John Martin: This is the trestle we're looking at now, and you can see there's a ship alongside berth two, and it is being loaded as we speak…

Jess Hill: It's a grey, windy morning at Abbot Point, and we're looking out across Australia's most controversial coal port. With me is Mary Steele from the port authority, North Queensland Bulk Ports, and John Martin, who is the operations superintendent out here at Abbot Point.

So how many ships come through here every week, say?

John Martin: On average, we would have about 300 ships a year, looking at about three, four a week.

Jess Hill: And how many would that increase to once the port is developed to its full capacity?

Mary Steele: It will be about 1,100 ships a year.

Jess Hill: So that works out to about three a day, three or four a day.

John Martin: If you're going to have two berths, the moment you've only got the one berth operating, so you're going to have…well, actually with T0 there'll be three.

Mary Steele: Three berths operating, yes.

Jess Hill: Once the Indian-owned companies Adani and GVK Hancock build their new terminals here, Abbot Point will become the world's largest coal port. To make way for these new terminals, the port authority will dredge three million cubic metres of mud and sand which will then be dumped into a designated area within the Great Barrier Reef Marine Park.

When do you expect the dredging to commence?

Mary Steele: Well, that'll be up to the proponents; when they decide that it needs to go ahead, it will. There are short windows where you can dredge, when the conditions are good to dredge to ensure minimal impact. So you can only dredge between March and June of any given year, so it won't be this year and it may not be next year, but potentially the year after that.

Jess Hill: And is the dredging part of the program paid for by the proponents?

Mary Steele: Yes, it is.

Jess Hill: The proponents, GVK Hancock and Adani, have big plans for Queensland: aside from building the world's largest coal port, they're also planning to dig the biggest thermal coal mines in Australia's history.

If they're successful, they'll be the first to open the fabled Galilee Basin in central Queensland. The Basin is so remote that Adani and GVK Hancock will have to build almost everything from scratch; a new airport, new roads, new power and water infrastructure, and 300 kilometres of rail.

When they bought into the Galilee Basin a few years ago, Queensland was in the middle of an unprecedented coal boom. Prices were sky high, and everybody thought the good times were here to stay.

But in 2012, the coal price crashed. Billions of dollars worth of projects were mothballed or put on hold, and thousands of workers lost their jobs. Thermal coal - which is used for electricity, and is the only kind of coal in the Galilee Basin - was hit the hardest of all.

Christian Lelong: A lot of assumptions that the industry made about thermal coal in particular five years ago are no longer true. The years of very high demand growth for thermal coal are probably gone for a long time.

Jess Hill: Christian Lelong is a commodities analyst at Goldman Sachs, and his view is shared by Daniel Morgan, an analyst at the investment bank UBS.

Daniel Morgan: The investment community views the Galilee Basin mines as needing a much higher coal price than what is forecast, what's expected, for it to be economic.

Jess Hill: GVK Hancock's corporate spokesperson, Josh Euler, says people shouldn't be sceptical about the Galilee Basin, they should be excited.

Josh Euler: Our project alone, from a direct and indirect point of view, you're talking 20,000 direct and indirect jobs. That's a reason to be excited. That's why people are always coming up to us and saying, 'Oh, when is it starting? That's fantastic, let's get this going.'

Jess Hill: But that's not the view of the local Abbot Point Action Group, whose spokesperson is Maria Macdonald.

Maria Macdonald: We actually question why do they need to even expand the port, when it's the end of the coal mining boom, even the politicians all say this, it's the end of the mining boom.

Jess Hill: Hello, I'm Jess Hill, and this is Background Briefing.

If the mines planned for the Galilee Basin are not economically viable, and the risk to the reef is too great, is the Abbot Point super port too big a gamble?

Just south of Abbot Point is the seaside town of Bowen, on the Whitsunday Coast. It's renowned for its palm-fringed beaches and an oversized mango. Bowen has hit hard times. In a town of 10,000 people, there are hundreds of houses vacant, and dozens of shops have closed down. Locals say something needs to happen in Bowen, and soon.

Background Briefing walked through the centre of town to get a sense of what locals thought about the plans for Abbot Point. Debbie is the floor manager at DeLacey Leading Appliances.

Debbie: Personally, I think it's going to be a good thing, especially for Bowen. I don't necessarily agree with the dumping of the dredging on the reef, I don't think anyone agrees with that, but as far as the expansion actually going ahead, it's going to be a very, very good thing for Bowen financially.

