Govt won't seek to solve KPC dispute through arbitration

The Jakarta Post, Jakarta

The government will not go to international arbitration to resolve the protracted dispute over the divestment of a 51 percent stake in coal mining company PT Kaltim Prima Coal (KPC) as it sees little chance of winning the case, a senior official from the Ministry of Energy and Mineral Resources said on Friday.

As such, the government would rather resolve the dispute over the stake's price by appointing an independent agency, which approach had also been agreed upon by KPC, to appraise the value the stake, Djoko Darmono, the ministry's secretary-general, told reporters.

Djoko did not name the independent appraiser in question but he said the government would pay the agency US$500,000 for its services.

"The government would rather spend $500,000 on the payment of an independent valuer than go to international arbitration," Djoko was quoted by Antara as saying.

He said the arbitration process was too long and the Indonesian government had never won any dispute in an arbitration forum.

KPC, which operates a huge coal mine in Sangatta, East Kalimantan, is equally owned by Anglo-Australian mining firm Rio Tinto and Anglo-American energy firm BP PLC.

Under the contract signed with the government in the 1980s, it is obligated to divest up to a 51 percent stake to the Indonesian government or companies owned by Indonesians after ten years of operation.

Despite two years of negotiations, no agreement has been reached over the price. The company values its 51 percent stake at $453 million, while the government has set the price at $320 million.

The East Kalimantan provincial administration, which is also interested in the 51 percent stake and has named a lower price, has filed a suit against the coal company with the South Jakarta District Court on charges of intentionally delaying the divestment.