BP wants to focus on Tanguh, Rio Tinto feels uncomfortable

BP PLC has sold its entire stake in coal mining firm PT Kaltim Prima Coal (KPC) because it wanted to focus on its Tangguh liquefied natural gas (LNG) project in Papua, while Rio Tinto no longer feels comfortable to stay in the coal firm given the continued ?troubles? caused by the local administration, a source said.

The source told Petromindo.Com that KPC was the last coal stake owned by Anglo American firm BP, which is now concentrating in oil and gas business. The firm has several oil and gas concessions in the country and is leading a consortium to develop the multibillion-dollar Tangguh LNG project in the Birds?s Head area of Papua.

Rio Tinto, an Anglo-Australian mining giant, still focuses on mining business, but it decided to sell its entire stake in KPC because it does not feel comfortable with the maneuvers made by the East Kalimantan provincial administration to gain control of KPC. Following the sale of KPC stake, Rio Tinto still has a lot of mining assets in the country, including a stake in PT Freeport Indonesia, which operates a giant copper and gold mine in Papua.

On Monday, BP and Rio Tinto, formerly equal partners in KPC, said they had sold their entire stake in KPC to PT Bumi Resources, an affiliate of the Bakrie Group for US$500 million.

The transaction has surprised many parties, including East Kalimantan?s governor Suwarna AF, as based on last year?s audit results, KPC is valued at $822 million. The East Kalimantan administration, which is seeking to gain control of the coal firm for several years, has said in many occasions that it is ready to purchase a 51 percent stake in KPC for $419.2 million.

The provincial has done many efforts to gain the 51 percent stake in KPC, including by filing a lawsuit against the firm?s shareholders.

Under the contract, KPC?s shareholders are obliged to divest up to 51 percent of their shares to the government, state owned enterprises, Indonesians-controlled private firm or Indonesian citizen after ten years of operation.

It remains unclear if, following the acquisition, the new KPC owner has to carry out the divestment obligation of the previous owners. Prior to the acquisition, President Megawati Soekarnoputri decided to allow state owned coal firm Bukit Asam and East Kaimantan to purchase a 20 percent and 31 percent stakes in KPC, respectively.

It is also unclear if there is a backroom deal between Rio Tinto and Bumi Resources, obliging the new owner to sell 50 percent of KPC?s coal output -- that is Rio Tinto?s coal output portion in KPC prior to the acquisition -- through Rio Tinto. Bumi Resources made such a deal with mining firm BHP Billiton when it bought out the latter?s 80 percent stake in South Kalimantan-based coal mining firm PT Arutmin Indonesia in 2001.

Meanwhile, Rio Tinto Indonesia?s deputy director for external affairs Anang Rizkani assured on Tuesday that coal supplies from KPC would remain normal following the acquisition.

?There won?t be any change in KPC?s (management) in the near future. The operation remains normal and the interest of buyers is a top priority,? Anang told Petromindo.

KPC, which operates a huge coal mine in Sangatta, East Kutai regency, East Kalimantan, has planned to produce 18 million tons of coal this year. It exports most of the coal output. (Alex)