Legal challenge against Adani's Carmichael mine in Australia

SYDNEY (Reuters) - An Australian environmental group launched a legal challenge against Adani Enterprises’ $7 billion Carmichael coal mine project in the Galilee Basin, renewing the focus on a key issue in a rancorous election campaign in Queensland state.

Conservative state Premier Campbell Newman has put development of the Galilee Basin at the heart of his bid for re-election, in a campaign that is being seen as a guide to the fortunes of Prime Minister Tony Abbott’s federal government.

The court fight is the latest in a string of challenges to a project that the national and state governments are keen to see go ahead, but which is opposed by green groups and tourist operators concerned about climate change and potential harm from shipping through the Great Barrier Reef.

Infrastructure conglomerate Adani, whose founder has close ties to Indian Prime Minister Narendra Modi, last year signed a memorandum of understanding for a loan of up to $1 billion from the State Bank of India for the mine, rail and port project, which it aims to build by end-2017.

The Mackay Conservation Group (MCG) is calling for the mine’s approval to be rendered invalid on the grounds that Environment Minister Greg Hunt failed to take into account the impact of carbon emissions from burning coal produced by the mine. All of the coal produced is expected to be exported to India and South Korea.

“By approving Adani’s Carmichael proposal, the Australian Government is in major breach of its own environmental regulations,” Ellen Roberts, coordinator at MCG, said in a statement on Thursday.

Newman called the snap poll this month amid fears his party’s grip at the local level is being eroded by Abbott’s toxic poll numbers after a first year in office hobbled by missteps and a souring economy.

He has promised to take a minority stake in the railway line necessary to bring the coal to port, as well as to develop an onshore disposal site for dredge spoil in a bid to add thousands of jobs to his state.

The leader of the state’s opposition Labor Party has said that her party would not subsidise the project’s rail line, and challenged claims about the amount of revenue the mine would generate for the state.

Analysts and project finance experts believe Adani may have underestimated the challenge of raising funds for the project.

Much bigger coal rivals, such as BHP Billiton and Glencore, have shelved coal developments at a time when a third of Australia’s coal output is making losses.

An Adani spokesman said the firm could work with both sides of politics, citing comments by Australian head Jeyakumar Janakaraj to the Australian Financial Review.

Additional reporting by Sonali Paul in Melbourne; Editing by Richard Pullin