Gina’s Bollycoal (Ad)venture

Indian wedding

When Julie Bishop, Barnaby Joyce and Teresa Gambaro collectively claimed more than $12,000 in “overseas study” allowances to pay for flights home from a wedding they attended in India in June 2011 as Gina Rinehart’s guests, the public were rightly outraged.

Public sector governance expert Stephen Bartos said that the legitimacy of the trip would “depend whether there’s any real conflict of interest. It’s a little bit different for backbenchers. If Julie Bishop or Barnaby Joyce aspire to be ministers one day, then the question is, is there anything involved with this that might come back to haunt them?  If there was any possibility that this would be a deal that would require regulatory approval by the parliament that would be a problem,” citing the recent nixed ASX takeover that required legislative changes.

Under intense pressure from the media, the politicians agreed to repay the money (or some of it anyway), so everything should be tickety poo.  Or is it?

Mrs Rinehart was about to clinch a $1 billion coal deal with the bride’s grandfather – G.V. Krishna Reddy, the founder of GVK, an Indian energy and infrastructure company.

GV Krishna Reddy first came to Australia looking for fuel for his power project in India. He switched tracks when he saw an opportunity in the huge, unconstrained mines available here.

Three months after the wedding, he paid Hancock Prospecting, one of Australia’s biggest resource companies, $1.3 billion for Alpha, Kevin’s Corner and Alpha West. His plan is to transform GVK from a middling Indian infrastructure player, struggling with debt and cash flow problems, to a mining major by 2025, which will produce 84 million tonnes of coal a year. To put the number in perspective, India’s total thermal coal imports in 2012 were about 100 million tonnes.

During 2011-12 Reddy travelled to Australia 27 times.

In India, GVK’s operational as well as financial performance has been deteriorating. Singapore’s Changi Airport Group pulled out of a joint deal in 2012, and constraints on gas supplies and a high interest burden have complicated matters. Its gas-based power projects are facing serious supply constraints and all its operating power projects are operating at alarmingly low levels of load factors.

After the deal with Rinehart had been signed, the economic environment got worse, coal prices fell from a peak of $120/tonne to about $90, funding dried up, and Reddy was unable to complete the financial closure as planned.  In June 2012, when the Australian Federal government halted environmental clearances for GVK’s proposed coal mine in Queensland’s Galilee Basin, it became almost impossible to get investors interested.  In January last year it was reported that Reddy needed to raise debt of about $7 billion to achieve financial closure.

Forbes India pointed out the importance of Reddy’s personal connection with Rinehart.

“But mining industry insiders say GVK is lucky to have one of the toughest Aussie voices on its side: Gina Rinehart, owner of Hancock and the world’s richest woman on the Forbes global billionaire’s list. Rinehart is one of Australia’s biggest climate sceptics, a vociferous opponent of carbon taxes, and has lobbied for allowing foreign labour in Australian mining.  The reticent heiress has developed a great relationship with the Reddy family and has made at least six trips to India last year.”

Under a subheading of “Reinventing the rules”, Forbes goes on to say

“Reddy’s biggest challenge is to overhaul the bloated cost structure that has made Australia among the most expensive places to mine in.  Customers are turning to cheaper supplies from Indonesia and elsewhere.

Trying to turn his inexperience into an advantage, Reddy is now questioning every convention and every assumption of Australian miners.

For starters, he has set a clear target: His team has to aim for a price of $50/tonne (freight on board). [Current production costs are about $70/tonne and rail contracts about $8-10/tonne]

Reddy hired McKinsey to help attack the cost culture within the Australian mining industry.

“The kind of equipment you order can make all the difference,” he says. His communication to the Australian team, led by group managing director and CEO Paul Mulder, is clear: “‘Good enough’ is what you need, not ‘best available in the world’.”

Bringing the Australians around to GVK’s way of working was a gradual process, says Reddy.

Reddy says it is silly to look at such a project with “today’s eyeglass”; you have to look at it for the long term. He admits it was touch-and-go till recently. But with environmental clearances in place, it is only a question of taking key strategic calls, he says. Over the next 50 years, the opportunity is enormous in a country with very low political risks.”