Jess Hill: Around the corner from De Lacey's is the local office of Century 21 real estate, run by Kylie Moss.

Kylie Moss: In lots of ways I think it's fantastic, and the region does need some economic stimulus, but it must also be done in correct environmental practices. We've invested very, very heavily in the town as a family and also as a company, so we don't want to see all floating dead birds and fish and everything else.

Jess Hill: At the Red Cross shop, volunteer Jennifer definitely wants the expansion to go ahead.

Jennifer: A lot of people are saying it's going to be dumped on the reef, which is an absolute nonsense. And the things that they're dredging up will be going on to the same sort of bottom, so it will be like sand on sand, or whatever. More damage is done through dirty water et cetera coming down the rivers on floods than will be dumped from this.

Jess Hill: A few doors down, shopkeeper Warren says he's been around long enough to be wary of big promises.

Warren: I've been here for 20 years, and there's been that much development going to happen in Bowen that never eventuates. As soon as I see the bricks and mortar I'll believe it.

Jess Hill: The majority of people in Bowen appear to support the expansion at Abbot Point, but there is a small band of locals determined to fight it. Midwife Maria Macdonald is their spokesperson.

Maria Macdonald: Once the damage is done, it's done. Dumping mud, dredge sludge from a 30-year-old coal port, to dredge it up and then dump it out into the ocean, and there's reefs all around the area, is just absolutely ridiculous. Outrageous.

Jon Brodie: At Abbot Point, my claim is that the port could go ahead, and still have a better outcome for the Great Barrier Reef than the one we got.

Jess Hill: Jon Brodie is a senior research scientist at James Cook University. For 11 years he was head of the Water Quality and Coastal Development Section at the Great Barrier Reef Marine Park Authority, the government agency responsible for protecting the reef.

Jon Brodie: There were other much better options that allowed the port to go ahead, but did not dump dredge spoil inside the boundaries of the marine park, which is the most damaging option of all the options to the Great Barrier Reef.

Why we didn't get to a reasonable option like putting the dredge spoil behind a bund wall, which is the Minister Greg Hunt's preferred option for all further dredging in the Great Barrier Reef area, I have no idea. All I can think of again is that they've gone for the absolute cheapest and quickest, which happens to be the dirtiest as well.

Jess Hill: Just before federal Labor was voted out, the former environment minister, Mark Butler, delayed his approval to dump spoil in the marine park after he received a report that contained new and concerning data about the damage it could do to the reef.

Mark Butler: There had been advice that had indicated that material that was dumped in the area would settle after a certain period of time and not travel and potentially settle on coral reefs. This new report said that that advice was too conservative, and that the material that would be dumped as part of the Abbot Point proposal and other potential proposals might spread further and for longer periods of time through the marine park area. And this obviously is a critical issue when considering that application. It wasn't part of the Abbot Point application strictly, but I took the view once I read it that it should form part of the minister's deliberation.

Jess Hill: The government owned corporation managing Abbot Point is North Queensland Bulk Ports. Spokesperson Mary Steele says that the report that Mark Butler is referring to wasn't part of the approvals process.

Mary Steele: People were misunderstanding that report, it actually says this report is not meant for assessment, does not reflect real conditions.

Jess Hill: So is that report's findings not accurate then?

Mary Steele: No. That modelling isn't applicable to what we're doing now. The Great Barrier Reef Marine Park Authority would say that we know that site better than anyone else and our scientific rigour takes over all of that. Now, we've dredged 22 times at our ports since 2002, so our experience and our observations, not just our modelling, will tell us how that plume will travel.

Jess Hill: In the past week, it was revealed that a draft report produced by the Great Barrier Reef Marine Park Authority recommended that the port authority's dumping application be refused. It cited the potential for long-term, irreversible harm to the reef, and said that the modelling provided by North Queensland Bulk Ports was found to be of limited value, deficient and unreliable.

But in January this year, the Marine Park Authority did grant the permit. Its chairman, Dr Russell Reichelt, explained that the report was just a preliminary document designed to highlight risk, and did not represent the views of the agency. In response to the concerns raised in the draft report, the Senate last week passed a motion calling for the federal government to revoke the approval for the Abbot Point expansion.

