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Stranded

A Financial analysis of GVKs proposed


Alpha Coal Project in Australias Galilee Basin.
Although the danger of stranded assets is, accordingly,
limited for the [coal] industry as a whole, individual players
can still incur substantial losses on sunk investment.
This is particularly true for recent investments in elds
which also require the large-scale development of railway
and handling infrastructure.
IEA Special Report Redrawing
the Energy-Climate Map 10 June 2013
2
Date: June 2013
Published by: The Institute for Energy Economics
and Financial Analysis (IEEFA)
Co-Authors: Tim Buckley
Tom Sanzillo
Commissioned by: Greenpeace Australia Pacic
In preparing this report we have relied on publicly available information however many of the entities involved are private entities and therefore this report is
necessarily limited by the lack of publicly available information about the operations of those entities.
Background on the authors
TOM SANZILLO
Tom Sanzillo joined the Institute for Energy Economics and
Financial Analysis (IEEFA) as Director of Finance in 2012.
For the past six years Tom has run his own company TR Rose
Associates. The company has served several clients working
to create alternatives to fossil fuel use in the United States.
The work has consisted of research, reports, testimony and
advice on construction costs of coal plants and alternatives,
nancial reviews (involving independent owned utilities,
cooperatives, public authorities and hybrid organizational
structures), credit analysis, coal market and price analyses,
rate impact assessments, federal nancing, federal coal leases,
coal export markets and policy, load forecast reviews,
energy contracts and a series of other topics related to
electric generation. He has served as a nancial advisor to the
innovative Green Jobs/Green New York large scale residential
energy efciency retrot program in New York State. Tom has
served on the Advisory Board on the future management of the
Long Island Power Authority in New York State. His clients also
have included business, labor and community organizations
covering a host of public and private nance and policy issues.
From 1990 to 2007, Tom served in senior management
positions to the publicly elected Chief Financial Ofcers
of New York City and New York State. From 2003 to 2007,
he served as the First Deputy Comptroller for the State of
New York. Tom was responsible for a $150 billion globally
invested public pension fund; oversight of state and 1600 units
of local government budgets and public debt offerings;
audit programs for all state agencies, public authorities
(including power generation authorities) and local governments,
and review and approval of state contracts. One estimate
places the level of public assets under the State Comptrollers
watch at over $700 billion. Due to an early resignation of the
elected State Comptroller, Tom, as First Deputy Comptroller,
served for a short period as the New York State Comptroller
from 2006-07. His most recent publication on New York State
government and nance is part of the 2012 Oxford Handbook
of New York State Government and Finance.
TIM BUCKLEY
Tim Buckley is an independent nancial investment analyst
with over twenty ve years of experience in analysing major
listed companies across a multitude of industries both within
Australia and in the global context. Tim was a co-founder of
Arkx Investment Management in 2007, a Sydney based fund
manager that invests in the leading global listed companies
best leveraged to the move to a low carbon economic future.
In 2010 Tim became joint-Managing Director and head of
Equity Research at Arkx.
Prior to this, Tim was Managing Director, Deputy then
Head of Australasian Equity Research at Citigroup from
1998 to 2007. Tim was on the Citigroup Australasian
Commitments Committee for ve years to 2007 overseeing
nancial market transactions and underwritings. Tim was a top
rated industrial analyst rst with Macquarie Equities (1988-91)
then County Natwest Securities (1992-96) in Australia,
covering the leading industrial conglomerates as well as
enjoying a specialization in the forestry, brewing and wine sectors.
Tim then moved to Singapore to cover the Asian equity market
during 1996-1998 with Deutsche Bank, just in time to experience
the Asian Financial Crisis!
Tim has authored a number of nancial clean energy articles
that have been published over 2011-2012 in RenewEconomy.
com and Climate Spectator, Australias two leading online
renewable industry websites.
Contents
Executive Summary 04
Section 1:
Introduction 05
Section 2:
The 2011 Asian Deal of the Year 06
Section 3:
The Alpha Coal Project Overview 07
Section 4:
GVK Coal Project Approval Status 10
Section 5:
GVK Coal Project Ownership Structure 12
Section 6:
GVK Power & Infrastructure Company Performance 14
Section 7:
GVK Power & Infrastructure Financial Leverage 17
Section 8:
GVK Coal and Aurizon (a White Knight?) 21
Section 9:
Project Risks 23
Section 10:
Thermal Coal Market Outlook 29
Section 11:
Conclusion 34
4
In 2011, GVK Coal Developers (Singapore) Pte Limited
(GVK Coal) bought the Alpha Coal Project (the project)
from Hancock Prospecting in a US$1.26bn deal for which
GVK Groups Chairman, Dr GVK Reddy was awarded
Asia Deal of the Year.
1
Less than two years later, the US$10billion
project is struggling with little prospect of nancial viability.
The project timelines have been shown to be unrealistic,
and further delays are likely due to the unprecedented ambition
and complexity of an Indian company with no track record
of building mines in Australia, building what would be by far
the countrys largest black thermal coal mine in an area with
little water, power, or other service infrastructure. The project
could require almost 500km of new rail infrastructure,
across oodplains and through important farmland, to a new
export terminal proposed to be located in the Great Barrier
Reef World Heritage Area. This at a time when most major coal
producers are seeking to sell or downscale production due to
a weakening global outlook for thermal coal.
Key issues include:
Desp|te o|a|m|ng to be a leading global infrastructure owner,
manager and operator GVKPIL has no experience operating
any business outside of India. It has never successfully built
and operated a coal mine in India or otherwise. GVKPIL has
not operated any business in Australia, let alone a US$10bn
greeneld project in the face of massive environmental,
operational, logistical and nancial challenges.
GvKPl| are ourrent|y oomm|tted to no |ess than 16 greenfe|d
infrastructure projects across six different asset classes.
Many are behind schedule and / or over budget.
The rap|d expans|on of GvKPl| has resu|ted |n an exoess|ve|y
geared balance sheet. With a market equity capitalisation
of only US$243m, GVKPIL is carrying on-balance sheet net
debt of US$2.8bn.
GvKPl| has prov|ded guarantees to GvK Ooa| aga|nst
off-balance sheet loans in excess of US$1bn to fund the
US$1.26bn purchase from Hancock Prospecting.
The Reserve Bank of lnd|a has deemed GvKPl|
a Systematically Important Core Investment Company
(SI-CIC), a designation brought into effect on 5 January 2011.
However, GVKPIL is currently not in compliance due to
excessive nancial leverage.
GvKPl|`s share pr|oe |s at an a|| t|me |ow and has
underperformed the Indian index by 80% since 2010.
GvKPl|`s FY2013 earn|ngs before |nterest and tax EBlT}
interest cover was a very low 0.44x. In addition, a signicant
portion of interest expense is capitalised against the pipeline
of greeneld projects.
nder ex|st|ng fnano|a| assumpt|ons, the A|pha Projeot`s oost
of coal production is likely to render the project uneconomic.
The Newcastle free on board (FOB) thermal coal price is
currently around US$88/t, 30% below the peak seen in
2008. This leaves little headroom to move against a largely
debt-funded US$10bn project proposal with a cash cost of
production we estimate to be at least US$70/t substantially
higher than the US$55/t gure promoted by GVK. We note
the energy content of GVK Coal is materially below the
Newcastle benchmark, meaning GVK Coal would receive
a discounted price.
Austra||an m|n|ng h|story suggests oap|ta| oost b|owouts
of over 20% are likely, and have already priced new thermal
coal mines out of the money according to the Australian
Coal Association.
Even on the ourrent, |n our v|ew opt|m|st|o, GvK Ooa|
timetable, this project is scheduled to come up to full 32Mtpa
production well beyond 2018, just as China hits a peak in its
national thermal coal demand. Thereafter, we project China
the worlds largest consumer of coal will actually reduce
its national coal consumption annually, progressively replacing
thermal coal power generation with low carbon alternatives
and most importantly, enhanced energy efciency.
Building Australias largest black thermal coal mine in the
untapped Galilee Basin would challenge experienced operators,
but the combination of an inexperienced developer, slack demand
globally for thermal coal and a deteriorating cost of production
scenario in Australia moves the project beyond speculative.
GVKs Alpha project appears likely to remain stranded in
the valley of death.
Executive Summary
5
Section 1
Introduction
The Galilee Basin in central western
Queensland has long been known to hold
vast reserves of coal. Until now, the lack
of infrastructure has meant that these
coal reserves have remained untapped,
with conventional wisdom being that
the Galilee Basin was uneconomic.
In 2010 2011, with global coal prices
at an all time high, there was a rush
to develop mines in the Galilee in the
expectation that global coal demand
and prices would remain buoyant. At the
peak of this cycle, Indian conglomerates
GVK and Adani invested signicantly in
coal reserves in the Galilee, with a view
to securing vertically integrated coal
supply chains.
The GVK Alpha Project is widely
regarded as being the frontrunner in the
race to unlock the Galilee. It is a highly
ambitious greeneld project that would
include the development of the largest
black coal mine in Australia, a 495km
long railway line and new coal export
terminal in the Great Barrier Reef World
Heritage Area.
While much has been reported about
the environmental impacts of the project,
this report explores the nancial issues
surrounding the GVK Alpha coal project,
and the risks for potential investors.
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Cairns
Townsville
Bowen
Mackay
Brisbane
Gladstone
Townsville
Charters Towers
Bowen
Collinsville
Mackay
Moranbah
Clermont
Emerald
Alpha
Abbot Point Port
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Alpha Coal Project (Mine)
MLA 70426
Emerald
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Alpha Coal
Project Location
Mt Isa
QUEENSLAND
NORTHERN
TERRITORY
SOUTH
AUSTRALIA
NEW SOUTH WALES
0 25 50km
Scale 1:2 000 000 (A4)
Mining Lease Application (MLA70426) Boundary
Railway Corridor
6
The deal payment was structured as:
S$500m on the o|ose of the dea|,
S$200m to be pa|d one year after o|os|ng, and
S$560m payab|e on fnano|a| o|ose of the projeot
(and no later than 3 years after close of deal).
Even with this staggered payment schedule, GVK Coal would
have accrued in the order of US$70m of interest payments
in the 20 months since purchase (with an estimated 6.5% pa
cost of corporate debt). With the large scale production still at
least 4-5 years away, interest expense will continue to grow
signicantly in this period.
As part of the deal GVK Coal acquired 100% of the Kevins
Corner coal deposit and 100% of the Hancock rail and port
infrastructure projects, plus a 79% stake in the Alpha and
Alpha West coal deposits. Hancock Prospecting retained
a minority 21% stake in the Alpha and Alpha West deposits.
Of the three deposits, the Alpha mine is the closest to
commercialisation. While Hancock Prospecting retains a stake
in any prots generated from the Alpha mine should it ever be
built, it is free from the funding commitment in the A$6bn rail
and port infrastructure assets.
As part of the deal Gina Rinehart, Chair of Hancock Prospecting,
was invited to join the board of GVKPIL as a non-executive director.
4

To date this invitation has not been accepted.
Hancock Prospecting sold the vast majority of
its Galilee Basin coal deposits to GVK at the peak
of the global thermal coal market in 2011.
While GVK won an award for Asia Deal of the Year,
Hancock Prospecting made close to A$1billion in
prot from the deal, while GVK is left with a high risk
project and a growing interest burden.
Hancock Prospecting Pty Ltd sold the majority of its Hancock
Coal business in the Galilee Basin, Queensland, to GVK Coal
Developers (Singapore) Pte Limited (GVK Coal) in September
2011 for US$1.26bn, realising a A$1bn dollar after tax capital
gain in the process.
For this transaction, Dr GVK Reddy, Chairman of GVK Group,
was awarded Asia Deal of the Year. However, it is now
increasingly evident that Hancock Prospectings Chair Gina
Rinehart may have been the more appropriate recipient.
Hancock Prospecting acquired the Exploration Permit
(EPC 570) in October 1994 and Mineral Development Licence
in April 1998. For a long time, it was conventional wisdom that
the Galilee Basin was uneconomic, however this began to
change as the thermal coal price soared to historical highs.
At the time of the GVK transaction, the Newcastle thermal coal
price was US$131/t FOB, 50% higher than the US$88/t today.
We doubt there is any coincidence that the timing of this sale
is close to the peak in the thermal coal price cycle, with 2011
being the second highest year for the thermal coal price in
a century. Hancock Prospecting booked an A$1,103 million
after tax gain in the 2011/12 year as a result.
3
Netting off
Queensland coal project development costs expensed in
prior years (e.g. an A$103m net loss in 2010/11), this still leaves
close to a A$1bn net gain overall for Hancock Prospecting.
Section 2
The 2011 Asian Deal of the Year
You only get one Alan Bond in
your lifetime. And Ive had mine.
2
Kerry Packer, 1987
7
In September 2011, the GVK Group, an Indian conglomerate, through its new subsidiary GVK Coal, acquired
a controlling stake in three huge thermal coal deposits in the Galilee Basin in Central Queensland, Australia.
6
The acquisition of the Alpha Project by GVK involves four key assets:
1. A shareholding of up to 79% in each of the Alpha Coal Project (Alpha) and Alpha West Coal Project (Alpha West) in the
Galilee Basin, with Hancock Prospecting retaining the remainder (down to 21%);
2. A 100% shareholding in the Kevins Corner Coal Project (Kevins Corner), adjacent to Alpha; and
3. A 100% shareholding in the proposed T3 coal export terminal at Abbot Point and the rail line linking the Galilee basin coal
deposits with Abbot Point GVK Galilee Infrastructure (see Section 5).
The projects have a combined 7.9bn tonnes of coal compliant with Australias Joint Ore Reserves Committee (JORC) resource
categorisation (see Figure 1). The actual measured resource at Alpha, the coal deposit likely to be progressed rst, is 821m tonnes.
7
Figure 1 GVK Coal Resource Prole (Mt)
Resource (t) Type Status Measured Indicated Inferred Total
Targeted net
coal output pa
Alpha Open cut BFS Complete 821 700 300 1,821 30
Alpha West Underground PFS 0 500 1,300 1,800 30
Kevin's Corner Open cut & U/G EIS approved 229 1,040 3,000 4,269 20
Total 1,050 2,240 4,600 7,890 80
Signicant challenges need to be overcome in order for these projects to
be developed and for the region to become a coal producer. These include
commercial (nance and cooperation on rail and port alignment), technical
(design and coordination of rail and port infrastructure) and marketing
(securing off-take agreements with customers) challenges. There are also
constraints in terms of social infrastructure (housing, town amenities for
workers), water and energy to support large scale projects and infrastructure
developments. All of these challenges can be overcome, but they are likely to
take time and will involve substantial costs.
5
Bureau of Resource Energy & Economics, 2012
Section 3
The Alpha Coal Project Overview
8
Refer Figure 2 for the key coal mine statistics. These are sourced
from the March and May 2013 GVK Coal presentations.
8

