China Machinery Engineering Corporation could support Carmichael coal mining project in Australia

Chinese capital could step in as domestic support dwindles due to environmental concerns

CHINA Machinery Engineering Corporation (CMEC) could come in with much-needed financing for the Carmichael coal mining project in Queensland, Australia, according to local press reports.

The project is being planned by Indian conglomerate Adani. A mixture of open pits and underground mines would make it the largest mining operation in Australia. But partly as a result of environmental concerns, politicians have been backing away from crucial support in the form of a US$1 billion loan from the National Australia Infrastructure Facility (NAIF). This loan is needed to link the mines to a port facility at Abbot Point.

Given the controversy over the project, any taxpayer-supported funding is viewed as problematic. Thus, the involvement of a Chinese state-owned entity with deep pockets (either with an equity interest or as main engineering, procurement and construction contractor) could be an attractive solution for Adani.

Australia’s big four banks have all ruled out lending to the Carmichael project. It was recently revealed that Australian government officials had written a letter to their Chinese counterparts confirming that all environmental approvals were in place. Such a letter could have been requested by Adani in order to move forward with financing, and Green party members have asked for clarification whether Adani had requested the letter.

CMEC involvement could bring with it support from entities such as China Export Import Bank, or state-owned commercial bank lenders such as China Construction Bank. Adani is aiming for financial closure by March 2018. The project could cost as much as US$16 billion, with the first coal to be produced in 2020.

Adani was founded by billionaire Gautam Adani, and has interests in mining, coal power generation, renewables, gas distribution and trading.

CMEC is an international engineering contractor, including power, transportation, telecoms and mining. In 2012, CMEC was listed on the Hong Kong Stock Exchange. Its controlling stake is now owned by China National Machinery Industry Corporation. The core business of CMEC is engineering contracting, but as a large international conglomerate, it also extends into trade, investment, R&D and international services.

In January of this year, CMEC president Zhang Chun met with Adani Mining CFO Praveen Khandelwal and Downer EDI chief executive officer David Overall, and the three parties said in a public statement that they held in-depth discussions about relevant projects. Downer EDI is one of the top five coal mine construction and operation companies in Australia, and a strategic partner of CMEC.

Zhang noted that CMEC has experience in development and construction of such projects as the Belgrano freight railway project and the Pakistani Thar Coal Mine, and hoped to co-operate with Adani and Downer to take part in financing, construction and operation of relevant coal mines and railway projects. In addition, he said that CMEC is willing to cooperate with Adani to take part in the development and construction of new energy (such as wind power) projects in Australia as well as traditional and new energy projects in India.

In a separate development, Adani has signed on a 25-year Power Purchase Agreement with Bangladesh Power Development Board for its 1,600MW coal power project in Godda, in the state of Jharkhand.