E. Kalimantan government wants to buy KPC's shares

E. Kalimantan government wants to buy KPC's shares

JAKARTA (JP): The East Kalimantan administration is interested
in buying shares in the planned divestment of the country's
largest coal mining company, PT Kaltim Prima Coal (KPC), a top
official said on Tuesday.

The director general of mining at the Ministry of Mines and
Energy, Rozik Boedioro Soetjipto, said the provincial
administration recently sent his office a letter notifying it of
its interest.

Rozik said the ministry welcomed the move, but asked the
province to discuss it with publicly listed tin mining company PT
Timah, which is also interested in purchasing KPC's shares.

"It's really an ideal thing if Timah and the province could
jointly buy the shares," he told The Jakarta Post.

"Timah is experienced in mining and the purchase of the shares
by the East Kalimantan administration would create a sense of
belonging among the local people toward the company."

KPC, equally owned by British companies British Petroleum and
Rio Tinto, operates a rich coal mine in Sangatta, East
Kalimantan.

With annual coal output of 15 million metric tons, KPC claims
to be the country's largest coal mining company and the country's
second largest mining operation after gold and copper mining
company PT Freeport Indonesia, which operates a giant copper and
gold mine in Grasberg, Irian Jaya.

Under the contract of work (COW), KPC is required to divest up
to 51 percent of its shares to the Indonesian government, the
Indonesian people or companies controlled by Indonesians between
the fifth year and 10th year of commercial production. It
commenced commercial production in 1992.

Last year, KPC offered 23 percent of its shares to three
state mining companies -- publicly listed tin company PT Timah,
publicly listed general mining company PT Aneka Tambang and coal
mining company PT Bukit Asam -- to fulfill its obligatory
divestment program.

Timah was the only one displaying an interest in the offer,
but no deal was reached because the share price was disputed.

Under the COW, KPC has to sell at least 30 percent of its
shares this year for its failure to meet the initial commitment
last year.

If the company fails to divest the 30 percent this year, it
would be required to increase its divestment to 37 percent next
year.

Arbitration

Rozik admitted the share price dispute was the main reason for
Timah's failure to buy KPC's shares.

He said the value of the shares based on the due diligence
audit carried out by KPC's appraiser Jardine Fleming Nusantara
was far higher than the figure from Timah's consultant PT Bahana.

Jardine Fleming reportedly valued the 23 percent stake in KPC
at US$176 million, but sources said Bahana determined it to be
about half that amount.

Rozik said the ministry was in discussion with KPC regarding
the implementation of the divestment program and valuation of the
30 percent shares.

KPC said it retained Jardine Fleming.

Rozik said the ministry would be involved in the valuation of
KPC's 30 percent stake and also appointed an appraiser to do the
due diligence.

He added an independent consultant would be appointed if the
government and KPC failed to reach an agreement on the prices.

In the event either of them reject the determination of the
independent consultant, the dispute will go before an arbitration
court.

Several analysts have said the high share price indicates
KPC's lack of interest in fulfilling its share divestment
obligation. However, finance manager of PT Rio Tinto Indonesia
Philip D. Strachan recently denied the allegation.

"We are very serious. It is an obligation we have in the coal
agreement. And we are very conscious that we have to comply with
the obligation," Strachan said. (jsk)