 "Not an easy road ahead for Adani in Australia")
The Australian environment ministry on Thursday cleared the way for Adani Group’s $7-billion Carmichael mine and rail project in the Queensland province. But, an analyst said despite getting the go-ahead, the group would exercise caution before starting work on the controversial project, which was unviable, given the record-low coal prices.
Australian environment minister Greg Hunt cleared the project for the second time after asking the Ahmedabad-based group to comply with 36 “strictest conditions in Australian history”.
“The rigorous conditions will protect threatened species and provide long-term benefits for the environment through the development of an offset package,” he said. Hunt said he would personally approve the measures before mining can start. “I have the power to suspend or revoke the approval and strict penalties apply if there is a breach of the conditions. Department of environment compliance and enforcement officers will closely monitor the operation of the mine,” Hunt said.
The project was earlier cleared in July last year but a federal court cancelled the project this year (see timeline). Reacting to the news, Adani Enterprises stock closed 14 per cent up at Rs 96.75 a share on BSE on Thursday. Buying was also seen in other group stocks such as Adani Power that rose by 4.81 per cent to Rs 29.40 and Adani Ports and Special Economic Zone gained 1.94 per cent to Rs 330.50 on BSE.
The project, located 300 kilometres inland from Australia’s eastern coast, is facing opposition from environmentalists as it would require dredging at the Great Barrier Reef, a world heritage site, to ship coal to Asia. In line with a global commodities price crash, coal prices has touched a historical low, with most multinational energy giants withdrawing from Australian coal projects in the recent months.
According to Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, the Australian government had previously issued environmental approval but made a material procedural error in the process, which the minister rectified on Thursday. Analysts from UBS and other global brokerages had raised red flags over the project.
However, Buckley said the government’s approval was still being challenged in a case currently before the Queensland Land Court, and a decision was expected in the next three to six months. Coal prices had fallen every month this year, so low quality, new export coal mines were unviable and increasingly unbankable, he added.
The Adani Group, however, emphasised the group was still interested. “Consistent with our public statements over the past several months, we look forward to the remaining government approvals and decision processes being dealt with promptly to ensure these job creating projects get back on track, so the much needed economic benefits of this project can commence and we can continue with our aspiration to build a long term future with Queensland,” it said.
But Buckley said there were other hurdles, including opposition by the traditional owners of land, the Wangan & Jagalingou people. “Once these issues are resolved, there remains the inability of Adani Enterprises, which has a market capitalisation of $1.6 billion, to increase funding for the greenfield mine, rail and port project,” he said.
“With 15 of the largest global financial institutions ruling out this project or walking away from advisory roles, I would suggest the project is unbankable. The six per cent year-on-year decline in Indian utility companies’ thermal coal imports in the six months to September this year likewise shows coal and power minister Piyush Goyal’s aim to cease Indian thermal imports is happening faster than anyone expected. This also removes any long term strategic logic that was originally behind the proposal,” Buckley said.
“ANZ Banking Group last week committed to a new climate policy framework and we expect other Australian bank majors to follow. In light of this, this project’s headwinds are only getting harder,” he added.
Adani promoters already own Abbot Point coal terminal in which the promoters have invested $2 billion in 2011.
ADANI: THE AUSTRALIAN STORY
Australian environment minister Greg Hunt cleared the project for the second time after asking the Ahmedabad-based group to comply with 36 “strictest conditions in Australian history”.
“The rigorous conditions will protect threatened species and provide long-term benefits for the environment through the development of an offset package,” he said. Hunt said he would personally approve the measures before mining can start. “I have the power to suspend or revoke the approval and strict penalties apply if there is a breach of the conditions. Department of environment compliance and enforcement officers will closely monitor the operation of the mine,” Hunt said.
The project was earlier cleared in July last year but a federal court cancelled the project this year (see timeline). Reacting to the news, Adani Enterprises stock closed 14 per cent up at Rs 96.75 a share on BSE on Thursday. Buying was also seen in other group stocks such as Adani Power that rose by 4.81 per cent to Rs 29.40 and Adani Ports and Special Economic Zone gained 1.94 per cent to Rs 330.50 on BSE.
The project, located 300 kilometres inland from Australia’s eastern coast, is facing opposition from environmentalists as it would require dredging at the Great Barrier Reef, a world heritage site, to ship coal to Asia. In line with a global commodities price crash, coal prices has touched a historical low, with most multinational energy giants withdrawing from Australian coal projects in the recent months.
According to Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, the Australian government had previously issued environmental approval but made a material procedural error in the process, which the minister rectified on Thursday. Analysts from UBS and other global brokerages had raised red flags over the project.
However, Buckley said the government’s approval was still being challenged in a case currently before the Queensland Land Court, and a decision was expected in the next three to six months. Coal prices had fallen every month this year, so low quality, new export coal mines were unviable and increasingly unbankable, he added.
The Adani Group, however, emphasised the group was still interested. “Consistent with our public statements over the past several months, we look forward to the remaining government approvals and decision processes being dealt with promptly to ensure these job creating projects get back on track, so the much needed economic benefits of this project can commence and we can continue with our aspiration to build a long term future with Queensland,” it said.
But Buckley said there were other hurdles, including opposition by the traditional owners of land, the Wangan & Jagalingou people. “Once these issues are resolved, there remains the inability of Adani Enterprises, which has a market capitalisation of $1.6 billion, to increase funding for the greenfield mine, rail and port project,” he said.
“With 15 of the largest global financial institutions ruling out this project or walking away from advisory roles, I would suggest the project is unbankable. The six per cent year-on-year decline in Indian utility companies’ thermal coal imports in the six months to September this year likewise shows coal and power minister Piyush Goyal’s aim to cease Indian thermal imports is happening faster than anyone expected. This also removes any long term strategic logic that was originally behind the proposal,” Buckley said.
“ANZ Banking Group last week committed to a new climate policy framework and we expect other Australian bank majors to follow. In light of this, this project’s headwinds are only getting harder,” he added.
Adani promoters already own Abbot Point coal terminal in which the promoters have invested $2 billion in 2011.
ADANI: THE AUSTRALIAN STORY
- May 2011: Adani Enterprises buys Abbot Point coal terminal for $2 billion, plans to develop Carmichael coal mine
- September 2012: Greenpeace objects to project, says dredging will damage Great Barrier Reef
- July 28, 2014: Australian green ministry clears mining project
- November 17, 2014: SBI agrees to lend $1 billion to mine project
- March 27, 2015: Local land owners reject project
- June 23, 2015: Adani asks contractors to stop work at mine site
- August 5, 2015: Federal court cancels approval for project
- September 2, 2015: National Australian Bank joins European and US banks against funding
- October 15, 2015: Australian environment ministry clears project for second time
