Local govt may halt foreign-owned mine

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.