East Kalimantan seeks $776m from KPC

The Jakarta Post, Jakarta

The East Kalimantan administration demanded on Tuesday that the South Jakarta District Court order coal mining giant PT Kaltim Prima Coal (KPC) and its shareholders to pay $776 million in compensation and annul the company's contract of works for breaching an agreement to divest shares.

The administration's lawyer, Ibrahim Senen, told the first hearing of the legal battle that KPC had seemingly refused a divestment of its shares to the Indonesian government or citizens.

"KPC failed to show its good faith by continuing to postpone the divestment, claiming that there has not been any agreement about the size of the divestment and the share price," Ibrahim told the hearing, presided over by IDG Putra Jadnya.

He noted that the $776 million was a calculation of the potential losses inflicted by KPC shareholders' failure to divest their shares.

Meanwhile, a lawyer for KPC, Todung Mulya Lubis, regretted the East Kalimantan administration's decision to file a lawsuit, saying that it would jeopardize foreign investment in Indonesia.

"KPC postponed the divestment because the government agreed to do so," he told The Jakarta Post.

KPC, equally owned by Rio Tinto of Australia, through Sangatta Holdings Limited, and BP of Britain, operates a large coal mining field in East Kutai regency, East Kalimantan.

Under its contract of works, KPC was required to divest its shares in stages starting in 1996, four years after the company commenced its operations in 1992.

As of this year, KPC shareholders should have divested a 51 percent stake to local entities, but have yet to divest a single share.

KPC shareholders have actually offered the 51 percent stake for sale at a price of over $400 million, while the East Kalimantan administration -- the sole party that has bid for the shares -- offered below $300 million.

Several attempts at negotiations between the two parties have been held, often with mediation from the central government, but they have not been able to arrive at an agreed price.

The prolonged negotiation process frustrated the East Kalimantan administration, which then decided to take the case to the court.