Daewo Int'l sued over delayed construction

By Park Si-soo

Daewoo International and two other Korean firms have been sued by a Madagascar-based mining firm over delayed construction of a power plant.

Dynatec Madagascar SA, which provides nickel-cobalt mining and processing services, said Wednesday it has filed a damages suit against the consortium comprised of Daewoo International, Hyundai Engineering, and Kyungnam Enterprises, demanding the three pay $190 million (222.89 billion won) in compensation for the delayed construction of a power plant in Amba-tovy, Madagascar.

The firm is seeking 50.2 billion won (22.54 percent) in compensation from Daewoo, 125.1 billion won (56.19 percent) from Kyungnam, and 47.3 billion won (21.27 percent) from Hyundai.

Daewoo was in charge of supplying boiler-related equipment, with Hyundai and Kyungnam playing a key role in plant design and construction, respectively. The case is pending at the International Chamber of Commerce in Toronto, Canada.

The company said the consortium was contracted to complete the power plant by late 2009, but this was not achieved until early last year. The constriction began in May 2007.

The firm said the delay was largely due to slower-than-expected progress of other related building projects. The power plant was a key part of the plaintiff’s ambitious nickel mine development project.

The news worried investors of Daewoo International. Its stock price dropped 550 won to close at 28,950 won Wednesday.

Daewoo criticized the Madagascan firm for starting legal proceedings without arbitration and said it will try hard to reach a settlement.

“The lawsuit was filed without arbitration, which is a violation of the contract,” a Daewoo International official said, referring to a contract term mandating the two parties to seek arbitration in advance of taking legal action.

Kyungnam claims Dynatec Madagascar is partially accountable for the delay, saying the plaintiff had “pushed forward with the project without necessary negotiations with the consortium.” Kyungnam hinted at a countersuit, saying the consortium will “jointly hire international law firms and engineering consultants” to file a damages suit against Dynatec Madagascar.

Many analysts and market insiders say the dispute have a limited impact on the Korean firms. Some suspect Dynatec Madagascar raised the case to avoid mounting criticism over what they describe as poor supervision of construction and cooperation with the consortium.

“The dispute will carry limited impact on the Korean firms,” said Kwon Hye-soon, a senior researcher at Mirae Asset Securities. “Even if the consortium loses in the lawsuit, Daewoo International can defend itself with the right to put the liability on a Chinese company, which means Daewoo is relatively safer than the other two.”