We would note the strip ratio cited of <6.5:1 is materially
more favourable than the 12.2:1 in the 2011 Supplementary
Environmental Impact Statement (EIS).
9
Relative to production
of 30Mtpa, overburden is cited as 466Mtpa in 2011 vs the
implied 247M pa bank cubic metres (bcm) per Life of Mine
(LOM) tonne of coal used in the 2013 corporate presentation.
Figure 2 The Alpha Coal Mine Parameters
Reserves 1,193 million tonnes
Reserves & Indicated Resource 1,521 million tonnes
Strip ratio (tonne:tonne) 12.2:1
Strip ratio (bcm: tonne) <6.5: 1
Overburden removal 466 million tonnes pa
Run of Mine (ROM) Coal 38 million tonnes pa
Average yield 76%
Saleable production 30 million tonnes pa
Life of mine 30 years
Distance from port 495 kilometres
Distance from dam water 220 kilometres
Refer Figure 3 for the key coal statistics. When compared to
typical Australian thermal coals, Alpha coal displays a higher
than average moisture content (at 16-17% vs 9-10%) but lower
ash content (9-10% vs 14-15%). Total sulphur content is in line.
The caloric value is 5,847 kcal/kg gross as received (GAR),
7% below the energy content of Newcastle FOB benchmark of
6,300 kcal/kg GAR (6,080 kcal/kg net as received).
Figure 3 The Alpha Coal Mine Coal Statistics
Caloric value ~5,800 kcal/kg GAR
Total Moisture (TM) ~17%
Ash as received 8.7% (9.5% air-dried)
Volatile Matter (VM) 30.80%
Total Sulphur 0.51%
Fixed Carbon 44.50%
Gas content 0.20m3 / t (90% CH4)
Hancock Prospecting had plans for export agreements with
numerous interested parties. It was reported in 2011 that
Korea South-East Power Co and Chinas Zhejiang Provincial
Energy Group Co had signed non-binding letters of intent
and satisfactorily tested the coal from the Alpha deposit
in commercial quantities.
10
GVK Coal state non-binding
agreements are still in place, with letters of intent for the entire
Alpha mines output in place.
11
The Galilee Coal Basin has very signicant coal deposits,
but is well inland far away from both railway and export
port facilities. The area is also far away from a major population
base (an issue in terms of access to skilled labour) and lacks
basic power and water infrastructure. As Figure 4 details,
there are at least six major thermal coal resource projects
being contemplated by four different consortia. Together,
these projects could hypothetically produce 272Mtpa of
saleable thermal coal, sufcient to more than double Australias
total thermal coal exports of 171Mt in 2012.
The Alpha Coal Project Overview
9
Source: GVK Coal Coaltrans Goa Presentation, 12 March 2013
The Alpha Coal Project Overview
Figure 4 The Galilee Coal Basin Projects
Owner Project Type Status
Targeted net
coal output pa
Capex (A$bn)
Adani Group (India) Carmichael Coal Open cut & U/G EIS active 60 7.1
GVK Coal Alpha Open cut BFS Complete 30 10.0
GVK Coal Alpha West Underground PFS 30
GVK Coal Kevin's Corner Open cut & U/G EIS active 20
Waratah Coal P/L (Clive
Palmer)
China First Open cut & U/G EIS active 40 8.1
AMCI Group & Bandanna
Energy Ltd JV
South Galilee Coal Open cut & U/G EIS active 17 4.2
Macmines Austasia Pty Ltd China Stone Open cut & U/G EIS active 45 n.a.
Vale SA Degulla Open cut & U/G EIS active 30 8.0
Galilee Basin - Total 272 37.4
Source: Queensland Government Coordinator-General projects Assessments and approvals
Figure 5 The Galilee Coal Basin Projects
10
Section 4
GVK Coal Project Approval Status
a shambolic joke
12
Federal Environment Minister
Tony Burke, 2012
The environmental impacts of the GVK Coal project
are signicant and bring considerable project risks,
in terms of both legal costs and likely delays in
achieving nal environmental approvals for the mine,
rail and port. The location of GVKs proposed T3
coal export terminal within the Great Barrier Reef
World Heritage Area has galvanised widespread
opposition from the environmental community.
At least one legal challenge has been lodged against
the Alpha mine and there is currently a Federal
Government investigation into GVK over potential
false and misleading conduct in relation to the
environmental impacts of the proposed T3 coal
terminal at Abbot Point.
In Australia, mining projects require a combination of State,
Federal and Local Government approvals. In Queensland,
it is noteworthy that The declaration of the project as
a signicant project does not indicate support for, or approval
of, the project by the Coordinator-General of the Queensland
Government. Rather, it is a requirement for the project to undergo
a rigorous EIS (Environmental Impact Statement) process.
13
The Alpha coal mine, rail line and corresponding coal export
terminal at Abbot Point is the most advanced of the GVK
Coals three proposals, with the Alpha West and Kevins Corner
projects following some years behind in the approvals process.
For the purposes of government approval processes, the Alpha
coal mine and the rail project were treated as a single project.
The Kevins Corner and coal port terminal projects are each
subject to separate approvals. No approval process has been
initiated for the proposed Alpha West mine.
GVK Coal estimates that together, the Alpha mine, rail and port
project will cost in the vicinity of US$10bn to develop.
In January 2009, the Alpha Project, comprising the mine and
rail line, was determined to be a controlled action under the
federal Environment Protection and Biodiversity Conservation
Act 1999 (EPBC Act).
14
The Commonwealth determined that
the project could be assessed under a bilateral agreement
between the Commonwealth Government and the Queensland
Government, whereby the Queensland Government
managed the assessment process on behalf of the Australian
Governments Department of Sustainability, Environment,
Water, Population and Communities.
In May 2012, shortly after the election of the Liberal National
Party into power in Queensland, the Queensland Coordinator
General issued a report recommending that the Alpha Project
be approved.
15
It was subsequently revealed that this report
and the assessment for the Alpha Project had not satised the
requirements of the Commonwealth Government. The Federal
Environment Minister, the Hon Tony Burke MP, exercised his
powers under the EPBC Act to secure more time to make
his own determination for the project, describing the
Queensland Governments environmental assessment of
the Alpha Project as a shambolic joke in the process.
16
In the
political maelstrom that followed, the Federal Department of
Sustainability, Environment, Water, Population and Communities
put forward additional requirements for the assessment,
resulting in a delay of several months.
In August 2012, the Alpha Project was given conditional
approval under the EPBC Act, with 19 conditions attached.
The Federal Environment Minister Tony Burke took the unusual
position of requiring that several of the conditions be met
prior to construction commencing, with the approval of the
Minister required to determine if the work undertaken has met
those conditions. The additional environmental conditions
that GVK Coal is required to meet relate primarily to supplying
information that the Federal Environment Department
requested previously be included in the formal assessment
documents, including cumulative impacts on water availability
in the Galilee Basin, impacts of the mine and rail line on
nationally threatened species and the impacts of the rail line on
the Caley Valley Wetlands, an area that supports internationally
signicant migratory and threatened shore bird habitat, and
the Great Barrier Reef World Heritage Area.
17
These conditions
are considered to be very strict by normal standards and will
require additional detailed work to be done by GVK Coal.
11
In March 2013, the Queensland Government, acting on the
Coordinator Generals recommendation from April 2012,
issued a mining license to GVK Coal for the Alpha mine and
a draft Environmental Authority was issued by the Queensland
Department of Environment and Heritage Protection.
18

The granting of this Environmental Authority is currently under
challenge in the Queensland Land and Environment Court,
following objections by several landowners and environmental
organisations. The court hearing is set for September 2013.
19
GVK Coals proposed coal port terminal (Terminal 3, T3) at
Abbot Point also received approval under the Federal EPBC
Act in October 2012. This approval also requires signicant
additional information to be supplied on the ecological and
heritage impacts of the terminal. Much of this work must be
submitted to the Environment Minister for approval prior to
work commencing. The Federal Department of Sustainability,
Environment, Water, Population and Communities is now
also investigating allegations by Greenpeace that GVK Coal
committed an offence under the EPBC Act by failing to include
important results of bird surveys in the Caley Valley Wetlands in
the documents they prepared for the assessment process.
20
It is unclear when the results of that investigation will be
made public.
In May 2013 GVK Coal received environmental approval by the
Coordinator-General of the Queensland Government for its
US$4.2bn Kevins Corner mine project, adjancent to the Alpha
coal mine project.
21
The Alpha Project is yet to reach nancial close. It is said to be
waiting on nalisation of a lease for the Alpha coal mine and
completion of necessary approvals for Abbot Point.
22
GVK Coal Project Approval Status
12
Section 5
GVK Coal Project Ownership Structure
Development of the Galilee Basin looks increasingly remote,
Macquarie Group Ltd., Australias biggest investment bank, said in
a May 1 research note. Prospects for project paybacks look extremely
poor, the bank said. Further delays are likely unless deep pocket
backers are able to ignore conventional economics.
23
Macquarie Group Ltd, 2013
GVK Group has created a complicated, heavily
debt-funded corporate structure that has the effect
of keeping GVK Coal off GVKPILs balance sheet.
A deal with a strong backer such as Aurizon appears
to be critical for GVK if they are to have any chance
of nancing the project.
The project is being developed by GVK Coal, which is in turn
owned by various companies owned and/or controlled by the
family of Dr G V Krishna Reddy, including the 54% owned,
Indian stock exchange listed GVKPIL. GVK Coal acquired this
project from Hancock Prospecting in 2011 for US$1.26bn.
Hancock Prospecting retained a minority stake in two of the
coal deposits, Alpha and Alpha West (owned Hancock Coal
Pty Ltd, a subsidiary of GVK Coal).
24
In 2010 a WorleyParsons Ltd and Ausenco Ltd joint venture
announced it had won an Alpha mine related program
management contract (PMC). The actual contract awarded
was for the preparation of the engineering, procurement and
construction (EPC) contract. The actual mine EPC contract
has not been awarded, only the contract to prepare the EPC
contract. This supports our premise that further project delays
are inevitable (see Section 9).
In June 2013 GVK Coal signed an Early Services Agreement
with Thiess to be the preferred mine operations contractor for
the Alpha coal mine. This requires Theiss to develop a mine
plan during the second half of 2013. Again, this does not look
like GVK Coal has signed an EPC contract, rather it has signed
an early stage planning contract.
25
In October 2012 GVK Coal signed a joint venture agreement
with Samsung C&T Corp (Korea) and Smithbridge (Australia)
to explore the development of an EPC contract for the
construction of the greeneld infrastructure T3 port facility
at Abbot Point. There has been no further announcement
conrming if this EPC contract has been nalised.
In March 2013 GVK Coal signed a non-binding memorandum
of understanding with Aurizon Holdings (Australias largest
listed rail freight company) whereby Aurizon would fund a 51%
stake in the rail and port development assets.
13
Figure 6 The GVK Coal Project Structure
The company press release announcing the deal interchangeably uses the terms GVK and GVKPIL (the listed entity,
GVK Power & Infrastructure Limited). The corporate description reads: About GVK: GVKPIL is one of Indias largest infrastructure
developer with experience and expertise spanning areas such as Energy, Airports, Roads and Urban Infrastructure. In addition,
GVK is also involved in many other businesses held by it privately including Real Estate, Hotels, Pharmaceuticals, Resources, etc.
26

