Was Adani able to clinch this loan merely as a result of his proximity to Prime Minister Narendra Modi?
SBI's decision, albeit subject to a 'detailed assessment of the company's mine' has raised several eyebrows, and not merely because of the array of problems the project poses with regards to environmental concerns, legality and fundamental viability.
Questions have been raised on social media also on whether Adani was able to clinch this loan merely as a result of his proximity to Prime Minister Narendra Modi, given serious doubts raised from several quarters about the prospects of this project.
Here are 5 reasons that make one question whether financing the development of Adani's Carmichael mine is in SBI's best interests:
Project Viability - A slump in coal prices to five-year lows of $70 a tonne has put the commercial viability of the project into question. The US-based Institute for Energy Economics and Financial Analysis estimated last year that the cost of production is likely to be above the global thermal coal price for the foreseeable future. Others reckon that cash cost of production roughly equals revenue currently.
Project viability risks were also reflected in Australian firm Linc Energy's decision to sell its rights to future royalties from Adani at a mere $155 mn when the net present value of the royalty stream has been estimated at A$600 million. "This implied, Adani and Linc had put a 25 per cent to 30 per cent probability on the Carmichael project going ahead" two analysts told Reuters.
One of which is legal. Despite Australia’s Queensland state granting all environmental clearances to the project, the company is still battling it out with green campaigners in courts, who are arguing that dredging activities by the company pose threats to the Great Barrier Reef. This makes ruling out future litigation risks difficult.
Other banks are staying away from the project precisely because of such risks. Greenpeace had said in July that the Royal Bank of Scotland, Deutsche Bank and HSBC had distanced themselves from Adani’s venture citing potential environmental damages. ABC reports that Goldman Sachs, Citigroup and JP Morgan Chase, in a pre-emptive action taken last month, have joined the bandwagon, saying they rule out funding involvement in the project located in Central Queensland's Galilee Basin. Ironically Morgan Stanley, which Adani had hired to sell a stake in Abbot Point Coal Port too has expressed concerns on the environmental impact of the project according to the Wall Street Journal.
All of this is making it difficult for Adani to secure much needed debt funding it will need for capital expenditure. The company is still negotiating with South Korean giant POSCO to secure funding, while the state government of Queensland, in what is a small spark of good news, has decided to commit short-term minority stakes in the rail and port infrastructure.
While the analysts are skeptical, the company is upbeat on raising funds in time. “People have been very sceptical about the financing of this project. As we always said, we’ll keep getting this, one by one. The pieces are falling in place,” Jeyakumar Janakaraj, chief executive officer of Adani Mining, told Reuters.
Coal Self-Sufficiency - Last but not the least, Power & Coal Minister Piyush Goyal's comments that India may be able to stop import of thermal coal in the next 3 years, though hyperbolic, seriously threaten to knock this project off balance. Adani is expected to export two thirds of the coal output from Carmichael to India and these assertions by the Union Minister along with bearish forecasts for a revival in coal prices which Tim Buckley of IEEFA described as a commodity in 'structural rather than cyclical decline' don't paint a pretty picture for what the future heralds for Adani's adventure down under.
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