KPC renews force majeure status as strike continues

KPC renews force majeure status as strike continues

JAKARTA (JP): Coal mining company PT Kaltim Prima Coal said on
Tuesday it had renewed its force majeure status with its
customers as striking workers had made it impossible to continue
coal shipments from its mine in the Sanggata regency, East
Kalimantan.

"Mining operations and conveying of coal to the port have been
halted since the afternoon of Aug. 2, when several workers re-
imposed an illegal blockade," the company's statement said.

The striking workers resumed their blockade on KPC's key
production facilities shortly after last week's negotiations with
the company failed to reach a final settlement.

This force majeure announcement follows KPC's first force
majeure announcement on July 4, when protesting workers blocked
the road leading to its mine. The blockade, which had forced the
company to stop its operation, caused a depletion in the
company's coal stocks.

At the time, the company ended its force majeure status a week
ahead of schedule after workers agreed to negotiate.

Contracts

The force majeure status will be effective on the company's
sales contracts with various international power plants and steel
mills.

Under the force majeure status, any penalties for breach of
contract are not effective.

But the prospect of reaching an agreement last week receded,
after the striking workers refused to accept KPC's offer.

The Indonesian Prosperity Labor Union (SBSI), which organized
the strike, said the strike was the workers' legal right, whereas
KPC termed the strike illegal because of the blockade.

The company agreed to meet the workers' demand to increase
salaries by four to eight percent and improve welfare facilities
on the condition that some of the workers involved should be
subject to disciplinary measures in accordance with the company's
regulations.

KPC said that SBSI indicated acceptance of the offer but only
if the company withdrew the warnings. "KPC is confident that the
warnings are in line with regulations. This demand by the SBSI
was a fundamental breach of previous agreements and showed no
recognition of the significant concessions given by KPC in the
whole process," the company added.

Loss

According to KPC, the company lost 33 days of production,
equal to 1.65 million tons of coal, since the dispute began in
mid-June.

"This coal would have had a sales value of US$45 million, of
which about Rp 82 billion ($9.5 million) would have gone to the
Indonesian government in the form of royalties and corporate
tax," KPC's statement said.

KPC has also expressed worries that it might loose customers
given the current uncertainties surrounding its operation.

KPC buyers include, among others, the Taiwan Power Company,
Japan's Hokuriku, Chubu and Tohoko power companies, and
Malaysia's Tenaga Nasional Berhad.

The company also supplies customers in Germany, Italy,
Portugal, the United States, the Philippines, India and South
Korea.

Domestically, KPC supplies coal to customers who include the
giant gold mining company PT Freeport Indonesia in Irian Jaya.

"If SBSI continues its blockade of KPC's operation, KPC must
consider seeking a declaration of force majeure under the terms
of its coal-mining agreement with the Indonesian government," the
company said.

KPC is jointly owned by giant Anglo-Australian mining company
Rio Tinto and British-American oil and gas company Beyond
Petroleum (BP) formerly known as BP Amoco. (bkm)