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Resources Prima replies to SGX queries on coal-hauling contract termination

CATALIST-LISTED Indonesian coal miner Resources Prima Group on May 30 responded to queries from Singapore Exchange Securities Trading (SGX-ST) on the termination of a coal-hauling service agreement with its subsidiary Energy Indonesia Resources (EIR), announced on May 15.

On May 13, EIR had received a letter of termination from Coalindo Adhi Nusantara (CAN) regarding the coal-hauling service agreement, which had been signed in October 2017 and was to be effective from Nov 1, 2017 for a duration of two years.

EIR has sought legal advice to take action to protect and enforce its rights under the contract, including but not limited to monthly shortfalls of coal hauled arising from CAN's failure to provide a minimum of 100,000 tonnes per month to EIR. Upon receiving legal advice, EIR on March 18 invoiced CAN for shortfalls for the 15-month period from Nov 1, 2017 till Jan 31, 2019, amounting to about US$2 million.

As required under Indonesian laws prior to the commencement of any legal proceedings, EIR sent three notification letters dated April 26, May 10 and May 17 to CAN for the shortfall claim, the "rise and fall" -- part of the pricing formula for coal hauling services of US$35,089 for September 2018 till February 2019, and an overpayment claim of US$30,769.

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On Apr 10, EIR received a formal letter from CAN saying that its shortfall claim invoice had been received and was being reviewed, "and CAN will commit to pay the outstanding owing to EIR".

Asked when it received the termination letter dated May 10, Resources Prima said EIR's Jakarta office received the letter on May 13, with group chairman and chief executive officer Agus Sugiono receiving it on May 14 around 6pm Singapore time.

On whether any preliminary legal advice obtained was obtained, Resources Prima said that in the termination letter, CAN disputed the shortfall claims, argued that EIR's fleet of coal hauling trucks -- more than five years old on average -- did not meet the age requirement for operation, and terminated the contract based on safety aspects.

"This is the first time that CAN has ever raised such a complaint since EIR commenced the coal hauling contract with them in October 2017," said Resources Prima.

The termination letter was sent to Indonesian legal counsel for May 15. On May 17, the Resources Prima board was advised that CAN had breached the contract by its refusal to pay. "Our Indonesian legal counsel has also confirmed that there is also no requirement stated in the contract for the fleet to be of certain age," said Resources Prima.

EIR on May 24 sent a response letter to CAN, rejecting the basis of termination, claiming breach of contract, and demanding immediate payment of outstanding invoices. Resources Prima said it will continue to update shareholders "in respect of the above matters on any material development in the company’s monthly update".

Asked for its next course of action, Resources Prima highlighted its response letter and said that its board is seeking legal advice on the possible courses of action and the costs involved in pursuing them, adding: "The board is mindful of the current state of affairs of the company but has not ruled out any course of action including, without limitation, commencing legal action against CAN."

Asked what stage of discussions EIR is at for alternative coal hauling contracts, Resources Prima said that EIR's 19 delivery trucks were all contracted solely for the contract with CAN. "Hence, exploratory discussions with any other potential parties for coal hauling was subject to the expansion of EIR’s fleet of delivery vehicles and/or the termination of the contract by either CAN or EIR".

In late 2018 and early 2019, upon various disruptions of CAN's operations from month to month, the board had already instructed management to start exploring alternative coal hauling contracts, and EIR has been in discussions with certain parties in relation to them.

As for the status of a separate Prima Dharma Karsa joint operation agreement, Resources Prima said that based on the latest update it had, there are currently around 50,000 tonnes of nickel ores at the stockpile, with the first shipment having just begun on May 30.

Trading in the shares of the company has been suspended since June 28, 2017.