Govt blocks province's effort to control KPC shares

Govt blocks province's effort to control KPC shares

The Jakarta Post, Jakarta

The government said on Wednesday it would purchase a 20
percent stake in PT Kaltim Prima Coal (KPC), dashing the hopes of
the East Kalimantan provincial administration to become the
majority shareholder in the giant coal mining company.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said the central government would purchase 20 percent of the 51
percent stake to be sold by KPC, while offering half of the
remaining 31 percent to East Kalimantan and the remaining half to
Kutai Timur regency.

"The decision to distribute the 51 percent stake was made
directly by President Megawati Soekarnoputri during a limited
Cabinet meeting," Purnomo said here.

Concerning the source of the money to purchase the shares,
Purnomo said the central government would immediately carry out a
due diligence of investors interested in purchasing shares from
both from the central government and the two regional
administrations.

The announcement represents a major step in the government's
efforts to end years of dispute over the divestment of KPC.

Initially, KPC, which is equally owned by Anglo-Australian
mining group Rio Tinto and Anglo-American energy giant BP Plc.,
was bound by a 30-year contract with the government to sell a 51
percent stake to Indonesian investors by the end of last year.

The East Kalimantan provincial administration, backed by local
investors, has for years aggressively been seeking to acquire a
controlling 51 stake in KPC.

However, KPC rejected the province's overtures for a number of
reasons, including the low price it was offering. KPC and the
central government have agreed to value the 51 percent stake at
US$419 million.

This rejection moved East Kalimantan to file a lawsuit earlier
this year with the South Jakarta District Court in a bid to force
KPC to sell it the 51 percent stake.

But KPC remained defiant, saying it would not sell the stake
as long as the administration did not withdraw the suit.

The dispute further pushed back the divestment deadline from
July 6 to July 31. If the divestment process was unable to be
completed by this new deadline, the process could have been
delayed until next year, with the obvious risk that the share
price could change.

With the July 31 deadline approached, the East Kalimantan
administration decided on Monday to withdraw its lawsuit against
KPC.

The administration's move allowed KPC to move forward in its
bid to sell the shares.

"We are happy that KPC is finally ready to sell the shares
today (Wednesday), so that the divestment process can go ahead,"
Antara news agency quoted Purnomo as saying.

He said the share offer would be held within three months, and
the payment would be made three months after that.

After the sale of the shares, both Rio Tinto and BP will
remain the majority shareholders, each holding a 24.5 percent
stake. This will allow the two companies to control the
management of the company.

East Kalimantan will be offered 15.5 percent of the shares,
equal to the number of shares offered to the Kutai Timur regency
administration.

Analysts say the small percentage of shares offered them will
make it difficult for both regional administrations to raise the
money to purchase the shares. Many local investors were
interested in providing financial support in the expectation of
gaining a majority stake in the coal company.

KPC, which holds a concession in Sangatta, Kutai Timur
regency, East Kalimantan, is among the country's largest coal
producers, with an annual output of more than 15 million tons. It
reportedly controls such a large coal deposit that it will be
able to continue its operations for several more decades.