This description, perhaps unintentionally, makes it unclear which businesses are held by the listed entity and which are held privately.
The same press release also states that GVK Coal in joint venture with GVKPIL has entered into various acquisition documents
with Hancock Prospecting P/L. This gives rise to a possible confusion about the delineation of entities, ownership and activities.
Some nancial implications of this joint acquisition are discussed in Section 7.
GVK Coal Project Ownership Structure
igure6:TheGVKCoalProjectStructure
ConLracLor rlvaLe legal enLlLy ubllc llsLed enLlLy
GVKfamily 34 GVKPower&InfrastructureLtd
(NSE&BSE:GVKPIL)
90 10 (opLlon Lo go Lo 49)
AxisBankLtdofIndia uS$1.033bn loan GVKCoalDevelopers LqulLy uS$300k SamsungC&T/SmithbridgeJV
(Slngapore) (Slngapore) (proposed LC conLracL)
100 79 79 49
Kevin'sCornerCoalProject AlphaCoalProject AlphaWestCoalProject GVKGalileeInfrastructure
(u/C and open cuL) (open cuL) (8all & orL)
MC for mlne 21 21 31
developmenL
WorleyParsons/AusencoJV HancockProspectingP/L AurizonHoldings
(deslgnlng LC conLracL) (owned by Clna 8lneharL) (ASX:AZI.AX)
CurrentasofJune2013
14
Section 6
GVK Power & Infrastructure
Company Performance
GVKPIL is a nancially constrained company that
is attempting to concurrently build a 16 greeneld
projects in 6 different asset classes. A multitude
of issues will likely see further project delays,
cancellations and/or cost blowouts across this
portfolio. GVKPIL has no material experience of
construction, or operation, of projects outside
of India. The complexity of building the largest
greeneld thermal coal mining project in Australia
in the remote Galilee Basin would challenge
any company, let alone one that is debt constrained
and has never operated in the Australian market.
GVKPIL Return on Equity averaging 1% pa and declining
GVKPIL delivered a return on book value of equity of 5.7%
in 2009/10, then 4.7% in 2010/11 and 1.8% in 2011/12,
before falling to negative 10.1% in 2012/13 on the back of
a net loss for ordinary shareholders of Rs3.4bn (US$62m).
27

This is well below cost of capital, and declining.
GVKPIL Share Price
signicant and sustained underperformance
Figure 7 details the share price of GVKPIL over the last ve
years relative to the iPath MSCI India Index ETN (code: INP).
A signicant and sustained underperformance is clear,
with GVKPIL underperforming the Indian index by 80%
in this period.
GVKPILs market capitalisation has been reduced to US$243m
(see Section 7). This makes any prospective equity raising
to pay down some of GVKPILs US$2.8bn of net debt highly
dilutive to existing shareholders and therefore highly unlikely.
This nancial leverage will also signicantly inhibit GVKPILs
ability to raise further debt or project nancing for its US$20bn
pipeline of new projects.
Figure 7 GVK Power & Infrastructure
Relative Share Price Performance
Source: Yahoo Finance
GVKPIL experience overstated
GVKPIL is a company that describes itself as a leading global
infrastructure owner, manager and operator.
28
Prior to investing in GVK Coal, GVKPILs entire focus of
operations was within India. That is, they did not own any
noteworthy business outside of India. GVKPIL does have
an ofce in Indonesia, having won a contract relating to
building two greeneld international airports, but has no
revenues nor substantive asset base there.
To claim the company is a leading global operator is
an overstatement of the rms international experience.
There are signicant cultural, stafng, political, nancial and
environmental risks to this project the largest of its kind in
Australian coal mining history.
GVKPIL goes on to describe itself as One of Indias leading
Business Groups with signicant experience in nancing and
developing large scale projects.
29
GVKPIL has signicant experience in nancing proposed large
scale projects, but the implication that it has the managerial,
stafng and technical abilities to successfully develop a multitude
of projects across six dramatically different asset classes
simultaneously is a claim yet to be established.
15
The 2008/09 annual report states Your company has a diversied
portfolio of gas based, coal red and hydro-electric power
plants. With over a decade of experience in the power sector,
GVKPIL has acquired the technical skills and nancial expertise
and is now in a position to build on this proven track record.
30
At the time this statement was made, the company actually
only had a single gas power plant of 216MW in operation
(Phase One). The two additional gas power plants in
Phase Two were unable to be commissioned in 2008/09.
They remained stranded due to non-availability of gas and
incurred cost overrun.
31
The Phase Two expansion of 220MW
gas electricity generation was completed by Alstom in January
2006 and handed over to GVKPIL in May 2006. The lack of gas
availability meant this facility was immediately mothballed for
the next three years.
None of the coal mines, coal red power stations and hydro
electricity power stations referred to have as yet entered into
commercial operation, three years after this statement of
GVKPILs expertise.
32
The scale and rate of expansion creates risk
GVKPIL has expanded its scope dramatically in the last
three years another central risk. The company has 16 greeneld
projects and two browneld expansions, compared to
an existing operating base of only ve facilities, four of
which were either acquired or commissioned since 2009.
The speed, scale and scope of the companys expansion
poses signicant risks.
GVKPIL has yet to demonstrate a sustained successful
ramp-up to full capacity utilisation of some of its rst projects,
namely the Jegurupadu and Gautami gas-red power plants.
We perceive signicant nancial and cashow pressures
(see Section 7). Even in isolation, the managerial and
operational risks associated with concurrently trying to
commission 16 major greeneld businesses across coal mining,
expressways, airports, hydro, coal red power stations,
special economic zones, ports and deep sea oil & gas
exploration are material (see Figure 8).
The pressures of this excessive rate of expansion are clear:
The deferra| of the 400-800 megawatt MW} Phase Three
expansion of Jegurupadu gas red power station;
33
The term|nat|on by GvKPl| of the 332km Sh|vpur| Dewas
Expressway concession (a Rs8bn project) on 14 January 2013,
a year into the project.
34
However, the National Highway
Authority of India chairman, R. P. Singh, immediately
countered this, saying: The notices of GMR Infra and
GVKPIL are untenable and their claims for terminating
their contracts are incorrect. They cant renege from the
contracts The reality is that both companies had highly
leveraged balance sheets and were unable to raise equity
which was proving to be a stumbling block in getting
a nancial closure for the two respective projects;
35
The 330MW A|aknanda hydro fao|||ty |s sa|d to be due for
commissioning later in 2013 more than three decades in
planning and construction
36
and over two years behind the
July 2011 schedule and double the 2006/07 Rs2,069 crore
(US$380m) budget.
37
Commissioning is being delayed while
GVKPIL seeks a Supreme Court judgement relating to
a request to relocate a historic religious temple;
38
The S$600m Go|ndwa| Sah|b 540MW ooa|-fred power
station 10% over budget and has been undergoing
construction for eight years and commissioning scheduled
for early 2014;
39
The Gor|ganga 370MW Hydro Power p|ant projeot started
in 2008 and was initially agged for planning completion
in 2010,
40
its Rs26bn cost is 35% over the initial planned
budget, with the 2011/12 annual report suggesting it is still
in the government approvals stage and completion possibly
by 2015;
41
and
lt was reported that the lnd|an Government has |ssued
GVKPIL a caution notice in January 2012 for failing to
develop coal deposits it has been allocated, with the threat of
cancellation. The Central Bureau of Investigation is inquiring
into allocation irregularities.
42
GVKPIL has rapidly expanded into airports
overpaying and committing to massive capital upgrades
Since its 2006 initial public offering (IPO), GVKPIL has
undertaken a series of greeneld expansion programs.
GVKPIL has been similarly expanding its equity shareholding
in a range of new businesses at the same time.
One recent move was the 2011 decision to acquire the 14%
stake in Bangalore International Airport (BIAL) that was put up
for sale by Siemens, paying Rs614 crore (US$114m) under
a right of rst refusal.
43
This took GVKPIL to a 43% ownership
position in BIAL.
GVK Power & Infrastructure Company Performance
16
GVKPIL publically expressed the view that this holding
was offering only Rs60 per share as it felt that the (high)
2009 valuations were no longer valid due to change in
business conditions,
44
but ended up paying Rs114 per share
for the extra 14% stake, a 90% premium to what GVKPIL
said it was worth.
Managing Director of BIAL, Sanjay Reddy, was quoted at the
time as saying: BIAL is an important and strategic asset for
us and when Siemens had an offer of Rs114 per share,
we had no choice but to exercise that right [of rst refusal].
45

This US$114m incremental acquisition was both a massive
premium and served to further leverage GVKPILs already
distressed balance sheet, particularly in light of GVKPILs intent
to invest Rs4,000-5,000 crore (US$740-925m) to expand BIAL
(see Section 7.)
Further, in October 2011, GVKPIL acquired another 13.5%
stake in the Mumbai International Airport Limited (MIAL) at
a cost of US$231m, raising its holding to 50.5%.
46
In November 2010, Indias Ministry of Environment and Forests
approved construction of the Rs150bn (US$2.7bn) Navi Mumbai
airport to help ease congestion at the main Mumbai Airport.
According to Bloomberg, the Government had set a goal to
complete the rst phase of the new aireld by 2014, but land
acquisition delays have stalled the work.
47
Figure 8 GVK Power & Infrastructure Structure
GVK Power & Infrastructure Company Performance
Figure8:GVKPower&InfrastructureStructure
LlsLed enLlLy
GVKPower&Infrastructure Ltd under developmenL
(BSE:GVKP.IN)
Airports
Mumbai International Airport (MIAL)
30.3
Bangalore International Airport (BIAL)
43.0
MOU 2greenfieldAirports (Indonesia)
30.0
Expressways
GVKJaipur Expressway
(A90kmexpressway Mumbai to New Delhi)
Shivpuri DewasExpressway
(332 kmunder consLrucLlon)
GVKDeoliKota Expressway
(83 kmunder consLrucLlon)
GVKBagodara Vasad Expressway
(101 kmunder consLrucLlon)
Resources
GVKCoal(Qld)
10 * (proposal)
* WlLh an opLlon Lo lncrease Lo 49 sLake
GVKCoal Tokisud Co.
73.9 (proposed coal mlne ln lndla, 32mL reserves)
SeregarhaMinesLtd
36.4 (2 proposed coal mlnes ln lndla, 119mL reserves)
GVKEnergy
73.9
GVKGautami Power
63.6 (464 MW Cas elecLrlclLy)
(so 73.9 of 63.6 = 47.0)
GVK Industries Jegurupadu
(l:216 MW and ll: 220 MW Cas elecLrlclLy)
GVKIndustries Jegurupadu
(lll: 800 MW Cas elecLrlclLy)
Alaknanda Hydro Power
(330 MW hydro under developmenL)
~84 GVKRatle Hydro Power
(830 MW hydro under developmenL posL 2013)
Goriganga Hydro Power
~88 (370 MW run of rlver hydro under developmenL)
GVKPower Goindwal Sahib
(340 MW coal power under developmenL)
GVKPower Khadur Sahib
(2 * 660 MW coal power planL MCu)
GVKOil&Gas
OffshoreOil&Gasdrilling permits
(ln assoclaLlon wlLh 8P)
Okhamandi Port,India
(MCu wlLh CovL. of Cu[araL Lo bulld greenfleld porL)
GVKPerambalur SEZ
(MCu wlLh 1luCC Lo develop a 3,184 acre SLZ)
17
Section 7
Power & Infrastructure Financial Leverage
The massive scale, speed and scope of GVKPILs
expansion has put the company in a highly leveraged
position, raising serious alarm bells about the
prudence and viability of GVKs commitment to raise
the US$10bn capital cost of the Alpha Coal, Rail and
Terminal Project. With a market capitalisation of
only US$243m, GVKPIL has a net debt of US$2.8bn.
As a result, it will be increasingly difcult for GVK
Coal to raise the nance for the Alpha Coal Project.
Aurizon will need to convince itself and its bankers
that any take-or-pay contract with GVK Coal is
practically enforceable and backed by a vehicle
with sufcient equity capital. The Reserve Bank
of India may suggest otherwise.
GVKPIL overcommitted to 16 greeneld
projects concurrently
Committed investments of over US$20bn globally with
a pipeline of US$6.6bn in India and US$10bn of investment
plans in Australia.
48
The magnitude of GVKs US$20bn pipeline of 16 greeneld
projects currently under development can only be described
as ambitious. However, the underlying assets of GVKPIL now
produce a market capitalisation of only US$243m.
49
This level
of nancial leverage is unlikely to be acceptable in a post 2008
debt crisis marketplace refer Figure 9.
Figure 9 GVK Power & Infrastructure Financial Leverage
GVKPIL signicant operational cash ows still some way off
GVKPIL references Cumulative capacity of 6,000 MW,
50

leaving it to a footnote to clarify that this 6,000 MW includes
capacity that is operational, under construction and in the
development stage. The corporate presentations provide
pictures of gas, coal and hydro electric power plants,
plus coal mines and offshore oil production platforms
apparently in operation. Only 914 MW of this stated capacity
are revenue producing assets. The majority of these assets
have been operating well below design capacity for much
of the last ve years due to the inability of GVKPIL to access
sufcient natural gas.
51
Debt to equity ratio excessive even at the reported level
GVKPIL has an estimated net debt of Rs151bn
52
(US$2.8bn)
as of March 2013, up Rs28bn (US$500m) from March 2012.
Relative to a current ordinary equity capitalisation of Rs13bn
(US$243m), this is a net debt to equity ratio of 1,149%
(see Figure 10). With nancial market forecasts suggesting
a further Rs32bn (US$585m) of capital expenditures in
2013/14, this extreme level of gearing is forecast to materially
increase again in the next nancial year.
The use of current equity market capitalisation makes this
net gearing calculation look worse than would be the case
if we used the last reported book value of equity (at Rs31bn
(US$582m)).
53
However, GVKPIL shares are currently trading
at only half book value, and have consistently traded at around
a 58% discount to book value over the last year. We view the
Rs21bn (US$390m) of intangibles included on the balance
sheet as likely to prove hard to realise in any nancially
distressed sale of assets. As such, we consider the share price
a better reection of current equity value than book
value suggests.
US$m
Current GVKPIL market capitalisation $243
Purchase price of GVK Coal $1,260
Net debt on balance sheet $2,797
Total capex cost of Alpha project $10,000
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000

