Mongolia says Japan, Korea cos in Tavan Tolgoi auction

* S.Korea, Japan firms still on shortlist
* Mongolia says disappointed by S.Korea, Japan proposals
* S.Korea, Japan proposals did not include downstream projects
* S.Korea revising its proposal to include steel plants

ULAN BATOR, Aug 18 (Reuters) - Mongolia cleared up confusion over its auction of a block of its Tavan Tolgoi coal deposit on Thursday, confirming Japanese and South Korean bidders remained, the latter involving companies now revising their proposals.

Ch. Khurelbaatar, head of the project selection committee, said it was an oversight that the firms had not been confirmed on a short-list in late June despite being part of a Russian-led consortium.

The committee only sent notices to the firms leading the consortiums -- China's Shenhua, U.S. firm Peabody Energy and Russian Railway.

That sparked an outcry from the South Korean and Japanese governments.

While confirming the Japanese and Koreans were still part of the shortlist, Khurelbaatar added that the committee had been disappointed with their proposals.

"We were looking for candidates that can add downstream projects, such as steel plants in Mongolia. But Korea and Japan did not include those in their bids," Khurelbaatar told a forum in Ulan Bator which was broadcast live to the country.

"It is impossible to deal with participants who think that Mongolia does not need these value-added projects and new technology."

He added that Japan and South Korea, being major global steel producers, might be worried about turning Mongolia into a future steel competitor.

Khurelbaatar said the South Korean firms have said that they would revise their proposal to include the construction of steel plants. He did not reveal whether Japanese firms Itochu Corp , Sumitomo Corp , Marubeni Corp and Sojitz Corp would do so.

With the Koreans revising plans, final results of the tender could be delayed by several more months. That could delay an initial public offering on the east Tsankhi block which the government had hoped to launch by the first quarter of 2012.

Bankers have estimated the IPO could raise $10-$15 billion.

State miner Erdenes Tavan Tolgoi LLC said it still hoped to launch the IPO by early 2012 and that it has picked PricewaterhouseCoopers to conduct a pre-IPO audit.

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