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)