Adani Mine Case Study
The Indian conglomerate, the Adani Group, proposed to build an integrated coal mind, rail and port project in Queensland (hereinafter referred to as The Project). The company stated that it intends to ship the coal to India for the use of its power stations. The three main components of The Project are:
- The Charmichael Coal Mine: the mine is proposed for the Galilee Basin in Queensland with six open cut pits and five underground mines over an area of 30km long. It would be the largest coal mind ever built in Australia and would be amongst the biggest in the world. Adani has initial approval to mine up to 60 million tonnes of coal per annum (Mtpa) from the site for 30 years. It plans to operate the mind for at least 60 years, extracting at least 2.3 billion tonnes of product coal in the process.
- The Carmichael Railway: Adani proposed to build the North Galilee Basin rail to transport the coal to a port on the coast of Queensland.
- The Abbot Point Port: Adani already owns and operates the existing 50Mtpa coal export terminal at Abbot Point (Terminal 1). The terminal is currently shared amongst multiple coal mines in the north of the Bowen Basin. Adani plans to continue to use this terminal to export coal from the Carmichael mine. In addition, it has received approval for a new coal mine terminal - Terminal 0 at Abbot Point. This terminal will have a capacity of up to 70Mtpa. It would be needed when the Carmichael mine is operating at full capacity. The new terminal and the continuing use of Terminal 1 will increase Adani’s coal export capacity to 120Mtpa. All the coals will be shipped through the Great Barrier Reef and the World Heritage Area. However, it is still unclear if Terminal 0 is fully needed should the Carmichael does not operate at full capacity, and whether or not the Take or Pay contracts with existing users of Terminal 1 would be renewed.
Extra information: The Adani Group owns large coal power stations and transmission infrastructure in India. It plans to own all aspects of the power infrastructure in India. Recently, the media has reported that the company has failed to provide sufficient environmental consideration in its business operation in India.
Task 1 : Provide critical analysis of Fahrer (2015)
Task 2: Suppose that you are requested to re-conduct the socio-economic cost and benefit analysis for the project, what would you do in order to improve the quality of the analysis. Few areas of focus: classification and quantification of impacts, monetary valuation of impacts, analysis of impacts, costs and benefits among stakeholders. Provide suggestions and justifications for your suggestions.
Cost-Benefit Analysis for AdaniMine Project
The AdaniMine project is one of the most complex and major projects ever done in Australia. There is need therefore to apply an appropriate technique that can be used to assess the benefits against the costs of the project. The best technique that can be used to analyze the analyses the viability of the project is the Cost-Benefit Analysis (CBA) technique (Abelson, 2015).
Cost-Benefit Analysis helps to determine and attain appropriate economic impact assessment guidelines to assist improve the accuracy, robustness and consistency of the materials to be used in the AdaaniMine project (inputs) (Damigos, 2006). This paper seeks to suggest ways in which the socio-economic costs and benefits analysis of the project can be improved.
Classification and Quantification of Impacts
Although the Input-Output methodology of assessing CBA has been criticized for long by economists due to its weakness of overstating benefits and understating costs, the proper application can make it suitable. In my opinion, the input-output methodology can make CBA analysis for Adani Mine more accurate if the following steps are followed.
- All the inputs for the project should be monetized. Monetizing means assigning a dollar value to all the inputs after valuing them at the opportunity cost. Opportunity cost, in this case, should be the fair market value of those inputs rather than the best price that could be drawn from using an alternative.
- The benefits of the project should be valued based on the society’s willingness to pay for the goods or services produced (output) as opposed to amount to be paid for the product (price). This means that the benefit of Adani Mine project should not only be determined from the price of the output but also the social benefit derived from the project.
Cost and Benefits to Shareholders
Since it difficult to ascertain the costs and benefits attributable to shareholders based on the constant prices, it should be ideal to go beyond the direct costs and benefits of the project.. Indirect costs could be the effect of the existence of the project on the environment while indirect benefits could be the creation of employment opportunities to the community neighbouring the location of the project (Gillespie & Bennett, 2015).
Cost and benefits that are attributable to shareholders should, therefore, be based on both economic and financial analysis. Financial analysis is concerned with direct costs and benefits used and generated from the project while economic analysis includes supplementary social costs and benefits using different techniques of estimation (Gillespie & Kragt, 2012). When Financial and economic analysis is used, benefits are likely to be taken into account at a different basis and therefore create a more accurate basis of conclusion.
To sum up, the quality of the cost-benefit analysis of a project is based on the quality of financial as well as the economic analysis of the project. The quality of analysis done is vital in accepting or rejecting an investment project because both economic, as well as the financial rationality, has to be respected as opposed to only focusing on a positive Net Present Value (NPV) as discussed above.
Abelson, P. (2015). Cost-Benefit Evaluation of Mining Projects. Australian Economic Review, 48(4), 442-452. doi: 10.1111/1467-8462.12132
Damigos, D. (2006). An overview of environmental valuation methods for the mining industry. Journal Of Cleaner Production, 14(3-4), 234-247. doi: 10.1016/j.jclepro.2004.06.005
Gillespie, R., & Kragt, M. (2012). Accounting for Nonmarket Impacts in a Benefit-Cost Analysis of Underground Coal Mining in New South Wales, Australia. Journal Of Benefit-Cost Analysis, 3(2), 1-29. doi: 10.1515/2152-2812.1101
Gillespie, R., & Bennett, J. (2015). Challenges in Including BCA in Planning Approval Processes: Coal Mine Projects in New South Wales, Australia. Journal Of Benefit-Cost Analysis, 6(2), 341-368. doi: 10.1017/bca.2015.12