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)