Current GVKPIL market


capitalisation
$243
Purchase price of GVK Coal $1,260
Net debt on balance sheet $2,797
Total capex cost of Alpha
project
$10,000
1
18
Figure 10 GVK Power & Infrastructure On-Balance Sheet Financial Leverage
As at 31 March
IR Lakhs
2010 Act.
IR Lakhs
2011 Act.
IR Lakhs
2012 Act.
IR Lakhs
2013 Act.
US$m 2011
Act.
US$m 2012
Act.
US$m 2013
Act.
Long term debts 444,548 421,133 1,109,444 1,502,360 779 2,052 2,779
Short term debts 0 114,849 279,010 206,160 212 516 381
Other ST debts
(classied as other)
161 21,704 40,790 40,790 40 75 75
Dened benets
liability
184 296 817 817 1 2 2
Less Cash and
bank balances
-5,081 -32,820 -172,626 -208,016 -61 -319 -385
Short term loans
and advances
-7,736 -3,550 -21,022 -30,403 -7 -39 -56
Net Debt 432,076 521,612 1,236,413 1,511,708 965 2,287 2,797
Exchange rate
INR : USD
54.05
Market cap. of
ordinary equity @
8.33 131,531 243
Ordinary
shareholders funds
(BV)
315,597 338,678 348,137 314,531 627 644 582
Minority Interests 25,000 115,336 311,678 331,884 213 577
Net Debt to Book
Value of Equity
137% 154% 355% 481% 154% 355% 481%
Net Debt to Market
Capitalisation
1149% 1149%
Source: GVKPI annual reports
Minority Interests of Rs15bn with a put option
GVKPILs net debt to market value of equity referred to above
at 1,149% is before consideration of a Rs15bn (US$278m)
nancial transaction undertaken over 2010/11 and 2011/12 that
would have signicant nancial consequences for GVKPIL if the
associated ve year 20% pa IRR put option were to be effected.
The transaction was initiated in November 2010 between
GVKPIL and three private equity rms: 3i India Infrastructure Fund;
Actis Infrastructure India PCC Limited; and an afliate of the
Government of Singapore Investment Corp. GVKPIL has
received a cash injection against a book value of Rs15bn
(US$278m) of minority equity.
54
The private equity rms
are entitled to a 25% equity share of GVK Energy Limited
55

and its subsidiaries. At face value, this looks like a prudent
equity raising to diminish GVKPILs nancial leverage.
However, a reference in the back of the 2010/11 annual report
56
details that the private equity rms hold a put option that if
exercisable would require GVKPIL to repay the entire Rs15bn
plus a compound 20% interest for ve years i.e. Rs37bn (US$691m).
Under the terms of the transaction, GVKPIL has committed to
oat the GVK Energy group via a qualied initial public offering
(QIPO) within ve years of the transaction. Failure to do a QIPO
would entitle the private equity investors to then exercise their put
that is, they would be entitled to have their original cash
injection returned in addition to interest of 20% pa for the
ve years. In GVKPILs currently leveraged nancial position
and negative free cashow, the exercise of this put would make
GVKPIL unsustainable in its current form.
Power & Infrastructure Financial Leverage
19
GVK Coal a US$1.26bn transaction, almost entirely
off-balance sheet, for now
The nancial reports for GVKPIL understate the nancial
leverage resulting from the GVK Groups US$1.26bn purchase
of a controlling shareholding in GVK Coal. GVK created GVK
Coal Developers (Singapore) Pte Limited, which in turn set
up a loan agreement for US$1.035bn with Axis Bank Ltd of
India (Singapore)
57
to fund the purchase of a majority stake
in Hancock Coal. Given GVKPIL only holds a paid-up equity
stake of 10% in GVK Coal Developers (Singapore), the nancial
accounts of this publicly listed entity do not include any of this
off-balance sheet debt, for now.
GVK Coal huge loans, minimal equity
GVK Coal has an ordinary equity base of 500,000 shares fully
paid-up to U$1 per share i.e. US$0.5m, with GVKPIL holding
a 10% stake worth US$50,000.
58
However, the accounts
clearly state that GVKPIL holds an option to increase its stake
up to 49%.
59
The accounts also state The Company has given an undertaking
to infuse equity aggregating to Rs229,590 Lakhs in GVK
Coal Developers (Singapore)
60
This represents Rs23bn
or US$425m at current exchange rates (Rs54.05 per US$).
The nature of this callable equity undertaking suggests the
49% is truer reection of GVKPILs economic exposure to
GVK Coal than the 10% gure used. A guarantee from GVKPIL
for 49% of the outstanding facility amount includes the pledge
of the shares of its subsidiaries GVK Energy Limited and
GVK Transportation Limited to secure the equity requirements
of the debt service.
Were GVKPIL to provide a more transparent accounting
of its holdings and associated liabilities it would account for
the total nature of its nancial relationship with GVK Coal.
GVKPIL could be required to use equity consolidation to
include GVK Coal more fully in its reports, bringing on balance
sheet its associated 49% share of US$1bn plus of borrowings
and amounts outstanding, an amount that will be growing daily
given the US$10bn capex program underway.
The GVKPIL annual report details that a substantial number
of GVKPIL subsidiaries shareholdings have been pledged as
collateral for loans outstanding to GVK Coal. Again, this clearly
gives the nancial effect that GVKPIL is carrying a substantial
economic exposure and nancial risk relating to GVK Coal.
This is well beyond the current nancial resources of the listed
company as it is currently congured, and contrary to
GVK Coals current presentation in GVKPILs accounts.
Thin Capitalisation Rules Changes in the 2013
Australian Budget
One of the many ways large foreign investors limit their liability
for Australian tax is to create an onshore legal structure with
as little equity and as much debt as the banks will allow.
Generally secured against hard assets like a mining project
to keep the banks happy, the result is a large tax deductable
interest expense at Australian taxpayers expense.
As noted above, GVKPILs last annual report states GVK Coal
had a paid up ordinary equity base of US$0.5m. Against this,
there are lines of debt in excess of US$1bn. The Australian
Government has put forward changes to the thin capitalisation
rules to reduce foreign rms ability to exploit this loophole by
capping the tax deductibility of interest for such structures.
In a brieng note on the change, the international corporate law
rm Allens stated that Therefore, for income years commencing
on or after 1 July 2014, interest deductions will be denied to
the extent that the interest-bearing debt of foreign-controlled
entities exceeds the new safe harbour limits.
61
GVKs effective after-tax cost of debt will increase materially,
potentially requiring GVK and GVKPIL to increase equity
funding to pay down some of this off-balance sheet debt.
Sale of assets pressure to sell not evident, yet
GVKPILs Chief Financial Ofcer, Issac George, has suggested
the group is looking at asset sales to address excessive
gearing, stating: As a standard policy, we will ofoad stake in
our subsidiaries to raise equity and reduce debt as and when
the opportunity comes up.
62
Since the rms IPO in 2006,
with the exception of the proposed deal with Aurizon
(see Section 7), GVKPIL has been constantly acquisitive.
The companys actions to-date do not suggest the critical
nature of the nancial distress has been acknowledged to
any material extent.
In May 2013 Paul Mulder, Managing Director of GVK Coal, was
quoted as saying that GVK was in discussions with potential
buyers to sell a stake in the Alpha mine.
63
Power & Infrastructure Financial Leverage
20
Net interest expense... Not covered by EBIT
Another perspective on nancial leverage is provided by
a review of net interest expense and how that sits relative to
the EBIT. GVKPILs interest expense in the year to March 2013
rose an estimated 56% year-on-year to Rs6.7bn (US$125m).
By comparison, EBIT in the same period was Rs2.9bn
(US$54m) insufcient to cover the reported interest expense.
GVKPIL capitalises a signicant amount of interest expense
against assets yet to be commissioned. This is a standard and
accepted accounting practice meaning that recognition of the
interest expense in the nancial statements can be deferred,
Figure 11 GVK Power & Infrastructure On-Balance Sheet Net Interest Ratios
As at 31 March
IR Lakhs
2010 Act.
IR Lakhs
2011 Act.
IR Lakhs
2012 Act.
IR Lakhs
2013 Act.
US$m 2011
Act.
US$m 2012
Act.
US$m 2013
Act.
Finance costs 21,710 26,314 46,727 70,793 49 86 131
Less: Interest income -677 -984 -3,462 -3,462 -2 -6 -6
Net Interest Expensed 21,033 25,330 43,265 67,331 47 80 125
Plus Interest capitalised
on capex
82,143 20,087 54,685 54,685 37 101 101
Total Net interest 103,176 45,417 97,950 122,016 84 181 226
Net interest paid (as per
cashow statement)
19,913 44,332 97,393 n.a. 82 180 n.a.
EBIT 35,173 35,021 43,510 29,391 65 80 54
EBIT / Net Interest 167% 138% 101% 44% 138% 101% 44%
EBIT / Cash net Interest 177% 79% 45% 24% 79% 45% n.a.
Net interest expense
increase yoy
20% 71% 56%
Assumption - FY2013 capitlised interest and interest income equals FY2012 rate
Source: GVKP&I annual reports
GVKPILs high leverage makes it non-compliant with RBI rules
The Reserve Bank of India (RBI) has deemed GVKPIL a Systematically Important Core Investment Company (SI-CIC), a designation
brought into effect on 5 January 2011. Companies designated as such are required to apply for registration with RBI within
six months. GVKPIL has applied for such registration, but according to the companys last two annual reports, is not in
compliance with the requirements of the designation due to excessive nancial leverage.
64
The RBI guidelines do not detail
the implications for such non-compliance.
Power & Infrastructure Financial Leverage
but the magnitude of interest being capitalised is reective of
the excessive rate of expansion relative to current cashows.
In 2011/12, capitalised interest was Rs5.4bn (US$101m),
in addition to the Rs4.3bn (US$80m) net interest expense.
This means that GVKPILs net cash interest paid to banks was
Rs9.7bn (US$180m) last nancial year, double the reported net
interest expense.
Figure 11 details GVKPILs net interest expense for FY2010/11
and FY2011/12. For FY2012/13, we have made an estimate
using the preliminary nancial results released 17 May 2013.
We have provided a US dollar equivalent using the current rate
of Rs54 to US$1 for ease of reference.
21
Section 8
GVK Coal and Aurizon (a White Knight?)
GVKPILs high levels of debt, combined with the
delays and complexities of the US$10bn Alpha Coal
Project mean that they are seeking a white knight
investor to underwrite the nancial viability of
the project. Australian rail operator, Aurizon, is in
negotiations with GVK over the construction of
a single-purpose thermal coal export rail and port
facility at a cost of US$6bn to be fully operational
towards 2020 and with a life of 50-plus years.
Given general market trends this project runs
the risk of becoming a stranded legacy asset.
Aurizon and GVKPIL a non binding term sheet
On 11 March 2013 GVK Coal and Aurizon Holdings jointly
announced they have signed a non binding term sheet to
jointly progress the development of rail and port infrastructure
to unlock Galilee Basin coal reserves.
65
Under the proposed framework, Aurizon would acquire
a majority (51%) interest in Hancock Coal Infrastructure P/L,
which owns GVK Coals potential 60Mtpa rail and port projects
at a construction cost in the order of US$6bn.
This transaction is non-binding to both parties: Completion of
the proposed transaction, including the (still unquantied)
upfront consideration from Aurizon, would be subject to the
satisfaction of a number of conditions including satisfactory
due diligence, nal Board approvals, third party approvals
(some of which are outside of the control of the parties)
and negotiation of nal terms and denitive documentation.
66

