Adani's Carmichael coal project: will China get onboard?Published by MAC on 2017-11-06
Source: Institute for Energy Economics and Financial Analysis (IEEFA), Reuters
If so, Beijing may be envisaging something even bigger
Just imagine - the Chinese state may be about to be make a heavy investment in the most controversial, and one of the most condemned, coal projects on the planet - Adani's Carmichael mine, rail and port in Australia.
And this, at a time when the Chinese government is proudly waving the flag for decreasing dependency on the black stuff as part of its drive for global leadership at the imminent Climate Change conference (COP).
According to Simon Nicholas, an energy advisor for the IEEFA, Beijing's backing for what would be the "largest new coal basin in the world" will "undermine its credibility".
Inevitably, it would also incite increased civil society opposition, both in Australia and India, to the entire madcap scheme.
As IEEFA's director of energy finance stides, Australasia puts it:
“It is a huge investment and reputational risk for the Chinese government, which would be joining Australian taxpayers in bailing out a stranded asset of a tax-haven-based billionaire family that is under Indian government investigation for fraud, tax evasion, bribery and corruption.”
Lighting the whose darkness?
However, the Chinese leadership never neglects promotion of a "longer term vision".
Nicholas believes that Beijing's underlying motive for buying into Adani - if it happens - would be to "serve China’s 'Belt and Road Initiative' - a US$1 trillion build-out of infrastructure projects, including coal-fired power plants, across ancient land and sea trade routes"
He adds: "If the involvement of Chinese SOEs in the Carmichael project plays out, the project starts to look very different from... one that has been long advertised by Adani, including a promise to “light up 100 million Indian homes.”
Buckley agrees, pointing out that such investment "might mean that Carmichael coal would end going to Pakistan rather than India, as originally proposed".
Beijing may intercede to save Adani's Australian project
A Deal May be in the Works With China Machinery Engineering Corp., the Export-Import Bank of China and the China Construction Bank
Institute for Energy Economics and Financial Analysis (IEEFA)
3 November 2017
Struggling to secure financing for is Carmichael mine-and-coal project, Adani is now exploring the possibility of sponsorship by Chinese state-owned enterprises.
According to various sources, the state-owned China Machinery Engineering Corporation (CMEC) appears to be the leading contender for engineering, procurement and construction contracts for key parts of the proposed Carmichael mine and/or rail projects.
We published some of the details in a research brief we put out this week.
CMEC sometimes takes minority equity stakes in the projects it is contracted to engineer, and in this case could be a desperately needed boost for Adani, which has struggled to find financing.
Importantly, CMEC can bring access to the Export Import Bank of China and the China Construction Bank, both also state-owned enterprises, or SOEs.
Chinese SOEs won’t become involved if there is no benefit to them, a reality that raises the question of where Carmichael coal would actually be exported to.
Adani has always stated that Carmichael is part of a vertically integrated “pit-to-plug” strategy with Adani Power, the intended coal off-taker in India. But Adani Power Ltd has stated that its import coal-fired power station at Mundra is no longer viable, and Tata Power’s Mundra power plant is in the same situation.
Furthermore, Adani has express an interest in selling a majority stake in its Mundra plant to the state government of Gujarat for a single rupee. If this were to occur, the Gujarat government would likely to seek coal sources that are cheaper than what Carmichael would produce.
It also seems unlikely that Carmichael coal would go to China. Although thermal coal imports into China have risen recently (after a 40 percent drop in the preceding two years), the nation os reorganizing its electricity system to be less reliant on coal as it battles air pollution issues and continues to swear by its commitment to the Paris climate-change agreement.
WHERE, THEN, DOES CARMICHAEL COAL GO if the Chinese take a stake? Perhaps to serve China’s “Belt and Road Initiative,” a US$1 trillion build-out of infrastructure projects, including coal-fired power plants, across ancient land and sea trade routes.
At the recent Chinese Party Conference, the Belt and Road Initiative was enshrined in the Party constitution, increasing the focus and pressure for it to succeed. CMEC itself has interests in coal-fired power projects within the Belt and Road Initiative—with Pakistan as a priority.
If the involvement of Chinese SOEs in the Carmichael project plays out, the project starts to look very different from the one that has been long advertised by Adani, including a promise to “light up 100 million Indian homes.” So this turn of events presents reputational risk for Adani.
It also presents enormous headline risk for the Chinese government, which has stepped into a global leadership role in driving implementation of the Paris climate accord going into the United Nations Bonn conference in November.
China is investing heavily, too, in the global energy market transformation, as seen in its phenomenal rate of new solar energy capacity installations—as much as 50 gigawatts this year alone. Any contradictory move, especially in support of what would be the largest new coal basin in world, would undermine Beijing’s credibility.
