Time to tell Adani where to go

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Well done to Matthew Stevens:

I mean, here we have a coal project proponent that has spent seven years driving through jungles of red and green tape, and more recently through a brutal wilderness of anti-coal resistance, only to belatedly find itself in desperate need for about $1.2 billion of government assistance if the project is to happen.

The most recent guidance from Adani is that the first phase of the Carmichael project will cost about $5.2 billion, an estimate that includes the $1.3 billion or so already sunk in tenement acquisition, pre-approval construction work and in coursing various regulatory processes.

That leaves a funding task of $3.9 billion to build the initial mining footprint and the railway needed to carry Carmichael coal the 388 kilometres that stretch between the mine and Adani’s coal export terminal at Abbot Point.

In effect, 30 per cent of the immediate future funding task would be carried, in one form or another, by Australian taxpayers.

Adani is seeking to borrow at least $900 million from the Commonwealth by becoming the first recipient of funding from the Northern Australia Infrastructure Fund. But there’s more, as they say.

Adani has now made investment sign-off contingent on earning $320 million worth of relief from state coal royalties. Rather typically, there is not a whole lot of observable detail in Adani’s request for additional tax-payer indulgence. The period through which this relief would last is not public property and neither is the period over which full payment would be made.

For all of that, Adani is trying to leverage its promise of a $16.5 billion life-of-project capital investment that it says will create 10,000 jobs into what looks to me an unprecedented level of direct and indirect government indulgence.

Adani’s jobs pitch sits pivotal to its claim on state beneficence. But 10,000 jobs? Queensland’s biggest miner is the BHP-operated joint venture BMA. It generates about 80 million tonnes a year from seven mines dotted all over the Bowen Basin. It employs, neatly enough, 10,000 people. Carmichael One will operate a couple of pits around a mining hub to produce less than a third of BMA’s production.

…Either Carmichael makes sense as an investment for a company like Adani, which will, after all, be the major customer of the mine, or it doesn’t. And if it doesn’t, then Galilee coal doesn’t belong in the market place anyway.

That’s it in black and white though it does not include the externalities of environmental degradation which are much higher again.

At the same time, because the global coal market remains in a glut, Adani will shutter other mines and it just so happens that the next most marginal are in NSW. So more efficient southern mines will have to close to make way for an inefficient one.

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It’s a giant pork barrel that has tax-payer support for one reason only: it falls within a catchment of strong One Nation support.

That’s the greatest irony here of all. As Adani complains that all and sundry are racist for resisting its investment, the only reason it has any hope of life at all is the racism at the heart of One Nation.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.