Abbot Point is no stranger to environmental controversy. In 2010, the construction company John Holland, which was contracted to double the capacity of the port, was charged with dozens of environmental violations. Faced with a maximum penalty of $69 million, the court eventually fined them $195,000 for releasing contaminants into the waters at Abbot Point, and at another port in Dalrymple Bay.

Abbot Point itself has a population of one: Tub Wilson, a rough old gent in his 60s, who has been here for 35 years. Tub lives in an open-aired shed behind the beach with Kim, his red cattle dog. From the beach you can see the wharves of Abbot Point jutting into the sea. Tub Wilson believes the new expansion should be stopped. He says environmental degradation in the area is a consequence of industrial pollution.

Tub Wilson: Now, I used to train racehorses here years ago, and early of a morning during the egg-laying season of the turtles, there used to be dozens of them. You'd climb up, and I'd come across them as they were heading back, which was quite lively sometimes. And I've been doing my own survey the last few years, and I've only found the tracks of four turtles in the last two years. They just slowly disappeared. There used to be dugongs here; I haven't seen a dugong.

Jess Hill: Tub Wilson says the environmental damage became obvious a few years ago during the last upgrade of the port.

Tub Wilson: There was contractors out there called John Holland, and they had the contract of sand blasting and painting and whatnot. They imported a lot of garnet it's called, it's special stuff to use in sandblasting, it's a type of stone. This stuff that they imported was second-hand, it had been used before. And all this stuff was falling into the ocean.

Anyway, this went on, and I came down here one day, and this entire beach, from there right up was just littered in dead fish. And I'm talking about not little fish—big fish. You know, diamond-scale mullet, you name it, every fish that lives in this waters here, you could have found dead.

Tub Wilson: At the time, the regional environment coordinator for the construction company John Holland was John Broomhead.

John Broomhead: John Holland in both Dalrymple Bay and in Abbot Point were sandblasting, and they were letting that sandblasting leak or dump into the ocean and onto the foreshore. Now, when you blast garnet up against paint, paint attaches to it. Now, this paint has got zinc, chromium and all those sorts of heavy metal contaminants in it. When that falls into the water, it can affect the sole of the molluscs, the little shellfish and all that type of stuff, it actually burns the sole of the little molluscs.

Jess Hill: John Broomhead says there's another heavy metal ingredient in paint—barium—which even in small amounts can kill fish, and remains toxic in the marine environment for a long time.

When did managers at John Holland become aware that this toxic material was falling into the water?

John Broomhead: Very, very early in the piece, at least 12 months before they did anything about it.

Jess Hill: So why didn't the Department of Environment and Resource Management check up on John Holland? Why did it take them so long to find out what was happening?

John Broomhead: Because nobody checks these projects. They issue an approval for these projects, and then nobody checks it.

Jess Hill: John Broomhead was sacked by John Holland after he provided evidence to the Department of Environment. The construction company pleaded guilty to seven charges of releasing contaminants at Abbot Point and Dalrymple Bay. The company was fined $195,000. John Broomhead says the fine was woefully inadequate.

John Broomhead: Well, I honestly believe it should have been something around $20 million.

Jess Hill: Why? Why so serious?

John Broomhead: Because it was a serious offence. It was a significant breach. They employed people to tell them when they were breaking the law and how to fix the problem. They didn't listen to those people, and they continued to break the law, not once or twice but thousands and thousands of times. The photos are very clear, I've still got those photos today…the photos are very clear that they continued to break the law, and they caused wilful damage up there unnecessarily.

Jess Hill: The environmental authority at Abbot Point is North Queensland Bulk Ports. Background Briefing asked the port authority spokesperson, Mary Steele, whether it was responsible for monitoring John Holland.

Mary Steele: We were definitely the environmental managers of this, and there will be times when there's some risk involved. That was…I can't even speak to that happening. Do you remember that happening, when that happened with John Holland?

Jess Hill: From what I read, John Holland actually admitted to releasing contaminants into the Great Barrier Reef marine park, so that would be an environmental breach, and that would be environmentally harmful.

Mary Steele: Yes, there was. Our environmental regulations are very strict. They were fined, and it was a breach. It did not have any long-term or significant impacts, so you have to measure to that point.

Jess Hill: John Broomhead says that's just wrong.

John Broomhead: That's rubbish. If you dump regulated waste into the ocean, it must have an effect. If we control the regulated waste to such a level on dry land, why don't we do the same thing in the ocean?

