BRIEFING NOTE: PT KALTIM PRIMA COAL

1. Introduction

PT KALTIM PRIMA COAL (KPC), a company incorporated in Indonesia, is the holder of a Coal Agreement with the Government of Indonesia dated 8th April 1982. This Coal Agreement forms the legal framework under which KPC operates and covers exploration, production and marketing of coal from the agreement area in East Kalimantan, Indonesia.

The current shareholders of KPC are BP Amoco and Rio Tinto, who each hold 50% of the equity.

The operation is fully integrated and self supporting. It includes a series of open cut pits, operated by a fleet of 148 haul trucks 24 shovels/backhoes and more than 120 units of other support mobile equipment. There are also coal preparation facilities, a 13 km overland conveyor to the coast and a world class marine terminal capable of handling bulk carriers of up to 210,000 DWT. The remote location necessitates full supporting infrastructure, including a power station, housing, schools, hospitals, water supply and recreational facilities.

The 30-year Operating Period commenced in 1992 and since 1998 has operated at around the 15mtpa level making KPC one of the world's largest export steaming coal producers.

2. Ownership

The Coal Agreement requires KPC's foreign shareholders to progressively offer up to 51% equity to Indonesian interests and in 1998 the shareholders of KPC (BP Amoco and Rio Tinto) offered 23% of the share capital of KPC to PT Timah, PT Aneka Tambang and PT Batubara Bukit Asam. The only interested party in the 1998 offer was PT Timah but agreement was not reached over the purchase of shares.

In 1999 KPC's shareholders offered 30% of the share capital of KPC this time to a number of Indonesian organisations including the Indonesian Government represented by the Department of Mines and Energy, State institutions, pension funds, insurance companies, and mining or mining related companies.

3. Financial

Total funds invested by KPC up to the end of 1999 amount to US$939 M (in money of the day terms).

To the end 1999 KPC has earned a total net profit of US$714 M. Over the same period the State's share of production has been worth US$447 M and income tax of US$94 M paid by KPC to the Indonesian Government. Also KPC paid US$132 M to Indonesian workers in salaries and US$1,142 M to local contractors and suppliers.

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4. Employment

KPC currently employs approximately 2,700 Indonesians directly and a further +3,500 Indonesians as contractors. KPC also employs 32 expatriates below the level allowed under the Coal Agreement. The overall workforce recruited from East Kalimantan is just under 90%.

KPC operates a training centre for its employees which provides courses ranging from safety training, administration, computer, secretarial, and technical training to management training. There are about 170,000 man-hours of training courses per year.

5. Community Relations

KPC cooperates with the community groups, local government, Non-Governmental Organizations (NGOs) and universities in providing training and community development programs, with the objective to help the community to be self-reliant.

The community development programs are focused on social infrastructure, human resource development and small-scale enterprise development, and support to IDT (less developed) villages. Examples of completed projects include the provision of facilities for schooling, clinics, drinking water, sealed roads, religious activities and sports. In developing social resources, KPC has also provided skill and management training courses to small-scale industries and cooperatives.

6. Environmental Management

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KPC's environmental management team, which includes qualified professionals and technical staff, is managing the protection and progressive rehabilitation programmes carried out in accordance with approved plans. These programmes aim to limit disturbance to a necessary minimum and promptly rehabilitate mined land to comply with designated end land uses. Timely restoration of mined land is a high priority. KPC has revegetated more than 886 hectares of disturbed land to date. In 2000 it is planned to rehabilitate 315 hectares.

In addition to its rehabilitation activities, KPC has an active environmental monitoring programme measuring a range of parameters including water and air quality and overburden geochemical characteristics. Beyond the mining lease boundaries KPC supports the Indonesian Government's conservation programme by playing a leading role in The Friends of the Kutai. An environmental awareness programme for the mine work force and the larger community is conducted on an ongoing basis at Sangatta. (*)