Gautam Adani?s Australian bets

By Vaibhav Parekh

Edited by Anandita Malhotra, Senior Editor, The Indian Economist

Gautam Adani has been called many things over the years, but his audacity is probably the most noteworthy and stupefying. Consider this- Adani will mine the coal from the Galilee basin, transport it in his own railway line to Abbot Point- 400 km away and then ship it to his Indian port from where it will be taken to his own power plants- all of it for a neat $ 10 billion over the next few years.

This gamble has huge risks and potentially high returns. According to ABC Radio, Australia has never seen anything like this and of course, neither has India. Once operational, Adani’s mine will be the biggest in Australia and one of the largest in the world. Building the necessary infrastructure in the Galilee basin will open up its entire area of 2, 50, 000 square kilometers ( slightly bigger than the UK) for exploitation and also breathe life into 5 other megaprojects of other companies in the basin which is expected to hold over 27 billion tonnes.

The scale of the project is enticing the Queensland State Government and the Australian Federal

Government to promise hundreds of millions of dollars to Adani in equity for its proposed rail line to Abbot Point. The other most likely financiers for this project are Australia’s 4 biggest banks- Westpac, NAB, ANZ and CommBank. Prime Minister Narendra Modi’s visit to Australia at the G20 summit saw SBI sign an MoU of $1 billion for Adani’s mining project.

Implementation of Adani’s stratagem is threatened primarily by the environmentalists. Adani’s port extension plans involved dumping around 3 million cubic meters of spoil in the Great Barrier Reef World Heritage Area. Under the pressure of sustained global environmental campaigns, the Australian Government has reversed the permission it had earlier granted and recommended the Calley Valley wetland for dumping waste. The campaigners have also triumphed in forcing the big banks- Citigroup, Goldman Sachs, Deutsche Bank, RBS and others to not fund developments in a world heritage area. However, Adani Mining Australia seems unruffled by such aberrations and is already supporting social initiatives to gain favor within the community.

Market forces are also an impending threat to the company’s coal dreams. From $ 140 a tonne, the prices now are hovering over $ 67 a tonne and Adani is one of the few still making huge investments in coal while others are making quick exits. Speculation over the prices of oil in future has backing for both possibilities. Some believe coal is entering a phase of structural demand decline and is slated to decrease as countries, especially China, reduce their dependence on coal and adopt environment- friendly policies. The opposing chain of thought is that we are witnessing only a cyclical downturn and prices will rise again as India and other developing countries increase power production. So the feasibility of Adani’s plans largely depend on which end of the continuum prices of oil lie in the next few years. Even if the prices rise and the Adani mine gets functional then again the oversupply can set the path for a price cap.

According to Business Today, other needling issue is the Union Minister of State for Power and Coal, Piyush Goyal’s plan to stop imports of thermal coal in next two to three years by doubling the output of Coal India to $ 1 billion by 2019. It would be quite a daunting task to achieve the vision of the Union Minister and if indeed that happens, then Adani’s would be scuttled. Projections for coal prices and global demand hinge on the policies that the Governments adopt, depending on their concern regarding the long-term target of keeping the global temperature rise within 2 degrees Celsius. Viability of Adani’s mining project heavily depends on increase in demand of imported coal in India and appropriate financial backing. Still, the fortunes of Adani Power are worth keeping a watch.

Parekh Vaibhav is pursuing a B.Tech in Electrical Engineering from IIT (BHU), Varanasi and is in his penultimate year. His hometown is Ahmedabad and is a thorough gujju at heart! He has a new-found interest in economics and likes to explore the impact of economic theories in normal, day to day lives. When he is not in the real world, he is most probably dreaming of a tour with friends to explore Europe. He can be reached at- vaibhavparekh12@gmail.com.