Griffin Coal

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Griffin Coal operates two major coal mines, the Muja Mine and the Ewington Mine. (The latter is also referred to as the "Ewington 1 & 2 Mines"). The company has also proposed the development of the Muja South mine. Griffin Coal is owned by the Indian company, Lanco Infratech. Until early 2011 Griffin Coal was a subsidiary of the Griffin Group, a major Western Australian company. However, following the collapse of the Griffin Group in early 2010, the administrators sold the coal division off.

Financial collapse and ownership changes

In January 2010 the Griffin Coal company was put into administration after failing to meet a deadline for payments to bondholders and the Australian Taxation Office on its $700 million on debts.[1][2]

In December 2010 it was announced that Lanco Infratech Ltd’s bought the Griffin Coal Mining Co. Pty Ltd’s coal mines in Western Australia.[3] When the sale was completed in March 2011 it was revealed that Lanco had bought the mining assets for A$750 million.. At the time it was reported that "Lanco plans to boost almost four-fold to over 15 million tonnes per annum, in addition to adding rail linkages, and expanding facilities at Bunbury port." The coal, aside from that produced domestically, would be exported to feed Lanco's proposed major increase in coal-fired power plants it owns and operates in India.[4]

In an interview on Lanco's website, the company's chief executive, L. Madhusudhan Rao, stated that "Fuel security is the biggest concern today. We think acquisition of Australia's Griffin Coal was a right move. It can meet our requirements for the next seven to eight years."[5]

Coal contract disputes

Shortly after the Griffin Coal sale the administrators also sold the Griffin Group's subsidiary, Griffin Power, to Kansai Electric Power and Sumitomo Corporation.[6]

Soon after Lanco took control of Griffin Coal, the company's relationship with its two largest customers soured. In late June 2011 fertiliser manufacturer Perdaman Industries lodged a claim in the Supreme Court of Western Australia for $3.5 billion against Lanco. Perdaman claimed that financing for its proposed $3.5 billion coal-to-urea plant collapsed after Lanco sought substantial price increases for the supply of coal.[5] Perdaman have also served writs on Lanco's executive chairman and major shareholder Lagadapati Madhusudhan Rao and the company's chief executive of business development, Prasad Kandimalla as they emerged from a meeting with the West Australian Premier, Colin Barnett.[7]

Lanco also sought to renegotiate the coal supply contract to Griffin Energy for the Bluewaters Power Station which supplies approximately 10% of the state's electricity. In May 2011 Lanco warned that the continued sale of coal under the terms of the contract "may not be financially sustainable in their present form".[8]

The risk that Lanco would refuse to supply coal at the old contract price drew criticism from the Western Australian Premier, Colin Barnett. Barnett wrote to the company stating that he expected the company to honour the existing contracts. "It seems to me now they want to walk away from the contracts they purchased as part of that deal and the obligations to supply coal," he told Fairfax Radio. "I contacted them and made it very clear we expected the contracts to be honoured, and we have made it clear we expect them to behave as a good corporate citizen, and I'm sure they will do that."[9]

"They went in eyes wide open so we expected them to do their proper due diligence on the coal, the asset and also the contracts that Griffin had," Mr Barnett said.[9]

The dispute over the coal supply contract for the Bluewaters power station led to the delay in the completion of the sale of Griffin Energy's power stations. In early July 2011 the administrator of Griffin Group, KordaMentha, stated that the finalisation of the sale had been pushed back to September 30. However, the firm's Brian McMaster stated that "finalising the sale is contingent on implementing an appropriate resolution to the coal supply threat".[8]

In early August 2011 the West Australian reported that at a meeting between Barnett and Lanco executives was to discuss the company's "hopes to complete an expansion of Bunbury Port's inner harbour by the end of 2013 to allow it to start exporting coal to India" after a tripling of production from the Collie coal mines.[7]