The Northern Australia Infrastructure Facility (NAIF) will soon a make a decision on whether to provide a A$1 billion subsidy to the project. The NAIF loan would be in addition to a nA$600 million royalty holiday courtesy of the state government and A$31 million of funding from local governments for an airstrip.
If it turns out that Australian taxpayers and ratepayers are also effectively subsidizing Chinese state-owned enterprises—on top of what the subsidies they are giving to an Indian conglomerate—there are likely to be further eyebrows raised.
Simon Nicholas is an IEEFA energy finance analyst. A version of this column first appeared this week in RenewEconomy
IEEFA: Australia: Adani is said to seek financing from a Chinese state-owned enterprise
'New Geopolitical Questions for an Already Highly Controversial Project'
2 November 2017
A Chinese government-owned enterprise is being courted as a new partner for Adani’s proposed Carmichael coal mine and rail project in northern Queensland, according to a research brief published today by the Institute for Energy Economics and Financial Analysis (IEEFA).
The deal being sought with state-owned China Machinery Engineering Corporation (CMEC) is meant to secure much-needed funding—in addition to enormous Australian public subsidies in the works—for the long-delayed project.
The IEEFA brief—“Are Australian Taxpayers About to Subsidise a Chinese State-Owned Enterprise?”—cites sources with knowledge of talks between the parties involved who say negotiations are in progress that would award CMEC with engineering, procurement and construction (EPC) contracts in exchange for Adani access to funds from the China Export Import Bank and/or the China Construction Bank.
Tim Buckley, IEEFA’s director of energy finance studies, Australasia, said China’s involvement would benefit China at the expense of Australia.
“The creation of economic benefit for the home country is the essential role of export credit agencies (ECA) like the Export-Import Bank of China, which would only be involved if there is benefit to China,” Buckley said. “A Chinese state-owned enterprise investment would secure jobs for equipment and manufacturing in China.”
Buckley said the existence of such negotiations speaks to the fundamental frailties in the Adani project and serve as a red flag to Australian policy-makers.
“This further weakens the Adani pitch for Australian political support for the Carmichael coal and rail projects, which is based on the assumption of new local jobs being created in Queensland,” Buckley said, noting that an agreement like the one under discussion may well create problems for China as well. “It is a huge investment and reputational risk for the Chinese government, which would be joining Australian taxpayers in bailing out a stranded asset of a tax-haven-based billionaire family that is under Indian government investigation for fraud, tax evasion, bribery and corruption.”
Further, the project would be out of sync with thermal seaborne coal markets, Buckley said, even with proposed domestic government support.
“With the forward price of thermal coal at around US$75/tonne, Carmichael is both unviable and, absent the Australian development loan, unbankable.”
Buckley said China’s involvement would raise the probability that Adani can secure a financial close on the proposed mine and rail complex, but that it would come at a high price to Beijing.
“This would undermine their global leadership role going into the Bonn climate discussions and it would undercut their claim to be the global energy-transformation leader in the wake of the U.S. government’s regressive policies under President Trump.”
The research brief also discusses speculation around the possibility that—as part of China’s “One Belt, One Road” initiative, CMEC’s participation could mean that Carmichael coal would end going to Pakistan rather than India, as originally proposed.
“It would raise a range of new geopolitical questions for an already highly controversial project,” Buckley said.
Full brief: Are Australian Taxpayers About to Subsidise a Chinese State-Owned Enterprise?
Tim Buckley (Australia) P: +61 408 102 127 E: firstname.lastname@example.org
India Conglomerate seeks Chinese backing for mega mine in Australia
2 November 2017
Indian conglomerate Adani Enterprises is in talks with China Machinery Engineering Corp (CMEC) for the financing of a controversial coal mine project in Australia, two sources with knowledge of the situation said on Thursday.
Adani is seeking A$2 billion ($1.54 billion) in outside financing for its proposed A$4 billion Carmichael coal mine in the state of Queensland. However, Australian and overseas banks have balked at granting loans for the project which environmentalists oppose because of concerns over the size of the mine and the potential for damage to the Great Barrier Reef.
CMEC is an engineering contractor that is majority-owned by Chinese state-owned enterprise (SOE) China National Machinery Industry Corp Ltd, or Sinomach.
CMEC would provide financing through the China Export Import Bank or China Construction Bank, or both, in return for winning the procurement and engineering contracts, for the project, according to a report issued earlier on Thursday by the Institute for Energy Economics and Financial Analysis, (IEEFA) an outspoken opponent of the project, citing unidentified sources.
“Chinese SOE backing raises the probability that Adani can secure a financial close for this long delayed project,” the report said.
In addition to the A$2 billion in financing, Adani has also applied for A$900 million in Australian government loans to build a railway to ship coal 400 km (250 miles) from the Carmichael site to a port on the Pacific Ocean for export.