In June 2013, Times of India reported that

“Infrastructure firm GVK’s $10-billion Alpha coalmine, port and rail project is uneconomical and represents an unacceptable level of risk to potential investors, says a report by the US-based Institute for Energy Economics and Financial Analysis (IEEFA).

Titled ‘Stranded: A financial analysis of GVK’s proposed Alpha Coal Project in Australia’s Galilee Basin’, the report comes as Australian rail operator Aurizon negotiates to partner with the Indian conglomerate on the construction of the rail and port components of the Alpha project at a cost of $6 billion.

Commenting on the risk profile of the project, former first deputy comptroller of New York and the report’s co-author, IEEFA’s Tom Sanzillo, labelled GVK, “a weak investment partner” and the Alpha project “a quagmire, not an investment”.

GVK is seeking to raise a total of $10 billion capital to build Australia’s largest black coal mine in Queensland’s remote, untapped Galilee Basin, construct 500km of rail infrastructure across agricultural land and floodplains to the coast, and develop a highly controversial coal export terminal through the iconic, UNESCO World Heritage-listed Great Barrier Reef.

The IEEFA report emphasized that GVK has never successfully built or operated a coalmine or any business outside of India. It is overcommitted, with 16 greenfield infrastructure projects worth $20 billion across six asset classes.

Besides being highly overleveraged, carrying debt of $2.8 billion with a market capitalization of only $243 million, GVK faces a plummeting stock price, which has underperformed the Indian share price index by 80% since 2010, said the report.”

Despite concerns expressed by water scientists, on November 1 2013, Greg Hunt approved the 37,380 hectare Kevin’s Corner.  The mine, to be operated by a joint India-Australia consortium, GVK-Hancock, is the first to be approved since the introduction of a new water trigger rule by the previous federal government.

Greenpeace claims Kevin’s Corner will use more than nine billion litres of water a year and the Lock the Gate Alliance says more information on its impact on Galilee Basin groundwater is needed.

In December Mr Hunt gave the go-ahead for three million cubic metres of dredge spoil to be dumped offshore in the Great Barrier Marine Park, 24km northeast off Abbot Point.

He also approved construction of the Adani-owned terminal 0 at Abbot Point and gave the go-ahead for the Arrow LNG facility on Curtis Island, near Gladstone, and its associated gas transmission pipeline.

Whislt it seems it full steam ahead here (ignoring the small matter of money), Mr Reddy’s other ventures don’t appear to be going so well.  On December 10 2013 the Economic Times interviewed Gaurang Shah, Vice President of Geojit BNP Paribas Financial Services, about GVK Power.

“ET Now: It is a single digit stock but it has got some key assets to itself GVK Power, Bombay Airport, Bangalore Airport, some fairly decent road assets as well but of course the mountain of debt crippling it. What would you do with the GVK Power – would you buy it at the current levels?

Gaurang Shah: Absolutely not and these assets howsoever good they are, they get invisible when you look at the mountain of debt as you rightly put it on the company’s balance sheet. Time and again we hear certain news flows as to company is trying to reduce their debt on the balance sheet by getting away or selling out these assets, of course good assets. So, I do not see any reason why I should go ahead and buy a GVK Power or a GMR Infra or a Lanco Infra as a matter of fact and if you do see rallies these are perfect opportunities to off load these stocks if you have it in your portfolio.”

In October 2013, an investigation into illegal mining operations in India was suddenly halted. The investigation had been set up by the government and led to the arrest of public officials for corruption, but was wound up without explanation.

Commencing in 2010, the commission had a mandate to investigate financial transactions between exporters, traders and mining lease owners, as well as illegal practices like mining without a licence or outside lease areas.  U. V. Singh, the commission’s primary investigator, said:

“The government has not stated any reason for instructing us to end our investigations. A full inquiry was not possible.”

However, the information gathered so far revealed high levels of corruption in the industry: so much that two former Congress chief ministers of Goa, Digambar Kamat and Pratapsingh Rane, have been indicted for involvement in illegal mining, as well as failure to safeguard the environment.

