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APR 30 2013

Lancos Griffin Coal ends $3.5 bn litigation with Perdaman

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 30th APR 2013

Lanco to pay A$7.5 mn plus legal costs without admission of any allegations; Perdaman had sought A$3.5 bn

Infrastructure developer Lanco Infratech Ltd settled a suit initiated by Perdaman Chemicals and Fertilisers against the Lanco Group and its unit Griffin Coal Mining Co. Pty Ltd seeking Australian $3.5 billion for reneging on an agreement to supply coal.

Lanco will pay Perdaman A$7.5 million plus legal costs without admission of any allegations, according to the settlement agreement. The settlement will help Lanco attract a strategic investor for the Griffin expansion project.

"If allowed to continue, this case would have taken another 12-14 months for the trial and judgement, resulting in significant legal costs and loss of management time. The purpose behind making this nominal offer was to put an end to this litigation now and move forward with our mine expansion plans, Lanco said in a statement on Monday. "This settlement was reached pursuant to the rules of Supreme Court of Western Australia.

The outcome will have a positive impact on the entire group, and especially Griffin Coal, a fully owned unit of Lanco.

Shares of Lanco Infratech rose 10.37% to close at Rs.11.60 on BSE, while the benchmark Sensex gained 0.52% to end at 19,387.50 points.

Lanco will renew its focus on its business and mining operations in Western Australia, including the proposed expansion of the Collie mine and the enhancement of the export facilities at the Bunbury port, the statement said. Law firm Clifford Chance acted as Lancos lawyers.

"In the end, Perdaman had no choice but to accept nominal offer in the settlement proposed by Lanco, which is in fact a small fraction of the original claim, Lanco said.

Griffin Coal was acquired by Lanco Infratech through its Australian subsidiary Lanco Resources Australia for A$720 million in February 2011. The Griffin coal mines located in Western Australia are estimated to have total reserves of around 1 billion tonnes per annum (mtpa).

Then owned by Australian coal baron Rick Stowe, Griffin sought bankruptcy protection in January 2010 after defaulting on $475 million in bonds. The firm appointed outside managers to sell its units, including Griffin Energy.

Lanco and other Indian independent power producers such as the GVK Group and the Adani Group have bought coal mines in Australia as part of their strategy to secure fuel supplies to existing and forthcoming coal-based power projects in India.

Lanco has a total operating capacity of 4,000 megawatts (MW), of which around 75% is coal based. The company is in the process of adding another 5,000MW to existing capacity in the next five years.

The average plant load factor, an indicator of capacity utilization, stood at 57% on 31 December because of fuel shortages and maintenance shutdowns.

The settlement provides Lanco room to export 1.5-2 mtpa coal at spot prices in the near term, after meeting its 3 mtpa domestic supply commitments with Bluewater Power Station and other local manufacturers, said Rupa Shah, research analyst at Mumbai-based brokerage house Prabhudas Lilladher Pvt. Ltd.

Lanco will be in a "better position now to get clearances such as forest, railway line and port connectivity pending before the concerned authorities, and also hasten the process of achieving financial closure for the expansion, Shah said.

In May 2011, Perdaman filed the lawsuit against Lanco for terminating the coal supply agreement that was in place before its acquisition of Griffin Coal.

According to the coal supply agreement entered in 2008, Lanco was to supply 2.8 million tonnes of coal annually for 25 years starting in 2014 to Perdamans proposed fertilizer project located at Collie, Western Australia.

But Lanco claimed that it had to terminate the coal supply agreement as Perdaman failed to achieve financial closure for its proposed $2.4 billion urea project despite getting several extensions.

Lanco, which reported a loss of A$43 million in the year ended 31 March 2012, has invested around A$132 million between 14 July 2011 and 23 October 2011 in expanding Griffin Coals mines.

The company is looking for a strategic investor as it plans to spend $1.2 billion to augment Griffins mining capacity from 4 mtpa to 18 mtpa in three years.

"The litigation of this magnitude had made potential investors nervous, Nagaprasad Kandimalla, chief executive officer (business development) at Lanco Infratech, told Mint over the phone. The settlement will help in attracting a strategic investor, Kandimalla said.


Coal Energy Lanco Group Mumbai Lanco Infratech Power Adani Group India Australia

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