India's Biggest Private Bank Bets $1.1 Billion on a Failed Aussie Coal Mine While Poverty Reigns at Home
November 19, 2022 - On Coalfields Highway near Collie, south of Perth, trucks carrying trailers full of coal can be seen chugging their way along the bitumen.
They're hauling tonnes of the black fuel along a highway linking Western Australia's coal industry, and the heart of its power generation system, with the rest of the world.
Only, the trucks are not driving down the hill to deliver the coal to customers further afield or even overseas.
Rather, they're heading up the hill to ensure the coal supplies desperately needed to keep the local power system running and the lights on.
It's all so bizarre, and such a world away from the heady days of 2010 when Indian interests paid top dollar for a coal mine whose owner had gone bust.
Back then, conglomerate Lanco Infratech forked out a hefty sum of $750 million to buy the Griffin Coal mine from the wreckage of Ric Stowe's fallen business empire.
Standing right behind Lanco was India's largest privately owned bank ICICI, a $100 billion behemoth with a loan book worth about $1 trillion.
Buying into flawed dreams
Propelling the deal was an ambitious plan to export up to 20 million tonnes of Collie coal back to the subcontinent.
With a population of more than 1.2 billion people at the time – almost 1.4 billion now – demand for electricity in India was soaring and thermal coal was more valuable than ever.
The export plans were keenly sold to them by the administrators of a failed mine – insolvency giant KordaMentha.
Just as importantly, they were eagerly accepted by a company, and a country, that was keen to stamp its mark on the stage of global energy trading.
But it was always a flawed plan.
Realistically, Lanco was sold a pup – a mirage that it could dig up millions of tonnes of coal each year and export the fuel to a country thousands of kilometres away.
Unlike the eastern states, with their huge complexes of coal mines and railroads to ports, WA's coal industry is effectively landlocked and bound by the domestic market.
Lanco might have been aiming to make its money back by shipping the coal to India, but it first needed to invest billions of dollars building the infrastructure required to handle the trade.
In the meantime, the company was essentially reliant on Griffin's existing domestic business.
That, as Lanco soon found out, was a road to nowhere.
Digging an ever deeper hole
Griffin was locked with its customers into long-term contracts that required the miner to sell its coal for a price that barely covered its costs of production.
Once expenses such as interest on Lanco's debt and bills for maintenance and new machinery were factored in, Lanco was, as they say in business, under water.
From the moment it became obvious Lanco was trapped in a ruinous domestic market with no hope of realising its export dreams, the gig was up.
And yet, even though that point was arguably reached not long after Lanco took the keys at Griffin, it refused to acknowledge the obvious.
Lanco eventually went to the wall in 2017, a rare example of a big Indian company being allowed to fail.
But that just transferred ownership of the Griffin debacle to the company that had been acting as the puppet master all along, ICICI.
Instead of using Lanco's implosion as a chance to cut its losses, ICICI simply dug in and made a bad situation even worse.
When receivers were finally appointed to the mine to head off a takeover attempt by Griffin's biggest customer, the Bluewaters power station, almost $1.5 billion was owed to its lenders and suppliers.
Of this, a staggering $1.4 billion was owed to the so-called secured creditors, who are the first in line to be paid from whatever money can be raised by selling the mine.
ICICI is by far and away the biggest of those, reportedly owed as much as 80 or even 90 per cent of that $1.4 billion.
Hopeless bet, horrible costs
It seems clear that after more than a decade in ICICI's hands, Griffin Coal has become a festering sore on the bank's balance sheet as well as a threat to Western Australia's very power supply.
Worst of all, ICICI has plunged more than a billion dollars into a hopeless bet on foreign soil while hundreds of millions of Indians endure life below the poverty line.
According to the United Nations' Millennium Development Goals, 84 per cent of Indians lived on less than $US6.85 a day in 2019.
Even if the line is drawn lower, there were still 80 million people eking out an existence on no more than $US1.25 a day.
Efforts to get ICICI to talk about, or even acknowledge, the mess at Griffin are futile.
To date, no public disclosure has been made by the bank about the colossal waste of money on a doomed Australian coal mining operation.
Throw in what state Liberal MP Steve Thomas has described as a "mixed-up, murky" deal by ICICI to lend a further $US60 million to Griffin through an obscure third party, and the strange tale only gets more bizarre, and troubling.
That all of this hasn't triggered more questions in India, where ICICI has only just dealt with a major scandal involving its now ex-CEO, is deafening in its silence.
A sorry tale with no winners
It suggests no one in the bank has acknowledged to regulators, shareholders or, just as importantly, the Indian public how bad the whole predicament is.
Perhaps this can be chalked up to what financial analyst Tim Buckley described as the habit among Indian businessmen of "kicking the can down the road".
The problem with kicking the can down the road, though, is it almost inevitably makes the final reckoning so much worse.
In Western Australia, there's an all-too real chance that reckoning could take down the state's main electricity system.
Dr Thomas laments that the consequences at ICICI may only extend as far as "seeing some vice presidents of the private bank lose their jobs".
The real losers, as is depressingly common in these circumstances, are likely to be ordinary Indians, far too many of whom are mired in extreme poverty.
For them, $1.4 billion must seem like an awful lot of money.