Two days after the Mongolian government named winners of the
contract to develop the huge Tavan Tolgoi coal project, the head of
the state-run company whose subsidiary owns the project said
negotiations are still on and a deal hasn't been finalized yet.
The comment from Erdenes further clouds an already murky
situation, as the identities of companies in the winning Chinese
and Russian consortia remain unclear. Some bidders are saying they
have not been officially told of the outcome and the South Korean
government has openly questioned the fairness of the selection
process.
The development of one of the world's largest untapped coal
deposits has been fraught with uncertainty from the start. The
government initially planned an outright sale of part of the mines
to developers, but later decided to keep the ownership and invite
bids from prospective operators.
"We are still in negotiations. It's not yet finalized. Nothing
is finalized," B. Enebish, executive director of Erdenes MGL LLC,
the parent of Erdenes Tavan Tolgoi LLC, told Dow Jones Newswires by
phone.
The Mongolian government said in a statement Monday that it had
selected U.S., Chinese and Russian companies from a shortlist of
six consortia to develop part of the Tavan Tolgoi coal reserve.
In the statement, it didn't mention Japanese or South Korean
companies, which were among the six groups short-listed.
The winners named by the government are U.S. coal company
Peabody Energy Corp. (BTU), China's Shenhua International Ltd.
(SHU.AU) and a Russian-Mongolian group, the statement said.
The reaction from Seoul was strong, with the South Korean
government issuing a blunt statement Tuesday describing the process
as "not fair."
Mongolia's announcement, excluding companies from both Korea and
Japan, was released "without any kind of consultation with the
[Korean] consortium companies," it said.
A senior Mongolian government official familiar with the
situation said the government was still talking to the three
companies--Peabody, Shenhua Group, and the Russian company--to
finalize the details as some them were leading consortia of
Japanese and South Korean companies.
"Mongolia government is negotiating with only three parties. So
the government doesn't really need to know who the other consortium
partners are," the official said.
The mining rights for Tavan Tolgoi are hotly contested as it
holds one of the world's largest untapped coal reserves, of 6.4
billion metric tons, and sits next to the world's largest coal
consumer, China. The mines are located just 270 kilometers from the
Chinese border, in the Gobi desert.
The Tsankhi deposits, the western half of which is being offered
to developers, contain much of the highly prized 1.8 billion tons
of coking coal reserves in the area--a key ingredient in making
steel.
The landlocked country relies on its large neighbours--China and
Russia--for much of its foreign trade and crucial imports.,
although it is keen to avoid falling under the influence of
either.
While China is expected to buy much of the coal, the Mongolian
government wants to develop a railway network to link the deposits
to Russia, from where the coal can be exported to consumers in
Japan, South Korea and elsewhere.
The closest major Russian port to the mines is more than 5,000
kilometers away, though, while China's Tianjin port is the nearest,
at 1,570 kilometers.
Russia has two trump cards in the transportation issue--Russia
Railways owns 50% of Ulaan Bator Railways, whose 1,815-kilometer
network within Mongolia accounts for 60% of the total freight
transport.
Also, Mongolian and Russian railway networks are easily
connectible because they share a common broad-gauge design,
different from China's narrow-gauge tracks.
Even so, a halt in supplies of diesel from Russia to Mongolia
forced the country to suspend extensive parts of its rail services
in June. Mongolia has no refineries and imports 90% of its oil
products from Russia.
Although no official figures on investment costs have been
released, analysts have estimated that investments to the tune of
$7.3 billion would be required to develop Tavan's western block.
The eastern block will be developed by the government itself,
possibly funded through an initial public offering.
Brazil's Vale SA (VALE, VALE5.BR), as well as Xstrata PLC
(XTA.LN), ArcelorMittal (MT, MT.AE) and a consortium involving
Mitsui & Co. (MITSY, 8031.TO) were also short-listed to bid for
the project.
A Korea-Japan-Russia consortium that also made the short list
was made up of multiple Korean companies including state-run Korea
Resources Corp. or Kores, state utility Korea Electric Power Corp.
(015760.SE), steel giant Posco (005490.SE), Daewoo International
Corp. (047050.SE) and LG International Corp. (001120.SE).
On the Japanese side, the consortium included Itochu Corp.
(8001.TO), Sumitomo Corp. (8053.TO, SSUMY), Marubeni Corp.
(8002.TO), Sojitz Corp (2768.TO). OAO Russian Railways was the
Russian partner.
-By Gurdeep Singh, Dow Jones Newswires; 65-6415 4064;
gurdeep.singh@dowjones.com
--P.R. Venkat contributed to this report
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