wec certain to receive > a$100m in damages, page-8

@dmagnus
Bayan proposed (http://www.asx.com.au/asxpdf/20111121/pdf/422nqdt37pqx1h.pdf) WEC to buy their share in KSC for $45m and to deliver coal only until June 30th 2012 at HBA prices (currently $55/t). This offer was totally unacceptable for the following reasons:

1. The raw coal would have been way too expensive. Based on a conversion rate of 1.5:1 they would have needed to buy coal for $82.50 (excluding coal for the power plant) in order to produce briquettes worth some $110/t. After production and shipping costs operation would have been lossy.

2. The produced briquettes would have been unsaleable as KSC still lacks an export license (IUP), so the loss would have been even greater.

3. The produced briquettes would have been untransportable as KSC lacks vehicles and loading facilities on the riverside besides a transport license (in Indonesia you need transport licenses if you move coal).

4. The produced briquettes would have been unstorable as KSC has only storage space for I think 20k-30k tons of briquettes (if I remember properly what was said in one of the conference calls).

5. Bayan would probably have been unable to deliver enough coal to allow uninterrupted operation for a longer period, which is what WEC actually intended to prove as this is a premise for the plant's viability.

6. After June 30th the plant would have run out of coal and there would not have been any viable alternative source of low rank coal nearby. Even if so KSC would have lacked logistics facilities, storage space, an export license and a transport license.

7. Marketing such low quantities of briquettes would never pay off (originally it was agreed Bayan to market the briquettes produced in Tabang).

8. A single plant cannot run profitable at least not at this remote location due to the high costs for the power plant (there's no electricity in the jungle), logistics and staff. The Tabang project could only have become profitable if it was scaled up to at least 2 Mtpa of installed capacity.

9. Running a wholly foreign-owned business in Indonesia would simply have been suicidal as authorities would blackmail you at every possible opportunity.

10. Disassembling the plant and shipping it elsewhere would hardly pay off, especially not as those savages in the jungle would have probably started demanding approvals and imposing fees or taxes requiring bribe payments.

So Bayan's offer is nothing less than a bad joke which could not be accepted.

Anyway there are still enough regions in the world where BCB could operate absolutely viably due to a significantly higher price spread between low and high rank coal. One of them would be the US where WEC are partnering with Peabody.