PT BA, East Kalimantan set up company to buy KPC shares

State owned coal producer PT Tambang Batubara Bukit Asam (PT BA), the provincial administration of East Kalimantan, the East Kutai regency administration and PT Intan Bumi Inti Persada (IBIB) have agreed to form a company to take over the 51 percent shares of PT Kaltim Prima Coal, Kompas reported on Friday.

Ismet Harmaini, the president director of PT BA, said in Jakarta on Thursday that PT BA would only have a 7.8 percent ownership in the new company which will directly control the 51 percent of KPC's shares.

"It means that PT BA will indirectly have 3.9 percent stake in KPC, instead of the 20 percent allocated by the government," he said, adding that PT BA had decided not to fully use its rights to buy 20 percent of KPC shares because the company thought the price was still relatively too expensive.

Founders and shareholders of PT KPC, Rio Tinto and BP Plc are required by the law to divest 51 percent of KPC shares to local companies after 10 years of commercial production. The mandatory divestment which should have been completed in 2001 has been delayed for several times due to disagreement on prices and nominees appointed by the government to buy the shares.

In 2002, the central government nominated PT BA to buy 20 percent, and both East Kalimantan and East Kutai governments another 31 percent of KPC's 51 percent shares in a bid to speed up the process of the divestment. The central government and KPC put a price tag of about US$420 million for the 51 percent stake.

The establishment of the new company was unveiled just several weeks after PT Bumi Resources, which is partly owned by the chairman of the Indonesian Chamber of Commerce and Industry (Kadin) and other Kadin members, surprisingly announced that it had reached agreement to buy the entire stake of Rio Tinto and BP Plc in KPC for only US$500 million, almost equal to the price put on the 51 percent shares that would be sold under the divestment program.

Bumi's takeover of KPC shares has caused a wide controversy in the public not only because the low price of the shares but also due to the fact that the deal was made when Rio Tinto and BP were still negotiating the process of the divestment with the East Kalimantan government.

Many observers have speculated that Rio Tinto and BP, which have been often blamed for the delay in the divestment and have been taken to court for not willing to meet the local government's demand, decided to sell their entire stake to Bumi due to their frustration over the local government's treatment on them. (*)