A day before the Northern Territory government went into caretaker mode, it secretly arranged for a Texas-based coal company to potentially extend its explorations licence over 15,000 sq km in central Australia.

The arrangement, under a rarely used mechanism which allows legislative requirements including public submissions to be bypassed, was the result of more than 18 months’ work, the Australian reported.

The revelations have raised questions about the NT government’s timing ahead of Saturday’s election, and about the viability of such a project, which one financial analyst said would be a “stranded asset” before it was even finished.

But the Department of Mines and Energy has said the process is “operational work” and can continue during caretaker mode.

Tri-Star holds 23 thermal coal exploration licences, covering about 10% of the 15,000 sq km Pedirka basin south of Alice Springs. Just under half of them expired on 9 August. The rest are expected to expire over the next two years, but the licences can also be surrendered at any time by the holder.

On 5 August the NT government gazette revealed all 23 would become “general reserve” land, a designation which is usually used to protect areas from potential threats but which is open to other applications, including a mineral authority.

A mineral authority allows the minister for mines and energy to waive requirements under the act, including seeking public comment, and to grant a title for as long as deemed appropriate.

“It’s an extraordinary title because the minister can grant or renew it for a period of time they consider appropriate,” said David Morris, principal lawyer for the Environmental Defenders’ Office NT.

“You can have a mineral authority for exploration, but you can tailor all the conditions for that mineral authority in a way you couldn’t tailor an exploration licence. The minister can choose to exempt or exclude any provision of the act.”

When an area is deemed general reserve a company can lodge an application on “first come first served” basis for a mineral authority – as Tri-Star did for the 23 areas on the day the gazette was released, thereby preventing other companies from applying.

The gazette of the Pedirka basin land came with the caveats that uranium exploration was off the table, that the only mineral title that could be applied for was a mineral authority, and that only coal developers could apply for that mineral authority.

It is understood the mineral authority will be published tomorrow, probably with the corresponding title of exploration. Although production could be allowed, it would be unlikely given the size of the potential project and the further government approvals a coal mine would need.

The mines and energy department rejected the suggestion there was any special treatment or deal for Tri-Star, and said the process was continuing despite the start of the caretaker period “as it is considered part of the operational work of the department”.

“These applications have not been approved,” said the department head, Ron Kelly. “The department will ensure that mineral authority applications must follow the well-established assessment process as with all other mineral title applications.”

He said there was no reduction in rent obligations or costs to the company. The application was within the bounds of the Mineral Titles Act, and the six-year arrangement provided “greater security for exploration investment”.

But Morris questioned the secrecy: “If the object of this land reservation is to provide Tri-Star with a secure tenure for a potentially major development, why not be public about that?

“If the current legislation doesn’t provide adequately for large-scale exploration programs, why didn’t the government fix that during the last four years? Ultimately the whole thing has been secretive.

“Whatever the motive, and no matter the explanation, it’s a bad look for information about this potentially major development to come to light in this way.”

The NT chief minister, Adam Giles, dismissed accusations the arrangement was made in secret, and said the entire process had been “open and transparent”, despite only becoming aware of it himself on Tuesday.

Giles told ABC radio in Alice Springs the Australian’s report was “a slur on the good officials who work in a government agency”.

“It was about a renewal of a lease that has been there for a long period of time,” Giles said. “They’re supposed to be publicly advertised. It has been publicly advertised as far as I understand it, and it’s good to see the process is being followed.

“If it wasn’t publicly advertised, and it didn’t go through that process, that would be be when it’s sought to have been hidden, but it’s been open and transparent as far as I’m aware.”

Jimmy Cocking, spokesman for the Arid Lands Environment Centre, said the decision was reprehensible.

“The CLP has outdone itself,” he said. “The world is moving away from coal and here we have the [mines and energy department] reserving land for a coalmine in the middle of the Great Artesian Basin.

“This decision sets the NT up for legal liability where the company may push for compensation if it is not allowed to proceed down the track.”

Cocking called for Labor to commit to reverse the decision if it won government.

Tim Buckley, a financial analyst at the Institute for Energy Economics & Financial Analysis, said if a large thermal coal mine was developed in the area, it would be a stranded asset before it was even finished.

The only way a mine that far from a port could ever be profitable was with huge subsidies from the taxpayer.

Existing coalmines were already struggling, so developing a new one from scratch was unlikely to be profitable even in the most favourable circumstances.

Buckley said rail costs for coal can be about about 4c a tonne for each kilometre. If Tri-Star could get the coal to a port just 1,000km away, that would add $40 to a tonne of coal, which currently fetches about $65 a tonne.

“So if you’re talking about moving it from south of Alice Springs to Darwin, you’re talking a prohibitive cost of rail transport,” he said.

“Then you need to build and operate a dedicated coal port.”

The cost of building a port, even in Queensland where there are massive economies of scale, would add $5 to $6 to a tonne of coal, he said.

“So you could be looking at a cost of $50 a tonne, before you’ve even mined the coal,” he said.

On top of that, Buckley said thermal coal was in structural decline, with prices unlikely to recover as the world moved towards cleaner forms of energy.

“It will be a stranded asset before it’s even finished construction would be my guess,” he said. “The only way it could survive would be with taxpayer subsidies of the railway and all the other essential infrastructure.”

The Central Land Council, which acts for Indigenous landholder groups in the region, said it was concerned the NT lacked sufficient regulatory regimes or experience in regulating the coal industry.

“We will discuss these developments with traditional owners and seek their instructions,” CLC’s director, David Ross, said.

“We expect whoever wins the NT election to exercise a high degree of transparency where extraordinary arrangements are to be put in place for particular exploration projects, particularly for fossil-fuel projects with major environmental impacts.”

The NT minister for mines and energy, David Tollner, referred questions to the department.

Tri-Star has been contacted for comment.