KPC risks losing buyers following mine closure

KPC risks losing buyers following mine closure

JAKARTA (JP): Coal mining company PT Kaltim Prima Coal (KPC)
might lose some of its customers following the closure of its
coal mine in the Sanggata regency, East Kalimantan, a company
executive said on Wednesday.

KPC representative for Jakarta Bambang Susanto said that
several buyers began to question KPC's reliability due to the
suspension of the coal supply.

"Our buyer from South Korea has already canceled one
shipment," Bambang told The Jakarta Post without elaborating on
the details of the shipment.

Although the cancellation was only temporary, he said, KPC
risked losing South Korea if it could not assure the country of
its reliability.

"Buyers from the United States and Japan have also expressed
their worries," he added.

Bambang said that Japan, South Korea and Taiwan were the
company's largest buyers. However, he could not tell what
proportion of KPC's sales were made up by these customers.

He said that although the U.S. represented a minor market, it
was nonetheless an important one as it was difficult to
penetrate.

KPC had to shut its operation twice in five weeks because of
faltering negotiations with the striking workers. The workers
demanded among other things a 15 percent salary increase and the
reinstallment of daily allowances.

Although only 150 workers of around 2,600 workers were on
strike, the striking workers occupied important mining production
facilities that prevented KPC from operating.

KPC has said that during the nearly five-week blockade, the
company lost around US$1.4 million a day, or the equivalent of
50,000 tons of coal.

With its operation suspended and its coal stockpile running
out, the company was unable to load ships with coal and was
forced to declare force majeure last month.

But KPC lifted its force majeure status earlier this month on
signs of resumed negotiations. At present the company is
operating again as workers agreed on Saturday to end the strike
and lift the blockade.

Bambang said that KPC's customers wanted assurance that such
incidents would not happen again.

Customers, he said, were worried of the uncertainty of KPC's
operation that had become apparent with the strike.

"We cannot provide any guarantees, we are just a company and
such incidents are often beyond our control," he said.

According to him, the government should help KPC regain the
confidence of its customers.

KPC has signed contracts to sell its coal to major power
plants such as the Taiwan Power Company, Japan's Hokuriku, Chubu
and Tohoku power plants, Malaysia's Tenaga Nasional Berhad and
AES in Hawaii.

Aside from coal fired power plants, KPC supplies steel mills
such as Japan's Nippon steel, Nisshin, NKK, Kobe and Kawasaki.
Other steel mills include Posco in South Korea, Hoogovens in the
Netherlands and CSN in Brazil.

In addition the company also supplies coal to customers in
Japan, Chinese Taiwan, Philippines, India, the U.S., Germany,
Italy and Portugal under different contract arrangements.

Throughout 1999 KPC has shipped 14 million tons of coal to 29
customers worldwide.

President of KPC's parent company PT Rio Tinto Indonesia Noke
Kiroyan confirmed that buyers might retreat because of KPC's
lacking reliability.

"Using business logic, the possibility is there," he told
reporters on the sideline of a conference on good corporate
governance.

He said that buyers might divert their coal supply to other
countries, as coal mining companies here offered different
qualities of coal.

"If we're looking abroad, it's clearly Australia that buyers
will turn to," he said.

Noke further said that KPC's dispute with its workers might
also affect the divestment process of Rio Tinto's stake in that
mining company.

Under its contract, KPC must gradually divest its shares up to
51 percent.

KPC is a joint venture between Anglo-Australian mining firm
Rio Tinto and British-American oil and gas company Beyond
Petroleum (BP), formerly known as BP Amoco.

Noke said that a joint team appointed by Rio Tinto and BP
would negotiate with a government appointed team on the value of
KPC's shares to be divested. (bkm)