Thursday, 20 November 2014

SBI Chief says Adani's Carmichael project viable

State Bank of India chairperson Arundhati Bhattacharya on Thursday defended the $1 billion loan by the country's largest lender for Adani Group's Carmichael Coal Project in Queensland, Australia, and said that the bank's board has yet to finalize the disbursement of the loan.

"This is a Memorandum of Understanding (MoU), this is not a loan sanction that we have given. It will go through proper due diligence, both on the credit side, as well as on the viability side. All of that will be done. The board has to take a call, and only then money will be given," Bhattacharya told reporters on the sidelines of Finance Minister Arun Jaitley's meeting with state-owned bank chiefs in New Delhi.

On November 17, the Australian $7.2 billion coal project was cleared by the Queensland government, during Prime Minister Narendra Modi's visit to Australia for the G-20 Heads of State summit. The Queensland administration also said it would help fund the 388 km railway line which would connect the coal mine to Abbot Point port near the Great Barrier Reef.

Bhattacharya signed the MoU for the $1 billion loan with the Queensland government on the sidelines of Modi's visit. The port and the coal mine has come under a lot of criticism not only because of the environmental concerns by  environmentalists like Greenpeace filing a court case in Australia, but there have also been questions about the viability and financing of the project.

Bhattacharya however said that she had been assured by the Deputy Premier of Queensland, Jeff Seeney, that the state did not have any environmental concerns with the project. "We have checked with the Queensland government. They have clarified that there are no environmental issues. Greenpeace will make a problem anywhere. The threat to the great barrier reef is not from Abbott Point port," she said. "The government has clearly said that there is much more threat to the Great Barrier Reef from farm run-offs and starfish attacks than from this port."

Bhattacharya, who is the first woman to head SBI, also defended the viability and financial benefits of the project. She said that shipping coal to India from Carmichael mine was cheaper compared to transporting it from any other resource-rich nation.

"Over there, coal is available at $42 FOB (Free on Board), whereas even today coal around the world is $62 minimum price. So there is no viability issue and the quality of coal there is excellent. It is much better than the coal we are getting locally at this point of time. So it is much less polluting."

Free on Board is Term of sale under which the price invoiced or quoted by a seller includes all charges up to placing the goods on board a ship at the port of departure specified by the buyer. Asked about the exposure of SBI to the project if its board approves the loan, Bhattacharyasaid the net exposure would be to the tune of $200 million as there are some repayments also from the company.

Critics of the project have also pointed out that because of the risks involved, other banks like HSBC, Deutsche Bank, and Royal Bank of Scotland have stayed away from the project. The PressTrust of India quoted a senior official who refuted news about other banks not involving in the project. "There is already a couple of international banks which have already funded our acquisition of mines in Australia. I don't think it is for public consumption for us to tell which banks are currently considering the project in different stages of approval," the news agency quoted the official as saying.

As reported by Business Standard earlier, at the end of the September quarter, Adani Enterprises had total debt of around Rs 72,000 crore on a consolidated basis, translating into a debt to equity ratio of around 2.94:1. Adani Mining, the Australian subsidiary, itself has $1 billion in debt, negative shareholders funds, zero revenue and high cash burn.

Power minister Minister Piyush Goyal said recently that India should be able to stop importing thermal coal in the next three years (two-third of the Carmichael coal is meant for India). Bhattacharya, however, sounded confident that the demand for coal will only rise as manufacturing picks up, and the power demand, especially in cities, keeps on increasing.