Environmental lawyers have warned directors of the Northern Australia Infrastructure Facility (NAIF) to not fund Adani's proposed coal railway in central Queensland because it is in breach of their duties.
Indian coal miner Adani has been seeking a $900-million loan to build the railway line from its proposed mine site in the Galilee Basin to the Abbot Point coal port.
Not-for-profit legal group Environmental Justice Australia (EJA) said the Federal Government's NAIF directors need to consider the financial risks associated with climate change and he warned the investment was not commercially viable.
Environmental lawyer David Barnden said EJA sent a letter to NAIF's directors on Tuesday outlining the duty.
The risks to the Adani rail project in the Galilee basin are too great, Mr Barnden said.
And there is a massive risk of it being a stranded asset and we think that if NAIF officials are to comply with their duties, then they cannot fund it.
Mr Barnden said the directors were bound by statutory duties, according to the public governance and performance accountability act, which all Commonwealth public officials need to comply with.
He said if they do decide to use taxpayer funds for Adani's project, then it would be a breach of law and a breach of a legal standard.
Mr Barnden also said the Australian taxpayer would also be exposed to financial risk if NAIF decided to fund the project.
If there is no market for this coal, there'll be no payment to the rail project and project couldn't replay any loan to it, Mr Barnden said.
The Australian Conservation Foundation (ACF) commissioned the environmental lawyers' advice on the issue.
The ACF has been using all avenues, including legal options, to stop Adani's coal mine, fearing it will contribute to climate change and also further damage the Great Barrier Reef.
The Minister for Northern Australia and Queensland senator Matt Canavan said the letter sent to NAIF's directors was a bullying tactic.
These guys are bullies trying to stop jobs being created in north Queensland. Their stated aim is against coal and development. Against coal, and coal is the second largest exporter in Queensland, Senator Canavan said.
He said the Queensland Supreme Court has already dismissed environmentalists' arguments that the mine should not go ahead because of climate change.
If we don't supply India with coal, other countries will, Senator Canavan said.
So from global climate change perspective to argue that this mine in and of itself will warm the planet and cause global warming disasters is wrong and misguided.
There are other parts of the world India will get its coal from and it will. The Indian resources minister has said that to me specifically.
If anything, if we stop this project, it will be worse for the environment, because the coal that is there in the Galilee Basin is higher quality, much higher quality than what exists in India.
Senator Canavan said Adani's rail line would open up opportunities for other mines and create more jobs for regional Queensland.
But shadow resources and northern Australia minister Jason Clare said federal Labor does not support using taxpayer money to fund the rail line.
What are the rules that this Northern Australia Infrastructure Facility have to comply with when they decide when they're going to tip taxpayer money into private projects? Mr Clare said.
And one of the rules here is that they can only provide funding if the project is unlikely to go ahead without it. And Adani has said this funding isn't critical.
So on that basis it doesn't meet the requirements of the fund.
By Katherine Gregory