November 17, 2017   
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New Delhi, Nov 2  A Chinese state-run enterprise is understood to be being courted as a new partner in return for securing much needed additional government funding for Adani Group’s coal mine and rail proposal in Australia, the US-based Institute for Energy Economics and Financial Analysis (IEEFA) said on Thursday.

In its new report, it said China Machinery Engineering Corporation (CMEC) is understood to be negotiating for engineering, procurement and construction contracts for the Carmichael coal mine and or rail proposal, in return for providing Adani access to funds from the China Export Import Bank and or the China Construction Bank.

“The creation of economic benefit for the home country is the essential role of export credit agencies like the Export-Import Bank of China which would only be involved if there is benefit to China,” an official statement quoting report author Tim Buckley said.

Buckley’s the IEEFA’s Director of Energy Finance Studies, Australasia, which conducts research and analyses on financial and economic issues related to energy and the environment.

The Adani Group’s proposal is targeting financial closure by March 2018.

After seven years of delays, the probability of this latest target being achieved has risen materially over 2017, said the report titled “Are Australian taxpayers about to subsidise a Chinese state owned enterprise?”

According to the report, the Chinese investment would secure jobs for equipment and manufacturing in China and service supply in Australia.

This further weakens the justification that the Australian political support for the Carmichael coal and rail projects is based on the local Queensland jobs Adani has claimed it will create.

“It is also a huge investment and reputational risk for the Chinese government, which would be joining Australian tax payers in bailing out a stranded asset of a tax haven based billionaire family,” it said.

“With the forward price of thermal coal at around $75/tonne, IEEFA estimates Carmichael is both unviable and…unbankable.”

Chinese state-owned enterprise backing raises the probability that Adani can secure financial closure for this long-delayed project.

“However, any Chinese involvement brings significant reputational risks and undermines their global leadership role going into the Bonn climate discussions and in terms of their rise to global energy transformation leadership as America turns inward under President Trump,” the report says.

IEEFA would note there is also some speculation that if China Machinery Engineering Corporation decides to get involved in the Carmichael proposal, the coal’s destination could end up being Pakistan rather than India as long-flagged under the integrated “pit-to-plug strategy”.

China Machinery Engineering Corporation is involved in a number of thermal power projects in Pakistan under the One Belt One Road Initiative, raising a range of new geo-political questions for the already highly-controversial Carmichael proposal.

Further, the price of imported coal on the most recently contracted power plant in Pakistan is set at a landed price of $129/tonne. This makes the proposal anything but a cost-effective solution.

In its earlier report, IEEFA said the Adani Group’s entire A$3.5 billion (Rs 178 billion) debt-funded “investment” in Australia is gravely at risk.

It detailed how Adani’s Abbot Point Coal Terminal has excessive financial leverage, negative shareholders equity and runs the risk of becoming a stranded asset if Adani’s Carmichael mine does not get a $1 billion Australian subsidy.

The Abbot Point Coal Terminal is due for a $1.5 billion debt refinancing next year and cumulative debt refinancing of $2.11 billion by 2020.