BHP?s IndoMet Coal project faces risk of termination

The IndoMet Coal project in Central Kalimantan, a joint venture between Australia?s BHP Billiton Ltd (75 percent shares) and Indonesia?s PT Adaro Energy Tbk (25 percent), is facing the risk of being terminated as BHP declines to gradually divest up to 51 percent stake in PT IndoMet Coal as requested by the mining law, Bisnis Indonesia reported on Monday.

The paper quoted the Ministry of Energy and Mineral Resources? Coal Chief, Bambang Tjahjono Setiabudi as saying that if BHP continues on insisting for a relaxation in the divestment obligation, the project can be terminated.

He said that the government has set a target to complete the ongoing mining contract renegotiation process by end of this year.

Bambang acknowledged that BHP has proposed for a relaxation in the divestment obligation as the company plans to set up a coal upgrading facility. But he said that a coal upgrading facility is not categorized as a processing facility. According to existing regulation, a mining firm with also operates a domestic processing/refining facility (integrated operation) is allowed to only divest up to 40 percent of its shares to Indonesian investors, compared to the 51 percent obligation as mandated by the mining law.

?The coal upgrading that they want to do is a normal thing. That?s why if BHP continues to insist on divesting stake below 51 percent, we can make the termination,? Bambang said.

The divestment issue has been the main stumbling block in the mining contract renegotiation between the government and BHP Billiton as the majority owner of PT IndoMet Coal.

PT IndoMet Coal owns seven coal mining firms with concessions in Central Kalimantan. The seven IndoMet coal mining subsidiaries holding the PKP2B coal contracts of work include PT Ratah Coal, PT Juloi Coal, PT Lahai Coal, PT Pari Coal, PT Sumber Barito Coal, PT Kalteng Coal, and PT Maruwai Coal, with combined concessions of 331,630 hectares and coal reserves of 1.27 billion tons.

As of September 27, Director General of Mineral and Coal R. Sukhyar said that there were 73 mining firms out of 107 holding the so-called KK mining contracts and PKP2B coal contracts which have signed MoUs on the conclusion of the mining contract renegotiation with the government that would eventually lead to the contract amendment as mandated by the mining law. (*)