New Delhi: An ongoing legal wrangle signifies just one of the many pitfalls that Indian companies could face in Australia as they rush into that country to seek coal and other minerals.
On Monday, Australia’s Perdaman Chemicals and Fertilizers Pty Ltd said in a press release it had taken legal action against India’s Lanco Infratech Ltd in the Supreme Court of Western Australia. Earlier Lanco, in press advertisements, suggested the dispute was over long-term coal supply from Lanco’s Australian mine Griffin to Perdaman.
But analysts said the legal dispute was an exception and investors could face other risks in Australia such as high valuations, tight deadlines to develop mines, labour shortages, a likely imposition of carbon tax and increasing costs, in what could slow big companies involved in negotiations and deter smaller ones from setting foot in the country.
“Current assets are highly valued due to the state of the global coal market,” said Neil Bristow, consultant, H&W Worldwide Consulting Ltd, from Beresfield in Australia. “The big problem could be the possible lack of understanding on how long it could take to get the necessary regulatory and environmental approvals and to get the mine developed and physical product out onto the market.”
Indian companies including NMDC Ltd, Coal India Ltd, GMR Group and GVK Group and consortium International Coal Ventures Pvt. Ltd are among those eyeing Australian minerals such as coal, iron ore and phosphate. A few others have already acquired assets.
Mundra Port and Special Economic Zone Ltd, the Adani Group company that manages and operates India’s biggest private port, acquired the rights to develop and operate the Abbot Point Coal Terminal in Queensland on a long-term lease in an all-cash deal worth A$1.83 billion (Rs 8,689 crore today) in May.
Before that, Adani Mining Pty Ltd, a subsidiary of Adani Enterprises Ltd, acquired Galilee coal tenement, now known as Carmichael coal project, with 7.8 billion tonnes of resources in Australia.
Adani proposes to establish a 60 million tonnes per annum coal mine in the Galilee basin in central Queensland with a mine life of more than 100 years, the company’s website said.
“I don’t think litigation could be a big issue in Australia,” said Shubhranshu Patnaik, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd in Delhi.
“Australia’s legal and regulatory system is clean. It is a resource-rich country and it gives out assets for its own economic growth.”
Patnaik said the two biggest pitfalls that could bother Indian companies could be developing the deposits within a fixed time to justify investments and developing allied infrastructure such as roads and ports.
“There could be three-four years of time frame for developing the mines. And the problem with developing infrastructure is that you have to collaborate with other mines who will use it,” Patnaik said.
Typically, many of the deposits being offered are greenfield assets in remote areas that take several years of exploration and development and need infrastructure support.
Bristow said the scarcity of workers and domestic politics are issues that mining firms making acquisitions need to be aware of.
“There are emerging labour shortages in Australia of skilled miners, engineers and there are potential trade union labour issues, as illustrated by the current ongoing dispute involving BHP Billiton,” Bristow said. “Lastly, there is political uncertainty in Australia—the minority government and the recent changing of the balance of power in the Senate giving way to the Greens in July, which will be less favourable to the coal industry.”
New taxes could also be bad surprises.
“There might be a carbon tax to be imposed as this is under consideration by the current government. Any carbon tax is likely to be negative for the industry,” Bristow said.
India has a shortage of coal owing to its growing industries and by 2015 would need to import 200 million tonnes (mt) of coal from about 80 mt this fiscal year.