E. Kalimantan refuses to drop legal suit against KPC

The East Kalimantan administration has rejected the central government?s demand to withdraw its legal suit against major coal producer PT Kaltim Prima Coal, saying the suit would be dropped only if the company?s 51 shares are sold to the provincial administration, Kompas daily reported on Wednesday.

Speaking to reporters in Jakarta on Tuesday, the secretary of the East Kalimantan provincial administration, Syaiful Teteng, said that the people of the province should be given the chance to benefit from their own natural resources.

"KPC (shareholders) have booked large profits from the coal production for years. The company which began its operation with investment of only about US$30 million has received profits of more than US$750 million. In addition, the company will receive at least US$419 million from the divestment of its 51 percent share," Syaiful said. "Ironically during such golden time, the people of East Kalimantan only act as spectators," he added.

He therefore urged the central government to give the local people the opportunity to benefit from their own natural resources by allowing it to buy the 51 percent stake that would be divested by KPC?s existing shareholders.

The 51 percent stake, according to him, will not be bought solely by the provincial administration but will instead be offered to all the province?s 12 regencies.

KPC, which operates a large coal mining area in East Kalimantan, is equally owned by world mining giants Rio Tinto and BP. Under its contracts of works, the company?s shareholders are required to divest 51 percent of their shares to local investors. According to the initial schedule, the divestment should be completed by July 31.

However, the mandatory divestment program does not run as expected due to a dispute over the percentage of the shares that must be sold to the local government. This has prompted the local authority to fill a legal suit to the Ministry of Energy and Mineral Resources and KPC shareholders for allegedly barring it from buying the entire 51 percent stake.

The East Kalimantan administration agreed last week to drop the legal suit against the ministry but maintained the suit filed against KPC shareholders. The ministry then urged the provincial administration to drop the legal suit against KPC by July 15 at the latest, or face a counter suit.

According to an agreement made during a meeting organized by Coordinating Minister of Economy recently, the central government (through Ministry of Energy and Mineral Resources) would buy 20 percent of the 51 percent of the shares, and the provincial administration will buy the other 31 percent.

The East Kalimantan provincial administration will buy 12.4 percent of the 31 percent allocated to the province, while the East Kutai regency where most part of KPC concessions are located will buy the remaining 18.6 percent. The 12.4 percent that will be bought by the provincial administration will be then transferred to 12 regencies in the province, while those bought by the central government will be offered to interested parties both private and state companies.

The East Kalimantan administration, however, is not happy with such a formula. (*)