Financial Times reported that for ThyssenKrupp the construction of new steel mill close to Brazil's rich iron ore deposits was a make or break investment by which it hoped to maintain competitiveness as the global steel industry consolidated, producing powerful new rivals including ArcelorMittal and TATA Steel.
Only a couple of weeks after marking ThyssenKrupp's 200th anniversary the German company was this month forced to take a EUR 2.1 billion write down at its Steel Americas division, in large part due to problems stemming from the Brazilian plant. It declined to comment further on the problems at the plant.
ThyssenKrupp's Brazilian steel mill was the biggest private industrial investment in Brazil for 10 years and the first major steel mill to be built in the country since the mid 1980s. But from the outset the project was dogged by delays and cost overruns that saw the total investment rise from EUR 3 billion to EUR 5.2 billion. Although the steel plant was officially opened by Brazil’s former president Mr Luiz Inacio Lula da Silva in June 2010, it is not yet running efficiently or at full capacity due in large part to problems at the coke plant, which was supposed to have been completed by 2009. In fact the final coke battery will only be started up during the first half of 2012.
For Citic, the chance to play a role in such a mammoth project was a huge coup for China's largest industrial and financial conglomerate. It was by far the biggest ever coking plant contract won by a Chinese company and raised the prospect of further lucrative business.
Chinese Citic underbid Uhde for ThyssenKrupp's own plant construction company, by a mid double digit million euro sum to secure the deal to set up coke ovens. 5 years later ThyssenKrupp is seeking compensation from Citic for delayed and allegedly faulty construction.
According to people close to ThyssenKrupp, delays and quality problems became apparent during construction and in December 2009 Uhde took over responsibly for finishing the project and Citic cut its fee by about EUR 100 million. However, when ThyssenKrupp started to fire up the plant in September 2010 it identified additional serious flaws.
ThyssenKrupp's South American unit has since incurred more than EUR 500 million in additional costs fixing problems with the coke plant, according to one internal ThyssenKrupp estimate.
According to a person close to ThyssenKrupp, the South American division and Citic have since held talks about compensation with Citic indicating it is in principle prepared to shoulder some of the additional costs. But in more than two years since the talks began the two sides have not been able to agree on the size of any possible payment.
(Sourced from www.ft.com)
