Govt may go to international arbitration to settle KPC price dispute

The government may go to the international arbitration to settle protracted dispute over the pricing of the East Kalimantan-based coal producer Kaltim Prima Coal's shares, Director General of Geology and Mineral Resources, Simon F. Sembiring, said as reported by Bisnis Indonesia on Friday.

The government has formed an independent team to assess the share price proposed by the mining company's owner PT Bumi Resources, which according to observers, was unrealistically too high.

Bumi Resources puts a price tag of US$1.98 billion for the entire stake of KPC shares, almost 200 percent higher than those set by KPC's former owners Rio Tinto and BP. The new price will be used as the indicator to determine the value of the 32.4 percent of KPC's shares, which should be divested to local investors.

KPC's former shareholders, Rio Tinto and BP, were required to divest up to 51 percent of its stake in the coal producer two years ago as part of the mandatory divestment requirement stated in the company’s contract of works. But the divestment programs had been delayed because local companies, which had been named to buy the shares, felt the price was too high.

Bumi Resources, which took over KPC last year, had already sold 18.6 percent of the company's shares to East Kutai regency's authority immediately after it acquired the mining company. It means that the company needs to sell another 32.4 percent in order to complete the mandatory divestment program.

Simon said that the international arbitration had the rights to settle the price dispute but he added that the arbitration body would not impose a penalty if the proposed price was unfair.

Analysts estimate that the fair price of KPC shares is between US$500 million and $550 million. (*)