Jess Hill: He says John Holland was never ordered to clean up the contaminants they put into the water at Abbot Point, and says there could be thousands of tonnes of it sitting on the sea floor of Abbot Bay.

John Broomhead: Now, if they were to dredge that material, and I said it at the time, if they were to dredge that material and dump it out onto the Barrier Reef, it's only going to make the situation worse. If that material was dumped on land it would be classed as a regulated waste dump and you wouldn't be able to do anything with it. But because it's in the water and it's out of sight, it's acceptable to do things with it.

Jess Hill: Port authority spokesperson Mary Steele says there's no risk that toxic material will be dumped into the marine park because the sediment has already been tested.

Mary Steele: You can't dump toxic material at sea. When you dredge, the sediment is tested. It's tested for the most appropriate disposal. If there's toxicity in it, it has to go onshore, it cannot go offshore.

Jess Hill: On the day the federal Environment Minister, Greg Hunt, gave the green light for dredge spoil to be dumped into the marine park, he told the PM program that through a range of measures the water quality in the reef would actually end up being improved.

Greg Hunt: We are imposing some of the strictest, toughest conditions in Australian history, and I think most importantly there's a 150% net benefit requirement for water quality. What does that mean in real terms? It means that we'll make permanent improvements to the Burdekin and the Don Rivers, which will mean a permanent net benefit to the quality of water in the reef.

Jess Hill: But regulators are too weak and too under-resourced to monitor projects, says John Broomhead, especially projects with so many complex conditions.

John Broomhead: I can confidently say, for someone who's worked in the building industry for over 40 years, and I can say to the Honourable Greg Hunt, that's rubbish. Because at the end of the day I've worked on these projects in Queensland for 40-odd years, and our environmental standard is falling to what it was back in the '80s.

Jess Hill: One of the two companies involved in the planned expansion at Abbot Point is the Indian-owned company, Adani. In its home state of Gujarat, Adani owns and operates India's largest port, Mundra Port. Last year, a committee appointed by the Indian government found incontrovertible evidence that Adani had violated environmental conditions at Mundra Port. Those violations included the widespread destruction of mangroves, contamination of groundwater, and river blockages. It also found Adani had hidden the true nature of its projects to obtain faster clearances. The Indian Ministry of Environment fined Adani the equivalent of $33 million.

Background Briefing asked Mary Steele if the North Queensland Bulk Port authority was aware of Adani's violations.

Mary Steele: Look, I don't follow what they do there, I'm more concerned about what we do here. We're the environmental stewards, ports are the environmental stewards. We have an incredible track record, our environmental management plans are internationally recognised and we're audited every two years. We will manage the environment. We will manage the environment for Adani, we will manage the environment for GVK Hancock.

Jess Hill: You don't know that an environmental violation has been committed until it's too late, and it's already been committed, and it's more about a clean-up process. That was the case when the contractor John Holland who originally built this terminal flagrantly violated environmental conditions, even after they'd been warned.

So, I guess in terms of a company like Adani, which has a bad track record in India, so bad that the Indian government fined them $30 million, I just wonder whether that makes North Queensland Bulk Ports more wary, and perhaps a little bit more watchful.

Mary Steele: Yeah, do you know, it doesn't. And you use John Holland as an example, and it's because of our regulation that that was able to be caught and fined, and I think if we look at how our regulatory processes work, the moment there's a breach, there will be an impact for that organisation. So, if they have a track record in another country, they still have to follow our regulations, Jess, they still have to follow the regulations of our management here.

Jess Hill: The expansion of the Abbot Point coal port doesn't just come with environmental risks. At current coal prices, the development of the port to service mines that don't yet exist remains a huge gamble.

When the Indian companies GVK and Adani bought into the Galilee Basin, the thermal coal prices were at a high. It's a very different picture now. Many of the world's leading investment banks are saying the mines simply aren't viable anymore.

Four years ago, Queensland's State Coal Plan predicted coal prices would remain at 2010 levels for the next 20 years, driven by an insatiable demand from China. Within two years, the coal price had crashed, as the then Labor Minister for Resources, Martin Ferguson, observed.

Martin Ferguson: The commodity price boom is over, and anyone with half a brain knows that.

Jess Hill: Coal prices haven't recovered. But for Queensland's Premier, Campbell Newman, the dream is still alive.

Campbell Newman: This state is in the coal business. I've said that before, I've been criticised for saying it. If you don't believe in the coal business, well, I respect your point of view, but understand we would not have the money to pay for schools and hospitals and roads, for nurses and doctors to do their jobs. We are in that game.

