Korean coal buyers are preparing to sue a number of Australian coal exporters for faking test results to boost the quality of their coal. Callum Foote reports as PwC ‘independent report enters frame.

If they have not received it already, a group of Australia’s largest coal producers such as Glencore, Peabody, TerraCom and Macquarie Group, are about to receive a letter informing them that subsidiaries of state-owned Korea Electric Power Corp (KEPCO) intend to sue for fraudulently amending coal data to claim their coal was cleaner than it was.

The claim will further imperil the reputation of Australia’s second largest export, coal. Already, Australia’s largest export coal markets – Japan, South Korea and Taiwan – are in decline according to energy finance experts Simon Nicholas and Andrew Gorringe.

The companies implicated in the alleged scam are expected to include multinational giants Anglo American, Glencore, and Peabody, as well as homegrown coal producer TerraCom and Macquarie Bank, according to Independent MP Andrew Wilkie, who received a copy of whistleblower documents.

The scam involved coal testing group ALS Global boosting coal quality results on behalf of the miners.

ALS is a $6 billion company listed on the ASX which conducts tests on commodities ranging from water to coal. It admitted in 2020 that “approximately 45-50% of the certificates of analysis were manually amended without justification in the Company’s laboratories in Newcastle, Mackay, Gladstone and Emerald, since the acquisition of the ACIRL business by ALS in 2007.”

ASIC brought a case against Australian coal miner TerraCom in February over what it alleged were coal reports which “were being amended by ALS to record and report more favourable results to TerraCom.”

A month later, two of the KEPCO subsidiaries involved announced that they would no longer purchase ALS-tested coal.

Independent Tasmanian MP Andrew Wilkie told parliament that:

Coal companies operating in Australia are using fraudulent quality reports for their exports and paying bribes to representatives of their overseas customers to keep the whole scam secret.

Mr Wilkie said the alleged scam had allowed companies to claim for years that Australian coal was cleaner than it was in reality “in order to boost profits and to prevent rejection of shipments at their destinations.”

The PwC investigation

ASIC’s claim against TerraCom revealed that the company had hired controversial consultancy firm PwC to conduct an “independent investigation” into the claims of whistleblower, and former TerraCom employee, Justin Williams.

The PwC investigation had, by its own admission, a limited methodology and did not make contact with ALS employees or directors.

While the report did not claim that the William’s claims were unfounded, it found that a “review of email communications using targeted search terms did not identify any indications” that chief executive McCarthy “was responsible for any potential misstatement of coal quality,” according to ASIC’s documents.

Documents seen by MWM indicate, the PwC report did enough to show the whistleblower was probably correct in his claims while also doing enough to take the heat off the board by establishing that the board could blame rogue employees.

Wilkie said about the rumours, first published in The Korea Herald, “Disappointedly confirmed that my concerns have been largely ignored by the Australian Government and regulators, in a pattern of behaviour that extends to the previous Government as well.”

Korea Herald Facsimile

“We began preparing legal measures (to litigate against) ALS starting four to five years ago, as soon as the scandals involving ALS’ falsification of coal inspection results rose to the surface,” a source told the Korea Herald.

Andrew Wilkie said that “I hold out hope that the legal proceedings will finally blow the lid on the widespread use of fraudulent coal quality testing.

They have been used for years by Australian miners and exporters to give the impression that Australian coal is cleaner than it really is,

and to falsely show that shipments are compliant with contracted metrics.”

Peabody, Glencore, TerraCom, Anglo American, Macquarie Bank, and PwC have all yet to respond to media enquiries put to them by MWM.