Dispute over the federal government’s mooted plan to help fund the Adani mine project is heating up.
In an opinion piece for the Australian Financial Review, Jonathan van Rooyen, general manager of investment of The Infrastructure Fund, attacked the Turnbull government’s plan to provide a $900 million loan to the developers of the massive coal export project in North Queensland, saying that it would amount to risky taxpayer-subsidised distortion of the coal market.
“Capitalism is about competition. Investors understand that. But what we don’t understand is why governments would distort competition and create sovereign risk by subsidising the creation of new competitors to harm the returns of existing assets,” he wrote.
Van Rooyen stated that while the project would undoubtedly create “some jobs” in North Queensland, the government had been “silent” on the negative impact the project would have “on other coal-producing regions, other asset owners and, of course, to employment in other parts of the country”.
Opening a project this large in a time of decline in global demand, van Rooyen argued, would flood a “flat world market” with millions of tonnes of government-subsidised new coal and bring down the world price of the commodity. This would harm the current competitive edge of low-cost extractors in the Hunter Valley and Illawarra, reducing the volume of coal passing through Australia’s coal ports such as the Port of Newcastle, of which Rooyen’s Infrastructure Fund is a part-owner.
Van Rooyen also asserted that the Adani project’s need of government investment points to the very problems he is explicating.
“[If] anyone outside the Turnbull government believed that the world market for coal was going to grow then the Adani project would not need subsidies from Australian taxpayers.”
Matt Canavan, federal minister for resources and northern Australia, responding in the same paper, said van Rooyen’s argument amounted to saying “government investment in Hunter Valley good, government investment in Galilee Basin bad”.
Canavan stressed the importance of past government investment in rail and ports for the achievements of the Australian coal industry, noting in particular its role in developing the port of Newcastle and the Hunter Valley rail network.
“All of these investments have paid off handsomely for governments and the Australian people, with coal now our second-biggest export,” he wrote.
He concluded that the challenge of meeting increasing demand for coal by India meant that the government had to “consider following the same proven strategy”, only this time in North Queensland.
CEO of the NSW Minerals Council Stephen Galilee, also responding in the AFR, wrote that the Port of Melbourne’s monopoly provision of port services meant that van Rooyen only cared about competition “when it suits”.
“There’s no alternative port for the Hunter coal industry to use, so no competition. Is that capitalism? How does that not damage our coal industry?” he wrote.
In a further defence of the Adani project, Brendan Pearson, chief executive of the Minerals Council of Australia, called Westpac’s decision to rule out lending to new coal basin developments “a textbook case of cynical virtue signalling” designed to rule out the bank’s support for “projects in Queensland’s Galilee Basin, including the Adani Carmichael project”.
After emphasising the positive impact he thinks the project will have on the Indian and Australian economies, Pearson argued that Westpac has only “limited exposure” to the resources industry, and that the bank’s decision could not be taken as in any way indicative of the health of coal in Australia and the world.
“Globally the coal generation, and the demand for high quality coal continues to grow strongly. Support from the world’s leading banks has also been strong,” he wrote on the Council’s website.
The CEO’s statements come after Westpac became the 19th bank globally to commit to not funding new coal mines in the Galilee Basin region, including the Adani project. The other three of Australia’s “Big Four” banks are among those not investing in controversial mine.
Governments have traditionally invested in public infrastructure in order to further the interests of the nation. Some of these decisions have been shown to be very wise and good and many of them demonstrated over to time to be very stupid. Circumstances also change, and the prudence of Westpac, as well as the other big three, is indicative of a change in the circumstance of the coal marketplace. The Adani protagonists are obviously not heeding the signs. For sure, the likes of Rooyen will argue a particular bias, in the same way that Pearson or your average sensible environmentalist will do also, but Canavan must ultimately tie the evidence together and make a sensible decision that is in the interests of the Australian people. Personally, at this point in time, a mine and the connecting railway like that proposed by Adani should stack up on its own merits, and the evidence in the public domain suggests that it doesn’t. Will Canavan make a wise decision or will he make a very stupid one?