Indian owners of failed West Australian coal in $1 billion quest to salvage calamitous bet

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

ICICI, which is India’s biggest private bank, has plunged about $1.1 billion into the Griffin Coal mine, which was put into receivership in September owing almost $1.5 billion.

The debt owed to ICICI has ballooned since the bank funded the initial $750 million takeover of the mine by Indian conglomerate Lanco Infratech in 2010.

Lanco has since gone bankrupt, handing ICICI effective control of Griffin, which is near the town of Collie 180 kilometres south of Perth.

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

The suggestion has drawn fire from the state opposition, which said a big price increase for Griffin’s coal would amount to an “incompetence tax” to be paid by WA households and businesses.

Steve Thomas addresses media at a press conference
South West Upper House Liberal MP Steve Thomas says consumers shouldn’t pay for Griffin’s incompetence.(ABC News: Andrew O’Connor)

“If West Australians have suddenly got to cover their losses, I think that would be ridiculous,” Liberal MP Steve Thomas said.

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

What price an energy fix?

Under long-term contracts Griffin has in place with major customers led by the Bluewaters coal-fired power station, the miner loses money on its coal sale once interest costs and taxes are taken into account.

The mine’s poor financial health, along with growing problems at nearby Premier Coal, are fuelling deepening concerns for the security of WA’s main electricity grid heading into summer.

Coal is still used to generate about a third of the power produced in the south west interconnected system, which supplies more than a million customers in the state’s south.

But problems at Griffin and Premier have led to shortages of coal, which is now being imported into WA from Indonesia and New South Wales in spite of record global prices for the commodity.

State-owned utility Synergy operates two big coal-fired power stations at Collie, supplied by Premier Coal, though both plants are slated for closure by 2029.

Although the terms of Griffin’s long-term contracts are confidential, previous reports have put the price the miner receives for its coal at $40 to $50 a tonne.

Last coal - Transmission
Bluewaters coal-fired power station is Griffin’s biggest customer and a key part of the power grid.(ABC News: Daniel Mercer)

Figures provided in State Parliament show Griffin produces about 2.5 million tonnes of a coal year, providing the lion’s share to Bluewaters and much of the rest to an alumina refinery owned by listed company South32.

In a bid to fix Griffin’s problems, it is believed the miner’s ultimate owners led by ICICI are seeking a price increase of about $20 a tonne for the coal it produces for the next 10 to 20 years.

What’s more, ICICI’s decision to jointly appoint a liquidator alongside a receiver in September has led to speculation 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 disclaim or renounce a contract deemed unprofitable.

State keeping tight-lipped

Complicating ICICI’s plans is the expiry next July of Griffin’s mining lease with the WA Government, which needs to be satisfied the miner is financially sound enough to be granted an extension.

So far, the Government has kept tight-lipped about its position on the lease.

Earlier this month, State Energy Minister Bill Johnston suggested the State had little appetite to intervene in the Griffin affair or the problems affecting Chinese-owned Premier coal.

A man leans over the back of a machine that looks like it is used to break rocks. It sits in a large coal pit.
Griffin Coal’s owners have dug themselves an ever deeper hole over the past 12 years.(ABC News: Hugh Sando)

“We’re always very concerned about the operations of the coal assets in Collie,” Mr Johnston said.

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

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

“We can’t expropriate those assets without very, very significant compensation which would be an unnecessary burden on the taxpayers of Western Australia.

“And it would allow those companies to make money that they would not otherwise make it they continue their operations.

“We’re not going to transfer wealth from the taxpayers of Western Australia to the foreign owners of these two companies.

“That wouldn’t make sense.”

Griffin’s owners ‘need to go’

Opposition MP Dr Thomas was sympathetic.

Dr Thomas, who represents the South West region in State Parliament’s Upper House, said Griffin’s woeful operating and financial performance over the past 12 years suggested there needed to be a change in ownership.

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

Details of the deal, which emerged this month, show a heavily indebted Indian firm called Sindhu Trade Links, through its Australian subsidiary Oceania Resources, is the most senior lender to Griffin after extending a $US60 million loan ($90 million).

A truck moves across an open cut mine
Open-cut coal mining in Collie continues to feed WA’s energy needs, but at a diminishing rate.(ABC South West: Anthony Pancia)

This is despite Sindhu borrowing the money from ICICI.

However, Dr Thomas said he had “little faith” that ICICI would relinquish control of Griffin, arguing the bank had shown no signs it was willing to recognise its losses.

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

“I suspect that even though it should and needs to, it won’t happen.

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

“This is a dreadful situation that only India and its banks and regulatory processes can fix.

“But I have zero faith a fix is on its way.”

Government in ‘terrible position’

Mining analyst Peter Strachan said ICICI was 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 saddled itself with “poor quality” WA coal that was unsuited for export.

Nevertheless, he suggested it was inevitable that Griffin’s prices would have to rise.

“Getting coal for say $US70 a tonne would be a good if not great deal for WA in a market where alternative coal imports from Indonesia or NSW might cost over $US200 a tonne in the current coal market,” Mr Strachan said.

Griffin fears - Coal ship
Shipments of coal have started arriving in WA to top up failing local supply.(ABC South West: Anthony Pancia)

According to Mr Strachan, the Government was in a “terrible position” given its two remaining coal power stations were due to close within seven years but the replacement renewable energy had yet to be built.

He said the Government could help strike a “hybrid” deal that would allow ICICI to walk away while handing control of the mine to a reputable operator, though he acknowledged this would not come cheap.

“Any operation willing to take on such a short-term supply contract is going to want an arm and a leg to perform,” he said.

“This situation shows how short-term privatisation gains from selling public assets can come back to haunt governments when the wheels fall off.”

ICICI has not responded to requests for comment.