18 October 2018
Aurizon’s relationship with Indian coal mining giant Adani dominated question time at its annual general meeting in Brisbane today. Last month, Adani proposed a shorter rail line that would link its proposed Carmichael mega mine in the Galilee Basin to Aurizon’s existing Central Queensland Coal Network.
“Would Aurizon be able to rule out hauling Adani’s coal or providing engineering or operational services to Adani?” a shareholder asked, expressing her concern that Aurizon could end up “public enemy number one” if it helped get Adani’s climate-destroying project off the ground.
“We are absolutely concerned about being public enemy number one as well, we’ve already had disruptions to our business,” replied chairman Tim Poole.
Despite repeated questioning from shareholders, Poole refused to be drawn on whether Aurizon had discussed providing services to Adani, saying it was a “confidential matter.” He noted, however, that Aurizon is legally obliged under its Open Access Undertaking to consider all applications from existing or potential customers.
Stranded asset risk
Also of concern was the risk of “stranded assets’’ – the danger that thermal coal infrastructure could be “made obsolete by the shift from fossil fuels to clean energy” – particularly if Aurizon allows Adani to use the network. Aurizon is currently challenging a Queensland Competition Authority (QCA) draft ruling on a lower-than-expected haulage price that Aurizon can charge mining companies for access to its railway network up until 2021, which Poole explained to shareholders also fails to factor in any potential stranded asset risk costs. He added that the QCA’s announcement last December had since wiped $2 billion off Aurizon’s market capitalisation.
“Would opening up the Galilee just amplify the stranded asset risk we’re [already] exposed to?” asked another shareholder, who expressed frustration that Aurizon should be expected to “clean up after Adani’s failures.”
Tim Poole denied Adani’s coal would result in stranded assets for Aurizon. Quite the contrary – he claimed it was possibly a boon for business. “Having other mining customers actually hauling across our Newlands System actually strengthens the viability of our Newlands System,” he said. (The Newlands System is located at the northern end of the Bowen Basin and services mines sending export coal to Abbot Point Coal Terminal and domestic coal to the Queensland Nickel Refinery and the Bowen Coke Works.)
Aligned with the Paris climate accord?
With the dire findings from the IPCC’s latest report – 10 million people unable to live in low-lying countries and virtually all coral reefs dying under a 2°C scenario – it’s understandable that shareholders are asking whether Australia’s largest transporter of coal plans to align its business strategy to keep within 1.5°C of global warming.
“Aurizon provided some analysis projecting a decrease in Australian coal exports out to 2030 under the IEA’s 450 scenario… I’d like to know if Aurizon has analysed any scenarios that are actually consistent with the goals of the Paris Agreement – to limit warming to 1.5°C?” asked a shareholder.
Worryingly, it emerged this is not something Aurizon has modelled and its chairman couldn’t recall what the IPCC report was called. He was aware, however, that the report anticipates “thermal coal will be extinct by 2050”. The climate scenario Poole did mention was the ‘IEA 2% case’ (we think he meant the IEA 2°C scenario). “We consider the IEA downside case, which I alluded to, which is the 2% case – a 33% reduction in global demand [for coal].”
What’s important is not just that Aurizon models what the company looks like under 2°C, but that the company operates its business in a manner consistent with limiting warming to well below 2°C. It became clear today that’s not something the company is doing.
“We still see a bright future, even under some of the negative scenarios,” said Poole.
Climate change or extreme weather?
Beyond Aurizon’s acknowledgement of the stranded asset risks to its business by declining coal export markets, another shareholder wanted to know if the company had disclosed all potential material climate-related financial risks to its business, for example such as those posed by extreme weather.
Noting that “our Central Queensland Coal Network operates in a tropical environment where we are exposed to some interesting weather patterns”, Tim Poole appeared reticent to connect the region’s extreme weather events with climate change despite it “being something that exercises our minds.”
“Aurizon, its customers and its employees have been subject to some pretty severe weather events over time,” he said. “I think we’re in the land of speculation though as to whether those weather events are due to… or partly caused by what’s going on with the climate.”
Most of Australia’s super funds are invested in Aurizon – notably UniSuper – Aurizon’s biggest shareholder. If you’re worried that your super is being used help the destructive Adani Carmichael mine get started, tell your super fund to stop investing in companies like Aurizon.