Rio Tinto wants solid firms for KPC

Rio Tinto wants solid firms for KPC

Moch. N. Kurniawan, The Jakarta Post, Sangatta, East Kalimantan

Anglo-Australian mining company Rio Tinto Indonesia has said
it would prefer reputable local partners like mining firm PT
Tambang Batubara Bukit Asam and publicly listed nickel and gold
mining company PT Aneka Tambang to operate its coal mining firm
Kaltim Prima Coal (KPC).

Rio Tinto Indonesia chairman Noke Kiroyan said the firms were
two reliable mining firms which he believed could cooperate with
the existing owners and ensure the continuation of KPC's
operation.

"We want strong partners which can add strength and stability
to KPC, if we choose companies which were just established two
years ago with unclear owners and financial strength, it will be
a mistake," he told reporters, who visited KPC mining site in
Sangatta, East Kutai regency, East Kalimantan.

Noke did not specify the new firms in question, but he
apparently pointed out the companies which are aggressively
approaching the East Kalimantan provincial and East Kutai regency
governments to become their partners in buying KPC's shares.

The companies include Nusantara Energi, owned by former
President Soeharto's son-in-law Prabowo Subianto, Bumi Resources,
owned by the Bakrie group, PT Intan Bumi Inti Pradana, which is
reportedly owned by a cousin of tycoon Sudono Salim, Batu Bara
Borneo Batuah, which is reportedly owned by former minister Tanri
Abeng.

All these firms are reportedly inexperienced in the mining
business.

KPC, which operates a huge coal mine in Sangatta, East
Kalimantan, is equally owned by Rio Tinto and British-American
oil and gas company BP Plc.

Under the Contract of Work (CoW), the two owners have to
divest 51 percent of their shares in KPC to either the Indonesian
government, state-owned companies, Indonesian citizens or
Indonesian-owned private firms after this year.

Thus far, the only interested bidder was the East Kalimantan
provincial administration, which, together with the East Kutai
regency government, has been for years seeking to buy the shares
in a partnership with local private firms.

The provincial government had not only thus far failed to buy
the shares due to disagreement over the price, but relations
between it and KPC took a turn for the worse following a
protracted dispute over the price.

East Kalimantan has even filed a lawsuit against KPC and its
owners with the South Jakarta District Court for US$776 million
on charges of delaying the divestment process.

Earlier this year, the disagreement over the price was
resolved, with all parties agreeing to put the value of all of
KPC's shares at $822 million.

But the dispute still continues as East Kalimantan refuses to
withdraw its lawsuit unless KPC owners give priority to the
province to buy the KPC shares. KPC rejects the idea, saying
under contract, KPC is not allowed to prioritize any party in the
divestment.

Noke said KPC needed strong partners to ensure that KPC would
be able to meet its long-term contract with buyers.

"Many buyers have been worried about their security of supply
because of the prolonged divestment dispute," he said.

"We must convince them that we can deliver coal to them after
the divestment."

He also said the divestment decision had to consider the
interests of East Kutai and East Kalimantan, but he didn't
elaborate.

Noke was less optimistic that the KPC divestment would be
completed in June as there was no sign yet that the East
Kalimantan administration would lift its lawsuit.

Separately, East Kutai regent Awang Faroek Ishak said he was
considering establishing a joint company among the East Kutai
government, the East Kalimantan administration and local firms to
buy KPC shares.

"There are many rich people in East Kutai and East Kalimantan,
why do we have to rely on companies outside our area to buy KPC
shares?," he said.

He also urged the East Kalimantan administration to withdraw
its lawsuit and start negotiations with KPC.