Extract from The Guardian
Results show Carmichael mine in Queensland no longer a viable proposition, analysts say
Adani’s coal-fired power business has reported more heavy losses,
prompting the Indian conglomerate to announce it would shift away from
using expensive imported coal.
Analysts say the fourth-quarter financial results for Adani Power, a subsidiary of the Adani group, showed the proposed Carmichael mega-mine in Queensland was no longer a viable proposition.
Remarkably in the context of the Carmichael project, the billionaire Adani Group boss, Gautam Adani, acknowledged in a statement that the cost of importing coal to India had contributed to Adani Power’s struggles.
“We expect to receive [domestic coal] for the Tiroda and Kawai plants in the near future, which will help reduce fuel costs and improve profitability of these projects,” he said.
“Under-recovery of fuel costs for Mundra project have impacted its financial viability, and we are in dialogue with key stakeholders for an early solution.”
When the Carmichael coal project was first proposed, Adani was pushing a “pit to plug” operational model under which it would mine coal to use at its own generators, making profits through efficiencies and cutting out middlemen.
The Mundra power plant, which operates on imported coal, was the planned destination for the spoils from the Carmichael project. After Mundra fell into financial trouble, Adani attempted unsuccessfully to sell the plant. It has not operated since February.
The Indian financial services company Edelweiss said Adani Power was “on thin ice” and doubted whether Mundra would reopen.
“Management does not foresee a scenario where the Mundra power plant remains shut for the entire year,” Edelweiss said in a market update. “However, we believe there is high probability of the same.”
Another Indian analyst, Axis Capital, said Mundra was “unviable to run at inflated imported coal prices”.
Renewables are gathering pace in India. The Gujarat government announced last week it would build the world’s largest solar project, a 5000MW solar park that would be sufficient to replace the state’s lost power from Mundra.
Adani’s own renewables arm, Adani Green Energy, is poised to launch on the Indian stock exchange.
Tim Buckley, an analyst for the pro-renewables Institute for Energy Economics and Financial Analysis, said Gautam Adani “didn’t become one of the wealthiest man in India by throwing good money after bad on bad projects”.
“The result reconfirms the point IEEFA has made repeatedly. [Adani Power] is unable to provide a viable nor bankable coal offtake agreement for ... the Carmichael proposal.”
Adani Power has two new plans in the works – an expansion of the Udupi power plant in Karnataka, and a new station at Godda in Jharkhand, that would be used to send electricity across the border to Bangladesh.
Each would require about $US2bn in capital to proceed. Currently Adani Power has debts of about $US7.4bn, having lost $US927m last year and $US317m this year.
The company’s net equity – the value of its assets, minus debt – is $US133m. Buckley said another financial loss, even if it was only half the amount recorded this year, would leave the company technically insolvent within 12 months.
“Absent a multi-billion dollar capital raising, neither [Udupi nor Godda] can proceed,” Buckley said.
Adani has now missed two deadlines to find a financial backer for Carmichael.
Saturday’s Townsville Bulletin said Adani would sublet 600sqm of office space at its Townsville headquarters. The Bulletin warned readers “don’t read too much into it”, as Adani already had adequate space.
Adani told Guardian Australia the company was “100% committed to the Carmichael project”.
“There has been no change to our marketing strategy. India will remain the key market for Carmichael coal,” the company said in a statement. “We are also targeting growth in demand for seaborne thermal coal from south-east Asia and continued strong demand from north Asia.
“The seaborne thermal coal market has recorded average per annum growth of 4.9% over the last decade and continued growth is forecast, this will create opportunities for the Australian coal industry.”
The company did not directly respond to questions about whether any offtake agreements had been signed.
The high coal price – which has strangled the balance sheet of Adani power – notionally makes thermal coal an attractive commodity to sell on the open market.
But those high prices have also forced companies, including Adani, to speed up the transition to lower-cost renewables. At the same time banks and governments are facing pressure from environmentalists to divest from fossil fuels.
Analysts say the fourth-quarter financial results for Adani Power, a subsidiary of the Adani group, showed the proposed Carmichael mega-mine in Queensland was no longer a viable proposition.
Remarkably in the context of the Carmichael project, the billionaire Adani Group boss, Gautam Adani, acknowledged in a statement that the cost of importing coal to India had contributed to Adani Power’s struggles.
“We expect to receive [domestic coal] for the Tiroda and Kawai plants in the near future, which will help reduce fuel costs and improve profitability of these projects,” he said.
“Under-recovery of fuel costs for Mundra project have impacted its financial viability, and we are in dialogue with key stakeholders for an early solution.”
When the Carmichael coal project was first proposed, Adani was pushing a “pit to plug” operational model under which it would mine coal to use at its own generators, making profits through efficiencies and cutting out middlemen.
The Mundra power plant, which operates on imported coal, was the planned destination for the spoils from the Carmichael project. After Mundra fell into financial trouble, Adani attempted unsuccessfully to sell the plant. It has not operated since February.
The Indian financial services company Edelweiss said Adani Power was “on thin ice” and doubted whether Mundra would reopen.
“Management does not foresee a scenario where the Mundra power plant remains shut for the entire year,” Edelweiss said in a market update. “However, we believe there is high probability of the same.”
Another Indian analyst, Axis Capital, said Mundra was “unviable to run at inflated imported coal prices”.
Renewables are gathering pace in India. The Gujarat government announced last week it would build the world’s largest solar project, a 5000MW solar park that would be sufficient to replace the state’s lost power from Mundra.
Adani’s own renewables arm, Adani Green Energy, is poised to launch on the Indian stock exchange.
Tim Buckley, an analyst for the pro-renewables Institute for Energy Economics and Financial Analysis, said Gautam Adani “didn’t become one of the wealthiest man in India by throwing good money after bad on bad projects”.
“The result reconfirms the point IEEFA has made repeatedly. [Adani Power] is unable to provide a viable nor bankable coal offtake agreement for ... the Carmichael proposal.”
Adani Power has two new plans in the works – an expansion of the Udupi power plant in Karnataka, and a new station at Godda in Jharkhand, that would be used to send electricity across the border to Bangladesh.
Each would require about $US2bn in capital to proceed. Currently Adani Power has debts of about $US7.4bn, having lost $US927m last year and $US317m this year.
The company’s net equity – the value of its assets, minus debt – is $US133m. Buckley said another financial loss, even if it was only half the amount recorded this year, would leave the company technically insolvent within 12 months.
“Absent a multi-billion dollar capital raising, neither [Udupi nor Godda] can proceed,” Buckley said.
Adani has now missed two deadlines to find a financial backer for Carmichael.
Saturday’s Townsville Bulletin said Adani would sublet 600sqm of office space at its Townsville headquarters. The Bulletin warned readers “don’t read too much into it”, as Adani already had adequate space.
Adani told Guardian Australia the company was “100% committed to the Carmichael project”.
“There has been no change to our marketing strategy. India will remain the key market for Carmichael coal,” the company said in a statement. “We are also targeting growth in demand for seaborne thermal coal from south-east Asia and continued strong demand from north Asia.
“The seaborne thermal coal market has recorded average per annum growth of 4.9% over the last decade and continued growth is forecast, this will create opportunities for the Australian coal industry.”
The company did not directly respond to questions about whether any offtake agreements had been signed.
The high coal price – which has strangled the balance sheet of Adani power – notionally makes thermal coal an attractive commodity to sell on the open market.
But those high prices have also forced companies, including Adani, to speed up the transition to lower-cost renewables. At the same time banks and governments are facing pressure from environmentalists to divest from fossil fuels.
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