Palmer Faces The Perennial China Question: When Is A Deal A Done Deal?

How binding is an agreement of intent? Not an uncommon question when doing business with Chinese companies. Australian multimillionaire Clive Palmer’s trumpeted agreement with China Power International to sell it coal from the new Galilee Basin coalfield in northern Queensland turns out, it seems, to be more of a framework than a final contract.

Palmer and Queensland Premier Anna Bligh announced at the weekend what they said was Australia’s biggest export contact, worth $60 billion over 20 years. Hong Kong-listed China Power International Development, the named customer, issued a statement on Tuesday denying that it had reached such an deal. Palmer’s company, Resourcehouse, then said had got the name wrong. It had struck the agreement  with CPID’s parent state-owned China Power International Holding in Beijing. A CPIH executive then described the agreement as a framework.

Xinhua has reported that the two companies have signed “an agreement of intent” but have not yet started price negotiations. Premier Bligh is reported in the Australian press as saying that she had seen the contract and while it did not mention dollar totals, it did mention tonnages. Resourcehouse is now saying the price will be linked to market prices and casting the $60 billion figure as its estimate over the life of the agreement.

Echoes in all of this of the Australian securities regulators’ failed case against Fortescue Metals Group, which was accused in 2006 of overstating agreements with three Chinese companies to finance its Pilbara iron ore project. (The regulators are still appealing the ruling against them.)

This Bystander’s two-cents’ worth is that a final contract with China Power International will eventually get signed; China needs the coal and there is a lot of construction work for Chinese firms tied up in the deal.  But Resourcehouse has clearly jumped the gun, for which there will likely be a negotiating cost. It has also been left with some egg on its face that will need to wiped off before its possible initial public offering in March.

1 Comment

Filed under China-Australia, Energy

One response to “Palmer Faces The Perennial China Question: When Is A Deal A Done Deal?

  1. If I was one of the bankers bankrolling Palmer, this kind of premature announcement would worry me.

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