Govt, Bumi disagree on KPC shares price

The Jakarta Post, Jakarta

The government will not raise the price of KPC shares as demanded by the company's new owner PT Bumi Resources, a minister said on Tuesday.

"The (100 percent share) price is still US$822 million. It will not be changed," Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on the sidelines of the 29th IPA (Indonesian Petroleum Association) Annual Convention and Exhibition.

Purnomo made the statement following reports that Bumi did not feel comfortable with the price level and had asked the government to raise the price, citing increased coal prices.

Under the contract with the government, KPC is obliged to divest up to 51 percent of its shares to local investors. Following the recent acquisition of the entire stake in KPC from the previous owners, Anglo-Australian mining giant Rio Tinto and Anglo-American energy giant BP Plc, the divestment obligation now lies with Bumi.

Prior to the acquisition, the government, BP and Rio Tinto agreed to value KPC's entire stake at $822 million. The government also granted the East Kalimantan provincial administration the right to buy a 31 percent stake and the state- owned coal firm a 20 percent stake.

Bumi's president Ari Hudaya said the price level determined by the government and KPC's former shareholders was too low and no longer reflected the market situation, where the coal price is now on an upward trend.

Ari said high-quality coal such as that produced by KPC is now valued at $32 to $35 per ton in European markets, as against the usual price of $22 to $26 per ton. The price is believed to continue to rise in the next two or three years.

"Given the high price of coal, the KPC divestment price (set by the government and the previous shareholders) is, of course, no longer reasonable," Ari said.

Based in Sangatta, East Kalimantan, KPC is the country's second-largest coal producer, with an annual output of 18 million tons. It exports about 93 percent of its coal to European and Asian countries.

Bumi bought the entire stake in KPC owned by BP and Rio Tinto for $500 million, including assumed debt. The firm used loans from Singapore's United Overseas Bank (UOB), Credit Suisse Boston (CFSB), Australia's Macquire Bank Ltd. and Leighton Financial International to purchase the stake.

Following the acquisition, Bumi reshuffled the KPC board of management. Sources have said the move caused concern among the firm's middle managers and could spark protests among workers.