The rail project location is yet to be determined,
with two alternatives:
A. A direct greeneld standard gauge 495km line across
a number of oodplains as originally envisaged by
Hancock Prospecting (independent of and not connecting
to the existing Queensland narrow gauge rail system).
This option has received EPBC approval and is one of
the rail corridors for the Galilee Basin dened by the
Queensland Government;
67
or
B. A combination greeneld/browneld narrow gauge line
named Central Queensland Integrated Rail Project.
This would be integrated into Aurizons existing system
that already facilitates the rail shipment of the coal produced
in the Bowen Basin.
To appreciate the size of this rail project, Option A involves
a 60Mtpa greenelds railway line. This 495km railway would
require 20 major bridges and 127km of culverts.
68
Phase II of
the project plans to double this to 120Mtpa, envisioning the
development of other GVK Coal and possibly the Waratah
Coal and/or South Galilee Coal Project. Each train would carry
25,000 tonnes of coal on 240 wagons with a train length of
4 km pulled by three 4,400 hp locomotives travelling at a fully
loaded average speed of 50km/hour.
69
Apart from thermal coal from the Galilee Basin, there is no
other commodity that this rail line or the proposed T3 export
terminal at Abbot Point would service. In light of the coal market
trends outlined in section 10, this increases the risk that the
investment may become a stranded asset. Aurizons latest
presentation suggests it is heavily pushing for a more
progressive brownelds/greenelds version based around
Option B. Aurizon states Expanding the browneld Central
Queensland Coal Network is a commercially sensible solution.
70
Aurizon to vertically integrate into ports?
Should Aurizon move forward with this proposal, it means
a move outside its core competency of rail freight into a totally
new eld of port ownership and operation. Additionally, we note
that Abbot Point port has handled 10-12Mtpa of coal exports
over the last decade. To step up to the 200Mtpa being
reviewed currently is a 2,000% expansion a move involving
considerable risk of delay, cost blow-outs and/or difculties.
The port facility at Abbot Point (25km north of Bowen)
is in the middle of its second major transformation,
changing the port dramatically. For the last decade it was
a small Queensland Government-owned port exporting
10-12Mtpa of coal. In 2011 the 3km long existing terminal (T1)
completed a major expansion of its rated capacity to 50Mtpa
(refer Figure 12). However, to-date it is still only operating at half
its rated capacity (see Figure 13). In support of this expansion,
Aurizon completed the A$1.1bn Goonyella to Abbot Point
Expansion (GAPE) rail project in December 2011.
22
Figure 12 Abbot Point Port with the Existing T1 Rail and
Coal Loading Facilities
71
Figure 13 Abbot Point Coal Exports by nancial year
Adani Enterprises (of India) acquired a 99 year lease over the existing 50Mtpa Abbot Point coal terminal in April 2011 from the
Queensland Government for A$1.8bn.
72
The Abbot Point port has proposals underway to more than quadruple coal export capacity in a move from one to potentially
four terminals. Having acquired a long-term lease on the existing port, Adani Abbot Point Terminal is planning to add a second
terminal (T0) adjacent to T1 to the South, with a proposed capacity of 70Mtpa as part of its own plans to open up part of
the Galilee Coal Basin via its Carmichael Project. To the immediate north, BHP Billiton has paused but not withdrawn plans to
develop T2, a 60Mtpa coal facility. Alongside this is GVK Coals proposal for T3, a fourth facility with 60Mtpa rated capacity.
All proponents seeking to build this mega-billion dollar complex recognise the sensitivity of the marine environment of the Great
Barrier Reef World Heritage Area (GBRWHA).
73
The Australian Government has come under heavy criticism from the UNs World Heritage Committee for allowing continued
coastal development in the Great Barrier Reef World Heritage Area, including, most recently, the conclusion that some of the
actions of the State Party [Australia] appear inconsistent with the requests made by the World Heritage Committee.
74
The T3 port expansion and coal storage facility will lie directly adjacent to the 5,154 hectare Caley Valley Wetland and the assorted
threatened bird, reptile, mammal and ora species, including a nationally signicant population of a species listed as endangered
under the EPBC Act. The rail loop for the Alpha coal project and T3 coal terminal would develop and enclose part of this wetland.
Source: North Queensland Bulk Ports
GVK Coal and Aurizon (a White Knight?)
23
Section 9
Project Risks
Greenelds are risky. Greenelds do have capital over-runs.
Greenelds do have delays that kill the NPV on those projects...
They may be good projects afterwards and they do generate good
cash because they are lowest quartile in the area, but returns for
the original investors (are) not so pretty.
Glencore CEO Ivan Glasenberg, April 2013
75
GVK Coal faces a signicant number of risks in
bringing to fruition what would prove to be the
largest black coal mine in Australias history.
The ability of resource rms to deliver major capital
projects on time and on original budget is highly
questionable and evidence to-date would suggest
GVK Coal is no different. Full production before 2018
is unlikely. GVK Coals US$55/t cash cost estimate
is outdated in our view. Power and water infrastructure
is critical but not expected any time soon.
Any outsourcing of the rail and port infrastructure
projects to the Aurizon joint venture (JV) is likely
to see the Alpha Project cash cost rise to at least
US$70/t, more in line with Australia thermal coal
averages and far above the price which has formed
the basis of the projects public disclosures.
Probably the largest risk for GVK Coal is the ability to nance
this US$10bn project, given the heavily constrained nancial
position of GVKPIL (as discussed in Section 6). We address
a selection of other project risks below, particularly in relation to:
1. project timing.
2. capital costs; and
3. operating costs.
GVK has set an aggressive timetable, with GVKPIL Vice
Chairman Sanjay Reddy in March 2013 stating I expect
construction on the projects to commence by FY-end.
(This implied the project would start by March 2014.) Asked
when GVK Coal would start yielding coal to GVKPILs Indian
coal-red power plant, Reddy continued Yes, it is a three year
construction period. We expect that before the end of this year,
we should start construction.
76
However, in September 2011
GVK stated First coal production is expected in 2014.
77

So two years on GVK Coal is three years behind schedule.
And we note that a recent Right to Information release by
Queensland Treasury suggests rst coal exports are only
expected in 2019 at 1.6Mt, rising slowly to 15Mt by 2022,
this suggests another three years delay ahead.
78
Given the size of this project and the associated rail and
port infrastructure project requirements, plus outstanding
environmental, regulatory and legal issues yet to be resolved,
there is a high probability of delays to GVK Coals plan is
to start construction at the beginning of 2014. These delays
suggest that a meaningful volume of coal exports is unlikely
until 2018 at the very earliest.
With interest expenses of some US$5m per month this year,
rising to some US$10m per month next year and rising with
every step forward, the cash drain of the upfront US$1.26bn
purchase plus the US$10bn of (currently unfunded) capex will
really stack the odds against this project seeing a protable
outcome for shareholders.
In addition to the expected delays, there is also a high
risk of capital cost over-runs, combined with the likely
underestimation of operating costs for the mine. GVK estimates
the production costs for the Alpha mine to be in the order of
$55 per tonne, well below the industry average. However our
analysis, based on standard industry factors indicates that the
production costs are likely to be in the order of $70 per tonne.
Mounting interest expenses will create an additional burden.
Timing is likely to be optimistic expect delays
Building a $10b integrated mine, rail and port project would
be challenging for even the most experienced operator.
However, there are a number of environmental factors that
combine to amplify the risks of prolonged delays for GVKs
Alpha Coal Project.
While concerns have been raised over the likely water impacts
of the mine and rail line, as well as ooding risks, perhaps the
most signicant environmental risks relate to GVKs proposed
T3 coal export terminal which is located within the Great
Barrier Reef World Heritage Area.
24
The T3 port expansion and coal storage facility will lie directly
adjacent to the 5,154 hectare Caley Valley Wetland and the
assorted threatened bird, reptile, mammal and ora species,
including a nationally signicant population of a species listed
as endangered under the Federal Environmental Protection
and Biodiversity Conservation (EPBC) Act. The rail loop for the
Alpha Coal Project and T3 coal terminal would develop and
enclose part of this wetland.
The Federal Environment Department is currently investigating
allegations of false and misleading conduct by GVKs
Hancock Coal Pty Ltd following the release of documents
obtained under Freedom of Information by Greenpeace.
The investigation centres on the alleged omission of important
ecological data relating to bird surveys of the Caley Valley
Wetland from the environmental assessment submitted by
the company.
79
At the time of writing, this investigation was
still underway.
In addition to this investigation, the granting of an environmental
authority of the Alpha Coal Project (mine and rail) is being
challenged by a number of environmental groups and
landowners in the Queensland Land and Environment Court.
80

The court hearing is set for September with a ruling not due for
several months afterwards.
Power infrastructure is not in place further costs
and risk of delay
GVK Coal is most likely to source electricity via a purpose built
160-200km high voltage greenelds power line linked up to
the Lilyvale Substation
81
(see Figure 14). This again adds to
the challenges and cost of establishing this greeneld project,
particularly given that Powerlink Queensland is not planning
to nish construction of the transmission line until 2016/17
82

(see Figure 15).
Figure 14 Proposed Powerlink Galilee Basin
Transmission Line Project
Figure 15 Proposed Powerlink Galilee Basin Timeline
Lack of water infrastructure further costs and risk of delay
The Alpha Coal mine would be expected to consume more
than 8,000m litres of water per annum at peak production.
83

Together with Kevins Corner, the two mines would be
expected to consume over 11,000m litres per annum at peak.
84

The original plan for mine water was based on SunWaters
proposed A$1.2-2.0bn Connors River Dam and Pipeline project,
but in July 2012 SunWater announced it had decided not
to proceed with this work: A number of changes to our
customers project timeframes and investment horizons have
resulted in an incompatibility of timing for customer nancial
commitments to the project priorities.
85
GVK Coal was the key
proposed customer, proposing to take a signicant portion of
the pipelines capacity.
Following the cancellation of the Connors River Dam and
Pipeline, GVK Coal has proposed to source water for the
mine and associated coal washing and coal dust suppression
systems via a purpose built 220km water pipeline from the
Fairbairn Dam.
86
However, we understand this proposed
pipeline (to be developed by the Queensland Government
owned SunWater) is not yet in the public planning system,
suggesting construction of this key infrastructure is some way off.
Capital costs likely to be signicantly under-estimated
The history of large resource projects is littered with signicant
cost overruns relative to the original feasibility budget.
Figure 16 takes a small sample of major mining projects from
the last decade, with average 20-30% capital cost blowouts.
Given in excess of US$100bn of investments in liquid natural
gas export terminals currently underway in Queensland,
the scope to add another US$10bn of capital expenditure for
the GVK Coal project would add upward price pressure on
an already tight regional construction market. Rio Tinto and
Hancock Prospecting recently lifted their estimate of their
Hope Downs 4 iron ore project in Western Australia by 30%
to US$2.1bn, in part due to the strength of the Australian dollar.
87
Project Risks
25
Figure 16 Recent Major Mining Project CAPEX Overruns
Project Country Company Feasibility budget cost Actual / forecast cost overrun
Ravensthorpe/Yabilu expansion Australia BHP Billiton A$1.40 bn 30%
Spence Chile BHP Billiton US$0.99 bn 10%
Telfer Mine Australia Newcrest A$1.19 bn 18%
Stanwell Magnesium Australia AMC A$1.30 bn 30%
Boddington Australia Newmont A$0.87 bn 100%
Goro Project Indonesia Inco US$1.45 bn 15%
Prominent Hill Australia Oxiana A$0.35 bn 51%
Source: D.J.Noort and C.Adams 2006
The Australian Coal Association (ACA) has also warned that the
thermal coal industry in Australia is not competitive in the global
context for new mines, in May 2013 citing a recent study by
Port Jackson Partners, capital costs for Australian thermal
coal projects are 66% above the global average Energy and
transportation costs are also much higher in Australia than in
competitor countries.
88
The ACA cites Port Jackson Partners as saying the cost of
building a new thermal coal mine in Australia in 2012 has
risen to US$176/t of capacity
89
(more than double the 2007
cost of US$61/t of capacity) Figure 17. This suggests the
32Mtpa Alpha mine alone will have a capital cost approaching
US$5.6bn, before the rail, water and port infrastructure capital
cost is added. This compares to the A$3.4bn cited in the May
2012 Queensland Coordinator-Generals report.
Figure 17 Capital Spend to Build a Tonne of New Capacity
Source: Australian Coal Association, May 2013 referencing Port Jackson
Partners September 2012 page 26 Opportunity at Risk
Remote operation of the mine new and largely untested
GVK Coal, having never operated a coal mine, proposes to
build the biggest black thermal coal mine in Australian history.
While this is a massive challenge in itself, GVK faces several
other technical challenges including its requirement to operate
the mine remotely, as cited in Ausencos Case Study on the
Alpha Coal Project:
90
The Owner requires to operate this plant from a remote
operations centre several hundred kilometres away from the site,
which introduces some unique challenges in automation and
the application of cutting edge technologies.
Building a mine in an area prone to ooding
risking a repeat of Ensham?
Ausencos Alpha Case Study goes on to say the project has
another key challenge:
The plant site is located in an area where black soils
present unique construction challenges and a degree of
seasonal variability in access conditions to work areas.
January 2011 saw the minesite and surrounding areas
isolated by oodwaters.
Black soils are highlighted due to their high clay content
making unsealed roads impassable after even light rain,
making weather interruptions to work progress inevitable
and unpredictable.
We are reminded that in January 2008, the Ensham mine in
central Queensland was inundated by oodwaters which lled
two of its six coal pits with more than 100,000 megalitres of
water due to underestimation of ood risks. Damage was
estimated at $300m,
91
ignoring the uncalculated cost of all
the coal pollutants that were washed into the Queensland
water system.
Project Risks
26
Figure 18 Ensham Coal Mine 2008
Figure 19 Ensham Coal Mine 2008
Coal production costs likely to be materially underestimated
The nancial viability of any project to open up the Galilee
Basin to coal mining for export has been long debated.
Most recently, commentators observed, The (Galilee) basin
holds vast quantities of thermal coal but analysts estimate the
economics do not stack up with thermal coal prices needing to
rise above US$120 a tonne (to make any project viable).
92
The managing editor of Platts International Coal Report,
James OConnell, was quoted by Forbes India as saying
Australian thermal coal production costs are about US$70/t.
93
Figure 20 provides the current cost curve for Australian thermal
coal producers and indicates a median cash cost of US$80/t.
94

