As a former Treasury official and long-time critic of industry assistance, I’m sympathetic to the Federal Opposition’s criticism of the expected $900 million soft loan from the Northern Australia Infrastructure Facility (NAIF) to Adani for the rail line to its Carmichael mine. Adani has not helped its case by admitting at one stage that it didn’t really need the loan (see this Brisbane Times report), undermining the rationale for the government providing the loan. I suspect the concessional loan would effectively provide Adani with a subsidy of at least $10 million per annum and possibly much more depending on the generosity of its terms.
If I were still in Treasury I would have argued against the Commonwealth setting up the NAIF in the first place, asking what is the market failure the facility is trying to address? Certainly the rationale for NAIF is not in sound economics, and former Treasurer Wayne Swan has raised important questions about its governance, as reported in the AFR.
That said, as a Queenslander and one hailing from Townsville, recognising our State and especially NQ will benefit in a major way from the mega mine (see my post from December last year), particularly through additional employment and the huge revenues from royalties, some hundreds of millions of dollars per annum, I can tolerate the loan, although I would prefer Adani found the money elsewhere.
With our inefficient environmental laws that have allowed protracted “law fare” by environmental groups against the mine, and the risk of policy changes in the future that would jeopardise the project’s viability, a loan from NAIF may be an important signal of commitment to the project from Australian governments, an excellent point made by John McCarthy in his Courier-Mail column this morning.
Knowing that burning coal produces dangerous greenhouse emissions undermines every weak argument supporting this mine’s development. In the near future any activity which promotes fossil fuel production and greenhouse gas emissions, thereby worsening climate change, will be criminalised.
Permitting, authorizing, and subsidizing fossil fuels will soon be banned. Any responsisble members of government who fail to recognize the risks of climate change and adequately address carbon emissions that cause it should be held liable for negligence. I support retroactive legislation to criminalise the promotion and use of fossil fuels. If you understand the science it can’t really be any other way.
Given the financial viability of the Adani project is so line ball that commercial bankers aren’t interested, I think there is a pretty high probability Adani would default on loan. The loan effectively becomes a gifted asset, the capital is written off, and the State ends up with a dud asset.
If the NAIF actually wants to stimulate employment, perhaps they should be looking for projects that actually generate lots of jobs. Mining certainly doesn’t do that.
Yes there is a reasonable chance of that. Great point Jim. Thanks for the comment.
I would be more supportive of the loan if it guaranteed open access for multiple users, which to my understanding is one of the conditions of funding of the NAIF, the issue needs to be clarified, at this stage the rail line is specified as standard gauge, the standard gauge line can carry more than double the current Qld narrow gauge in tonnage, which will mean existing Qld coal wagons which are all narrow gauge cannot use the line, it would then require any potential users to invest in standard gauge coal wagons, that cost alone may prevent many from looking at this line as an option. It also renders the line useless for stock, grain or other agricultural products once mining subsides.
Great points Glen. Thanks