Local govt may halt foreign-owned mine

The Jakarta Post, Jakarta

The East Kalimantan provincial administration threatened on Wednesday to stop the operations of coal mining firm PT Kaltim Prima Coal (KPC), following a surprise decision by Rio Tinto and BP Plc to sell full ownership of the company to PT Bumi Resources.

East Kalimantan Governor H. Suwarna A.F was quoted by Antara as saying the sale of the KPC shares was a violation of KPC's contract.

KPC operates a vast mining site in East Kalimantan's Sangatta area, producing some 16 million tons of top quality coal products, which are mostly exported to the Asia-Pacific market, Europe and the U.S.

The East Kalimantan administration has been eying a stake in KPC, particularly with Rio Tinto and BP, the original owner of KPC, required to relinquish up to a 51 percent stake in the company to local investors under the 1982 mining contract it signed with the central government.

But for three years, the Anglo-Australian mining giant and the British-American energy conglomerate have been locked in a lengthy dispute with the local administration, causing further delays in the divestment program, which should have been completed in 2001. This has prompted the central government to intervene.

The government decided a 31 percent share in KPC would be sold to the East Kalimantan administration, and the remaining 20 percent stake to state-owned mining firm PT Tambang Batubara Bukit Asam. It was agreed that a 100 percent stake in KPC would be valued at US$822 million.

But earlier this week, both the central government and East Kalimantan were caught off-guard by the unexpected decision of Rio Tinto and BP to sell their overseas registered holding companies, which equally owned the KPC shares, to Bumi Resources for the relatively cheap price of $500 million.

State Minister for State Enterprises Laksamana Sukardi was clearly infuriated by the decision, made at a time when the government was helping to facilitate the original divestment plan.

Laksamana plans to summon Rio Tinto and BP officials.

A number of East Kalimantan provincial lawmakers backed Suwarna's threat to shut down KPC's operations.

"KPC has disappointed us too many times. We didn't ask for a 51 percent stake in KPC for free; we were going to buy it," Abdul Hamid, a lawmaker from the United Development Party (PPP), said.

Bumi Resources said it would abide by the 1982 mining contract, and would continue with the divestment of a 51 percent stake in KPC.

But company president commissioner Soeryo Sulistyo was quoted by detik.com as saying that Bumi Resources had yet to decide on the timing or the size of the divestment.

Soeryo added that the company would seek foreign financing, including from banks in Singapore and Switzerland, to finance the purchase of the KPC shares. The acquisition is expected to be completed in October.