Morgan Stanley suggests the cost curve has increased from
an average of US$70/t to US$80/t over the last twelve months,
Project Risks
leaving cash costs not far short of the current US$88/t spot price.
This would suggest that the US$55/t cash cost estimate
published by GVK Coal in February 2013
95
could be optimistic
and require updating given the signicant resource sector cost
ination over the last few years.
Figure 20 Australian Thermal Coal Mines Cash Cost
vs Spot (US$/t)
Source: Wood Mackenzie, Morgan Stanley Research
Freight costs double the distance of the Queensland average
Aurizon publishes its Queensland Coal Rail divisional sales and
volumes as per Figure 21. We estimate Aurizon will generate
an average A4.3c/km per tonne of coal transported in FY2013
and its average coal shipment is 224km. By comparison,
the Galilee Basin is 495 km from Abbott Point using the more
direct route, more than double the average for Queensland.
Assuming the economies of scale will more than offset the
higher capital costs of the greenelds nature of this potential
new contract, we have allowed a 10% discount for scale,
giving A3.9c/km/t over 495km gives cash cost of A$19.30/t
for the transportation of coal from the Alpha mine to the port
at Abbot Point.
From Aurizons perspective, GVKs 32Mtpa would generate
annual revenues of A$618m. At Aurizon Coal Rails current
EBIT margins of 14%, this would equate to A$86m EBIT,
generating a 4% pre-tax return on an estimated A$2bn
investment (under rail Option B). Aurizon would be counting
on additional coal tonnage from other mines in the Galilee
(refer Figures 4 & 5) and scope to lift its EBIT margins closer
to Tier 1 US rail freight levels of 20% in order to ensure
an adequate return on investment.
27
Figure 21 Rail Costs per Tonne (A$/t)
Aurizon - Coal FY2011 Est. FY2012 Est. FY2013 Est.
Tonnage (million) 181.6 185.6 194.0
ntk (billion) 40.9 41.9 43.4
Revenue ($m) 1,691 1,828 1,880
Km / tonne 225 226 224
Revenue (per ntk) $0.041 $0.044 $0.043
Alpha to Abbott Point 495
Rail cost per tonne (A$) $21.44
Rail cost assuming a 10% discount (A$/t) $19.30
ntk - revenue per net tonne km
Source: Aurizon annual report 2012, own estimates
When GVK Coal stated its target cash cost of production was US$55/t, we assume this reects the rail and port costs being
carried on internally 100% owned facilities, i.e. mostly of a capital nature, with limited cash operating costs. Outsourcing the rail
and port operation to an Aurizon-led joint venture could take GVK Coals estimate of US$55/t up to US$70-80/t and in line with
average Australian thermal coal cash costs. With the Aurizon JV, the Alpha mine would bear the full A$19/t in cash costs of rail
plus an estimated A$5/t in port charges.
Taxes on coal inevitably will continue to increase
In his February 2013 budget speech the Indian Finance Minister,
Palaniappan Chidambaram, stated that the Overseas purchases
of steam and bituminous coal, both used by power producers,
will attract a customs duty and a countervailing duty of
2% each.
96
While only small, this is the second increase in
this import tax in the last few years. In our view, this tax
will continue to increase as a source of funding for the
rollout of renewable energy and upgraded transmission
grid infrastructure in India, plus as a means to combat the
signicant health effects of coal-red power station and coal
dust pollution.
Taxes are increasingly being levied both by the importing
nations, and those allowing the mining and export of coal.
In Australia, over the longer term GVK Coal will be subject
to the Mining Rent Resources Tax, introduced 1 July 2011,
unless it is repealed following a change of Government.
However, the much more signicant tax imposed is the
Queensland Government royalty on coal, which is currently
set at a rate 7% of coal revenue up to A$100/t. But from
1 October 2012, beyond A$100/t the rate was increased from
a at 10% to the new rate of 12.5% and then 15% of
incremental revenue, not prots
97
(see Figure 22). This royalty
is possibly the third largest cash cost component of production
behind labour and rail freight.
Figure 22 Queensland Government Coal Royalties
Coal price range % royalty
A$0-100/t 7.0%
A$100-150/t 12.5%
>A$150/t 15.0%
China has a surcharge applied to all electricity usage, with all
the proceeds used to fund the rollout of renewable energy
infrastructure. Created under the China Renewable Energy Law
in 2006,
98
this surcharge was doubled in December 2011 from
Rmb0.004/kWh to Rmb0.008/kWh, creating a fund ow we
estimate at Rmb43bn (US$7bn) annually by 2013. We understand
China is expecting again to double the current renewable
energy surcharge levied on all consumers in 2015 to
Rmb0.016
99
We estimate this would generate US$16bn pa.
An import tax on coal, and/or a carbon tax is also likely to
be implemented in the next 2-3 years, again as a measure
designed to reduce Chinas coal consumption and to
encourage the development of nuclear, natural gas,
renewable generation and energy efciency (see Section 10).
Project Risks
28
Chinas National Energy Administration has also released draft
regulations proposing to ban the importation of low-quality
coal in May 2013. Low quality coal is dened in the proposal as
imported coal with a caloric count of less than 4,544kcal/kg,
or an ash content more than 25% or sulphur more than 1%.
100

This is yet another measure China will use to reduce its reliance
on coal and reduce atmospheric pollution.
In May 2013 the National Energy Administration has also
proposed a new taxation law that for the rst time includes
carbon tax into the existing environmental protection
taxation system. In addition, the rates of pollutant discharge
fees and related taxes have been increased as compared
with the ongoing pollution charges.
101
Cash cost of production more like US$70/t than US$55/t
GVK have repeatedly claimed a cash cost of production from
the Alpha mine of US$55/t. However, given the factors and
costs outlined above, we estimate a cash cost of production of
at least US$70/t (see Figure 23), even before the interest costs
on this US$1.26bn purchase and U$5bn of mine development
capital expenditure is taken into account. Excluding the
interest expense generated by the Aurizon JV rail and port
infrastructure, the interest costs to GVK Coal could be over
US$400m pa by 2018 (US$5bn of capital expenditure on the
mine plus US$1.26bn on purchase @ 6-7% cost of borrowings)
on 30Mtpa this is another US$13.56/t cash cost that needs
to be covered by the project. For the project to make GVK
Coal a commercial return on its capital will require a sustained
thermal coal price well in-excess of the current spot rates of
US$88/t FOB Newcastle.
Figure 23 US$70/t Estimated Cash Cost of Production Post-Aurizon JV
Cash cost of production A$/t US$/t % of cash cost % of revenue
Labour & Overheads 11.50 11.15 16% 13%
Water/Electricity/Explosives/Consumables 19.46 18.88 27% 21%
Diesel (assume 1.9L/tonne of ROM coal) 3.81 3.69 5% 4%
Coal preparation 5.00 4.85 7% 6%
Rail costs 19.30 18.72 27% 21%
Port costs 5.15 5.00 7% 6%
Marketing cost (assume 2% of revenue) 1.81 1.76 3% 2%
State Govt. Royalty 6.13 5.95 8% 7%
Cash cost per tonne 72.17 70.00 100%
Interest expense (on $5bn + $1.26bn @ 6.5%) 13.98 13.56
Cash cost including cash interest $86.15 $83.57 95%
Interest expense (on $5bn + $1.26bn @ 6.5%) $90.72 $88.00
Cash cost including cash interest 0.97
We note that the most recent GVK Coal presentation on 2 May 2013 for the rst time refers to a ~US$75/t 2019 Australia FOB
Cost Curve Energy Adjusted for Alpha.
102
This presentation is indistinct as to if this assumes the rail and port costs are primarily
of a capital or operating cash cost per tonne basis.
Project Risks
29
Section 10
Thermal Coal Market Outlook
Investors need to challenge the assumption that coal demand
will continue to rise in China and elsewhere, otherwise billions of
dollars of taxpayer, superannuation and shareholder funds will be
wasted in assets linked to unburnable carbon.
103
James Leaton, Research Director, Carbon Tracker, 2013
With global demand for thermal coal lower than
previous market expectations and export supply
expanding, thermal coal prices are more than 30%
below the 2008 peak. The substitution of coal by
natural gas and renewable energy is expected
to accelerate over the medium term, capping the
thermal coal price to levels around the current spot
price at best. In particular, we project that Chinas
total thermal coal consumption will peak by 2018,
and progressively decline thereafter, a fundamental
trend reversal compared with the last four decades.
Renewables will have an increasingly deationary
impact on global energy prices. In the current market
a surplus of Australian coal would act to depress
Australias export terms of trade to the economic
benet of coal importing nations like India and China.
Project cancellations coming rapidly across the
resource sector
There has been a raft of resource project cancellations and
deferrals over the last year, reecting the end of the commodity
price boom. Rio Tinto, BHP Billiton, Glencore Xstrata and
Woodside have led this process. This was recently highlighted
by ANZ Researchs report Bracing for Change which stated:
We have again revised lower the potential pipeline of major
projects in Australia to AUD440bn as at March 2013 from
AUD498bn in July 2012. An estimated AUD75bn of mining
projects have been removed from the potential investment
pipeline over 2013-2016.
104
Since this report was published, Glencore Xstrata announced
the cancellation of a US$1bn 35Mtpa coal export terminal
at Balaclava Island, just north of Gladstone in Queensland.
This decision has been made as a result of the poor current
market conditions in the Australian coal industry, excess port
capacity in Queensland, specic shipping limitations and
concerns about the industrys medium-term outlook.
105

Macquarie Group recently stated:
hopes for the Galilee Basin development look increasingly
remote. With huge upfront capex to build the >500km rail lines
and coal quality which compares poorly to peers, at current
~85-90/t FOB pricing and a at market outlook project paybacks
look extremely poor. Unless conventional economics are ignored
due to deep pocket nancial backing, further delays to Galilee
development look certain.
106
The Australian Coal Association summarises the current state
of the industry in their May budget report:
The Australian coal industry is experiencing the most difcult
operating conditions in ten years, with the suspension of major
projects, the closure of mines and some 9,000 jobs shed over
the past 12 to 15 months.
107

China coal demand should decline post 2017, way earlier
than most forecast
Chinas future coal consumption will be dramatically impacted
by a moderation of economic growth, improved energy
efciency and rapid development of renewable and low
carbon energy sources. As the largest coal producing nation
(Figure 24) accounting for 45.7% of global coal production
and consuming 49% of global coal supply, even small shifts
in domestic Chinese demand has the potential to signicantly
impact the global market.
30
Figure 24 Global Coal Production, Largest Producers
Million tonne 1981 1991 2001 2011 Change 11 vs 01 Share of total 2011
China 622 1,087 1,472 3,520 139% 45.7%
United States 747 904 1,023 993 -3% 12.9%
India 130 240 342 588 72% 7.6%
Indonesia 0 14 93 325 251% 4.2%
Russia n/a 353 270 334 24% 4.3%
Australia 127 218 335 415 24% 5.4%
South Africa 130 178 224 255 14% 3.3%
Germany 493 346 202 189 -7% 2.5%
Rest of World (ROW) 1,587 1,216 959 1,077 12% 14.0%
Total 3,836 4,557 4,918 7,695 69% 100.0%
Source: BP Statistical Review 2012
The rate of coal consumption growth in China is driven by
three key factors:
1. The rate of economic growth;
2. The rate of energy efciency improvement; and
3. The rate of development of alternative energy sources.
Rate of economic growth: Graham Kerr, CFO of BHP Billiton
was quoted saying that for China Their moderated growth
is around the 7-8% mark for the next couple of years, then
trending down towards the 6% mark.
108
Even this rate of
growth may prove optimistic given the increasing propensity
for Chinas new leadership team to focus on the quality
of growth over quantity. Air pollution and declining coal
consumption is a key measure of success in this major
economic reform. The years of double digit annual Gross
Domestic Product (GDP) growth rates are history for China,
to the sustainable benet of the nation.
Rate of energy efciency improvement: China has
set a target of 3% pa for energy efciency improvements
16% over the 12th Five Year Plan for 2011-2015. This translates
into a 17% reduction in carbon intensity (carbon emissions
per unit of GDP).
109