Jess Hill: Since the '70s, the Galilee Basin has been the Queensland coal industry's white whale, pursued by politicians and miners alike.

In the late '80s, mining magnate Lang Hancock and then Queensland Premier Mike Ahern tried to woo the murderous Romanian dictator Nicolae Ceaucescu into investing in the Galilee. Ceaucescu was shot by revolutionaries before the deal could be clinched.

More recently, politicians have gone to other unusual lengths to get miners into the Basin. In 2011, coalition MPs Barnaby Joyce, Julie Bishop and Teresa Gambaro accompanied Gina Rinehart to India for the lavish wedding of Mallika Reddy, granddaughter of GV Krishna Reddy, the founder of GVK. Three months later, Gina Rinehart sold the majority of her stake in the Galilee Basin to GVK for $1.26 billion dollars.

Tim Buckley: GVK's purchase from Hancock Prospecting was labelled 'Deal of the Year' back in 2011, and they awarded that to the chairman of GVK.

Jess Hill: Financial analyst Tim Buckley was commissioned by Greenpeace to investigate GVK and Adani's projects in the Galilee Basin.

Tim Buckley: I think the investment bankers who voted on Deal of the Year got it wrong, and they should have actually given it to Gina Rinehart. To me, she's a very astute businesswoman. She had invested $200 million or $300 million dollars in developing the Alpha coal project, she sold it at the absolute peak in the thermal coal price, she made $1 billion profit on the transaction. That's not a bad return on a $200 million investment.

Jess Hill: So what was the market like back when Adani and GVK purchased these tenements?

Tim Buckley: It couldn't have been any more different from today. The thermal coal price was north of US$120, US$130 a tonne, there was a mining boom on, and finance was freely available.

Jess Hill: What's the price of coal per tonne now?

Tim Buckley: It's around US$80 per tonne. So it's at a 3 or 4 year low, down 35%, 40% from its peaks. So to me, GVK has got an uncommercial proposition that's unbankable, and Gina's already walked away with $1.26 billion.

Jess Hill: Why would Gina Rinehart retain 21% in a project that seems unviable?

Tim Buckley: I think the 21% needs to be put in context. She's already taken all of her investment off the table and made a five-fold return on that investment. It's just icing on the cake if she were to actually end up having a 21% stake in one of the biggest coalmines in the world.

Jess Hill: GVK still owes Gina Rinehart's Hancock Prospecting $560 million, which is due in September this year. But that's small change compared to the $10 billion dollars both GVK and Adani will need to raise for their projects in the Galilee Basin and Abbot Point. With coal prices where they are, Tim Buckley says finding that money may prove to be difficult.

Tim Buckley: Three years ago, when the thermal coal price was at record highs, the banks were falling all over themselves to lend money to new coal projects. Today, at $80 a tonne, it's a very different picture.

Jess Hill: Adani and GVK, both carrying billions of dollars in debt, have little to no experience in coalmining. But the resources boom made everything seem possible.

Christian Lelong: A lot of assumptions that the industry made about thermal coal in particular five years ago are no longer true. The years of very high demand growth for thermal coal are probably gone for a long time.

Jess Hill: Christian Lelong is a commodities analyst for Goldman Sachs. He says that when the coal industry was booming, most people—including the analysts who advise the Queensland government—believed that demand from China would continue to grow.

Christian Lelong: China was the main reason why people were very optimistic five years ago, because China was growing very strong, a lot of new power generation growth, most of that came from coal. And very importantly, Chinese coal prices were quite high.

Jess Hill: China actually has the largest coal reserves in the world, and prior to 2008 it was a coal exporter. It only became a net importer of coal when its own mines became too expensive. But in 2012, China's demand for coal almost ground to a halt.

Christian Lelong: The Chinese mines which were used to growing at 10% per year, they overshot domestic demand, so the Chinese market for a while was oversupplied. That caused a crash in domestic prices. A lot of the high cost mines in China closed, and what was left turned out to be actually pretty competitive. So that was the big surprise. Chinese mines today are more competitive than what we thought a few years ago.

Jess Hill: The drop in demand from China coincided with the shale gas boom in the US. Suddenly in America, gas was cheaper than coal, and American coalminers had to export the coal they couldn't sell at home. That sent the market into oversupply, and that's where it remains.

