Source: Reuters                      Date: 27 July, 2011

Japan has joined South Korea in complaining to Mongolia over the bidding process for part of Tavan Tolgoi, as firms from both countries appear to have been excluded even though they were allied with some of the apparent winning bidders. Japan's complaint adds to the confusion over the hotly contested deal to develop the world's biggest untapped coking coal deposit after South Korea earlier this month called the process "unclear and unfair". (The Dow Jones report that appears immediately after this, however, gives a different nuance to Japan’s reaction.)

The complaint said Mongolia had persistently called on Japan to help with the development of its mineral resources and that President Ts. Elbegdorj in a visit last November had stressed that bilateral partnerships in minerals development would be mutually beneficial, a government source, who asked not to be identified, said. "If it transpires that Japanese firms are not included in the winning camps, it would go against what the two governments have been working towards", the Japanese letter was quoted as saying. "It would be extremely regrettable." Both Japanese and South Korean government officials said they have not yet received any official response from Mongolia.

Mongolia said this month it had picked U.S. miner Peabody Energy, China's Shenhua and a Russian Railway-Mongolia consortium out of six preferred bidders to develop the west Tsankhi deposit, but later said the decision was not final. Japanese and South Korean firms were not mentioned in the announcement even though they are part of the consortium that includes Russian Railway. Instead, the announcement said Russian Railway was now part of a consortium with Mongolian firms, but it was unclear which firms were being referred to. Japanese trading firm Mitsui & Co was also not mentioned although it is a partner of China's Shenhua.

Mr. Oscar Mendoza, chief operating officer of the Ulaanbaatar-based Frontier Securities, said while some of the original bidders have been informed that their bid has been rejected, there was no indication that the Japanese and Korean firms had been formally eliminated from the process. He said Mongolia originally wanted Shenhua, Peabody and the Russian consortium to decide what stakes would be allocated to their Japanese and Korean partners.

"Erdenes (the state-owned firm in charge of Tavan Tolgoi) said the allocations would be decided internally and it would be up to each company what the percentage would be. If it is going to Shenhua, they have the discretion to decide how much is going to Mitsui."

Company sources said the four Japanese trading firms in the consortium with Russian Railways -- Itochu Corp, Sumitomo Corp, Marubeni Corp and Sojitz Corp -- have also jointly filed a complaint with Mongolia but have yet to receive an official response.