KPC hits new minefield<\/p>\n
The three-year legal tangle over the divestment of 51 percent
\nof shares in PT Kaltim Prima Coal (KPC) took a new twist this
\nweek after KPC's controlling owners, British BP Plc and Anglo-
\nAustralian Rio Tinto, reportedly agreed to sell their entire
\nstake to PT Bumi Resources, an Indonesian company listed on the
\nJakarta Stock Exchange.<\/p>\n
The transaction, which Rio Tinto spokesman Anang Rizkani said
\nwould be closed in October with loan financing from European and
\nAsian banks, seemed, at first glance, lawful, as the deal simply
\nexecuted KPC's long-delayed divestment to Indonesian interests,
\nas required by its 1982 coal mining contract.<\/p>\n
However, the deal seems to have plunged KPC divestment into a
\nnew legal and political minefield.<\/p>\n
State Minister of State Enterprises Laksamana Sukardi accused
\nthe two giant mining companies of acting in bad faith as regards
\ntheir obligation to divest 51 percent of their shares in the East
\nKalimantan coal mine operator.<\/p>\n
Suwarna, the governor of East Kalimantan, where KPC operates,
\ninsisted he would fight all out to get 51 percent of the company,
\nthreatening to blockade the largest, most profitable coal mining
\ncompany in Indonesia to support his claim.<\/p>\n
Rio Tinto's and BP's move is indeed highly controversial
\nbecause the central government and KPC, after protracted
\nnegotiations, had previously agreed to value the mining company
\nat US$ 822 million, on which the 51 percent divestment would have
\nbeen based. But while the 51 percent divestment is still pending,
\nthe foreign mining giants suddenly sold out the whole company at
\nonly $500 million.<\/p>\n
The two mining companies' transaction is also legally
\nquestionable because, even though Bumi Resources is known as one
\nof Indonesia's entities interested in buying KPC shares, it
\nviolates the government previous decision to allot 31 percent of
\nthe divested stake to the East Kalimantan administration and the
\nother 20 percent to state-owned PT Tambang Batubara Bukit Asam.<\/p>\n
Indeed, for the sake of a positive social and political
\nenvironment for KPC's future operations, and security for the
\nextension of its mining contract, the 51 percent stake should
\nbest be acquired by local administrations (East Kalimantan
\nprovince and East Kutai district) and a state company, which
\nwould represent the central government's interests, provided all
\nthe agreed terms of the sale could be fulfilled.<\/p>\n
Even though KPC understandably felt frustrated at the legal
\ntangle and acrimonious negotiations over the divestment, the
\ncontrolling shareholders should not have made such a deal without
\nprior consultation with the central government. Even KPC's board
\nof commissioners, which include several wise, broad-minded
\nIndonesians, might not have priorly been notified on the deal,
\notherwise they would have strongly advised against such a
\ncontroversial transaction.<\/p>\n
Bumi Resources, too, should not have been so blinded by the
\npotential huge gain in the deal as not to realize the hostile
\nsocial and political environment it would encounter in taking
\nover KPC's operations.<\/p>\n
As the KPC deal with Bumi Resources has yet to be closed, it
\nis not yet too late for both KPC and the central government to
\nnegotiate a commercially and politically acceptable solution to
\nthe divestment dispute.<\/p>\n
In fact, a new ball is being thrown into the game, as both BP
\nand Rio Tinto now seem willing to divest themselves totally of
\nKPC, apparently out of concern over losing management control and
\nfacing likely hostile majority shareholders after a 51 percent
\ndivestment.<\/p>\n
The controversial, preemptive move by both BP and Rio Tinto
\nhas made it most urgent now for both sides to intensify their
\nnegotiations to sort out whatever differences still stand in the
\nway of the divestment.<\/p>\n
The government should see to it that however the divestment is
\nconcluded, the deal should be based on what is in the best
\ninterests of the nation. That means that the divestment should
\nsustain both the viability of KPC's operations and the company's
\ninternational credit standing. It also means that KPC creditors
\nand East Kalimantan provincial and East Kutai district
\nadministrations should feel comfortable with whomever eventually
\ntakes over control of the company.<\/p>\n
The deal should also be seen by the market as fair, otherwise
\nit will adversely affect the process of regaining foreign
\ninvestor confidence. A KPC divestment that is perceived to be
\nfair could even become a benchmark for other, similar
\ntransactions with foreign resource-based companies that are
\nrequired by Indonesian law to divest their majority interest
\nwithin a fixed period.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/kpc-hits-new-minefield-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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