The rate of development of alternative energy sources:
In the interests of energy security, new industry development,
employment growth and increased self-reliance in energy policy,
China is developing low-carbon energy alternatives to coal
faster than any country in history. We forecast that China will
commission ~6 gigawatts (GW) of nuclear annually over the
next ve years, plus 18 GW of hydro-electricity, 11-12 GW of
solar, 17 GW of on-shore wind, 1-2 GW of offshore wind and
2 GW of biomass/EfW (see Appendix A).
The net result of the interplay of these factors is that China will
progressively reduce its reliance on coal (as a percent of total
electricity production), an acceleration of the trend evident over
the last ve years. By 2017, Chinas total coal consumption
for electricity is likely to peak in absolute terms, and steadily
decline thereafter.
United States reduced domestic coal uses increases
export availability
The US is the second largest producer of coal at 12.9% of
global production. A combination of the US Environmental
Protection Agencys tightening of its Mercury and Air Toxics
Standards
110
and the US shale gas boom, improved energy
efciency and renewable energy investments are causing many
coal-red power station proposals to be scrapped. By the end
of 2012, the US had a cumulative installed capacity of 60 GW
of wind farms (13.4 GW of installs in 2012 alone), plus 7.7 GW
of solar capacity (3.2 GW in 2012 alone). This is considered
likely to permanently displace domestic demand for coal.
Figure 25 shows the weekly US carload shipments of coal,
clearly showing the 25% step down in demand between 2011
and 2013 to below 30,000 carloads per week.
Thermal Coal Market Outlook
31
This may help explain why the Indian Government is supportive
of GVK Coal, Adani and Reliances push to develop Australian
coal deposits for export. The more the global supply, the lower
the total import costs of thermal coal to India.
Additionally, the continued rapid expansion of coal red
power generation in India is far from certain given conicts over
water availability, land access, fuel constraints, pollution and
increasing nancial distress in the Indian power sector.
The Reserve Bank of India has agged it will not intervene to
bailout defaults on new power sector loans.
114
Should current
disruptions with respect to coal red power generation
continue, it is increasingly likely India will increasingly bypass
coal in favour of developing a distributed solar with storage
energy system, backed up by centralised hydro and wind
energy generation.
Coal demand falling in Europe the fossil fuel model
is broken where is next?
Moodys April 2013 report: European Utilities: Wind and
Solar Power Will Continue to Erode Thermal Generators
Credit Quality, encapsulates the change underway in
European energy markets:
Large increases in renewables have had a profound negative
impact on power prices and the competitiveness of thermal
generation companies in Europe. What were once considered
stable companies have seen their business models severely
disrupted and we expect steadily rising levels of renewable
energy output to further affect European utilities creditworthiness.
The dramatic decline in market value of German fossil fuel
utilities over the last ve years is in our view a precursor to
the transformation of the European Union and then the global
electricity sector. With the continued rise of gas and renewable
energy generation globally as an increasing substitute to coal
red electricity generation, the outlook for the thermal coal
export industry is in our view troubled.
Former Saudi Oil Minister Sheikh Yamani once said the stone
age didnt end because we ran out of stones. The world is
moving beyond the coal age, not because we are running
out of coal, but because the market is increasingly turning to
cleaner and/or self generated alternatives. At the same time,
signicant new supply of coal is opening up to the export market,
with signicant increased supply from the US as the shale
gas boom permanently displaces domestic demand for coal.
Market forecasts for the outlook for thermal coal prices are
increasingly reecting lower demand combined with higher supply.
Figure 25 US Coal Shipments (Weekly Carloads)
Source: Union Pacic Corp, 18 April 2013
With this fall in domestic demand, US coal producers have
intensied their efforts to place more U.S. coal production
on the global market. According to the United States Energy
Information Administration:
This increase in exports marks a signicant reversal from the
general downward trajectory of U.S. coal exports beginning in
the early 1990s Coal exports in 2011 rose 171% from 2002,
with only a brief interruption by the global recession.
Export growth accelerated after the recessionCurrent data
for 2012 (through August) show coal exports are growing
even faster and should more than double 2009 export levels,
buoyed by growth in U.S. steam coal.
111
Arch Coal, a leading U.S. coal producer optimistically
estimates that coal export capacity in the United States will
double by 2020.
112
Industry analysts warn of an oversupply of
coal in the seaborne markets going forward.
113
India increasing chance India will bypass coal as
it did with xed line phones
India is an increasingly signicant player in the global coal
market with 7.6% of total world production in 2011 and
12% of world seaborne trade in thermal coal. Despite having
the fth largest thermal coal reserves at 60bn tonnes,
Indias coal is generally of very low caloric value and high ash
content making it less efcient and more polluting than
other coal. Much of Indias coal reserves are located either
under signicant population masses or in national parks
that are covered by the Wildlife Protection Act (1972),
creating environmental permitting difculties and causing
social tension around coal mining development. This is leading
to considerable domestic coal supply constraints.
Thermal Coal Market Outlook
32
Deutsche Banks May 2013 report provides a market outlook
for coal demand, supply and hence thermal coal pricing that
reects these new realities. Titled Commodities Special Report:
Thermal Coal at a Crossroads, Deutsche forecasts a signicant
oversupply of thermal coal globally, building progressively
through 2020
115
(see Figure 26).
Figure 26 Market Balance to 2020, Thermal Coal
Source: Bloomberg Finance LP, Deutsche Bank
Australian prices following international trends
Figure 28 details the 10 year Australian thermal coal price chart to April 2013. Prices are reported to be 5% weaker to-date
in May 2013, with spot currently at US$88/t.
Figure 28 Australian Thermal Coal Export Price, Newcastle FOB (US$/t)
Description: Coal, Australian thermal coal, 12000- btu/pound, less than 1% sulfur, 14% ash, FOB Newcastle/Port Kembla, US Dollars per Metric Ton
Source: Indexmundi.com
The conclusion of this is that thermal coal prices are likely to
continue to track the global marginal cost curve, as Deutsche
Banks analysis highlights (see Figure 27).
Figure 27 Global Thermal Coal FOB Cash Costs,
Real 2013 US$/t
Source: AME, Deutsche Bank Research
Thermal Coal Market Outlook
33
The shifting dynamics in the global coal market are set to place
Australia, as the second largest exporter of thermal coal in
the world, as a price taker in an increasingly oversupplied
market across the period of operation of the proposed Alpha
project. The likely timeframe for the ramp-up to full production
of GVK Coal will be parallel to Chinas projected peak in demand.
Falling global demand as coal is displaced by gas and renewables,
combined with surplus supply is likely to see real thermal coal
prices falling further, diminishing the likely returns for large,
capital intensive, long term thermal coal infrastructure projects
such as GVKs Alpha project.
We do not doubt coal will remain a signicant if declining
energy source for the next few decades. However, the shift
in China away from coal is likely to be replicated globally.
We expect developing countries to adopt a variety of distributed,
low-carbon renewable energy sources in a similar way they
have adopted mobile telephones, increasingly skipping the
need to develop a massively capital intensive grid model reliant
on centralised generation.
116
One of the worlds best sources of
information on this energy revolution is Bloomberg New Energy
Finance, who recently wrote that they project that 70% of new
power generation capacity added between 2012 and 2030 will
be from renewable technologies (including large hydro).
117
We view this as a highly probable scenario, with scope for this
70% to be well exceeded should energy efciency initiatives
really take off, combined with further big strides in solar
technology and economies of scale. We see a global
solar with storage energy revolution really starting to bloom,
as a recent Citi report
118
detailed (see Figure 29).
Figure 29 Solar System Costs (In Recent Years
the Learning Rate has Accelerated to 40%)
Source: Citi Research, Bloom berg New Energy Finance
As distributed solar electricity generation becomes cheaper
than delivered coal-red power, the demand for new coal
power stations will correspondingly diminish. Further, as existing
coal red power stations become obsolete and are closed,
demand for thermal coal will diminish.
The nancial markets are increasingly likely to devalue the
legacy fossil fuel assets, railway and port infrastructure such as
that being proposed for GVK Coal.
Unburnable coal Australias carbon bubble
The concept of unburnable carbon is based on a scientic
analysis that burning more than 886 Gt of CO2 between
2000-2050 will result in more than 2C of global warming,
triggering dangerous climate change. By 2011, globally,
over one third of this carbon budget of 886 Gt CO2 had
already been burnt. The known fossil fuel reserves owned
by resources companies if exploited and burnt would easily
exceed the remaining allowance. The reserves beyond this limit
are increasingly being referred to as unburnable carbon.
To stay within the carbon budget only 20-40% of existing coal,
gas and oil reserves can be burnt.
Australias known coal reserves alone, if burnt represent almost
25% of the global carbon budget.
As the consequences of global warming become more
apparent, it is likely that there will be increasing public
pressure for political and regulatory change. Europe, Australia,
and some U.S. states are already supporting emissions trading
schemes. Reports last month suggested China is considering
capping emissions in its next ve year plan (2016-2020).
There will be increasing global pressure to leave these
unburnable reserves of coal in the ground.
Companies currently holding coal assets, face an increasing
political risk of those reserves being stranded by a dramatic
global shift to limit carbon emissions and domestic policy
changes to support these demands. As a result, long-term
thermal coal investments such as GVKs Alpha Coal Project
face long term climate related (regulatory) risks.