Citibank predicts that Chinese demand for coal may stop growing entirely by 2020, and this is one of the reasons why; in February this year, the pollution caused by coal-fired power plants across northern China got so bad that the World Health Organisation labelled it a 'crisis'. The ABC's China correspondent Stephen McDonnel, who is based in Beijing, described the situation to PM's Mark Colvin.

Stephen McDonnel: This does seem incredible, but apparently the sun is struggling so much to get through this pollution across northern China (so it's not just Beijing, it's this entire region), that scientists here are saying that plant photosynthesis is being eaten into, and all these crops are dying. So they've really got such a huge problem on their hands with pollution, and there's no easy fix. It's tough, and it's going to involve eating into China's growth if they want to fix it.



Mark Colvin: What's the government saying about it?



Stephen McDonnel: 'We are closing down the most clapped-out coal-fired power stations, we are replacing things, we're rolling out wind power and solar, it's sort of under control.'

Jess Hill: Public anger over air pollution is now the leading cause of social unrest in China. Even Chinese politicians are confronting the government about it. Now the ruling Communist Party is officially abandoning its mantra of 'growth at all costs', and has announced that local officials will be held directly responsible for pollution. It currently has carbon trading scheme pilots in five key regions, and says that it intends to roll out a national scheme.

Christian Lelong: The fact that China is investing more in renewable energy—last year they started to roll out carbon emission trading schemes—that also for me is very significant. Again, that tells you that the years of very high demand growth for thermal coal are probably gone for a long time.

Jess Hill: Goldman Sachs analyst, Christian Lelong.

Australian investors have had an overly optimistic view of the Chinese coal market, says Ben Caldecott, the director of the Stranded Assets Program at Oxford University.

Ben Caldecott: I think there's a conventional wisdom about investing in certain fossil fuels, and particularly coal. People are brought up, in a way, in a sector where China's been growing at X percent, it's going to continue, coal is fine, climate change isn't an issue, all this environmental stuff isn't a problem. And that's a backward way of seeing the world, and lots of people need to catch up and look at some of these current and emerging trends, and as you say, a lot of the banks, a lot of the analysts are seeing those things too.

Jess Hill: Australian investors are paying attention now. The Queensland Resources Council says that around $50 billion worth of coal projects have been put on hold, and around 8,000 mining jobs have been lost in Queensland alone.

Late last year, BHP Billiton, which was set to develop one of the three new terminals at the port at Abbot Point, pulled out of the project, citing 'adverse market conditions'.

So why would companies be pushing forward with development plans in the Galilee Basin now? The answer is India. Michael Roche is head of the Queensland Resources Council.

Michael Roche: What we're looking at of course in India is a huge unsatisfied demand for electricity, where a large part of the Indian population simply doesn't have access to electricity. So the Indian interests that are looking at projects in Queensland to export thermal coal to India is about tapping into that unsatisfied demand for electricity amongst the Indian population.

Jess Hill: Most of India's easy-to-access coal has already been mined, and what remains is underneath cities, national parks and tiger reserves. The coal shortage is so severe that in February this year, more than a quarter of the country's coal plants had enough fuel stocks to last less than a week. That's the market that Adani says is ripe for Galilee Basin coal.

But the cost of local coal in India is around $23 per tonne. It would be impossible for Adani and GVK Hancock to produce coal for that price in Queensland. If they want to sell coal into the Indian market, Indians are going to have to pay more for their electricity.

And if that happens, Michael, electricity is not accessible to those people that you are talking about, the impoverished people of India.

Michael Roche: Well, again, a curious way of looking at the world. You're talking about some Indians who have access to electricity and then a whole lot of other Indians who have no access to electricity. So the price of coal is a bit academic if you don't have access to electricity, that you are relying on animal dung and wood and what have you for your cooking and heating facilities.

Jess Hill: But if you can't afford the price of electricity then it's not academic anymore, is it?

Michael Roche: No, it's quite circular, because the reason that these Indian companies are looking to invest in places like Queensland is because back in India there are not the plentiful supplies of readily minable coal. They've done that analysis, I just repeat it to you. How that plays out in India, that's something that the companies will have to decide, whether or not there is a market there. They assure me there is.

Jess Hill: Michael Roche, head of the Queensland Resources Council.

The International Energy Agency predicts that in the next five years, India will rival China as the world's top coal importer, although it also has concerns about the economic feasibility of projects in the Galilee Basin.

