About that $60bn China coal deal…

Last weekend in Queensland, Australia, saw a big announcement: the country’s largest-ever export deal, with a Chinese company agreeing to pay $60bn over 20 years for supplies from an as-yet-undeveloped coal mine in the state’s west. A 490km train line to the coast and processing facilities would also be built.

The length of the contract and the amount of coal discussed – 30m tonnes per annum – is apparently agreed. The $60bn, however, turns out to have been an estimate.

It all began when China Power International Development Limited said it had never contacted Resourcehouse, the Australian company that announced the deal – much less negotiated a big deal. That was quickly cleared up: Resourcehouse had intended to name China International Power Holding, CPI’s unlisted parent company.

From The Courier-Mail, on Resourcehouse chairman Clive Palmer:

He added: ”Resourcehouse has estimated the cumulative value of any coal sales made under the agreement to be in the order of $US60 billion considering market prices across the life of the agreement.”

The same story in the Courier-Mail says Queensland Premier Anna Bligh ‘leapt to Mr Palmer’s defence’:

”I have sighted myself the signed agreements which I am advised are legally binding agreements and go to the question of a quantity of supply,” she said.

”The question of the contract price for that supply is something that would be negotiated probably on a triennial basis throughout the 20-year life of the supply contract.”

Palmer says the media got it wrong:

Mr Palmer, who was in Beijing earlier this week, attacked media reporting of the deal, describing it as “very, very poor” and complained that “no-one checked” and “no-one contacted me”.

Mr Palmer said the coal sales agreement, which he noted was binding in the legal sense, was one of four signed in Beijing last Friday and was half completed.

“The issue that are covered by the other half of the coal purchase agreement are things that we’ve agreed to agree upon later,” he said.

He said the parties aimed to finalise outstanding terms and conditions of the coal sales agreement by the end of April.

He played a video of the signing ceremony in Beijing, during which a CPIH executive described the deal as a “framework” agreement.

A CPIH executive said the parties were “working hard on a final contract and it will take some more time.”

He rejected queries around the value of contract, saying that the $US60 billion estimate for 20 years supply was based on current benchmark prices.

The press release emailed to the FT by Resourcehouse on the weekend:

February 6th, 2010


Resourcehouse Chairman, Professor Clive Palmer, today announced the company had secured Australia’s biggest export contract with a $US60 billion deal for its proposed China First coal mine and infrastructure project in Central Queensland.

Prof Palmer said Resourcehouse Executive Director Phil McNamara had successfully negotiated a 20-year sales agreement with one of China’s largest power companies, China Power International Development Limited, the flagship company of China Power Investment Corporation (CPI).

Further down:

Mr McNamara said the contract with CPI was to supply 30 million tonnes per annum (MTPA) for approximately $US3 billion pa over 20 years.

The new coal mine and its accompanying infrastructure is yet to be built, and is not expected to be operational until 2014.  As Woodside’s now-expired $45bn LNG deal with China shows, huge resources deals are complicated. (When first agreed in 2007, that had been the biggest export deal by an Australian company.) Meanwhile talks between Russia and China over gas supplies have been going on for years.

Meanwhile reports of an upcoming Hong Kong IPO of Resourcehouse were also dismissed by Palmer.

On a completely different note, NY Times’ Andrew Revkin has a comprehensive look at the question of who is responsible for the emissions from the coal in deals such as this.

Related links:

Could China fall out of love with coal? (FT Energy Source)

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