Vijay Pratap, convener of the think tank South Asian Dialogues on Ecological Democracy, said:

   “The commission was exposing too much corruption at government level and risked undermining tightly woven corporate collusion with the political class, which has sadly become endemic in the mining industry. This is why the government aborted the investigation.”

According to Madhu Sarin, honorary fellow of Rights and Resources Initiative, the government’s decision to end the investigation proves a failure to protect vulnerable tribal communities.

    “The commission’s termination will have a direct impact on the rights of all those illegally displaced already and under threat of displacement in the future due to non-recognition of their forest rights and being denied the right to decide whether mining in their ecologically fragile homelands should be permitted or not.”

With the increasing interest and investment by foreign mining companies in Australia, some of whom are under real pressure to make money fast, I would suggest it is not a good time to be removing regulations and oversight.

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25 replies

  1. Keep it up. We can only hope some of this might, one day, reach the “MSM” or even the general public who have no idea that there’s a wealth of information available to them within political blogging.

  2. The irony of this given the magnitude compared to the Peter Slipper saga. Conflct of interest and corruption are patently obvious with regards to these people and the current Federal Government. Nothing short of a Royal Commision would suffice when it comes to the involvement of LNP and Labor Governments – State and Federal when it comes to CSG and coal mining.

  3. Don’t forget that Greg Hunt approved another huge mine in the Galilee Basin just prior to Christmas – Clive Palmer’s China First venture. Maybe some of the infrastructure can be shared, and the GVK venture will be more viable – and of course, Gina and Clive will both be ever so grateful. Who loses – apart from you, me, and everyone else who lives here?

  4. Only problem is Gina and Clive don’t believe in sharing….they want their own railways and port facilities…..apparently it has something to do with money and power. In any event it is obvious that Greg Hunt is not interested in protecting the environment, the Reef, our water supplies, arable farms, fauna or flora….all irrellevant when big mining money is involved.

  5. All this wonderful development for the benefit of our country, and all you can do is criticise.

  6. Sorry, there’s only one line there.

  7. All this wonderful development for the benefit of our country, and all you can do is criticise.

    All this wonderful development for the benefit of our richest people, and all we can do is criticise.

    Yeah, that’s pretty much it.

  8. PeterF, you have to ask yourself what will be left of this beautiful country when these amoral mining companies have torn it apart for short term wealth. Australia will finish up being cast aside – used, abused and depleted. You can’t re-grow coal, iron ore or gas (unless you have a few million years to wait). These people only want Australia for the money they can make out of it and don’t imagine they are going to continue to pay employees top wages; when they have enough ‘clout’ then in will come the foreign workers at $10 per hour… And Tony wants to remove the super profits tax. I think the phrase is: GET REAL.

  9. <

    @PeteF

    Tell us a few coal recipes you can cook.

    Tell everyone how to get fracked.

    Or just me …. I don't mind.

  10. Maybe this mob will soon learn, why all those regulations and restrictions arose in the first place.

    Mostly, I assume, were put in place, because of necessity.

    I find it hard, that any became reality, because some minister was out to get industry, or curtail growth.

    Many actually protect small businesses from monopolies and other powerful bodies.

    Yes, it is about making a level playing field, giving all a free go, not just those with the power.

    What is the role of governments in a democracy. Who do they represent. Who are they governing for.

    My guess, is the people, yes all the people, not Capitalism, or any other “ism”. Not the economy. Not the boss,

    It is not as some of the right seem to believe, keeping the poor in line. Yes, and in believing, they are poor, because they are lacking in moral values, or just too stupid or lazy. They see their role, as making these people stand on their own feet, expecting no handouts from the government. What they really believe, is that they are entitled to keep all they make. That they have no responsibility to contribute to the common good does not exist in their eyes.

    We need to fear this ideology, not just because it is wrong, but because it will destroy the economy. They will suffer along with the rest of us.

    They are not, as they seem to see themselves, superior human beings, that know all the answers.

  11. For goodness sakes, Why are you so bold at attacking Gina ? Poor old fag has only 40 Billion. She needs the Love of the Community to make her feel much better. She presided over her own Court case, (Million dollars for each) that is still going on. That money could have been spent on the Poor. No wonder Australia is in the shape it is in.

