KPC sets benchmark for more divestments: Experts

KPC sets benchmark for more divestments: Experts

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Mining experts said last week's deal between the government
and foreign owners of coal mining firm PT Kaltim Prima Coal (KPC)
over its selling price, would set an example for divesting
foreign shares in other mining companies.

Indonesian Mining Association (IMA) executive director Paul
Coutrier and the president of local coal mining firm Berau Coal,
Jeffrey Mulyono, said the deal showed the government's commitment
to honor foreign investors' mining contracts.

"The agreement will become a benchmark for other mining firms
who must divest their shares to locals," Coutrier told The
Jakarta Post.

Last week's agreement followed nearly two years of stalemate
during talks to set a price for a 51 percent stake in KPC.

KPC is jointly owned by Anglo-Australian mining company Rio
Tinto and British-American oil and gas company Beyond Petroleum
(BP).

Under their contract of work (CoW), the two owners should have
began divesting their shares to local investors in 2000.

But sharp disagreements over the amount of shares to be
divested and the price, have bogged down the sale process.

Only a few have lined up to claim a stake in KPC, and of those
the East Kalimantan local administration has emerged as the
favorite.

Last week the central government was able to negotiate a price
for a 51 percent stake in KPC. But it was not immediately clear
how much KPC's shareholders were prepared to sell the shares for.

Some said the figure was US$419 million with others said it
stood at $453 million.

The East Kalimantan administration said they had agreed to a
price of a maximum of $453 million.

Officials said a deal on the price could be signed this week.

As for the buyer, the government and KPC's owners agreed to
prioritize the East Kalimantan administration's bid, which has
teamed up with the East Kutai regency.

Coutrier and Jeffrey agreed that KPC's future owners should
reveal their funding source to ensure only reputable investors
entered the mining company.

IMA's Coutrier said ending the deadlock at KPC's talks was a
sign of relief to other foreign-owned mining companies on the
divestment list.

Jeffrey agreed but emphasized the importance for the
government to honor the foreigners' contracts during
negotiations.

According to him, Korean coal mining firm Kideco Jaya Agung is
next in the list of foreign mining companies that must divest a
stake to local investors.

Jeffrey said Kideco would have to sell of a 37 percent stake
this year.

He said the government was able to complete the sale program
of the Australian mining firm BHP without the prolonged dispute
seen in the KPC divestment.

Turning to investment, he said success in the KPC divestment
might allay foreign investors' fear of legal uncertainty, but not
enough to actually convince them to come here.

According to him, the protracted KPC negotiations was seen
more of a complex business to business negotiation process.

"But we do have major unfavorable conditions for business such
as a heavy tax regime," he explained

He said that last year's investment in the coal mining
industry was nil because of fiscal disincentives.