Mumbai: The Adani Group has cancelled an A$2 billion contract with Australian mining services company Downer EDI as part of a cost-cutting drive, the group said on Monday.
Downer EDI is an engineering and infrastructure services provider. The contract relates to the A$16.5 billion Carmichael coal mine project, one of the world’s largest. Gujarat-based Adani Group’s move comes a week after the Queensland government vetoed its request for a loan.
The conglomerate had applied for a Northern Australia Infrastructure Facility (NAIF) loan worth A$900 million for building a 388-km railway line to connect the coal mine to Abbot Point port.
“Adani and Downer have mutually agreed to cancel all Letter of Awards and Downer will provide transitional assistance until 31 March 2018,” Adani Group said in a press release, adding that to achieve the lowest quartile cost of production, it has decided to develop and operate the mine on an owner-operator basis as opposed to the previous arrangement with Downer EDI.
Adani added that the move was “simply a change in management structure” and that it is committed to developing the Carmichael project. Adani and Downer, however, have been the target of an Australia-wide campaign by environmentalists, which could have been a key underlying reason for the companies to call it quits.
Adani Australia currently employs over 800 people and has invested over $3.3 billion in Queensland, the company said.
The Adani Group entered Australia in 2010 with the purchase of the Carmichael coal mine for $500 million. The mine lies in the Galilee Basin, holding one of the world’s largest untapped coal reserves. The group also holds the Abbot Point port which too is facing opposition from environmentalists who believe it will cut into the Great Barrier Reef World Heritage area. The group had plans to build a 388-km railway line to transport coal from the Carmichael mine to Abbot Point coal terminal, from where it could have been shipped to India to fuel its power plants. Experts said funding for such projects is a struggle for companies because of the growing interest in gas-based projects and renewables.
“These are challenging times for coal. The way countries are decarbonizing and increasing share of gas in the primary energy mix and moving towards solar power, future for coal is dim. When Adani bought this field, the reference range for coal was around $135 a tonne but it will never go back to that level. So who is going to produce and consume high-cost coal? We don’t know how the financial closure would be done for this project,” the head of the infrastructure vertical at a consulting firm said on condition of anonymity.
According to the International Energy Agency’s annual coal market report, the global demand for coal will remain nearly flat between 2017 and 2022, leading to a decade of stagnation for coal consumption.