  12. Recently, I was given a dressing down for referring to Kwistoffer Pyne (AKA #ThePoodle) as the second woman on the front bench. That was taken as demeaning women.

    On behalf of all homosexuals except for Timothy Wilson of the “Human Writes Commission”, I take exception to having that fat old media whore called a “fag”.

  13. I wonder if we will ever get to a day when gender, sexual orientation, and physical appearance are not part of the discussion.

  14. Scotchmisery, great qualifier. You may need to add Alan Jones to it, however.

  15. Gina’s three word slogan for Australia.Mine.Mine.Mine.Doesn’t want to sheare with anyone,

  16. Tony now wants to travel in Bollywood style luxury as well.

    TONY wants his own New Plane
    $250 million for a New V.I.P. Aircraft

    News.com.au reported on 1 January 2014 that Prime Minister Tony Abbott is intending to buy or lease at least one VIP jet capable of carrying up to two hundred passengers.

    The news article suggested that he was considering either the Boeing 777 or Airbus A-330 in VIP configuration at an estimated cost of $250 million per plane.

    It also stated that; the government will seek agreement from media companies to limit criticism of any decision to opt for bigger planes.
    Any negative publicity would be limited to plush add ons such as gold taps or marble sinks.
    Presumably Abbott is asking the media to keep quiet because he intends to embed members of the Canberra Press Gallery in his future VIP jaunts.

    http://northcoastvoices.blogspot.com.au/2014/01/now-abbott-wants-to-spend-est-250.html

  17. Seems that a few people didn’t see where my tongue was.

  18. Good point, Scotchmistery

    @ Kaye Lee

    I wish, but there is an indignant part of me who still wants to call people like Gina or Clive; rich, fat, slobs. These people have so much and could achieve so much for so many – but anything they do is all about themselves.

  19. Now that I have offended over weight people, I would like to present the insightful discussion from Margaret Heffernan on “Wilful Blindness”.

    The talk crosses all boundaries of all issues we are discussing here at AIMN –

    This is what we are fighting against, not the Abbotts or the blighted Bernardi’s but against Wilful Blindness of all of us.

  20. Great video thanks Dianna. None of us will ever be perfect, but reminders like that can help us try harder.

  21. The previous Government, indeed all previous Labor governments back to Gough, recognises how important our trade relationships with Asian nations are. The piece highlighted for me the need for Australian voters to listen to the commentary around those who want to invest in our mineral resources sector, and those who are happy to “get into bed” with them. If they won’t have a bar of GVK, why should they be assisted, by the Government, to set up shop here.

  22. bjk that is what struck me too.

    “GVK has never successfully built or operated a coalmine or any business outside of India. It is overcommitted”

    Analysts have also criticised the way in which Reddy has structured his Australian venture. Ninety percent of the project is owned by the GVK family, and not the listed Indian company GVK Power and Infra (GVKPIL). However, half the risk (debt of about $1 billion) is on GVKPIL’s books. This leads to an unfavourable risk-reward to minority investors

    It is extremely suspicious to me that the family would take on 90% of the company when they are cash strapped. They must have been very certain of success.

  23. A great Video diannaart, and one which I have linked to my Facebook page.

    Since my failed attempt to be smart earlier, I have to say that I am appalled by what is happening in this country, and I do not in any way consider that mining coal could possibly be beneficial. After all the wealth which has been created, what have we got from it? High dollar value which destroys the work/livelihood of thousands of workers, and extreme wealth for a few who were GIVEN the right to extract our mineral wealth. We can only hope that enough will remain for the country to benefit after these leeches have gone. After all, if they pack up and go home, the wealth will still be there for the future.

  24. Thanks for your feedback, PeterF.

    I thought it a particularly well presented talk on wilful blindness.

    I am very fond of the ironic comment myself – often difficult to achieve – even when I have ventured into compete parody (as I have on other blogs) some science denier types actually thought I was serious and I was cheered on by them. Not even emoticons always work.

    I find more people here, than anywhere else, who are willing to think about issues. Most posts are informative and provide great links, some are a welcome challenge and help me rethink – always something more to learn.

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