Tag: IEEFA report

Adani’s Carmichael Coal project a house of cards: Report

2017-04-24-IEEFA-Australia-Carmichael-map-200x200-v1-300x300
Map:IEEFA

By SAT News Desk

Melbourne, April 24: The proposed Carmichael Coal project in Queensland by India’s Adani group has once again come under the cloud with a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) saying “Mounting debt across the Adani Group suggests that the Indian conglomerate’s Carmichael mine proposal for northeast Australia has become an increasingly precarious house of cards.”

The report— “Adani: Remote Prospect: Carmichael Status Update 2017”—notes that Adani Enterprise Ltd.’s equity market capitalization has declined from over US$10 billion in 2015 to $1.9 billion today. Relative to net debt estimated at $2.5 billion, this capitalization is wholly insufficient to underwrite even the reduced $5 billion total project cost for Carmichael.

“Adani’s proposal has all the fundamentals of a feckless entrepreneurial scheme reminiscent of those last seen in Australia in the 1980s,” said Tim Buckley, Director of Energy Research at IEEFA and lead author of the report. “Absent massive taxpayer subsidies, no independent investor would give the proposal a second glace given its strategic and financial predicament, particularly set against a rapidly declining market for seaborne thermal coal.”

“The leveraged nature of Adani Enterprises, which controls the Carmichael project, is mirrored across the whole Adani Group,” a IEEFA media release says.

The media release says, “Since early 2015, the Adani group has seen estimated net indebtedness rise by US$3 billion to $15.9 billion. Adani Power alone, mooted as the key off-taker for the Carmichael coal, has net debt of US$7.6bn, and its auditors qualified their most recent review of the company with notes on a material weakness in financial controls. Adani Power, then, is an unbankable off-taker.”

The report describes how the Adani Group currently has a pipeline of US$30 billion of mostly greenfield projects in India in addition to Carmichael, including $10 billion or more in renewable energy proposals plus proposed diversifications into new business areas as various as defense systems and copper smelting.

“Gautam Adani is an ambitious businessman with a broad range of proposals on the table at any one time. Since the purchase of Carmichael in 2010, the forward market value of its coal has declined 50% and thermal coal imports in India are down double digits in line with the government’s stated policy to nearly cease imports entirely by the end of this decade,” Buckley said. “Adani took a calculated business risk on this speculative project in 2010 but the world has changed since then. No longer strategically aligned nor financially robust, today it is less a gamble, more a shot in the dark.”

India’s energy transformation is one of the main drivers of the structural decline of the seaborne the thermal coal that has emerged since 2014.

“India’s government commitment to ending thermal coal imports and its ambitious target of 275GW of renewable energy installations by 2027 is among the forces eating away at the rationale of the Carmichael project.

Record-breaking auctions in India for both solar and wind energy have driven down renewables costs to new lows. Both are now cheaper than new coal in India.”

As a result, coal imports have dropped 22-25 percent year on year over the past two months. Meanwhile, Adani’s Indian renewables and transmission businesses are well aligned with government plans for rapid cost-competitive renewable energy expansion and the provision of electricity to its population.

“Private capital has already vacated the playing field,” Buckley said. “Australian and Indian taxpayers have become the only potential sources of funding, but it should be clear that Carmichael has never looked like more of a stranded asset than it does today.”

Adani’s Aust.Coal project unviable:US report

Gautam Adani

By News Desk

SYDNEY, 26 November 2013: India’s energy giant Adani Group has come under the cloud after a new report released today by the US-based Institute for Energy Economics and Financial Analysis (IEEFA) — Remote Prospects: A financial analysis of Adani’s coal gamble in Australia’s Galilee Basin — warns investors the controversial 60 million tonne per annum Carmichael coal mine and infrastructure project is uncommercial.
Report co-author, IEEFA’s Tom Sanzillo, former first deputy comptroller of New York said, “Our conclusion is that Carmichael presents a picture of unacceptable risk. It’s a high cost coal product in a low cost market in structural decline. The project is uneconomic by any measure,” said Mr Sanzillo.
“This project is on the wrong side of the coal boom. It might have been viable 5 years ago but the market has moved on. Adani bought in at the peak of the coal cycle but failed to predict the structural decline of coal,” Mr Sanzillo said.
“Adani is now overextended with unrealistically ambitious expansion plans, has no successful history of coalmining, has lost share value in critical segments, and is overleveraged, with $US12bn of debt against external market capitalisation of $US5.17bn. It is in not in a strong position to complete this project.”
Adani Enterprises is proposing to develop the 60 million tonne per annum thermal coal mine complex in the remote Galilee Coal Basin, central Queensland, Australia; construct 500km of rail infrastructure across agricultural land and floodplains to the coast; and develop a highly contentious coal export terminal through the iconic, UNESCO World Heritage listed Great Barrier Reef.
Key findings of the report include:
The estimated cost of production of A$87/t (energy adjusted) is likely to be above the global thermal coal price for the foreseeable future, rendering the project uneconomic.
Adani is in a weak financial position to execute such an ambitious project: with external equity market capitalisation at only US$5.17bn against estimated net debt of $12bn, development costs for the Carmichael and Abbot Point T0 coal terminal projects are estimated at US$10bn.
Adani has over-estimated coal quality while under-estimating costs and project complexities. At peak production of 60 million tonnes per annum, Adani’s Carmichael mine would be by far the largest coal mine in Australia in a remote inland region with no power, rail, water or workforce infrastructure. Prior to 2013, Adani’s only other experience in coal mining is a 2–4mtpa coal mine in Indonesia that has consistently performed below expectations.
The project is plagued by delays that continue to squeeze the Adani Group’s cash flow, with the company conceding the 2014 timetable for commencement of production has been pushed out to 2016, but more likely 2017 with full production beyond 2022.
Report co-author Tim Buckley, independent financial analyst said, “Our analysis shows a systemic problem with the financial viability of coal mining in the Galilee Basin. Adani may have thought they
were buying a coal mine, but it is increasingly likely that they have inadvertently bought themselves the world’s most expensive cattle station.”
“The Queensland government’s recent announcement of a royalty holiday for the first movers in the exploitation of Galilee coal signals to the market that these high-cost greenfield projects in Queensland are unviable from an investment perspective.”
Erland Howden, Energy Campaigner Greenpeace Australia Pacific, which commissioned the report, said, “It is clear that the Carmichael project, if developed, will be an environmental and climate disaster. This report shows that the project is also uneconomic.”
Adani Australia was contacted to get their response to the report and by an Email it said, ” Adani Mining will be a long term player in Australia and has complete confidence in the viability of the pipeline projects it is currently developing, including the Carmichael Coal and Rail Project, and the expansion of the Abbott Point Coal terminal.”
“In the short to medium-term these projects will create many thousands of jobs and generate significant flow of economic benefits”
” The motivation at the heart of these reports is short-sighted, vested interests that ignore the long-term fundamentals that underpin Adani’s projects in the Galilee Basin and the development of the country at large,” the response said.