Stopping Adani mine would pose no sovereign risk to Australia

Photo by Chris Pearce: Saul Eslake
This article by Michael Koziol (The Sydney Morning Herald 20 May 2018), investigates the Adani coal mine and the claim that cancelling it would create a “sovereign risk” for Australia, according to the view of former chief economist for the ANZ Bank. Given the source, it is worthwhile reading and considering.

Stopping the Adani coal mine would pose no “sovereign risk” to Australia, and politicians on both sides have willingly misled people into thinking otherwise, says respected economist Saul Eslake.

The former chief economist of ANZ told Fairfax Media the major parties were “abusing the term” for political gain when in fact there had been no impact on Australia’s sovereign rating because of decisions taken on environmental grounds.

In a paper commissioned by the Australian Conservation Foundation, Mr Eslake found there was “absolutely no reason” the country’s sovereign risk would be affected if a future government stopped the Adani mine proceeding for environmental reasons.

Nor were the banks likely to downgrade Australia’s risk rating. “Banks wouldn’t be concerned, because banks don’t want to loan to it anyway,” Mr Eslake told Fairfax Media in an interview.

The verdict by one of Australia’s most prominent economists, flies in the face of arguments from Labor and the Coalition.

Before the Batman byelection, at which Labor had to woo left-wing voters in inner Melbourne, it was reported Opposition Leader Bill Shorten had to be talked out of outright opposition to Adani by senior colleagues concerned about sovereign risk.

Resources Minister Matt Canavan accused Labor of seeking to “trade off our country’s investment reputation for some cheap votes”.

In interviews since, Mr Shorten has argued “you can’t simply ban it and create sovereign risk” and said an incoming Labor government would not “rip up contracts” made by previous governments.

Mr Eslake pointed out “there is no contract” between the Commonwealth and Adani. He said the term “sovereign risk” had a specific meaning – the chance that a government will default on its debt – and politicians were abusing it to confuse and mislead voters.

“You can’t describe every time a government makes a decision as sovereign risk, otherwise the term has no meaning,” he said.

“Sovereign risk is not the risk a government might change its mind or make a decision I don’t like.”

Governments regularly made environmental decisions that did not affect sovereign risk, Mr Eslake said, such as bans on uranium mining, domestic gas controls and logging restrictions.

Decisions by the Coalition government to block the sale of the S. Kidman and Co land portfolio, or prevent the takeover of Graincorp, had also been unfairly portrayed as a credit risk, he said.

“They do this for a reason, people who abuse language,” Mr Eslake said. “People use these terms because they know how ordinary people who are not familiar with it, are going to interpret it.”

It was “probable” that a decision to stop the massive Adani project would cause global mining giants to re-evaluate Australia’s attractiveness as an investment destination, Mr Eslake said. But that evaluation would be relative, and Australia would still beat most of its competitors, he said.

An Adani spokesperson reiterated the firm was committed to the mega-mine as recently as Thursday last week, despite ongoing delays in securing finance for the $16.5 billion project.

Australian Conservation Foundation chief executive Kelly O’Shanassy said Mr Eslake’s report was further evidence that “attempts to justify support for Adani’s dirty coal mine are falling like dominoes”.

 

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