Friday, August 19, 2011

From pit to port: India's $10bn coal export plan By Andrew Fraser

 Indian energy giant Adani Enterprises has moved foreign investment in Australia to a new level, with a $10 billion scheme to control every stage of its booming coal export business from mine to port.

Photo: Brian Cassey
Queensland farmer Marcel Hall in the middle of his bumper cotton crop yesterday.

 In his first major interview, the chief executive of Adani's Australian operations, Jignesh Derasari, declared the company wanted to control "whatever component the coal touches", including a $3bn railway network to haul coal from the emergent Galilee Basin in central Queensland to two ports, one of which it purchased this year and the other which it will build at Dudgeon Point near Mackay.
 From these outlets, Adani-owned bulk carriers would ship the coal to India to supply a chain of seven power stations operated by the company.
 The scheme is one of the most ambitious vertically integrated resource developments ever proposed in Australia and comes after the federal government rejected bids by Chinese concerns to set up mine-to-port iron ore operations in Western Australia. It will make Adani India's largest single investor in this country.
 The massive mine is being developed in the Galilee Basin about 400km inland of Mackay, Australia's new coal frontier, where Gina Rinehart's Hancock Prospecting and Clive Palmer's Waratah Holdings are also pursuing major developments.
 Hancock Prospecting is in negotiations with Indian company GVK to sell its holdings in the area for $2bn, while Waratah has a contract to sell 30 million tonnes of coal to China over the next 20 years.
 Mr Derasari's candid admission that Adani wants to control the production chain at every level from the Galilee Basin adds another dimension to the intensifying row between coal and coal-seam gas developers and farmers over land access. NSW Premier Barry O'Farrell bought into this yesterday, saying he respected "the fact that there are parts of our state which should and always will be kept as agriculture".
 Mr Derasari told The Weekend Australian that vertigal integration was central to the company's development plan in the Galilee. "Whatever component the coal touches, we would like to be in control of that," he said. "So that means the mine, the rail, the port where the coal is transported out of, the ship that the coal sits on until it gets to the port in India. Then it goes on a conveyer belt to the power station."
 He said Adani wanted to control the production chain to secure supply for its Indian power stations. "It will give us far better control over the way that coal supplies can arrive at our power stations," he said.
 Mr Derasari insisted the project would deliver large economic benefits to Australia in terms of employment and revenue, through direct mineral royalties paid to the Queensland government and spin-off economic activity. There would be 5000 jobs during the construction phase and 3500 permanent jobs, most of them around the mines in a remote corner of Queensland that is mostly given over to cattle production.
 Adani's investment in Australia, totalling about $10bn in mine development and infrastructure costs, has until now attracted little attention. However, it reinforces the importance of India as both a market for Australian commodities and a source of investments in the resource sector.
 Australia's exports to India have tripled over the past five years from about $6bn to $18bn, while the country has gone from Australia's seventh-largest trading partner to No 4 over the same period.
 The vast mine it proposes in the Galilee Basin region of central Queensland will start export operations to India in 2015.
 By 2020, it is forecast to be shipping 60 million tonnes of coal annually, about 15 per cent of total Australian coal exports by volume.
 Adani signed a deal with Australian-owned Linc Energy last year to buy a $3bn coal tenement in the Galilee Basin, and in May this year the company paid $1.8bn for the Abbot Point coal terminal near Bowen, which came on to the market as part of a privatisation program by the Queensland government.
 But Mr Derasari said the proposed mine was so big that it was prudent to have another port operating, and Adani had been named as a preferred developer for a new port at Dudgeon Point, just north of the coal terminal at Dalrymple Bay near Mackay.
 Adani is also proposing two new train lines — one running about 500km directly to Abbot Point and the other running due east from the company's holdings to the town of Moranbah in the Bowen Basin, where it will connect with the existing Queensland Rail coal network.
 The mine will take up part of the giant Moray Downs station, and negotiations are continuing between Adani and Moray Downs's owner, the Acton family, over the sale.
 When the Adani supply chain is in full swing, the 60 million tonnes of coal a year will generate about $2bn a year in coal royalties alone to the state.
 The coal will power India's insatiable energy demands, with economic growth to be sustained at rates of more than 8 per cent each year.
 Growth is forecast to continue at this rate for at least the next two decades.
 Mr Derasari said that while gas and renewable energy were projected to become more important in India over the next 50 years, coal would remain the major source of energy for the country, whose economy has grown at upwards of 8 per cent for the past decade and is forecast to continue at this rate for at least the next two decades.
 The country needs a strong supply of coal to maintain its level of growth, and Adani has a large special economic zone at Mundra on the western coast.
 It operates not only a private port there, but also a large power station, the biggest of the seven it owns throughout India.
 Mr Derasari said that most of the coal from central Queensland was destined for this power station, "but we will probably move them around to where it's needed at that time".
 The rail infrastructure will total about $3bn and the cost of a new port at Dudgeon Point will be about $2bn.
 The mine was already approved by the Foreign Investment Review Board when it was on the market last year, and the company gained approval for the purchase of Abbot Point.
 But Adani is also driving a consensus among the other big miners in the Galilee Basin, Australians Clive Palmer and Gina Rinehart, for them all to use the one common rail corridor instead of them all having different train lines taking up more farmland.
 Mr Derasari said the company had voluntarily surrendered its application to the Queensland government for a separate railway line.
 It was negotiating with the other big mining companies so that there was just the one rail corridor between the Galilee Basin and Abbot Point.
 "It's in the interest of the public to have one alignment and not have three railway lines criss-crossing the countryside," he said.
 "There will probably be more than one railway line, because the volumes of coal coming out of that area are so great.
 "But it would be a win-win on all sides if we could have the railway lines beside each other."
 While owning the ports and railways in connection with a mine is commonplace in Western Australia, with the practice undertaken by Australian companies BHP and Rio Tinto, it has not yet come to the east coast.
 This will be the first example of it in Queensland.
 However, vertical integration has been an issue in Queensland's tourism industry, where there has been concerns about overseas companies, mostly from Japan, owning and operating hotels and nearby tourist attractions.
 India is set to have further interests in the Galilee Basin, as one of the other main miners investigating the region, Hancock Prospecting, is in negotiations with Indian company GVK to sell its holdings in the area for $2bn.
 Given that the other miner active in the region, Clive Palmer's Waratah Holdings, has a contract to sell 30 million tonnes of coal to China over the next 20 years, it appears that most of the coal in Australia's newest coal precinct has already been allocated to Asia's tiger economies of China and India.
 Adani is headed by 41-year-old Gautam Adani, a university drop-out who started his career sorting diamonds.


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