A middle-aged Indian female in traditional garb has hands on hips as she smiles in front of coal mine

Foreign owners of failed Australian coal mine seek nearly $1 billion ‘incompetence tax’

The giant Indian bank behind a failed coal mine at the heart of Western Australia’s growing energy crisis is seeking nearly $1 billion to salvage its disastrous position.

ICICI, India’s largest private bank, has injected about $1.1 billion into the Griffin coal mine, which went into receivership in September over nearly $1.5 billion in debt.

Debt to ICICI has skyrocketed since the bank funded Indian conglomerate Lanco Infratech’s initial $750 million takeover of the mine in 2010.

Lanco has since gone bankrupt and has given ICICI effective control of Griffin, which is located near the town of Collie, 180 kilometers south of Perth.

Despite the bank’s continued silence on its plans for the operation, ICICI is understood to be pushing for large increases in the price Griffin receives for its coal.

The proposal was attacked by state opposition, who said a large price hike for Griffin’s coal would amount to an “incompetence tax” to be paid by WA households and businesses.

Southwest House of Lords Liberal MP Steve Thomas says consumers shouldn’t be paying for Griffin’s incompetence.(ABC News: Andrew O’Connor)

“If Western Australians suddenly had to cover their losses, I think that would be ridiculous,” said Liberal MP Thomas.

“It’s a tax on the people and industries here to cover the incompetence of the management of this company.”

How much does an energy fix cost?

Under long-term contracts Griffin has with major customers led by the Bluewaters coal-fired power plant, the miner loses money on his coal sales once interest costs and taxes are factored in.

The mine’s poor financial health, combined with growing problems at Premier Coal, are fueling growing concerns about the safety of WA’s main power grid in the summer.

Coal is still used to generate about a third of the electricity in the southwest interconnected system, which serves more than a million customers in the southern state.

But problems at Griffin and Premier have caused shortages of coal, which is now being imported into WA from Indonesia and New South Wales, despite record world prices for the commodity.

State-owned utility Synergy operates two large coal-fired power plants in Collie, supplied by Premier Coal, although both plants are due to close by 2029.

Although the terms of Griffin’s long-term contracts are confidential, previous reports have estimated the price the miner is receiving for his coal at $40 to $50 per ton.

Last coal - transmission
The Bluewaters coal-fired power plant is Griffin’s largest customer and a vital part of the power grid.(ABC News: Daniel Mercer)

Figures provided to the state legislature show Griffin produces about 2.5 million tons of coal a year, supplying the lion’s share to Bluewaters and much of the rest to an aluminum refinery owned by publicly traded company South32.

The mine’s ultimate owners, led by ICICI, are believed to be seeking a price increase of about $20 per tonne for the coal it produces over the next 10 to 20 years to solve Griffin’s problems.

Additionally, ICICI’s decision in September to jointly appoint an insolvency practitioner along with a receiver has led to speculation that Griffin could tear up its contracts with Bluewaters and South32 to force a higher price.

Section 568 of the Corporations Act gives a liquidator the power to refuse or abandon a contract deemed unprofitable.

State keeps a low profile

Complicating ICICI’s plans is Griffin’s mining lease with the WA government, which expires next July and will need to be persuaded the miner is financially sound enough to secure an extension.

So far, the government has remained silent about its position on the lease.

Earlier this month, State Energy Secretary Bill Johnston indicated that the state had little desire to intervene in the Griffin affair or the issues affecting Chinese-owned Premier Coal.

A man leans over the back of what appears to be a machine used to break rocks.  It sits in a large coal mine.
Griffin Coal’s owners have been digging a deeper and deeper hole for the past 12 years.(ABC News: Hugh Sando)

“We are always very concerned about the operation of the coal facilities at Collie,” said Mr. Johnston.

“But we can only comply with the laws of Australia.

“These are foreign-owned companies and they have clear legal rights under Australian law.

“We cannot expropriate these assets without very, very substantial compensation, which would be an unnecessary burden on Western Australia’s taxpayers.

“And it would allow these companies to make money that they wouldn’t otherwise make by continuing to do business.

“We will not transfer any assets from Western Australian taxpayers to the foreign owners of these two companies.

“That wouldn’t make any sense.”

Griffin’s owners ‘have to go’

The opposition MP Dr. Thomas showed compassion.

dr Thomas, who represents the South West region in the upper house of the state legislature, said Griffin’s poor operational and financial performance over the past 12 years indicated a change in ownership was needed.

He pointed to what he described in Parliament as a “muddled and murky” deal between ICICI and an obscure Indian company with a junk credit rating as another red flag.

Details of the deal, revealed this month, show that a heavily indebted Indian firm named Sindhu Trade Links, through its Australian subsidiary Oceania Resources, is Griffin’s main lender after it secured a $60 million ($90 million) loan US dollars) granted.

A truck drives through an opencast mine
Collie open pit coal mining continues to meet WA’s energy needs, but at a declining rate.(ABC Southwest: Anthony Pancia)

And this despite the fact that Sindhu borrowed the money from ICICI.

dr However, Thomas said he had “little confidence” that ICICI would relinquish control of Griffin, arguing the bank had shown no signs it was prepared to acknowledge its losses.

“For the well-being of the South West community and for Collie, I think there needs to be a change of ownership at Griffin,” said Dr. Thomas.

“I suspect it won’t happen, although it should and must.

“And that’s a bad outcome for the community.

“This is a terrible situation that only India and its banking and regulatory processes can fix.

“But I have zero confidence that a solution is on the way.”

Government in ‘terrible situation’

Mining analyst Peter Strachan said ICICI is trying to atone for its poor due diligence in backing Lanco’s original $750 million bet on Griffin.

Mr Strachan said Lanco not only paid too much for Griffin, but loaded itself with “poor quality” WA coal unsuitable for export.

Still, he suggested that Griffin’s prizes must be inevitable.

“Getting coal at say $70 per tonne would be a good, if not great, deal for WA in a market where alternative coal imports from Indonesia or NSW cost over $200 per tonne in the current coal market could,” said Mr Strachan.

Griffin fears - colliery
Coal shipments have started arriving in WA to fill the local supply shortage.(ABC Southwest: Anthony Pancia)

According to Mr Strachan, the government was in a “terrible position” as its two remaining coal-fired power stations were due to close within seven years, but the renewable replacements had yet to be built.

He said the government could help secure a “hybrid” deal that would allow ICICI to walk away while handing over control of the mine to a reputable operator, although he conceded it wouldn’t come cheap.

“Any operation willing to accept such a short-term supply contract is going to need an arm and a leg to function,” he said.

“This situation shows how short-term privatization gains from the sale of public assets can fall back to haunt governments when the wheels fail.”

ICICI has not responded to requests for comment.

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