CHALCO threatens legal action against Erdenes Tavan Tolgoi


Chinese state-owned company CHALCO warne on Monday that it would seek legal action against Erdenes Tavan Tolgoi (ETT) if it fails to abide by their contract.
The President of China Aluminium International Trading Co Ltd (Chalco Trading), Li Dongguang, who is overseeing the deal between CHALCO and ETT, said at a press conference on Monday that “If they maliciously breach the contract in order to seek their unilateral interest and neglect the interests of the other side, compensation will have no upper limit. In that case, we would take legal action.”
Mongolia’s state-owned ETT, which runs the 7.5 billion ton Tavan Tolgoi coal project, stated last week that it is seeking to renegotiate the 2011 deal with CHALCO to supply 250 million USD worth of coal from the deposit, because ETT is in bad shape after being forced to fund cash hand-outs to the electorate.
The cash handout program was carried out by the government and involved giving 1,072 shares in Tavan Tolgoi to every Mongolian citizen, based on the promise that the nation’s people would receive their share of the country’s mineral wealth.
CHALCO made an advance payment (loan) of 350 million USD to ETT in July 2011, to be paid back in coal. Coal exports to China stopped earlier this month because ETT was unable to pay the costs of delivery, leaving about 180 million USD of the contract unfulfilled, according to Mongolia’s ambassador to Beijing, Ts.Sukhbaatar.
Li Dongguang told Reuters that CHALCO had planned to import 3 to 4 million tons of coal from Tavan Tolgoi in 2012, but they only imported 2.37 million tons.
CHALCO was continuing to reach out to the Mongolian government, and was willing to consider more loans to tide over its operational needs if necessary, according to Li.
“We have proposed many solutions and plans, but there has been no response,” said Liu Xiangyu, the manager of CHALCO’s Hong Kong unit, who is in direct talks with Mongolia. He told Reuters that “All they request is to adjust the price, cut the volume, and renegotiate,” adding that the renegotiations were ‘baseless.’”
The Chief Executive of ETT, Ya.Batsuuri, has said that CHALCO buys ETT coal for less than the production cost and that Mongolia wants to sell its coal to other customers at international prices.
CHALCO told Reuters that the prices were index-based, saying that the price paid for Mongolian coking coal is 10 percent less than the price paid for Australian coal, due to the lower quality of Mongolian coking coal.
Last week, ETT again delayed an initial public offering (IPO) of up to 3 billion USD to improve their infrastructure to increase the offering.
Citing the uncertainty surrounding the release of the IPO, the Board of ETT asked Chief Operating Officer Graeme Hancock to resign. Hancock was the second highest executive at ETT and his role included preparing the company to list in Hong Kong, London, and on the domestic exchange.
Last year, the government decided to sell 10 percent of ETT to the Mongolian private sector. At the time 1,540 companies requested to buy shares and deposited a total of 27.1 billion MNT in the Mongolian Securities Clearing House and Central Depository (MSCHCD). Some of these companies have since sent requests to the Ministry of Finance, asking to withdraw their money due to the increased uncertainty and the delays in ETT’s IPO release.
The Minister of Finance said in a letter to the MSCHCD two months ago that the issue will be resolved by making additional changes to the policy. To date the issue has still not been resolved.
In response to enquiries regarding the issue, the Head of the Budget Policy Department of the Ministry of Finance, Khuyagtsogt, said recently, “We have sent the proposed changes to the government. We cannot disclose information because no decision has been made.”

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Posted by on Jan 31 2013. Filed under Business & Economics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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