Churchill updates East Kalimantan coal project
Saturday, March 17 2012 - 01:25 AM WIB
Chairman's Statement
Following the June year-end, the Company has continued to actively protect its interest in the East Kutai Coal Project ("EKCP") following the negative ruling from the regional Samarinda Administrative Tribunal that sought to overturn the East Kutai Regent's ("Bupati's") decision to revoke the EKCP licenses. The Company believes that the actions of the Bupati and the subsequent Administrative Court decisions have brought into serious question the ability of foreign companies to invest in long-term, high value projects within Indonesia.
EAST KUTAI COAL PROJECT (CHL 75%)
The EKCP is currently in pre development and the project is ready to benefit from its close proximity to the Asian and Chinese end-markets once it is in production. The project has the opportunity to bring substantial benefits to Indonesia including employment, local community development and government royalties.
Churchill regards the EKCP as a highly strategic asset, ideally located both in relation to core energy consuming markets, and in the context of rising demand for energy resources such as high quality thermal coal. The Company notes recent amendments to the existing regulations regarding Mining business activities in Indonesia. The amended regulations provide that foreign ownership in companies holding mining permits will be subject to mandatory progressive divestment requirements, such that foreign ownership is capped at 49% after the 10th year of mining production. The effect of, and timeframe for implementation as they may apply to the Company are still subject to interpretation and is likely to be some time away. At the appropriate time the Company will take legal and corporate advice in relation to its ownership structure.
Most development and construction activities at the EKCP site have been suspended pending the appeal decision of the Supreme Court. We have, however, continued to support the local East Kutai communities through ongoing community development and social programs. Transportation assistance has been provided to local and public service organisations in and around the EKCP site and we have also assisted local communities with infrastructure maintenance where requested. The East Kutai population continues to strongly support our endeavors maintain our licences despite the fact that employment numbers in both our land acquisition teams and base camp have been significantly reduced as a result of the actions of the regional government.
Administrative Tribunal
On 3 March 2011, the Administrative Tribunal ruled against Churchill Mining and its Indonesian partner Ridlatama, finding that the Bupati's attempted cancellation of the EKCP licenses did not contravene any administrative regulations. The Company and Ridlatama rejected the conclusions of the Tribunal and lodged an appeal to the Administrative High Court in Jakarta.
On the 19 August 2011 the Company was advised that this appeal had been dismissed and the Administrative High Court agreed wholly with the legal considerations and findings of the Administrative Tribunal in Samarinda.
The Company immediately moved to file its notice of appeal to the Supreme Court of Indonesia, with subsequent filing of its Memoranda of appeal on the 26 September 2011. On the 23 January 2012 the State Administrative Chamber of the Supreme Court of Indonesia announced that its head, Prof. Dr. Paulus Effendi Lotulung, S.H has selected the following three judges to determine the appeal:
? Prof. Dr. H. Achmad Sukardja, S.H.
? Dr. H. Imam Soebechi, S.H., M.H
? Marina Sidabutar S.H., M.H
As at the time of writing the Supreme Court has not handed down its decision on the appeal.
INTERNATIONAL ARBITRATION AND GOVERNMENT MEETINGS
In late November 2011 the Company sent a formal letter to the Republic of Indonesia seeking cooperation from senior government officials to assist in achieving an amicable and commercial resolution to the investment dispute the Company is facing. The Company has highlighted that following a significant investment in coal exploration in Indonesia, the company has been subjected to a sustained campaign to expropriate Churchill's rights as a legitimate foreign investor in Indonesia.
Churchill has advised that if an amicable solution cannot be achieved the Company will look to initiate International Arbitration against the Republic of Indonesia.
DISPUTE WITH RIDLATAMA GROUP
In July 2011, the Company's Indonesian subsidiary PT Indonesia Coal Development ("ICD") delivered a notice of dispute to its Indonesian minority partner, the Ridlatama Group ("Ridlatama"), as well as several individuals related to Ridlatama, with regards to the EKCP. Further, ICD has commenced arbitration proceedings in Singapore under the rules of the International Chamber of Commerce, against other members of the Ridlatama Group who are parties to the investor's agreements, for their alleged breaches of the said agreements.
ICD has filed an unlawful act claim against Andreas Rinaldi, one of the controllers of the Ridlatama Group in the Tangerang District Court in Jakarta. Both ICD (the Claimant) and Rinaldi (the Defendant) were in agreement that the parties before the Court were incomplete and asked the Court to dismiss the claim. The Court's decision was to dismiss ICD's claim against Rinaldi in its entirety on the grounds that ICD did not submit any evidence to support its claim, not that the parties were incomplete. ICD has lodged an appeal against this decision.
Further ICD has instructed its solicitor's to file a new unlawful act claim against Rinaldi and also Anang Mudjiantoro (both controllers of the Ridlatama group) seeking, amongst other things, an order for damages to compensate ICD for losses suffered arising from Mr Rinaldi's and Mudjiantoro's unlawful acts which gave rise to the alleged breaches of the investor's agreements.
During September 2011 the Company filed an application seeking a court order for a shareholders meeting to be called for PT Ridlatama Tambang Mineral (75% direct subsidiary) to replace the existing Director/Commissioners with members of the Churchill board. The Company was advised on 13 March 2012 that the application was unsuccessful and the company is currently considering its alternatives in relation to this matter.
In November 2011, ICD received notices that members of the Ridlatama group have filed two unlawful act claims in the South Jakarta District Court seeking an order that ICD's 75% interest in PT Ridlatama Tambang Mineral and PT Trade Powerindo be declared null and void. ICD considers the Ridlatama claim frivolous and to have no commercial or legal merit and will continue to take whatever action it deems necessary to fully protect its legal rights in this matter. (end of excerpt)