LAUNCESTON, Australia (Reuters) - The world’s biggest planned coal mine is once again lurching toward the finish line as India’s Adani Enterprises moves ahead with a final decision on its Carmichael project in Australia.
Even if Adani does approve the $4 billion thermal coal and rail project in central Queensland state, the venture is shaping up as a turning point for coal in Australia, with consequences for the industry across Asia.
The first implication of the Carmichael saga is that it shows that major coal projects in Australia need subsidies from governments to be viable, undermining the industry assertion that coal is the cheapest source of energy and has a major competitive advantage in Asia.
While various Australian governments have invested in infrastructure for mining in the past, the Carmichael mine had been touted as proof that profitable ventures could be done entirely by the private sector, with government support limited to ensuring a competitive regulatory framework.
Much of the recent controversy over the mine has centred on two issues, both of which go to the heart of just how cheap coal is as a fuel source.
First, Adani delayed making a final investment decision on the 25-million-tonne-a-year mine, saying on May 22 that it had yet to reach a deal on royalty payments with the Queensland state government.
While the details of the company’s talks with the state government haven’t been made public, the main issue appears to be Adani’s desire to have either a royalty holiday for the initial period of operation, or extended payments.
For its part the Queensland government has been adamant that Adani will have to pay the royalties due, but at the same time sources within the Labor Party-ruled state have said the government is considering flexible arrangements for the Adani project.
The issue has effectively wedged the state government, as Premier Anastasia Palazsczuk has to balance her desire to create jobs against a public resentful of giving tax breaks to foreign corporations to extract natural resources that can’t be replaced.
Second, Adani wants the federal government to agree to loan it about $1 billion to develop the rail infrastructure to the mine, which is located in the remote Galilee Basin, more than 200 kilometres (120 miles) from the port to be used for exporting the coal.
Once again, Australia’s Liberal Party-led federal government is facing a choice similar to its Queensland state counterpart.
If the federal government does advance the loans in the name of job creation, it will face questions from the media and environmentalists opposed to the mine as to how many jobs in other parts of the economy could be created with an investment of $1 billion.
Both the federal and state governments also have to deal with a well-funded environmental campaign against the Adani mine and a public that is increasingly sceptical about giving cash to foreign corporations.
This is especially the case in the wake of media reports about the lack of taxes being paid by the global oil firms that have invested some $200 billion in making Australia the world’s biggest exporter of liquefied natural gas.
Adani said on Tuesday that it has reached an agreement with the Queensland government on royalties, without disclosing details, and it will consider a final investment decision on the Carmichael mine at its next board meeting, due within a month.
If the Adani board does decide to go ahead with the mine, it’s likely to be a difficult and fraught process, as environmentalists will use every legal avenue and possibly some illegal methods of protest to try and halt it.
While the activists are opposed to any and all coal mining, it could be argued that even if they lose the Carmichael battle they may end up winning the coal war, as any company considering building a new mine would be wary of the reputational damage that will invariably come with the project.
Governments may also be wary of investing political capital into new coal projects, calculating that the economic benefits are outweighed by the costs, both in terms of using taxpayer money for loans or subsidies, and the potential for lost voter support.
The Carmichael mine was supposed to be a game-changer. It was the pioneer project for opening up a new coal basin in Australia, and the template for how private companies could handle major resource projects, meet Asia’s appetite for energy and contribute to Australia’s economic growth.
However, it has already been scaled back from an initial assessment it could produce as much as 60 million tonnes a year to just the 25 million now being touted, with attempts to limit costs the reason for the less ambitious project.
Carmichael, if finally approved and built, may well end up as a game-changer, but not in the way intended.
The mine could become the poster child for how coal is now reliant on government largesse, how it can no longer compete against cheaper and cleaner rivals, and how it damages the reputations of anybody brave enough to go near it.
Editing by Christian Schmollinger