KPC declares force majeur as strike continues

JAKARTA (JP): PT Kaltim Prima Coal (KPC), a subsidiary of Australian mining giant Rio Tinto, announced a force majeur to its local and foreign buyers on Wednesday as a workers' strike had made it impossible to continue coal shipments.

KPC president Grant Thorne said that the force majeure was effective on the company's sales contracts with various power plants and steel mills around the world.

"It means that any penalties for breach of contract are not effective," he told reporters at a media conference.

A force majeure is a public statement by a company, declaring that it is unable to meet contractual obligations due to events beyond its control, he explained.

KPC, which is 50 percent owned by Rio Tinto, with PB Amoco owning the other 50 percent, stopped operating on June 15 after some 150 protesting workers took control of its important mining facilities to demand, among other things, a 15 percent increase in salaries.

Thorne said that due to the strike, the company had to rely on its stockpiles, which, however, had run out.

"We have four vessels sitting waiting for coal today," he said.

Without the force majeure, he said, the company would have to pay each ship demurrage charges amounting to tens of thousands of U.S. dollars per day.

Thorne said that typically a vessel of 150,000 to 170,000 tons in size would have cost KPC about US$20,000 per day.

"The penalty now is our reputation," he said.

With the force majeure, he said, customers would have to find other suppliers to meet their coal needs. "Our hope is that they (customers) will come back," he added.

The company currently has 31 customers worldwide, of which 64 percent are power plants, 34 percent steel mills and the remainder industrial users.

Long-term contracts

KPC secures the majority of its coal output under long-term sales contracts, with customers including Taiwan Power Company, Hokuriku, Chubu and Tohoko Power companies in Japan, China Light and Tenaga Nasional Berhad in Malaysia.

It also supplies customers in Germany, Italy, Portugal, the United States, Japan, Taiwan, the Philippines and India under other contract agreements.

Domestically, KPC supplies coal to, among others, giant gold mining company PT Freeport Indonesia in Irian Jaya.

The company expected this year's export to reach 15.5 million tons of coal, up from 14 million tons in 1999.

According to Thorne, KPC customers were concerned that a reliable operation like KPC could be forced to shut down.

A company news release said that KPC was working with its customers to mitigate, where possible, the effects on their businesses.

KPC, it added, was maintaining regular contact with its customers so that they fully understood the situation.

Thorne said that KPC was losing $1.4 million per day, or an equivalent of 50,000 metric tons of coal, due to the mine blockade.

According to KPC, the mine blockade was costing the government up to Rp 3 billion (US$337,000) a day in royalties and tax revenue.

Should the condition not improve, Thorne said, KPC would consider declaring a force majeure to the government.

He said that a declaration of a force majeure on its coal contract of work required the government's endorsement.

"Under the endorsement, they (the government) agree that the circumstances surrounding our operation mean that we are not able to benefit from our rights under the coal agreement," he explained.

Thorne said KPC had enough reasons to declare a force majeure to the government, but added that it would only be as a last resort.

KPC began operating in 1991 and currently employs about 2,600 workers.

KPC external relations manager Bambang Susanto expressed appreciation of the government's attention to the company's situation.

He said that Minister of Mines and Energy Susilo Bambang Yudhoyono had notified the minister of industry and Trade, the minister of manpower, the minister of home affairs and the National Police chief about the issue.

"What's missing are the results," he added.

In the latest situation, he said, women and children had joined the striking workers, who were blocking several roads leading to the mining locations.(bkm)