Australia’s export credit agency, Efic, is a government-owned, taxpayer-backed organisation that aims to assist Australian exporters with financial services.

Efic is currently considering a loan to a South African coal project. The Boikarabelo coal project has approval to produce 32 million tonnes of raw coal each year. The development of this project would likely contribute to the development of other projects in the enormous Waterberg coal basin, a resource of around 75 billion tonnes.

These projects would further the development of coal-fired power in South Africa and around the world as the owners of Boikarabelo intend to export much of the coal. Aside from the contribution this would make to greenhouse gas emissions, Efic’s involvement with the project raises many other questions.

Firstly, the proponent company, Resgen, does not have strong links to Australia. While listed on the Australian stock exchange, it is majority foreign-owned, with a South African CEO and mainly South African board. It appears to have no activities based in Australia – its ‘Australian office’ has a South African phone number.

While Resgen’s links to Australia are minor, its South African coal would compete with Australian coal in international markets, particularly in India. Efic has not consulted with Australian government or industry bodies on how a potential increase in South African coal exports would affect production and employment in the Australian coal industry, describing such consultation as “not applicable”.

Investors in coal need to be aware of financial risks. The outlook for world coal markets is uncertain and Resgen’s share price is volatile. Resgen’s only major asset is the Boikarabelo project.

While Efic has expertise in assessing financial risk, its capacity to assess environmental and social risks is limited. South Africa’s mining industry has a poor record on accountability, human rights and environmental issues, raising the risk of Efic, an Australian Government entity, being linked to these problems. Efic has provided finance to some of the worst social and environmental catastrophes in the Asia Pacific region, including the Ok Tedi Mine, the Porgera mine, the Panguna mine, and the PNG LNG project.

Efic is party to an OECD agreement not to fund new coal-fired power stations. Even though Resgen publicly states that it will build a power station that would use coal from Boikarabelo, Efic has told the Australian Senate that this “has not been proposed, nor is Efic considering providing support in relation to a coal fired power station.” While Efic may not break the letter of the OECD agreement, financing a mine that feeds a new power station would certainly be against its spirit.

Given the financial, economic, environmental and social risks of the Boikarabelo mine, Australian taxpayers should not be providing finance to this project.