Indonesian investors very unlikely to buy KPC shares: Observer

The East Kalimantan provincial administration and any other national investor will very unlikely buy the 51percent of the shares coal-mining firm PT Kaltim Prima Coal (KPC) because they are too highly priced, a source told Petromindo.com on Wednesday.

?I really doubt that there will be overseas funding sources willing to provide loans for buying KPC shares. No one can feel certain that investors will be trusted even to borrow US$20 million, let alone $422 million,? said the source who claims to have closely watched development of KPC since 1997.

KPC is ready to divest 51 percent of its shares at $422 million, above the $320 million offered by the East Kalimantan administration which has become the sole interested buyer for several years. KPC operates a giant coalmine in Sangatta in East Kalimantan.

The source said Rio Tinto and BP, which are majority shareholders of KPC, will not be willing to facilitate the East Kalimantan administration and other national investors to obtain foreign loans.

With their strong lobbying power, the companies would try to prevent overseas donors from providing credits for Indonesian investors to by KPC shares, the source added.

Anglo Australia mining group and Rio Tinto and Anglo American energy giant BP equally own KPC, which was required to divest its shares in stages starting in 1996, four years after the company commenced operations. Under the contract signed by KPC and the Indonesian government in 1980s, KPC is obligated to divest up to 51 percent of its shares to either the Indonesian government, state companies, Indonesian controlled private companies or Indonesian citizens after 10 years of production.

?It is common knowledge that Rio Tinto and BP have very strong international influence. Whatever they want nearly 100 percent can materialize. Our state budget is far too small compared with their total revenues,? the source told Petromindo.com during a function held by KPC.

To illustrate the powerful influence of Rio Tinto and BP, the source pointed to the function held by KPC at Mulia Hotel to mark the appointment of Noke Kiroyan as the company?s new president director. A number of well-placed government officials and noted businessmen attended the meeting including Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti and business tycoon Sofyan Wanandi.

The source estimates that Rio Tinto and BP will continue to control KPC for the next several years. There might be local investors which will buy significant volumes of KPC shares, but they will be those which can be easily directed by the two giants, the source said.

?Basically, Rio Tinto and BP are not willing to divest the 51 percent shares. They had agreed to do it only because they were obliged to,? the source said.

The source noted Rio Tinto and BP are fully aware of the so high value of KPC because it has so abundant coal reserve, and its coal is some of the best in the world.

The source suggests that the East Kalimantan administration not buy KPC shares, and openly admit that it will be difficult for it to seek overseas loans. (*)