Govt sees $3m potential loss due to KPC's strike

Govt sees $3m potential loss due to KPC's strike

Fitri Wulandari, The Jakarta Post, Jakarta

The government could face a potential loss of US$3 million if
a strike at mining company PT Kaltim Prima Coal (KPC) drags on
for more than a month, a senior official said on Wednesday.

Ministry of Energy and Mineral Resources geology and mineral
resources director general Wimpie S. Tjetjep said the amount was
the royalty to be paid by KPC to the government, which under the
contract amounts to 13.5 percent of its daily output of between
40,000 tons and 50,000 tons.

"Let say the price of coal is now $20 per ton. It means we
face a potential loss of around $3 million if the strike
continues longer than a month," Wimpie told reporters.

KPC, which operates one of the country's largest coal mines,
in East Kalimantan, has been forced to halt production due to a
strike by employees who are demanding a bonus following the
decision by the existing shareholders, British energy company BP
PLC (BP) and Anglo-Australian mining firm Rio Tinto, to sell
their entire stake to local firm PT Bumi Resources.

Both companies, who jointly own KPC, have decided to sell
their stakes to Bumi for $500 million.

The deal is expected to be completed by October.

KPC spokeswoman Nunik Maharani Maulana said the employees had
asked for 15 percent of the proceeds of the sale. They have been
on strike since Aug. 29.

KPC has a total of 2,700 employees working in its mining sites
in Sangatta, East Kalimantan.

Negotiations with the workers, which began Tuesday, are
ongoing, Nunik was quoted by Dow Jones news wire as saying.

"The partners are willing to give some money," Nunik said.
"But the workers' demands are too much for them."

Kaltim Prima is unable to say how much the company is losing
due to the shutdown at the mine, which produces about 50,000 tons
of coal a day, most of which goes to customers in Japan and
Europe, she said.

The strike has added new complexity to the problems faced by
the company, which has been mired in a prolonged dispute with the
local government.

Under a coal agreement signed by the company in 1982, KPC is
obliged to sell 51 percent of its shares to Indonesian
individuals, companies or the government. The divestment should
take place 10 year after the company started production but has
been delayed up until now.

The East Kalimantan administration has long demanded the
company sell the 51 percent to them.

Last year, the central government stepped into the dispute and
proposed an agreement. In the agreement, the company's 51 percent
stake was valued at $820 million. In addition, the agreement
stated that a 20 percent stake would go to a state coal mining
firm PT Tambang Batubara Bukit Asam (BA) and the remaining 31
percent to local governments.

However, BP and Rio Tinto shocked all parties by striking a
deal to sell their full ownership to Bumi.

Bumi has said it will negotiate with the local government over
the claims and promise to go ahead with the divestment process.