Adani’s telling meltdown over Westpac’s new climate policy

A protest outside a Westpac bank branch. Photo: Market Forces.

The angry denunciation of Westpac’s new climate policy – which rules out funding for new mines in the Galilee Basin – serves only to underscore how crucial support from at least one major Australian bank was to Adani’s push to win finance for its beleaguered Carmichael coal project.

Now shunned by all of Australia’s big banks – the Commonwealth Bank, NAB, ANZ and now Westpac – as well as a further 15 banks around the world, Adani is desperate and financially dateless.

In its media release following the release of Westpac’s revised climate policy Adani Australia complained Australian banks have “chosen to bow to environmental activists” and decided to “ignore the opportunity to invest” in the Carmichael project.

The banks, Adani complained as it played the nationalist card, would continue to invest in overseas coal projects “at the expense of Australians, many of whom are their investors and depositors.” (Curiously, Adani’s media release is not posted on the company’s website.)

In its policy Westpac committed to “limit lending to any new thermal coal mines or projects (including those of existing customers) to only existing coal producing basins and where the calorific value for that mine ranks in at least the top 15% globally.”

With no existing mines in the Galilee Basin, the bank was explicitly ruling out the Carmichael project – along with other potential but even less viable nearby projects – irrespective of what quality coal they may produce.

By any measure, Westpac’s policy is a cautiously-couched incremental improvement on its previous policy but far from being “anti-coal” as the headline on one Fairfax Media article tagged it. (The divestment campaign group Market Forces has a measured analysis of what the policy does and doesn’t mean.)

Indeed, aside from the huge climate considerations, there are good financial reasons why a bank like Westpac wouldn’t risk backing any Galilee Basin project: the mines would produce low-quality coal and require huge investments in new railway and port capacity at a time the future price of thermal coal appears to be bleak.

Fossil fuel divestment, Canavan-style

As the last-mover of the big four Australian banks away from Adani’s project, Westpac’s retreat took on even greater practical and symbolic significance for Team Coal.

Mining industry lobby groups, federal Ministers and large swathes of Rupert Murdoch’s ailing Australian newspaper mastheads howled of betrayal. “Gutless bank sabotaging Australian future, jobs,” was how one of Andrew Bolt’s anti-Westpac columns in the Herald Sun was headlined. The Minerals Council of Australia – of which Adani is a member – wailed that Westpac’s new policy was “cynical virtue signalling.”

Even though mining industry lobby groups had long ridiculed fossil fuel divestment as an ineffective tactic, Queensland Liberal-National Party Senator and Federal Minister for Resources, Matt Canavan, embraced the core concept by urging a boycott of Westpac and urging its customers to instead support a bank “which is backing the interests of Queensland.”

The hapless Canavan was stumped though when asked why he had a Westpac account, with a spokesman telling the Sydney Morning Herald he “plans to switch to the Bank of Queensland” (BOQ).

Market Forces estimates Westpac loaned almost A$1.5 billion to fossil fuel projects in 2016 but hadn’t funded a new coal project since 2015. The BOQ, on the other hand, is on its list of banks which have no record of fossil fuel funding.

In an October 2016 statement to Market Forces BOQ wrote that “as a smaller bank, we are not involved in financing large mining projects but do lend money to some small and medium sized businesses who could have either direct or indirect exposure to the mining sector.” In dumping Westpac because they aren’t pro-coal enough for his tastes, Canavan may unintentionally divest to a far more climate-friendly bank.

Over the weekend commentators insisted there were other banks in Asia keen to back Adani’s project, though no names were mentioned.

However, international banks typically look to participate in a broad coalition of banks and financial institutions led by major domestic banks. The lack of any domestic commercial bank willing to be involved is a resounding thumbs-down to the viability of the project.

Back in late 2014 the then Queensland Government led by Campbell Newman promised financial support for Adani’s project while the company claimed the State Bank of India (SBI) would loan it US$1 billion. Amidst controversy in India over the mooted loan, SBI’s support evaporated. In March 2015 Newman was defeated at the state election by the Queensland Labor Party which opposed public funding for the project.

Despite the setback Adani sought out public funds from another source: the Turnbull Government’s Northern Australia Infrastructure Facility (NAIF) intended to get otherwise unfinancial projects over the line. Since it was created Canavan has become the leading champion of providing a concessional loan to Adani of up to $1 billion from the fund.

The prospect of taxpayer funds for Adani from the NAIF has spurred criticism from within the coal industry. The head of an investment fund which has a half stake in Newcastle Port, the world’s largest coal export port, decried the prospect as inevitably making the viability of existing coal mines and related projects worse.

Late last week the Managing Director of Aurizon, Andrew Harding, a major coal railway service provider in Queensland, proclaimed that if Adani got a subsidy for its proposed railway “I might find myself siding with the activists.” (Aurizon is not exactly being public-spirited: it has also submitted a bid to NAIF for a cheaper alternative rail link to service Adani’s Carmichael mine.)

Adani has financial problems elsewhere too.

Trouble at home for Adani

Shares in Adani Enterprises – Adani Australia’s parent company – which is listed on the Bombay Stock Exchange and National Stock Exchange in India, slid by 4.5 per cent on the day of the Westpac announcement.

This was on top of a near 25 per cent fall in the previous two weeks, spurred in large part by a Supreme Court of India ruling rejecting a bid by Adani Power and Tata Power to force five states to pay a compensatory tariff because policy changes in Indonesia resulted in higher Indonesian coal export prices.

The share price of Adani Power – a subsidiary of Adani Enterprises – had plummeted as the company extraordinarily had included about US$1.3 billion in compensatory tariff as income in its financial statements even though the legal challenge hadn’t been finalised.

With Adani touting the Carmichael project as largely intended to supply its own imported coal plants in India – such as the 4620 megawatt (MW) Munda coal plant in Gujarat and the 1200 MW Udupi plant in Karnataka – the company may have more domestic challenges to cope with.

While Adani has promoted the Carmichael project as being in the national interests of both India and Australia, the focus of Minister of Power, Piyush Goyal, and the Secretary of Coal, Susheel Kumar, is on cutting coal imports as fast as possible.

Within days of Westpac’s climate policy announcement Kumar told the Indian financial publication Livemint that this financial year – which runs from April to March – the aim is to have Indian public sector utilities importing no coal “and slowly we would convince the private sector that there is no need for you to import coal.”

In the eyes of the Indian government, coal imports are not in the national interest as they are simply a financial drain on the country’s scarce financial resources when domestic fuel – both coal and increasingly renewables – are readily available.

A recent analysis of the Adani Group by the Institute for Energy Economics & Financial Analysis concluded that as private financial institutions have abandoned Adani’s mine plan it would be a big mistake for Australian and Indian taxpayers to back a project that “has never looked more like a stranded asset than it does today.”

The fury directed at Westpac after their climate policy change – by the Federal Minister for Resources among others – reflects the desperate financial isolation of Adani’s project.

Bob Burton is the Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.) His Twitter feed is here.