An Australian environmental finance group has warned that businessman Gautam Adani could turn to the Indian government to get his $21 billion coal mine funded, as Australian and international investors increasingly pull out of the project due to environmental concerns.
"The (funding) model now looks like a combination of North Australia Infrastructure Funding (NAIF) funding, State Bank of India (SBI) and foreign export credit providing the bulk of the debt. The remainder would likely rely heavily on Indian commercial banks that Adani has a close relationship with, and some other foreign commercial banks that have not yet ruled out finance," Julien Vincent, the Executive Director at Market Forces, told National Herald, replying to an emailed questionnaire.
Taxpayers in Australia and India are most likely to fill the funding gap that Adani is experiencing, Vincent said.
Market Forces is a Melbourne-based group that lobbies financial institutions to not fund coal projects. The environmental finance group has, of late, been at the forefront of a massive public campaign in Australia to raise awareness about the destructive effects of the upcoming Carmichael Coal Mine, prompting major banks to block funding for the project. Market Forces is now asking Commonwealth Bank, the only major private Australian bank who hasn’t blocked Adani from accessing funding, to withdraw from the project.
What are the possible ways for Adani to fund his project?
The situation has changed a lot over the past few years. Three or four years ago, I would have said that Adani would likely look to finance the project by finding an overseas partner (for instance, a Korean steelmaker or Chinese manufacturer), using that connection to access export-credit finance from those countries, and then working with a consortium of Australian, Indian and other overseas commercial banks to provide the remaining debt.
Since then, a lot of those options have disappeared, as many banks are now out of the running, including half of the world's top twenty lenders to coal and, three of the biggest four Australian banks.
In response, we have seen Adani drastically downscale their initial phase of the project in an attempt to reduce upfront capital costs and the debt burden. The project would still ramp up to the full 60 million tonne (mt) of coal but begin at 20 mt or less. The result is an approximate halving of initial capital costs.
The other key change is that as the list of commercial banks that are unwilling to lend to the project has grown, the project has become increasingly reliant on public subsidies. In Australia, that takes the form of the Northern Australia Infrastructure Facility, which is supposed to support projects that develop Queensland and the Northern Territory but looks more like a cash cow for the Adani project. In India, this looks like the State Bank of India. I'm aware there was a lot of opposition to the suggestion in 2014 that SBI would lend to the project but as I understand, this prospect is still very much alive, having asked people within the bank about it.
A critical point about the funding model now is that for this project to work economically, a lot of the risk needs to be shifted into the Australian taxpayer, the Indian taxpayer and, potentially, the rate payers for electricity, given the likely costs of the power from this project.
Why are banks pulling out of the project so crucial to its success?
When a bank signals it will not lend to coal export projects in the Galilee Basin, it does two important things. First, it shrinks the pool of potential funders to the project. Second, it sends a signal to the rest of the financial market that these projects do not stack up from an environmental perspective, economically, or both. That signal can be highly influential to the rest of the financial market.
It's similar when a bank introduces a policy that excludes or restricts coal finance, as Westpac did recently. That is one less bank unavailable to finance the proposed Carmichael Mine (and importantly, a bank that already has a commercial relationship with Adani) and also another bank making a statement about the future of coal in a carbon-constrained economy.
Is the Commonwealth Bank Adani Group's last flicker of hope to raise major funds for the mine since we now know that three out of four big banks have recused themselves from the project?
I would say that the Commonwealth Bank ruling out the project is quite pivotal now, for a few reasons. The first being that they are Australia's largest company and extremely well capitalised. Also that they have the largest exposure of any commercial bank to Adani's ownership of the Abbot Point Coal Export Terminal.
Were Commonwealth Bank to rule themselves out of the running to finance the Carmichael Mine, it would seriously constrict the finance now available to Adani. This is underscored by the fact that 75% of fossil fuel projects in Australia are funded with at least one of our "big four" (ANZ, Commonwealth Bank, NAB and Westpac) banks involved. To not have a single Australian bank on board would deprive the project not just of finance, but also credibility.
How are environment groups, including yours, ensuring that banks do not fund Adani's coal mine?
We campaign publicly and privately to make the argument that banks should not be financing projects that pose such significant environmental, social and economic risks. We are living in a time where there is a growing awareness of the role of financial institutions in making projects (both positive and negative with respect to the environment) happen.
Banks in Australia—and I would hope in India too—are becoming increasingly accountable to their customers and shareholders, and working to protect their brand and identity from the risks of being associated with activities that threaten the environment and put at risk our ability to contain global warming within manageable limits.
So, we put our arguments clearly to the banks and then try to engage their staff, board members, customers, shareholders and the broader public to call on the bank to rule out finance for projects like the Carmichael Mine, which offer a lot of environmental harm for phenomenally expensive and dirty power in India and elsewhere, and would divert a lot of public finance that could be otherwise invested in sustainable, job-creating projects that move us to the low-carbon economy. We find that most people we speak to are supportive of the campaign and happy to engage the banks to have their say.