Subsequently, Lanco stated that its earlier letter in which it threatened to suspend coal sales to the Bluewaters power station had been withdrawn. "There was just a letter, that we may have to suspend coal because of commercial reasons. Since then, the letter has also been withdrawn," Lanco's Chief Financial Officer J Suresh Kumar stated.[10]

Following the purchase Lanco have sought a series of financial favours from the West Australian government -- all of which have been rejected. It sought a waiver of its debts with Fremantle Ports in February and a reduction in port handling fees of 75%. The company also sought royalty relief on its Collie mine.[11]

Dispute over port fees

Following the purchase Lanco have sought a series of financial favours from the West Australian government -- all of which have been rejected. It sought a waiver of its debts with Fremantle Ports in February and a reduction in port handling fees of 75%. The company also sought royalty relief on its Collie mine.[11]

In May 2012 Fremantle Ports warned Lanco that unless it paid outstanding debts it wold be blocked from exporting coal. "We have written to Lanco to advise them that Fremantle Port expects them to meet the commercial conditions under their contract," a spokeswoman for Fremantle Ports told The West Australian. The newspaper reported that it believed the outstanding amount was $8.5 million which debt "incurred as part of work commissioned on Lanco's behalf by Fremantle Port that allows Lanco to export more than a million tonnes of coal through Kwinana."[11] The Wall Street Journal reported that Lanco had agreements to export "around 750,000 metric tons of coal a year" through Fremantle Port's Kwinana Bulk Terminal.[12] Several days after the warning Lloyds List reported that Fremantle Ports’ manager for external affairs Ainslie de Vos stated that "arrangements have been made between the parties for payment of all outstanding monies."[13]

2013 Dispute with the Australian Taxation Office

In March 2013 the Australian Taxation Office (ATO) wrote to Griffin Coal requesting that an outstanding tax debt of $13.9 million be paid within 21 days or a timetable for payment negotiated. The ATO indicated that if the debt wasn't settled the company could be put into liquidation. In July 2013 the Australian Financial Review reported that after the debt wasn't paid the ATO applied to the Federal Court of Australia to wind the company up “on grounds of insolvency”. “The defendant failed to pay the amount of the debt demanded or to secure or compound for that amount,” the Tax Office submitted.[14]

In a media statement Griffin Coal wrote that "No winding-up order has been issued against Griffin and Griffin remains confident that there is no basis for winding up and that the matter with the ATO will be resolved as soon as possible.” A CFMEU mining district secretary Gary Wood, told the Australian Financial Review that explosives manufacturer Dyno Nobel had stopped supplying the company with explosives after not being paid. “Dyno hasn’t been paid and we can’t drill and blast ... We are five fortnights behind in superannuation payments,” he said. It was also reported that contractors had cute the supply of their services due to not being paid, though John Tombleson, the chief executive at earthmoving and excavation company Piacentini & Son, declined to comment.[15]

In August 2013 Griffin paid the outstanding $13.9 million tax debt to the ATO after Lanco Infratech injected funding into the struggling Griffin Coal. Lanco chief executive of business development, NagaPrasad Kandimalla, told the Australian Financial Review, that "I can assure that any temporary working capital issues we have will be resolved soon and Griffin coal will be a sustainable and value-adding business for the region."[16]

“There are delays in meeting some of the payments but as I said . . . we continue to improve our operations, as well as progress with development of port infrastructure and also the interim coal exports program,” Kandimalla said.[16]

Wages delay and Superannuation payments missed

In early August the Construction, Forestry, Mining and Energy Union expressed concern that Griffin failed had failed to pay $1.5 million in superannuation even though the deadline for payment had been extended from July 28 and had been a day late in paying its fortnightly wages. CFMEU mining and energy division WA secretary Gary Wood said that Griffin was trying to secure fresh funds from its parent, Lanco Infratech.[17]

