Wednesday , June 19 2019
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Adani again

Summary:
In pointing out that Adani’s Carmichael mine wasn’t viable without government help, I focused on the possibility of a concessional loan from Australia’s Export Finance Insurance Corporation. As commenters have pointed out, Adani (a prominent crony of Indian PM Modi) looks like being able to charge above-market prices for electricity in India. I’m not clear whether this helps much to make the Carmichael project viable. Over the fold, an exchange I had with Charles Worringham. In other news, it seems likely that Adani will move fairly slowly even after the environmental clearances come through. They’ve announced on their Facebook page that they are filling “more than 50” positions for pre-project work, and there are a dozen or so HQ jobs listed on their jobs portal. That’s a

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In pointing out that Adani’s Carmichael mine wasn’t viable without government help, I focused on the possibility of a concessional loan from Australia’s Export Finance Insurance Corporation. As commenters have pointed out, Adani (a prominent crony of Indian PM Modi) looks like being able to charge above-market prices for electricity in India. I’m not clear whether this helps much to make the Carmichael project viable. Over the fold, an exchange I had with Charles Worringham.

In other news, it seems likely that Adani will move fairly slowly even after the environmental clearances come through. They’ve announced on their Facebook page that they are filling “more than 50” positions for pre-project work, and there are a dozen or so HQ jobs listed on their jobs portal. That’s a long way short of their announcements in January that they were ready to start digging the moment they got the go-ahead.

From Charles

Hi John

Just wanted to get your view (following your calculations about Carmichael mine viability), whether he could make the mine break even if

a) he ships half the coal to the proposed Godda plant in Jharkand, which now has a Special Economic Zone eliminating or reducing a slew of taxes and duties, and a tariff for 35 yrs of 8.6 US cents per KWh (close to Tim Buckley’s estimate of 10.0 US cents per KWh – 8.71 Tk/KWh) which, at a proposed 1496 MW supply from his 1600 MW plant, should bring in about 1.1 bn USD annually (once it’s been built, obviously).

b) the other half goes to his west coast plants including Mundra, now he seems to have secured fom India’s CERC a pass-through of coal costs below USD 110 per ton

Interested in how you see this… if it could work, we could see Indian and Bangladeshi consumers paying over the odds for electricity, subsidised by the Indian and (assuming a royalty deal) Quensland tax-payers – forgetting for the present any environmental issues, greenhouse emissions, displacement of tribal peoples etc.

My reply

Hi Charles,

This seems like the most plausible account of why the mine might be made profitable. However, there are a bunch of technical and political problems.

As regards Jharkand, the deal is hugely favorable to Adani, but there’s no obvious benefit in using Carmichael coal at an internal high price, as opposed to buying it cheaper on the open market.

On Mundra, the same kind of question arises. Adani can pass through increases in the market price of Indonesian coal, but that doesn’t obviously mean that he can set a high price for his own coal and pass that through.

The political problem is that  it’s hard to see these sweetheart deals being sustained for 35 years, regardless of contracts. Modi won’t last forever, and once he goes the position of his cronies will be problematic.

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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