of its investment mandate, NAIF cannot lend if it hurts the reputation of the country or the region. In Australia, discussions have been going over the reputational damage from the development of the world's largest new thermal coal mine,” says Buckley. The loan approval depends on the outcome of a case that has been filed in the Federal Court in Australia by the Wangan and Jagalingou (W&J) Traditional Owners Council against the group. The hearing in the case has been deferred to December.
 
 So far, the group’ lenders have not pressed the panic button, although questions have been raised over the financial viability of the project. With a long-term debt Ebitda of 3.25:1 and net fixed assets worth Rs 1.25 lakh crore, the group is in a comfortable position, even though the gross debt of Adani Group stands at Rs 1,05,141 crore, as compared to Essar Group's Rs 78,915 crore and Jaypee Group's Rs 77,163, say analysts.