Wood told the Collie Mail that "they were hoping to refinance by Friday and that didn't come through. It is a concern for the union. They're going through some debt refinancing. We need to keep the mine operational but there comes a point where enough is enough and we'll do what we can to ensure future employment. If that means demanding to talk to the hierarchy from India, we'll do what we have to do to have them attend and address the site. They have to focus on saving the company in the short term rather than grandiose plans for 20 million tonnes in the future," he said.[18]

Coal export expansion proposal

Griffin Coal has an allocation for the export of 750,000 tonnes of coal through Fremantle Ports upgraded Kwinana Bulk Terminal. However, in 2011/12 the company exported only 488,000 tonnes.[19]

Lanco have proposed that the port facilities at Bunbury Port be upgraded to allow for the export of 15 million tonnes of coal a year. In mid-July 2013 the Western Australian Environmental Protection Agency recommended to the Minister for Environment that the proposal be approved, with some conditions. The proposed approval is open for public comment until the end of July 2013.[20]

Contact details

Level 15, 2B The Esplanade,
Perth, Western Australia 6000
Telephone: (08) 9261 2800
Website: http://www.griffincoal.com.au/index.aspx

Articles and resources

References

  1. "Debt-laden Griffin Coal put into administration", Sydney Morning Herald, January 4, 2010.
  2. Colin Kruger, "Cash crunch, rising costs pushed Griffin Coal over the edge", Sydney Morning Herald, September 21, 2010.
  3. "Indian company to buy Griffin Coal", Sydney Morning Herald, December 16, 2010.
  4. "Lanco Infratech seals $760 mn Griffin buy", The Financial Express, March 4, 2011.
  5. 5.0 5.1 Colin Kruger, "$3.5bn writ hits mines deal", Sydney Morning Herald, June 30, 2011.
  6. Colin Kruger, "Supply threat hits Griffin Coal's $1.2bn power sale", Sydney Morning Herald, July 6, 2011.
  7. 7.0 7.1 Amanada Saunders, "WA power dispute snares Indian billionaire", West Australian, August 5, 2011.
  8. 8.0 8.1 Colin Kruger, "Price dispute puts cloud over Griffin Power sale", Sydney Morning Herald, July 6, 2011.
  9. 9.0 9.1 "Barnett holds Lanco to coal contract", Sydney Morning Herald, June 1, 2011.
  10. Rajesh Kurup and Ketan Bondre, "Lanco withdraws threat to cancel coal supply to Australia's Bluewaters", Reuters, August 14, 2011.
  11. 11.0 11.1 11.2 Peter Kerr, "Port issues ultimatum to Lanco", The West Australian, May 9, 2012.
  12. Stephen Bell, "Fremantle Ports Warns India's Lanco", Wall Street Journal, May 9, 2012.
  13. Oliver Probert, "Lanco, Fremantle Ports settle fee dispute", Lloyds List, May 11, 2012.
  14. Jonathan Barrett, "Lanco’s Griffin Coal at risk of liquidation in WA", Australian Financial Review, July 4, 2013. (Subscription only)
  15. Jonathan Barrett, "Griffin Coal’s Indian owner optimistic about tax debt settlement", Australian Financial Review, July 4, 2013. (Subscription only)
  16. 16.0 16.1 Jonathan Barrett, "WA’s Griffin Coal avoids liquidation over tax debt", Australian Financial Review, August 14, 2013. (Subscription required)
  17. Sean Smith, "Union fears over Griffin super failure", The West Australian, August 7, 2013.
  18. Ross Verne, Griffin debt woes", Collie Mail, August 7, 2013.
  19. Fremantle Ports, "2012 Annual Report", Fremantle Ports, September 2012, page 37.
  20. [http://www.epa.wa.gov.au/News/mediaStmnts/Pages/EPArecommendsapprovalfornewBunburyPortberthandcoalexportfacility.aspx?pageID=330&url=News/mediaStmnts "EPA recommends approval for new Bunbury Port berth and coal export facility", Media Release, July 17, 2013.

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