Thermal Coal Market Outlook
34
Section 11
Conclusion
The proposal by GVK to build a $10bn greeneld thermal coal
project in Australias remote Galilee Basin at a time of a global
downturn in coal markets is a high risk proposition.
The project timelines have been shown to be unrealistic,
and further delays are likely due to the unprecedented
ambition and complexity of an Indian company with no track
record of building mines in Australia, building what would be
by far the countrys largest thermal coal mine in an area with
no water, power, or other service infrastructure. The project
would require almost 500km of new rail infrastructure,
across oodplains and through important farmland, to a new
export terminal proposed to be located in the Great Barrier
Reef World Heritage Area. This at a time when most major coal
producers are seeking to sell or downscale production due to
a weakening global outlook for thermal coal.
While the project would be ambitious even for an experienced
developer with a strong balance sheet, GVK are attempting
to develop the US$10bn Alpha Coal Project at a time when
they have a total of 16 greeneld infrastructure projects under
development across 6 different asset classes.
It is likely that both capital and operating costs have been
under-estimated, while project timelines are expected to
continue to slip.
In the context of the longer term trend towards low carbon
energy and increased regulation and restrictions over coal
use in China, the US and in other countries, the investment in
thermal coal export infrastructure in the Galilee Basin runs
a risk of becoming a stranded asset.
35
Appendix A: Chinas Electricity Sector Transformation: 2008-2020
Fuel Breakdown
PRC Net Capacity
Additions (GW)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% of
2020
total
Coal 586 632 683 733 777 819 849 876 893 900 897 889 876 49%
Natural Gas 15 20 26 33 39 46 54 63 72 82 93 104 115 6%
Hydro 172 197 216 231 246 267 284 301 318 335 352 369 386 22%
Nuclear 9 9 11 13 13 17 21 28 28 28 28 28 28 2%
Wind Power onshore 12 26 43 60 74 92 110 127 144 160 176 191 205 12%
Wind Power Offshore 0 0 0 0 0 1 1 3 5 9 13 19 27 2%
Solar Power 0 0 1 3 8 17 27 39 52 65 80 95 111 6%
Other (Biomass, EfW,
CHP)
2 3 4 5 6 7 9 11 13 16 19 23 30 2%
Year End 796 887 984 1,077 1,164 1,265 1,354 1,448 1,526 1,596 1,658 1,717 1,778 100%
Fuel Breakdown PRC Net
Capacity Additions (GW)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Coal 49.2 71.9 62.2 54.0 44.6 42.0 30.0 27.0 17.0 7.0 -3.0 -8.0 -13.0
Natural Gas 0.0 5.0 6.4 6.2 6.0 7.0 8.0 9.0 9.5 10.0 10.5 11.0 11.5
Hydro 23.2 25.3 19.3 14.5 15.5 21.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0
Nuclear 0.0 0.2 1.7 1.7 0.7 3.2 4.0 7.0 0.0 0.0 0.0 0.0 0.0
Wind Power 4.7 13.8 17.0 17.6 13.8 17.7 17.7 17.7 17.0 16.2 15.5 14.7 14.0
Wind Power Offshore 0.2 0.5 0.5 1.5 2.5 3.5 4.5 6.0 8.3
Solar Power 0.0 0.0 0.5 2.0 5.0 8.7 10.3 12.3 12.8 13.3 14.3 15.3 15.8
Other (Biomass, EfW) 1.0 -1.9 1.0 1.0 1.1 1.3 1.6 2.0 2.4 2.8 3.2 3.6 4.0
Year End 78.1 114.3 108.2 97.0 86.9 101.4 89.1 93.5 78.2 69.8 62.0 59.6 57.5
Fuel Breakdown
PRC Hours
pa operation
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Coal 4,911 4,839 5,031 5,294 5,135 5,042 5,080 5,100 5,100 5,100 5,100 5,100 5,100
Natural Gas 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,040 3,080 3,120 3,160 3,200
Hydro 3,621 3,264 3,404 3,028 3,000 3,263 3,263 3,263 3,263 3,204 3,204 3,204 3,210
Nuclear 7,731 7,914 7,924 7,772 7,772 7,823 7,823 7,823 7,823 7,838 7,823 7,806 7,817
Wind Power 2,046 2,077 2,047 1,907 1,892 1,949 2,036 2,048 2,078 2,108 2,138 2,168 2,200
Wind Power Offshore 3,000 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200
Solar Power 0 0 1,400 1,500 1,500 1,500 1,500 1,500 1,520 1,540 1,560 1,580 1,600
Other (Biomass, EfW) 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750
Fuel Breakdown
PRC M MWh
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% of
2020
total
Coal 2,759 2,884 3,281 3,737 3,878 4,026 4,239 4,401 4,513 4,574 4,585 4,557 4,503 64%
Natural Gas 45 53 70 89 107 126 149 174 205 237 273 310 350 5%
Hydro 579 601 702 676 715 837 899 955 1,010 1,046 1,101 1,155 1,212 17%
Nuclear 68 71 79 91 101 117 145 188 215 216 215 215 215 3%
Wind Power 20 39 70 98 103 130 185 231 271 312 352 393 435 6%
Wind Power Offshore 0 1 3 6 13 22 35 52 75 1%
Solar Power 0 0 1 3 8 18 33 50 69 90 113 138 164 2%
Other (Biomass, EfW) 5 15 13 17 21 25 31 38 46 56 67 80 105 1%
Power production
(M MWh)
3,476 3,663 4,216 4,711 4,932 5,280 5,683 6,041 6,342 6,553 6,740 6,899 7,058 100%
Electricity Output Growth * 5.7% 5.4% 15.1% 11.7% 4.7% 7.1% 7.6% 6.3% 5.0% 3.3% 2.9% 2.4% 2.3%
GDP Growth 9.0% 8.7% 10.3% 9.2% 7.5% 7.0% 6.8% 6.6% 6.3% 6.0% 5.6% 5.2% 4.8%
Electricity Output
vs GDP Growth *
0.63 0.62 1.47 1.28 0.63 1.01 1.12 0.96 0.79 0.56 0.51 0.45 0.49
* Net of energy efciency gains of 3% pa or 16% over the 2015 vs end 2010 levels (12th Five Year Plan)
36
End Notes
1. Rishi Kumar, GVK Power gets Asia Deal of the year award,
The Hindu Business Line, 29 March 2012. Available at:
http://www.thehindubusinessline.com/companies/gvk-power-gets-asia-
deal-of-the-year-award/article3257801.ece
2. Harold Mitchell, Remember Bond? Lets not return to troubled past,
Sydney Morning Herald, 16 March 2013. Available at:
http://www.smh.com.au/business/remember-bond-lets-not-return-to-
troubled-past-20130315-2g68r.html#ixzz2UZQJSNLb
3. Hancock Prospecting Pty Ltd 2011/12 annual report, page 12.
Available from ASIC 26/4/2013.
4. GVKPIL, GVK acquires Hancock Coal and Infrastructure Projects in
Australia, Media Release, 16 September 2011, p. 4. Available at:
http://www.gvk.com/les/pressreleases/GVK_acquires_Hancock_Coal_
and_Infrastructure_Proje_e8df5a7c006c4176be7df7ae70263780.pdf
5. Bureau of Resource Energy & Economics, Australian bulk commodity
exports and infrastructure outlook to 2025, Australian Government,
July 2012, p. 82. Available at: http://www.bree.gov.au/documents/
publications/_other/export-infrastructure-report.pdf
6. GVKPIL, GVK acquires Hancock Coal and Infrastructure Projects
in Australia, Media Release, 16 September 2011.
7. P. Mulder, GVKs Coal Assets, Presentation at Coal Markets Singapore
Conference, 22 February 2012, p.11. Available at:
http://hancockcoal.com.au/images//Documents/Presentations
8. P. Mulder, Group Managing Director Coal & Infrastructure GVK Hancock
Coal, Pioneering strategies to ensure Indias coal security, Presentation to
Coaltrans Goa conference, 12 March 2013, p. 9 and 2 May 2013, p8.
Available at: http://hancockcoal.com.au/images//Documents/
Presentations/GVK%20Resources%20-%20Coaltrans%20Conference%20
Goa%20-%20March%202013.pdf
9. Alpha Coal Project Supplementary EIS Vol 1 2011 page 16,
accessed 20 May 2013. Available at:
http://hancockcoal.com.au/index.php/publications/24-environmental-
impact-statements/97-alpha-coal-project-supplementary-eis-2011
10. Hancock Coal, First Coal from Galilee Basin, Media Release, 26 June 2011.
Available at: http://gvkhancockcoal.com/images/Documents/
News/20110629%20-%20First%20Coal%20from%20Galilee%20Basin.pdf
11. P. Mulder, Group Managing Director Coal & Infrastructure GVK Hancock
Coal, Alpha and Kevins Corner Projects, Presentation to MESCA
Brisbane Brieng, 2 May 2013, p. 3. Available at:
http://hancockcoal.com.au/images//Documents/Presentations/
MESCA%20presentation%20-%20May%202013.pdf
12. Federal Environment Minister Tony Burke. Transcript of Press Conference.
5 June 2012.
http://www.environment.gov.au/minister/burke/2012/tr20120605.html
13. Queensland Government, The Coordinator-General Central Queensland
Integrated Rail Project, September 2012.
14. EPBC Reference number 2008/4648. The approval and associated
documents are available here:
http://environment.gov.au/cgi-bin/epbc/epbc_ap.pl?name=referral_
detail&proposal_id=4648
15. http://www.dsdip.qld.gov.au/resources/project/alpha-coal-project/alpha-
report-summary.pdf
16. S. Lane, Qld Alpha project assessment shambolic joke: Burke, The World
Today, ABC Radio National, 5 June 2012. Available at:
http://www.abc.net.au/worldtoday/content/2012/s3518454.htm
17. The approval with all conditions is available at:
http://environment.gov.au/cgi-bin/epbc/epbc_ap.pl?name=referral_
detail&proposal_id=4648
18. The Draft Environmental Authority is available at:
http://www.ehp.qld.gov.au/land/mining/alpha-coal-project.html
19. See notice from Environmental Defenders Ofce Qld, 4 April 2013.
Available at: http://www.edo.org.au/edoqld/wp-content/
uploads/2013/04/2013-04-04-alert.pdf
20. Letter to Environmental Defenders Ofce Qld from Department of
Sustainability Environment Water Population and Communities, 25
March 2013. Available at: http://www.pc.gov.au/__data/assets/pdf_
le/0019/122581/sub014-major-projects.pdf
21. GVK Coal. GVKs second coal mine project in Australia (Kevins Corner)
gets environmental approval Media Release, 31 May 2013. Available at:
http://gvkhancockcoal.com/index.php/news-and-presentations/105-
deputy-premier-s-media-release-kevin-s-corner-project-moves-forward
22. GVK aims to complete nancing for Galilee Coal as early as 2013,
Livemint, 20 May 2013. Available at:
http://www.livemint.com/Companies/71UhtBbim1vIHnnam3aeSJ/GVK-
aims-to-complete-nancing-for-Galilee-Coal-as-early-as.html
23. B. Sharples, Australia Lures $21 Billion Bet on Coal Rebound, Bloomberg,
24 May 2013. Available at:
http://www.bloomberg.com/news/2013-05-24/australia-lures-21-billion-
bet-on-coal-rebound-energy-markets.html
24. http://hancockcoal.com.au/index.php/about-gvk-hancock-coal
25. GVK Coal and Theiss GVK Hancock Coal and Theiss sign Alpha coal mine
operations agreement Media Release, 6 June 2013. Available at:
http://gvkhancockcoal.com/images/Documents/News/Alpha%20ESA%20
Media%20Release%20Final.pdf
26. GVKPIL, GVK to acquire Hancock Coal and Infrastructure
Projects in Australia, Media Release, 16 September 2011.
27. GVK Power & Infrastructure Limited, GVKPIL annual summary of results
2012/13.
28. P. Mulder, Group Managing Director Coal & Infrastructure GVK
Hancock Coal, Pioneering strategies to ensure Indias coal security,
Presentation to Coaltrans Goa conference, 12 March 2013, p. 3.
Available at: http://hancockcoal.com.au/images//Documents/
Presentations/GVK%20Resources%20-%20Coaltrans%20Conference%20
Goa%20-%20March%202013.pdf
29. Ibid.
30. GVK Power & Infrastructure Limited, 2008/09 Annual Report, p. 26.
31. GVK Power & Infrastructure Limited, 2008/09 Annual Report, p. 27.
32. GVK Power & Infrastructure Limited, 2011/12 Annual Report, p. 10-11.
http://www.gvk.com/les/investorrelations/nancialinformation/
annualreports/2011__12_630cd3abcee849e5b603c2ec7471edae.pdf
33. GVK Power & Infrastructure Limited, 2009/10 Annual Report, April 2010,
p. 27. Available at:
http://www.gvk.com/les/investorrelations/nancialinformation/
annualreports/2009__10_d6e842762f984e1f8a809ebc92d3af3b.pdf
37
End Notes
34. GVKPIL, Development under Subsidiaries, Announcement to Bombay
Stock Exchange, 14 January 2013. Available at:
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=07edfc6f-
980d-43df-8416-82ca0dda3f50
35. Ready to reconsider notices of GMR and GVK says NHAI chief,
Infrawindow.com, 18 January 2013. Available at:
http://www.infrawindow.com/news/ready-to-reconsider-notices-of-gmr-
and-gvk-says-nhai-chief_8356/
36. C. Gutka, GVK Power To Raise R1200Cr, DealCurry, 3 February 2012.
Available at:
http://www.dealcurry.com/2012023-GVK-Power-To-Raise-R1200Cr.htm
37. GVK Power & Infrastructure Limited, 2006/07
Annual Report, p. 113. Available at: http://www.
gvk.com/les/investorrelations/nancialinformation/
annualreports/2006__07_681e9e4f7d8e483da825fd9f306ccbe9.pdf
38. S. Basu, MoEF changes stand on relocation of Dhari Devi temple for
Alaknanda dam, Down to Earth, 10 May 2013. Available at:
http://www.downtoearth.org.in/content/moef-opposes-relocation-dhari-
devi-temple-hydropower-project-alaknanda
39. GVK Power & Infrastructure Limited, 2006/07 Annual Report, p. 125.
40. GVK Power & Infrastructure Limited, 2008/09 Annual Report, p. 27.
Available at:
http://www.gvk.com/les/investorrelations/nancialinformation/
annualreports/2008__09_df58f75bf8bd48779a6b08558429f33c.pdf
41. GVK Power & Infrastructure Limited, Investor Presentation,
February 2011, p. 10. Available at:
http://www.gvk.com/les/investorrelations/irpresentation/investor-
presentation-2011.pdf
42. A. Malik, Govt may take back 30 more coal blocks, Livemint, 15 May 2013.
Available at: http://www.livemint.com/Politics/fSaK2FTKXOlxc288goe2RL/
Govt-may-take-back-30-more-coal-blocks.html
43. GVK Power & Infrastructure Limited, GVKPIL stock exchange
announcements 22 August 2011 and 19 October 2011.
44. M. Singhal, GVK Power and Infrastructure buys BIAL stake for Rs614
crore, The Economic Times, 23 August 2011. Available at:
http://articles.economictimes.indiatimes.com/2011-08-23/
news/29918816_1_bial-gvk-power-and-infrastructure-gvk-plans
45. Ibid.
46. GVK Power & Infrastructure Limited, 2011/12 Annual Report, p. 10.
47. K. Sundaram, India Mulls Linking Mumbai Airelds to Ease Congestion,
Bloomberg, 6 March 2013. Available at:
http://www.bloomberg.com/news/2013-03-05/india-mulls-linking-mumbai-
airelds-to-ease-congestion.html
48. GVK corporate presentation, 25 July 2012, p. 6. Available at:
http://www.gvk.com/les/corpppt250712nal.pdf
49. GVKPIL share price Rs8.33 as at 3 May 2013 and 1,579m issued shares to
give Rs13.2bn, converted at Rs54.5/USD
50. GVK corporate presentation, 25 July 2012, p. 10.
51. GVK Power & Infrastructure Limited, 2011/12 Annual Report p. 30; GVK
Power & Infrastructure Limited, 2010/11 Annual Report p. 9; and GVK
Power & Infrastructure Limited, 2008/09 Annual Report, p. 27.
52. GVK Power & Infrastructure Limited, 2012/13 annual results summary, p. 4.
53. Ibid.
54. GVK Power & Infrastructure Limited, Annual Report 2011/12, p. 11.
55. GVK Energy includes GVK Industries Limited, GVK Gautami Power Limited,
GVK Power (Goindwal Sahib) Limited, Alaknanda Hydro Power Company
and GVK Coal (Tokisud) Company.
56. GVK Power & Infrastructure Limited, Annual Report 2010/11, p. 67.
57. Private company registered in Singapore (Company number 201109842D)
Extract accurate on 3 June 2012.
58. GVK Power & Infrastructure Limited, Annual Report, 2011/12, p. 69.
59. GVK Power & Infrastructure Limited, Annual Report 2011/12, p. 10.
60. GVK Power & Infrastructure Limited, Annual Report 2011/12, p. 81.
61. Allens, Focus: 2013 Budget thin capitalisation: safe harbour limits
slimmed, Allens website, 20 May 2013. Available at:
http://www.allens.com.au/pubs/tax/fotax20may13.htm
62. S. Mansuri Will sell stake in subsidiaries for right offer: GVKs
CFO,Moneycontrol.com, 30 March 2013. Available at:
http://www.moneycontrol.com/news/business/will-sell-stakesubsidiaries-
for-right-offer-gvks-cfo_844015.html
63. GVK aims to complete nancing for Galilee Coal as early as 2013,
Livemint, 20 May 2013. Available at:
http://www.livemint.com/Companies/71UhtBbim1vIHnnam3aeSJ/GVK-
aims-to-complete-nancing-for-Galilee-Coal-as-early-as.html
64. GVK Power & Infrastructure Limited 2011/12 Annual Report, p. 87.
65. urizon Holdings and GVK Hancock Coal Infrastructure, Aurizon and
GVK Hancock proposed development of Galilee Basin rail and port
infrastructure, ASX Announcement, 11 March 2013. Available at:
http://gvkhancockcoal.com/images/Documents/News/20130311%20-%20
Aurizon%20ASX%20announcement%20GVK%20Hancock%20and%20
Aurizon.pdf
66. Ibid.
67. J. Seeney, Deputy Premier, Minister for State Development, Infrastructure
and Planning, Two rail corridors dened for Galilee Basin, Queensland
government Media Release, 6 June 2012. Available at:
http://statements.qld.gov.au/Statement/Id/79468
68. Hancock Coal Infrastructure Pty Ltd, The Rail Corridor, Media Release,
17 January 2012. Available at:
http://gvkhancockcoal.com/images/Documents/News/20120130%20
-%20Rail%20Corridor%20Media%20Statement.pdf
69. P. Mulder, GVK Coal Projects Presentation at Galilee Basin Coal & Energy
Conference, 12 November 2012, p. 9. Available at:
http://hancockcoal.com.au/images//Documents/Presentations/Galilee%20
Basin%20Coal%20Energy%20Conference%20-%20November%202012.pdf
70. J. Moutas, Senior Vice President, Coal Business Development, Aurizon
Co-ordinated Rail and Port Development. Presented at the International
Cargo Handling Cordination Association, 5 June 2013.
71. Photo from the Abbot Point Cumulative Impact Assessment, February 2013.
38
End Notes
72. Australian Competition & Consumer Commission, Adani Enterprises
possible acquisition of interests in the Abbot Point Coal Terminal,
ACCC website, 21 April 2011. Available at:
http://transition.accc.gov.au/content/index.phtml/itemId/984637/
fromItemId/751043
73. Abbot Point Cumulative Impact assessment ecological Australia
/Open Lines report, February 2013.
74. World Heritage Centre. State of conservation of World Heritage properties
inscribed on the World Heritage List. preparation document for 37th
session of the World Heritage Committee
http://whc.unesco.org/archive/2013/whc13-37com-7B-en.pdf
75. S. Bartholomeusz, Glencores convenient greeneld gripe, Business
Spectator, 7 March 2013. Available at:
http://www.businessspectator.com.au/article/2013/3/7/global-nancial-
crisis/glencores-convenient-greeneld-gripe
76. Queensland projects to begin by FY14: GVKs Sanjay Reddy CNBC-TV18
interview, 11 March 2013. Available at:
http://www.moneycontrol.com/news/business/queensland-projects-to-
begin-by-fy14-gvks-sanjay-reddy_836541.html
77. GVKPIL, GVK acquires Hancock Coal and Infrastructure Projects in
Australia Media Release, 16 September 2011, p. 4. Available at:
http://www.gvk.com/les/pressreleases/GVK_acquires_Hancock_Coal_
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78. Queensland Treasury Right to Information, 5 November 2012 page 67
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39
End Notes
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