Adani seeks financing from a Chinese State Owned Enterprise (SOE) for it’s Carmichael Mine: IEEFA

A Chinese government state owned enterprise (SOE) is understood to be being courted as a new partner in return for securing much needed additional government funding for the Adani Carmichael coal mine and rail proposal in Queensland, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).

IEEFA’s research notes that China Machinery Engineering Corporation (CMEC) is understood to be negotiating for engineering, procurement and construction (EPC) contracts for the mine and/or rail proposal, in return for providing Adani access to funds from the China Export Import Bank and / or China Construction Bank.

“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,” said Tim Buckley, director of energy finance research, Australasia and author of the report.

“A Chinese SOE investment would secure Chinese jobs for equipment and manufacturing in China and service supply in Australia. This further weakens the justification that the Australian political support for the Carmichael coal and rail projects is based on the local Queensland jobs Adani have claimed it will create.

“It is also a huge investment and reputational risk for the Chinese government which would be joining Australian tax payers 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.

“With the forward price of thermal coal at around US$75/t, IEEFA estimates Carmichael is both unviable and (absent the NAIF loan) unbankable.

“Chinese SOE backing raises the probability that Adani can secure a financial close for this long delayed project. However, any Chinese involvement brings significant reputational risks and undermines their global leadership role going into the Bonn Climate discussions and in terms of their rise to global energy transformation leadership as America turns inward under President Trump.

China has stepped up as a global climate leader, a position completely at odds with an Chinese SOE concurrently facilitating the development of the world’s largest new thermal coal basin.

IEEFA would note there is also some speculation that if CMEC decides to get involved in the Carmichael proposal, the coal destination could end up being Pakistan rather than India as long flagged under the integrated “pit-to-plug strategy”. CMEC is involved in a number of thermal power projects in Pakistan under the Belt Road Initiative, raising a range of new geo-political questions for the already highly controversial Carmichael proposal.

Further, the price of imported coal on the most recently contracted power plant in Pakistan is set at a land price of US$129/t. This makes the proposal anything but a cost effective energy poverty solution.

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HoldfastAdani seeks financing from a Chinese State Owned Enterprise (SOE) for it’s Carmichael Mine: IEEFA