“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.”
ICICI, one of India’s biggest private banks, has sunk 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, reported abc.net.au.
Lanco has gone bankrupt, giving ICICI effective control of Griffin, which is near the town of Collie 180 kilometres south of Perth. Though ICICI has maintained silence on its plans for the operation of the coal mine, the report mentioned that it was pushing for big increases to the price Griffin receives for its coal.
That 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 homes and businesses. South West Upper House Liberal MP Steve Thomas said consumers should not pay for Griffin’s incompetence. “If West Australians have suddenly got to cover their losses, I think that would be ridiculous,” Thomas said. “It’s a tax on the people and industries here to cover the incompetence of the administration of this company.”
Under long-term contracts Griffin has in place with major customers led by the Bluewaters coal-fired power station, the mine loses money on its coal sale once interest costs and taxes are taken into account.
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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
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Strachan said Lanco not only paid too much for Griffin, but saddled itself with “poor quality” WA coal that was unsuited for export. Even so, he suggested it was inevitable that Griffin’s prices would have to rise
The mine’s poor financial health, along with growing problems at nearby Premier Coal, have fuelled 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. 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.
To fix Griffin’s problems, it is believed, said the report, that the mine’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 end its contracts with Bluewaters and South32 to force a higher price.
Complicating ICICI’s plans is the expiry next July of Griffin’s mining lease with the WA Government, which needs to be satisfied that the mine is financially sound enough to be granted an extension. So far, the Government has kept quiet about its position on the lease.
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. Strachan said Lanco not only paid too much for Griffin, but saddled itself with “poor quality” WA coal that was unsuited for export. Even so, he suggested it was inevitable that Griffin’s prices would have to rise.
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