UBS commodities analyst Daniel Morgan, can't see how GVK Hancock and Adani will be able to turn a profit.

Daniel Morgan: We think the Basin needs about AU$110 a tonne in order to get that. Coal prices are obviously well south of there at the moment. So the economics do not look compelling at current prices. For the future, our long-term estimates for coal prices are for thermal, US$80 a tonne, so even on our long-term prices it doesn't look like a compelling project to us.

Jess Hill: Background Briefing asked GVK Hancock's corporate spokesperson, Josh Euler, how much it would cost the company to produce a tonne of coal.

Josh Euler: We are well under that $80 for sure, well under.

Jess Hill: In the proposal, I believe it was something around $55 per tonne. Is that about the price that GVK estimates for the production cost?

Josh Euler: Well, look [laughs], we're well into that first and second quartile, that's for sure. And you'd have seen everything that's in the public report in relation to that, for sure, yes.

Jess Hill: Because Morgan Stanley reports on average that it costs Australian miners $80 per tonne, to produce a tonne of coal. How can a company with no previous mining experience hope to outperform the world's biggest miners by around about 30%?

Josh Euler: [laughs] You know what? I'm more than happy to line up an interview with someone who can have more of a chat in detail about that in the not too distant future, if you'd like.

Jess Hill: Josh Euler would later say that GVK Hancock can mine cheaply because their coal in the Galilee Basin is close to the surface which makes it easier to access than other coalmines.

But Christian Lelong from Goldman Sachs says that that still doesn't add up.

Christian Lelong: So if they're confident that they can mine coal at $55 per tonne, then they're just breaking even. So for this project to be profitable, you would actually have to have a production cost probably closer to $40 a tonne, which is way lower than any thermal coal mine in Australia today.

Jess Hill: So with that environment, how do you explain a project like the Galilee Basin going ahead?

Christian Lelong: Well, I think proponents of the Galilee Basin projects see the world a bit differently. A large diversified miner has a number of options, so they have a lot of flexibility as to what they do with their money. If you have spent money and time buying a lease in the Galilee Basin and that's pretty much the only asset you have, of course you're going to be the strongest proponent for it, and you're going to tend to look at the bright side of things, because that's all you have.

Jess Hill: Late last year, Adani's investment house in India, Morgan Stanley, released a report saying that Adani had no intention of developing its Carmichael mine in the Galilee Basin until coal prices improved.

Background Briefing made several requests for an interview with Adani's Australian CEO but received no response. A request to speak to the authors of that Morgan Stanley report was also refused.

So I asked Goldman Sachs analyst Christian Lelong if he thought prices would rebound to the extent that would make the Carmichael mine a good investment.

Christian Lelong: I don't think so. Because, again, I think what is going to happen with coal, as with a few other commodities, is prices and margins are no longer attractive enough for people to build a lot of new mines. So the volume growth is coming from a different source, which is increased productivity.

Jess Hill: Neither GVK or Adani have secured the $10 billion they each will need in order to finance the mines, the rail and the port expansion. But Daniel Morgan at UBS says that even if they don't have everything ready to go, they may go ahead and commence the dredging and dumping program at Abbot Point in order to keep the project moving. In analyst-speak, it's what's known as 'creating option value'.

Daniel Morgan: I think it's very likely that they will dredge the port. They've been given approval to, and it's something that ports need to do to not only expand, but also to maintain. I think it's the sort of thing that you do as an option to keep future expansion alive.

Jess Hill: If GVK and Adani are successful, they will be the proud owners of Australia's biggest coalmines, and the world's largest coal port. But if the investment community is right, the companies will have billions of dollars worth of stranded assets on their hands, as well as Abbot Point.

That doesn't worry GVK Hancock's Josh Euler. He says people shouldn't be sceptical, they should be excited.

Josh Euler: Oh look, can I tell you, in terms of people being skeptical, people are so excited throughout this region about this project coming on line. Our project alone, from a direct and indirect point of view, you're talking 20,000 direct and indirect jobs. That's a reason to be excited. That's why people are always coming up to us and saying, 'Oh, when is it starting? That's fantastic, let's get this going.' Everyone is really excited about this project going forward, as are we.

Jess Hill: Background Briefing's coordinating producer is Linda McGinness, research by Anna Whitfeld, technical production by Russell Stapleton, the executive producer is Chris Bullock, and I'm Jess Hill.