Adani-linked company update raises questions about mine’s future

The company that was supposed to build a coal power station for Adani’s mine has stopped mentioning it in investor updates, sparking speculation about the project’s future.

The company appointed to build Australia’s controversial Carmichael coal mine, RCR Tomlinson (RCR), has omitted to mention the project in its latest investor presentation, sparking speculation among industry watchers about the future of the project.

Headquartered in Sydney and listed on the Australian Stock Exchange, RCR had since early 2015 mentioned a Memorandum of Understanding (MOU) with Adani to build a coal power station in all of its investor relations presentations. But this was missing from its latest update for the 2017 financial year, released on August 24.

The MOU, which was announced in December 2014, involved RCR building a 150-megawatt power station in the Galilee Basin in northern Queensland, where Adani has plans to build its giant Carmichael coal mine.

The power station would have been the first coal plant to be constructed in Australia for a decade. According to details in its environmental impact statement, it would also burn coal that is more inefficient, and of worse quality than almost anywhere else in Australia. 

The Carmichael mine, meanwhile, would be Australia’s biggest coal mine if it proceeds. It has drawn heavy criticism from environmental groups and indigenous rights activists because of the devastating impact it will have on the Galilee Basin’s ecosystem, the climate, and the rights of Aboriginal communities in the area.

To carry out the project development for the power station, which would be a key source of electricity for Adani’s mine, RCR set up a wholly owned subsidiary, Moray Energy. 

The first stage of the RCR-Adani MOU was an “Early Contractor Involvement” (ECI) process; this is where a contractor gets involved in the early design stages of a planned project, to ensure that it achieves the best and most cost-efficient outcomes. According to RCR’s initial announcement, the ECI stage would be completed by the first quarter of 2015. 

After that, the company would enter into a “build, own, operate, and transfer” agreement for the station. RCR and Adani extended this MOU several times, and it was active until at least March 2018, according to its investor relations reports for the first half of the 2017 financial year, released in February this year. 

In addition to the Moray Power project’s absence in RCR’s latest investor update, the website for Moray Power is offline, and reports say this has been the case since May this year.

RCR Tomlinson and Adani both did not respond to Eco-Business’s queries on the current status of the Moray Power project by publication time. 

Adam Walters, principal researcher at consulting firm Energy & Resource Insights, however, told Eco-Business that this omission was “striking”, because investor presentations tend to follow a very consistent format. 

“Previous presentations said the MOU was valid until 2018, so the fact that just over halfway through 2017 we see it’s not there does raise questions about whether there is still an MOU.”

The MOU could still be valid despite its absence from RCR’s report, but the alteration could also mean that Adani has decided to opt for another provider for this contract, explained Walters. 

The proposed mine has approval to extract as much as 60 million tonnes of coal per year for 30 years; if it is running at full capacity, the mine would certainly need access to very significant amounts of electricity, Walters noted.

Given that the Galilee Basin is very remote and currently lacks any electricity infrastructure, Adani would need to use either a solar-and-diesel solution, a coal fired power station, or a transmission line to Queensland’s main electricity grid to meet its energy requirements when running at, or close to, full capacity.  

But Adani can commence the construction process powered by diesel generators alone, and this source of energy would also suffice if the first phase of the mine’s operations are smaller than the maximum capacity.

So the MOU’s omission from RCR’s investor update could also mean that Adani has postponed or altered its plans to power its mine using coal, but still plans to go ahead with the project, noted Walters, stressing that it was difficult to speculate the true implications of the omission without confirmation from RCR. 

Adani is very serious about creating the impression that it is pursuing the Carmichael mine and associated rail, port, and power station projects. However, when we dig deeper, we often see that the company has failed to commit any serious financial resources to it.

Adam Walters, principle researcher, Energy and Resource Insights

Wiggle room 

More significantly, the omission of the MOU could also point to the fact that Adani’s commitment to the A$16.5 billion (US$13 billion) project is wavering, said Walters. 

“Adani is very serious about creating the impression that it is pursuing the Carmichael mine and associated rail, port, and power station projects,” he noted. “However, when we dig deeper, we often see that the company has failed to commit any serious financial resources to it.” 

For instance, the company in May told the media in Australia that it had deferred a final investment decision on the mine, because the Queensland government had not agreed on a deal that would result in Adani paying lower royalties—that is, payments made to the state by a mine operator to compensate for the natural resources that are extracted—for the mine.

But Adani later clarified to the Bombay Stock Exchange, where it is listed, that it was merely debating a decision on “certain internal budget approvals for pre-construction activities”, which has far smaller scope than a final investment decision on the mine. 

This contradiction shows that “the deferred final investment decision announcement was more bluster aimed at further pressuring the Queensland government”, said Walters. 

Adani went on to tell the media in June that it has given final investment approval for the mine, and also recently announced that it will begin construction on the project by October. However, it does not appear to have the finances to back up this claim, noted Walters . 

While company chairman Gautam Adani said that the project would be funded by foreign banks and a A$1 billion loan from the Federal Government’s Northern Australian Infrastructure Facility (NAIF), NAIF has not approved this loan yet, and several global banks have also ruled out financing Adani following a series of public protests from environmentalists. 

“There is no information in the public domain to indicate that Adani will have in place the necessary finance to build the Carmichael mine and rail project by October,” said Walters.

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